Self-Regulatory Organizations; NYSE American LLC; Notice of Filing and Immediate Effectiveness of Proposed New Rules 900.3NYP, 925.1NYP, 928NYP, 928.1NYP, and 952NYP and Amendments to Rules 900.3NY, 925NY, 925.1NY, 928NY, 952NY, 953.1NY, 967NY, 967.1NY, and 985NY, 45730-45772 [2023-14912]
Download as PDF
<![CDATA[
45730
Federal Register / Vol. 88, No. 135 / Monday, July 17, 2023 / Notices
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–97869; File No. SR–
NYSEAMER–2023–34]
Self-Regulatory Organizations; NYSE
American LLC; Notice of Filing and
Immediate Effectiveness of Proposed
New Rules 900.3NYP, 925.1NYP,
928NYP, 928.1NYP, and 952NYP and
Amendments to Rules 900.3NY, 925NY,
925.1NY, 928NY, 952NY, 953.1NY,
967NY, 967.1NY, and 985NY
July 10, 2023.
Pursuant to Section 19(b)(1) 1 of the
Securities Exchange Act of 1934
(‘‘Act’’) 2 and Rule 19b–4 thereunder,3
notice is hereby given that, on, June 27,
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 and II below, which Items have
been prepared by the self-regulatory
organization. The Commission is
publishing this notice to solicit
comments on the proposed rule change
from interested persons.
ddrumheller on DSK120RN23PROD with NOTICES3
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to [sic] new
Rules 900.3NYP (Orders and Modifiers),
925.1NYP (Market Maker Quotations),
928NYP (Pre-Trade and Activity-Based
Risk Controls), 928.1NYP (Price
Reasonability Checks—Orders and
Quotes), and 952NYP (Auction Process)
and proposes amendments to Rules
900.3NY (Orders Defined), 925NY
(Obligations of Market Makers),
925.1NY (Market Maker Quotes), 928NY
(Risk Limitation Mechanism), 952NY
(Opening Process), 953.1NY (Limit-Up
and Limit-Down During Extraordinary
Market Volatility), 967NY (Price
Protection—Orders), 967.1NY (Price
Protection—Quotes), and 985NY
(Qualified Contingent Cross Trade) to
reflect the implementation of the
Exchange’s Pillar trading technology on
its options market. 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.
1 15
U.S.C. 78s(b)(1).
U.S.C. 78a.
3 17 CFR 240.19b–4.
2 15
VerDate Sep<11>2014
18:41 Jul 14, 2023
Jkt 259001
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
self-regulatory organization included
statements concerning the purpose of,
and basis for, the proposed rule change
and discussed any comments it received
on the proposed rule change. The text
of those statements may be examined at
the places specified in Item IV below.
The Exchange has prepared summaries,
set forth in sections A, B, and C below,
of the most significant parts of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule
Change
1. Purpose
Background
The Exchange plans to transition its
options trading platform to its Pillar
technology platform. The Exchange’s
affiliated options exchange, NYSE Arca,
Inc. (‘‘NYSE Arca’’ or ‘‘Arca Options’’)
is currently operating on Pillar, as are
the Exchange’s cash equity market and
those of its national securities exchange
affiliates’ cash equity markets.4 For this
transition, the Exchange proposes to use
the same Pillar technology already in
operation on Arca Options.5 In doing so,
the Exchange will be able to offer not
only common specifications for
connecting to both of its equity and
options markets, but also common
trading functions across the Exchange
and its affiliated options exchange,
NYSE Arca Options. In this regard, the
Exchange recently adopted new rules to
reflect the priority, ranking, and
allocation of single-leg interest on
Pillar.6
4 The Exchange’s national securities exchange
affiliates’ cash equity markets include: the New
York Stock Exchange LLC, NYSE American LLC,
NYSE Arca, Inc., NYSE National, Inc., and NYSE
Chicago, Inc.
5 See Securities Exchange Act Release No. 94072
(January 26, 2022), 87 FR 5592 (February 1, 2022)
(SR–NYSEArca–2021–47) (the ‘‘Arca Options
Approval Order’’). See also, e.g., Arca Options
Rules 6.76P–O (Order Ranking and Display) and
6.76AP–O (Order Execution and Routing) (together,
the ‘‘Arca Options Priority Rules’’); Arca Options
Rules 6.37AP–O (Market Maker Quotations), 6.40P–
O (Pre-Trade and Activity-Based Risk Controls),
6.41P–O (Price Reasonability Checks—Orders and
Quotes), 6.62P–O (Orders and Modifiers), and
6.64P–O (Auction Process) (collectively, the ‘‘Arca
Options non-Priority Rules’’). See also NYSE Arca
Rule 1.1 (Definitions) (which includes definitions
that describe terms applicable to options trading on
Pillar).
6 See Rules 964NYP (Order Ranking, Display, and
Allocation), 964.1NYP (Directed Orders and DOMM
Quoting Obligations) and 964.2NYP (Participation
Entitlement of Specialists and e-Specialists)
PO 00000
Frm 00002
Fmt 4701
Sfmt 4703
The Exchange plans to roll out the
new technology platform over a period
of time based on a range of underlying
symbols beginning on October 23,
2023.7 As was the case for Arca Options
when it transitioned to Pillar, the
Exchange will announce by Trader
Update 8 when underlying symbols will
be transitioning to the Pillar trading
platform. With this transition, certain
rules would continue to be applicable to
options overlying symbols trading on
the current trading platform—the
‘‘Exchange System,’’ 9 but would not be
applicable to options overlying symbols
that have transitioned to trading on
Pillar.
Instead, the Exchange proposes new
rules to reflect how options would trade
on the Exchange once Pillar is
implemented. These proposed rule
changes will (1) use Pillar terminology
that is identical to Pillar terminology
governing options trading on NYSE
Arca, except as otherwise noted; and (2)
provide for common functionality on
both its options markets.10
Proposed Use of ‘‘P’’ Modifier
As proposed, and consistent with the
American Pillar Priority Filing, new
rules governing options trading on Pillar
would have the same numbering as
(collectively, the ‘‘American Pillar Priority Rules’’).
See also Securities Exchange Act Release No. 97297
(April 13, 2023), 88 FR 24225 (April 19, 2023) (SR–
NYSEAmer–2023–16) (adopting new the American
Pillar Priority Rules on an immediately effective
basis, which rules utilize the Pillar concepts
introduced in the Priority Arca rules and
incorporate the Exchange’s current Customer
priority and pro rata allocation model) (the
‘‘American Pillar Priority Filing’’). The American
Pillar Priority Rules (like the rules proposed herein)
will not be implemented until all other Pillarrelated rule filings are either effective or approved,
as applicable. See id.
7 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. The Exchange would not
begin to migrate underlying symbols to the Pillar
platform until all Pillar-related rule filings (i.e.,
proposed rules with a ‘‘P’’ modifier) are either
approved or operative, as applicable.
8 Trader Updates are available here: https://
www.nyse.com/trader-update/history. Anyone can
subscribe to email updates of Trader Updates,
available here: https://www.nyse.com/subscriptions.
9 As noted in the American Pillar Priority Filing,
on Pillar, the Exchange will no longer use the terms
‘‘Exchange System’’ or ‘‘System,’’ which are defined
in Rule 900.2NY as referring to the Exchange’s
current ‘‘electronic order delivery, execution, and
reporting system for designated option issues
through which orders and quotes of Users are
consolidated for execution and/or display,’’ and
will file a subsequent proposed rule change to
delete these defined terms and any references
thereto after the migration to Pillar is completed.
10 The current proposal seeks to adopt rules based
on the Arca Options non-Priority Rules, as well as
certain definitions that describe terms applicable to
options trading on Pillar set forth in NYSE Arca
Rule 1.1. See supra note 5.
E:\FR\FM\17JYN3.SGM
17JYN3
Federal Register / Vol. 88, No. 135 / Monday, July 17, 2023 / Notices
current rules that address the same
functionality, but with the modifier ‘‘P’’
appended to the rule number. All other
current rules that have not had a version
added with a ‘‘P’’ modifier will be
applicable to how trading functions on
both the Exchange System and Pillar.
Once options overlying all symbols have
migrated to the Pillar platform, the
Exchange will file a separate rule
proposal to delete rules that are no
longer operative because they apply
only to trading on the Exchange
System.11 As further proposed, and
consistent with the handling of the
transition to Pillar by Arca Options, if
a symbol (and the option overlying such
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.12
The Exchange will not implement the
‘‘P’’ rules proposed herein until all other
Pillar-related rule filings (i.e., with a ‘‘P’’
modifier) are either approved or
operative, as applicable, and the
Exchange announces the rollout of
underlying symbols to Pillar by Trader
Update.
ddrumheller on DSK120RN23PROD with NOTICES3
Summary of Proposed Rule Changes
In this filing, the Exchange proposes
the following new Pillar rules: Rules
900.3NYP (Orders and Modifiers),
925.1NYP (Market Maker Quotations),
928NY (Pre-Trade and Activity-Based
Risk Controls), 928.1NYP (Price
Reasonability Checks—Orders and
Quotes), and 952NYP (Auction Process).
Because certain proposed rules have
definitions and functions that carry
forward to other proposed rules, the
Exchange proposes to describe the new
rules in the following order (rather than
by rule number order): orders and
modifiers, market maker quotations,
pre-trade and activity-based risk
controls, price reasonability checks, and
auctions.
These proposed rules would describe
the Exchange’s options trading model
on Pillar and, among other things,
would use existing Pillar terminology
and functionality currently in effect on
Arca Options. However, because the
Exchange has (and will continue to
have) a priority and allocation scheme
that differs from the price-time model
on Arca Options, certain of the
proposed rules differ from Arca Options
11 See American Pillar Priority Filing (adopting,
among other rules, new Rule 964NYP, which would
be operative instead of current Rule 964NY). See id.
12 The Exchange believes that this explanation
regarding the ‘‘P’’ modifier in Exchange rules
provides transparency regarding which rules would
be operative during the symbol migration to Pillar.
See id. NYSE Arca used the same ‘‘P’’ modifier
when it transitioned its options platform to Pillar.
See Arca Options Approval Order.
VerDate Sep<11>2014
18:41 Jul 14, 2023
Jkt 259001
insofar as they reflect the Exchange’s
existing (Customer priority and pro rata
allocation) model.13 As discussed in
greater detail below, except as noted
herein, the Exchange is not proposing
fundamentally different functionality
applicable to options trading on Pillar
than on the Exchange System. However,
with Pillar, the Exchange would
introduce new terminology, and as
applicable, new or updated
functionality that would be available for
options trading on the Pillar platform,
which functionality is (unless otherwise
specified) identical to—or nearly
identical to—functionality and rules
already in place on Arca Options.14
To promote clarity and transparency,
the Exchange further proposes to add a
preamble to the following current rules
specifying that they would not be
applicable to trading on Pillar: 900.3NY
(Orders Defined), 925.1NY (Market
Maker Quotes), 928NY (Risk Limitation
Mechanism), 952NY (Opening Process),
967NY (Price Protection-Orders),
967.1NY (Price Protection-Quotes), and
985NY (Qualified Contingent Crosses).
In addition, the Exchange also proposes
conforming changes to current Rules
925NY (Obligations of Market Makers),
953.1NY (Limit-Up and Limit-Down
During Extraordinary Market Volatility),
and 994NY (Broadcast Order Liquidity
Delivery Mechanism) (the ‘‘BOLD
Mechanism’’) to add cross-references to
certain of the new Pillar rules, including
those proposed in this filing.15
13 See, e.g., Rule 964NYP. See also the American
Pillar Priority Filing.
14 The Exchange notes that certain differences
between the two options markets will permeate the
proposed rules, including that each exchange uses
different terms to describes their permit holders—
the Exchange refers to American Trading Permit
(‘‘ATP’’) Holders, whereas Arca Options refers to
Options Trading Permit (‘‘OTP’’) Holders or OTP
Firms. See, e.g., Rule 900.2NY and NYSE Arca Rule
1.1, respectively. In addition, the Exchange utilizes
Market Makers that act as Specialists whereas Arca
Options has Market Makers that act as Lead Market
Makers or LMMs. See, e.g., Rule 927NY and Arca
Options Rule 6.37–O, respectively. Also, because
the rule numbering differs on each options
exchange, there will be differences in the
Exchange’s proposed rule as compared to its
analogous Arca Options Rule to the extent that a
proposed Exchange rule includes a cross-reference
to another Exchange rule. The Exchange has not
identified every such instance where these
specified differences occur as it believes the
differences are immaterial because they do not
relate to the functionality proposed herein.
15 The proposed conforming changes to Rule
994NY regarding the BOLD mechanism would
include adding cross-references to new Rule
964NYP (in addition to existing references to
current Rule 964NY) and to paragraph (k) of this
Rule, which latter reference would state, in relevant
part, that ‘‘[f]ollowing the exposure period,
consistent with Rule 964NYP(k), the Exchange will
route the remaining portion of the exposed order to
other exchanges’’ and that ‘‘[a]ny portion of a
routed order that returns unfilled will trade against
the Exchange’s best bid/offer unless another
PO 00000
Frm 00003
Fmt 4701
Sfmt 4703
45731
Proposed Rule Changes
Proposed Rule 900.3NYP: Orders and
Modifiers
Current Rule 900.3NY (Orders
Defined) defines the order types that are
currently available for options trading
both on the Exchange System and for
open outcry trading on the Exchange.
The Exchange proposes that new Rule
900.3NYP would set forth the order
types and modifiers that would be
available for options trading both on
Pillar (i.e., electronic order entry) and in
open outcry trading. The Exchange
proposes to specify that Rule 900.3NY
would not be applicable to trading on
Pillar.
Because the Exchange would have the
same orders and modifiers as Arca
Options, the Exchange proposes to
structure proposed Rule 900.3NYP to be
identical to Arca Options Rule 6.62P–O
and use the same terminology. The
Exchange also proposes to title
proposed Rule 900.3NYP as ‘‘Orders
and Modifiers,’’ which title is identical
to Arca Options Rule 6.62P–O. In
addition, as was done on Arca Options,
the Exchange proposes to include in the
description of each order type the
‘‘Pillar Priority Category’’ within which
such order would be ranked for priority,
display, and allocation purposes.
However, on the Exchange, the Pillar
Priority Categories assigned to each
order type would be handled in
accordance with the Exchange’s
Customer priority/pro rata allocation
model, per Rule 964NYP.16
Primary Order Types. Proposed Rule
900.3NYP(a) is identical Arca Options
Rule 6.62P–O(a) and would specify the
Exchange’s primary order types, which
would be Market Orders and Limit
Orders. Proposed Rule 900.3NYP(a)
would also set forth the Exchange’s
proposed Limit Order Price Protection
functionality and Trading Collars,
which proposed functionality would
likewise be identical to Arca Options
Rule 6.62P–O(a).
Market Orders. Proposed Rule
900.3NYP(a)(1) is identical to Arca
Options Rule 6.62P–O(a)(1) and would
define a Market Order. As proposed, a
Market Order would be an unpriced
exchange is quoting at a better price in which case
new orders will be generated and routed to trade
against such better prices, consistent with Rule
964NYP(k).’’). See proposed Rule 994NY(c)(1) and
(c)(4), respectively.
16 See Rule 964NYP(e) (which provides that ‘‘[a]t
each price, all orders and quotes are assigned a
priority category, and, within each priority
category, Customer orders are ranked ahead of nonCustomer. If, at a price, there are no remaining
orders or quotes in a priority category, then samepriced interest in the next priority category has
priority.’’).
E:\FR\FM\17JYN3.SGM
17JYN3
45732
Federal Register / Vol. 88, No. 135 / Monday, July 17, 2023 / Notices
ddrumheller on DSK120RN23PROD with NOTICES3
order message to buy or sell a stated
number of option contracts at the best
price obtainable, subject to the Trading
Collar assigned to the order, and would
further specify that unexecuted Market
Orders may be designated Day or GTC,
which represents current functionality,
and that unexecuted Market Orders
would be ranked Priority 1—Market
Orders.17 Similarly, the Exchange
proposes to reference that trading of a
Market Order would be subject to the
Trading Collar assigned to the order,
which is similar to the third paragraph
of the current definition of Market Order
in Rule 900.3NY(a). As described in
greater detail below, the Exchange
proposes changes to its Trading Collar
functionality on Pillar.
Proposed Rule 900.3NYP(a)(1) would
further provide that for purposes of
processing Market Orders, the Exchange
would not use an adjusted NBBO.18 The
Exchange proposes to not use an
adjusted NBBO when processing Market
Orders, which processing is identical to
Arca Options Rule 6.62P–O(a)(1). The
Exchange believes that because Market
Orders trade immediately on arrival,
using an unadjusted NBBO would
provide a price protection mechanism
by using a more conservative view of
the NBBO.
Proposed Rule 900.3NYP(a)(1)(A) is
identical to Arca Options Rule 6.62P–
O(a)(1)(A) and would provide that a
Market Order that arrives during
continuous trading would be rejected, or
that was routed, returns unexecuted,
and has no resting quantity to join
would be cancelled if it fails the
validations specified in proposed Rules
900.3NYP(a)(1)(A)(i)—(iv). This
17 Market Orders are currently defined in Rule
900.3NY(a) as follows: ‘‘A Market Order is an order
to buy or sell a stated number of option contracts
and is to be executed at the best price obtainable
when the order reaches the Exchange. Market
Orders entered before the opening of trading will
be eligible for trading during the Opening Auction
Process. The system will reject a Market Order
entered during Core Trading Hours if at the time the
order is received there is not an NBB and an NBO
(‘‘collectively NBBO’’) for that series as
disseminated by OPRA. If the Exchange receives a
Market Order to buy (sell) and there is an NBB
(NBO) but no NBO (NBB) as disseminated by OPRA
at the time the order is received, the order will be
processed pursuant to Rule 967NY(a)–Trade Collar
Protection.’’
18 See American Pillar Priority Filing (amplifying
the definition of ‘‘NBBO’’ per Rule 900.2NY to
provide that when using an unadjusted NBBO, the
NBBO would not be adjusted based on information
about orders the Exchange sends to Away Markets,
execution reports received from those Away
Markets, and certain orders received by the
Exchange). As noted in the American Pillar Filing,
the Exchange believes that the unadjusted NBBO is
a more conservative view of the NBBO because the
Exchange waits for an update from OPRA rather
than updating it based on its view of the NBBO,
which is identical to NYSE Arca Rule 1.1, as relates
to options trading.
VerDate Sep<11>2014
18:41 Jul 14, 2023
Jkt 259001
proposed rule is based in part on Rule
900.3NY(a), which specifies that a
Market Order will be rejected during
Core Trading Hours if, when received,
there is no NBBO for the applicable
option series as disseminated by OPRA,
with differences to use Pillar
terminology and to expand the
circumstances when a Market Order
would be rejected beyond the absence of
an NBBO. As proposed, and identical to
Arca Options Rule 6.62P–O(a)(1)(A)(i)–
(iv), a Market Order would be rejected
(or cancelled if routed first) if: 19
• There is no NBO (proposed Rule
900.3NYP(a)(1)(A)(i)). This criterion is
similar to the current rule, which
provides that a Market Order will be
rejected if there is no NBO and is
identical to Arca Options Rule 6.62P–
O(a)(1)(A)(i). The Exchange believes that
in the absence of an NBO, Market
Orders should not trade as there is no
market for the option.
• There is no NBB and the NBO is
higher than $0.50 (for sell Market
Orders only). The Exchange further
proposes that if there is no NBB and the
NBO is $0.50 or below, a Market Order
to sell would not be rejected and would
have a working price and display price
one MPV above zero and would not be
subject to a Trading Collar (proposed
Rule 900.3NYP(a)(1)(A)(ii)).20 The
Exchange believes that if there is no
NBB, but an NBO $0.50 or below, the
Exchange would be able to price that
Market Order to sell at one MPV above
zero. The functionality described in this
proposed rule is identical to Arca
Options Rule 6.62P–O(a)(1)(A)(ii) and is
designed to provide an opportunity for
an arriving sell Market Order to trade
when the NBO is below $0.50. The
proposed rule would further provide
that a Market Order to sell would be
19 The Exchange will also reject a Market Order
if it is entered when the underlying NMS stock is
either in a Limit State or a Straddle State, which
is current functionality. See Rule 953.1NY(a)(1).
The Exchange proposes a non-substantive
amendment to Rule 953.1NY(a)(1) to add a cross
reference to proposed Rule 900.3NYP(a). The
Exchange also proposes to amend the second
sentence of Rule 953.1NY(a)(1) to remove references
to trading collars, and instead specify that the
Exchange would cancel any resting Market Orders
if the underlying NMS stock enters a Limit State or
a Straddle State and would notify ATP Holders of
the reason for such cancellation. This proposed
change is identical to Arca Options Rule 6.65A–
O(a)(1) and would describe both how Market Orders
function today on the Exchange System and how
they would be processed on Pillar.
20 See Rules 964NYP(a)(3) (defining ‘‘working
price’’ as the price at which an order or quote is
eligible to trade at any given time, which may be
different from the limit price or display price of the
order) and (a)(1) (defining ‘‘display price’’ as the
price at which an order or quote ranked Priority 2Display Orders or Market Order is displayed, which
may be different from the limit price or working
price of the order).
PO 00000
Frm 00004
Fmt 4701
Sfmt 4703
cancelled if it was assigned a Trading
Collar, routed, and when it returns
unexecuted, it has no resting portion to
join and there is no NBB, regardless of
the price of the NBO. Accordingly, in
this scenario, if there is no NBB and
there is an NBO that is $0.50 or below,
the returned, unexecuted Market Order
would be cancelled rather than
displayed at one MPV above zero.
• There are no contra-side Market
Maker quotes on the Exchange or
contra-side ABBO, provided that a
Market Order to sell would be accepted
as provided for in proposed Rule
900.3NYP(a)(1)(A)(ii) (proposed Rule
900.3NYP(a)(1)(A)(iii)). This
functionality is identical to Arca
Options Rule 6.62P–O(a)(1)(A)(iii) and
is designed to prevent a Market Order
from trading at prices that may not be
current for that series in the absence of
Market Maker quotations or an ABBO.
• The NBBO is not locked or crossed,
and the spread is equal to or greater
than a minimum amount based on the
midpoint of the NBBO (proposed Rule
900.3NYP(a)(1)(A)(iv), which is
identical to Arca Options Rule 6.62P–O
(a)(1)(A)(iv)). The proposed ‘‘widespread’’ parameter for purposes of
determining whether to reject a Market
Order is similar to the wide-spread
parameter applied when determining
whether a trade is a Catastrophic Error,
as set forth in Rule 975NY(d)(3), with
two differences. First, as shown below,
the lowest bucket would be $0.00 up to
and including $2.00, instead of $0.00 to
$1.99, which means the $2.00 price
point would be included in this bucket.
Second, the wide-spread calculation
would be based off of the midpoint of
the NBBO, rather than off of the bid
price, as follows:
The midpoint of the NBBO
$0.00 to $2.00 ......................
Above $2.00 to and including
$5.00 .................................
Above $5.00 to and including
$10.00 ...............................
Above $10.00 to and including $20.00 .........................
Above $20.00 to and including $50.00 .........................
Above $50.00 to and including $100.00 .......................
Above $100.00 .....................
Spread
parameter
$0.75
1.25
1.50
2.50
3.00
4.50
6.00
The Exchange notes that this
proposed protection for Market Orders
is identical to the protection afforded
Market Orders per Arca Options Rule
6.62P–O(a)(1)(A)(iv) and would provide
a new risk control for options trading on
the Exchange that is designed to protect
against erroneous executions using the
E:\FR\FM\17JYN3.SGM
17JYN3
Federal Register / Vol. 88, No. 135 / Monday, July 17, 2023 / Notices
ddrumheller on DSK120RN23PROD with NOTICES3
midpoint of the NBBO as a basis for a
price protection mechanism.21
Proposed Rule 900.3NYP(a)(1)(B) is
identical to Arca Options Rule 6.62P–
O(a)(1)(B) and would provide that an
Aggressing Market Order to buy (sell)
would trade with all orders or quotes to
sell (buy) on the Consolidated Book
priced at or below (above) the Trading
Collar before routing to Away Market(s)
at each price.22 Proposed Rule
900.3NYP(a)(1)(B) would further
provide that after trading or routing, or
both, a Market Order would be
displayed at the Trading Collar, subject
to proposed Rule 900.3NYP(a)(1)(C)
(described immediately below), which
is consistent with current functionality
that each Market Order is displayed at
a Trading Collar, per Rule 967NY(a)(5).
Proposed Rule 900.3NYP(a)(1)(C) is
identical to Arca Options Rule 6.62P–
O(a)(1)(C) and would provide that a
Market Order would be cancelled before
being displayed if there are no
remaining contra-side Market Maker
quotes on the Exchange or contra-side
ABBO. Proposed Rule
900.3NYP(a)(1)(D) is identical to Arca
Options Rule 6.62P–O(a)(1)(D) and
would provide that a Market Order
would be cancelled after being
displayed at its Trading Collar if there
ceases to be a contra-side NBBO. These
proposed cancellation events are similar
to functionality described in current
Rule 967NY(a)(4)(E), which provides
that ‘‘[t]he Exchange will cancel a
Market Order, or the balance thereof,
that has been collared pursuant to
paragraph (a)(1)(A) or (B) [of that Rule]
above, if after exhausting trading
opportunities within the Collar Range,
the Exchange determines there are no
quotes on the Exchange and/or no
interest on another market in the
affected option series.’’ As proposed, in
Pillar, the Exchange would cancel a
Market Order in similar circumstances,
with proposed modifications that a
Market Order would be cancelled only
if there are no remaining contra-side
Market Maker quotes on the Exchange
or if there is no contra-side ABBO. The
Exchange believes that, as is the case on
Arca Options, the proposal to cancel a
21 The Exchange notes that using the midpoint of
the NBBO as a basis for a price protection
mechanism is also consistent with similar
functionality on other options markets. See, e.g.,
Cboe Rule 5.34(a)(2) (setting forth the ‘‘Market
Order NBBO Width Protection’’ wherein Cboe
cancels or rejects market orders submitted ‘‘when
the NBBO width is greater than x% of the midpoint
of the NBBO,’’ subject to minimum and maximum
dollar values determined by Cboe).
22 See Rule 964NYP(a)(5) (adopting the definition
of an Aggressing Order). For purposes of this
proposed rule, an Aggressing Market Order is a
Market Order that is an Aggressing Order.
VerDate Sep<11>2014
18:41 Jul 14, 2023
Jkt 259001
Market Order either before or after it is
displayed in these circumstances would
help to prevent such order from being
displayed when there is no real market
in a series.
Finally, proposed Rule
900.3NYP(a)(1)(E) is identical to Arca
Options Rule 6.62P–O(a)(1)(E) and
would provide that a resting, displayed
Market Order that is locked or crossed
by an Away Market would be routed to
that Away Market. Because Market
Orders are intended to trade at the best
price obtainable, the Exchange proposes
to route displayed Market Orders if they
are locked or crossed by an Away
Market.23 This proposed Rule is based
on current functionality, which is not
described in the current rule. Therefore,
the proposed rule is designed to
promote clarity and transparency in
Exchange rules.
Limit Orders. Proposed Rule
900.3NYP(a)(2) is identical to Arca
Options Rule 6.62P–O(a)(2) and would
define a Limit Order as an order
message to buy or sell a stated number
of option contracts at a specified price
or better, subject to Limit Order Price
Protection and the Trading Collar
assigned to the order, and that a Limit
Order may be designated Day, IOC, or
GTC. In addition, unless otherwise
specified, the working price and the
display price of a Limit Order would be
equal to the limit price of the order, it
is eligible to be routed, and it would be
ranked under the proposed category of
‘‘Priority 2—Display Orders.’’ 24 The
ability for a Limit Order to be
designated IOC, Day, or GTC is also
based on current Rules 900.3NY(k), (m)
and (n), respectively, and is consistent
with current options trading
functionality. In addition, consistent
with current options trading
functionality, Limit Orders would be
subject to trading collars, and, as
described in more detail below, the
Exchange proposes trading collar
functionality that will operate in the
same manner as on Arca Options.
Proposed Rule 900.3NYP(a)(2)(A) is
identical to Arca Options Rule 6.62P–
O(a)(2)(A) and would provide that a
marketable Limit Order to buy (sell)
received by the Exchange would trade
with all orders and quotes to sell (buy)
on the Consolidated Book priced at or
23 Per Rule 964NYP(b)(2), displayed interest other
than displayed Market Orders would stand their
ground if locked or crossed by an Away Market.
The Exchange would provide an option for Limit
Orders to instead be routed, see discussion infra,
regarding proposed Rule 6.62P–O(i)(1) and the
proposed Proactive if Locked/Crossed Modifier.
24 See Rule 964NYP(a)(2) (defining ‘‘limit price’’
as the highest (lowest) specified price at which a
Limit Order or quote to buy (sell) is eligible to
trade).
PO 00000
Frm 00005
Fmt 4701
Sfmt 4703
45733
below (above) the NBO (NBB) before
routing to the ABO (ABB) and may route
to prices higher (lower) than the NBO
(NBB) only after trading with orders and
quotes to sell (buy) on the Consolidated
Book at each price point, and once no
longer marketable, the Limit Order
would be ranked and displayed on the
Consolidated Book. This proposed rule
text is based on Rule 900.3NY(b), which
provides that a ‘‘ ‘marketable’ limit order
is a Limit Order to buy (sell) at or above
(below) the NBBO.’’
Limit Order Price Protection. The
Exchange proposes to describe its
proposed Limit Order Price Protection
functionality in proposed Rule
900.3NYP(a)(3), which functionality
would operate in a manner identical to
Arca Options Rule 6.62P–O(a)(3). On
the Exchange System, the concept of
‘‘Limit Order Price Protection’’ for
orders is set forth in Rule 967NY(b). For
quotes, price protection filters are
described in Rule 967.1NY. The
proposed ‘‘Limit Order Price
Protection’’ on Pillar would be
applicable to both Limit Orders and
quotes and, at a high level, would work
similarly to how the current price
protection mechanisms function on the
Exchange System because a Limit Order
or quote would be rejected if it is priced
at a specified threshold away from the
contra-side NBB or NBO.25 The
Exchange proposes to enhance the
functionality for options trading on
Pillar by using new thresholds and
reference prices (as discussed further
below) that would be applicable to both
orders and quotes. The concept of a
‘‘Reference Price’’ as used in connection
with risk controls is identical to the
same concept used in Arca Options Rule
6.62P–O(a)(3)(B) and would be
consistent how this term is used on
other options exchanges.26 Thus, this
term is not new or novel.
25 Current Rule 967NY(b) provides that unless
otherwise determined by the Exchange, the
specified threshold percentage for orders is 100%
when the contra-side NBB or NBO is priced at or
below $1.00 and 50% when the contra-side NBB or
NBO is priced above $1.00. Current Rule
967.1NY(a)(1)(A) provides that unless otherwise
determined by the Exchange, the specified
threshold for Market Maker bids is $1.00 if the
contra-side NBO is priced at or below $1.00 and for
Market Maker offers no limit if the NBB is priced
at or below $1.00. Current Rule 967.1NY(a)(1)(B)
provides that unless otherwise determined by the
Exchange, the specified threshold for Market Maker
bids (offers) is 50% if the contra-side NBO (NBB)
is priced above $1.00.
26 See, e.g., Cboe Rule 5.6(c) (setting forth the
‘‘reference price’’ applicable to orders for which
Cboe delta-adjusts the execution price after the
market close). As discussed infra, the Exchange
likewise proposes to use the term Reference Price
in connection with Trading Collars (proposed Rule
900.3NYP(a)(4)).
E:\FR\FM\17JYN3.SGM
17JYN3
ddrumheller on DSK120RN23PROD with NOTICES3
45734
Federal Register / Vol. 88, No. 135 / Monday, July 17, 2023 / Notices
Proposed Rule 900.3NYP(a)(3)(A) is
identical to Arca Options Rule 6.62P–
O(a)(3)(A) and would provide that each
trading day, a Limit Order or quote to
buy (sell) would be rejected or cancelled
(if resting) if it is priced at a ‘‘Specified
Threshold’’ (described below), equal to
or above (below) the Reference Price,
rounded down to the nearest price
within the MPV for the Series (‘‘Limit
Order Price Protection’’). In other
words, a Limit Order designated GTC
would be re-evaluated for Limit Order
Price Protection on each day that it is
eligible to trade and would be cancelled
if the limit price is through the
Specified Threshold. In addition, the
proposed rounding down is standard on
Pillar for price protection mechanisms
and is identical to how Limit Order
Price Protection is calculated on Arca
Options if it is not within the MPV for
the security. The proposed text would
therefore promote granularity in
Exchange rules. The proposed rule
would further provide that Cross Orders
and Limit-on-Open (‘‘LOO’’) Orders
(described below), as well as orders
represented in open outcry (except CTB
Orders), would not be subject to Limit
Order Price Protection and that Limit
Order Price Protection would not be
applied to a Limit Order or quote if
there is no Reference Price, which is
consistent with current functionality.
• Proposed Rule 900.3NYP(a)(3)(A)(i)
is identical to Arca Options Rule 6.62P–
O(a)(3)(A)(i) and would provide that a
Limit Order or quote that arrives when
a series is open would be evaluated for
Limit Order Price Protection on arrival.
• Proposed Rule
900.3NYP(a)(3)(A)(ii) is identical to
Arca Options Rule 6.62P–O(a)(3)(A)(ii)
and would provide that a Limit Order or
quote received during a pre-open state
would be evaluated for Limit Order
Price Protection after an Auction
concludes.27
• Proposed Rule
900.3NYP(a)(3)(A)(iii) is identical to
Arca Options Rule 6.62P–O(a)(3)(A)(iii)
would provide that a Limit Order or
quote that was resting on the
Consolidated Book before a trading halt
would be evaluated for Limit Order
Price Protection again after the Trading
Halt Auction concludes.
As noted above, these proposed rules
are identical to Arca Options Rules
6.62P–O(a)(3)(A)(i)–(iii), and the
Exchange believes that these proposed
rules would add clarity and
transparency to when the Exchange
27 See discussion infra, regarding proposed Rule
952NYP(a) and proposed definitions for the terms
‘‘Auction,’’ ‘‘Auction Price,’’ Auction Collar,’’ ‘‘preopen state,’’ and ‘‘Trading Halt Auction.’’
VerDate Sep<11>2014
18:41 Jul 14, 2023
Jkt 259001
would evaluate a Limit Order or quote
for Limit Order Price Protection.
Proposed Rule 900.3NYP(a)(3)(B) is
identical to Arca Options Rule 6.62P–
O(a)(3)(B) and would specify that the
Reference Price for calculating Limit
Order Price Protection for an order or
quote to buy (sell) would be the NBO
(NBB), provided that, immediately
following an Auction, the Reference
Price would be the Auction Price, or if
none, the upper (lower) Auction Collar
price, or, if none, the NBO (NBB). The
Exchange believes that adjusting the
Reference Price for Limit Order Price
Protection immediately following an
Auction would ensure that the most upto-date price would be used to assess
whether to cancel a Limit Order that
was received during a pre-open state or
would be reevaluated after a Trading
Halt Auction. The Exchange further
proposes that for purposes of calculating
Limit Order Price Protection, the
Exchange would not use an adjusted
NBBO, which use of an unadjusted
NBBO is identical to how Limit Order
Price Protection currently functions per
Arca Options Rule 6.62P–O(a)(3)(B).28
The Exchange believes that using an
unadjusted NBBO for risk protection
mechanisms is consistent with the goal
of such mechanisms to prevent
erroneous executions by using a more
conservative view of the NBBO.
Proposed Rule 900.3NYP(a)(3)(C) is
identical to Arca Options Rule 6.62P–
O(a)(3)(C) and would specify the
Specified Threshold and would provide
that unless determined otherwise by the
Exchange and announced to American
Trading Permit Holders or ‘‘ATP
Holders’’ 29 by Trader Update, the
Specified Threshold applicable to Limit
Order Price Protection would be:
Reference price
$0.00 to $1.00 ......................
$1.01 to $10.00 ....................
$10.01 to $20.00 ..................
$20.01 to $50.00 ..................
$50.01 to $100.00 ................
$100.01 and higher ..............
The Exchange believes that it would
provide a more reasonable and
deterministic trading outcome to use a
fixed dollar amount (of $0.30) rather
than a percentage calculation when the
Reference Price is $1.00 or less. The
Exchange believes that the balance of
the proposed thresholds, which are
percentages tied to the amount of the
Reference Price that decrease as that
Price increases, are more granular than
those currently specified in Rules
967NY(b) (for orders) and
967.1NY(a)(1)(A) and (B) (for quotes)
and therefore determining whether to
reject a Limit Order or quote will be
more tailored to the applicable
Reference Price.30 In addition,
consistent with Rules 967NY(b) and
967.1NY(a)(1), the Exchange proposes
that these thresholds could change,
subject to announcing the changes by
Trader Update. Providing flexibility in
Exchange rules regarding how the
Specified Thresholds would be set is
not only identical to the flexibility
afforded per Arca Options Rule 6.62P–
O(a)(3)(C) but is also consistent with the
rules of other options exchanges.31
Trading Collar. Trading Collars on the
Exchange System are currently
described in Rule 967NY(a). Under the
current rules, incoming Market Orders
and marketable Limit Orders are limited
in having an immediate execution if
they would trade at a price greater than
one ‘‘Trading Collar.’’ A collared order
is displayed at that price and then can
be repriced to new collars as the NBBO
updates. On Pillar, the Exchange
proposes Trading Collar functionality
that would be identical to Trading
Collar functionality on Arca Options as
described below.
As proposed, a Market Order or Limit
Order would be assigned a single
Trading Collar that would be applicable
Specified
to that order until it is fully executed or
threshold
cancelled (unless the series is halted).
$0.30 The new proposed Trading Collar
50% would function as a ceiling (for buy
40%
30%
20%
10%
28 References to the NBBO, NBB, and NBO in
proposed Rule 900.3NYP (which are identical to
Arca Options Rule 6.62P–O) refer to using a
determination of the national best bid and offer that
has not been adjusted.
29 An ATP Holder is a natural person, sole
proprietorship, partnership, corporation, limited
liability company or other organization, in good
standing, which has been issued an ATP, and
references to ‘‘member’’, and ‘‘member
organization’’ as those terms are used in the Rules
of the Exchange should be deemed to be references
to ATP Holders. See Rule 900.2NY. An ATP is an
American Trading Permit issued by the Exchange
for effecting approved securities transactions on the
Exchange’s Trading Facilities. See id.
PO 00000
Frm 00006
Fmt 4701
Sfmt 4703
30 On the Exchange System, the thresholds for
price protection on orders and quotes (per Rules
967NY(b) and 967.1NY(a)(1), respectively), depend
solely on whether the contra-side NBBO (i.e., the
reference price) is more or less than $1.00. The
Exchange believes the additional Reference Price
levels—and corresponding Specified Thresholds—
would make the application of the Limit Order
Price Protection more precise to the benefit of all
market participants.
31 See, e.g., Cboe Rule 5.34(a)(4) (describing the
‘‘Drill-Through Protection’’ and that Cboe
‘‘determines the buffer amount on a class and
premium basis’’ without specifying the amount of
such buffers); and the Nasdaq Stock Market LLC
(‘‘Nasdaq’’) Options 3, Section 15(a)(1)(B)
(specifying that ‘‘Order Price Protection’’ can be a
configurable dollar amount not to exceed $1.00
through such contra-side Reference BBO as
specified by Nasdaq and announced via an Options
Trader Alert).
E:\FR\FM\17JYN3.SGM
17JYN3
ddrumheller on DSK120RN23PROD with NOTICES3
Federal Register / Vol. 88, No. 135 / Monday, July 17, 2023 / Notices
orders) or floor (for sell orders) of the
price at which such order could be
traded, displayed, or routed. The
Exchange further proposes that when an
order is working at its assigned Trading
Collar, it would cancel if not executed
within a specified time period.
More specifically, proposed Rule
900.3NYP(a)(4) is identical to Arca
Options Rule 6.62P–O(a)(4) and would
provide that a Market Order or Limit
Order to buy (sell) would not trade or
route to an Away Market at a price
above (below) the Trading Collar
assigned to that order. As further
proposed, Auction-Only Orders, Limit
Orders designated IOC or FOK, Cross
Orders, ISOs, and Market Maker quotes
would not be subject to Trading Collars,
which interest is excluded under
current functionality.32 The proposed
rule would also be the same as Arca
Options Rule 6.62P–O(a)(4) because it
would explicitly add reference to
Auction-Only Orders, Cross Orders,
ISOs, and Market Maker quotes being
excluded from Trading Collars, which
new detail would add granularity to the
proposed rule and would also address
that the proposed Day ISOs, described
below, would not be subject to Trading
Collars. In addition, Trading Collars
would not be applicable during
Auctions but (as described below)
would be calculated after such Auction
concludes.
Proposed Rule 900.3NYP(a)(4)(A) is
identical to Arca Options Rule 6.62P–
O(a)(4)(A) and would provide that a
Trading Collar assigned to an order
would be calculated once per trading
day and would be updated only if the
series is halted. Accordingly, an order
designated GTC would receive a new
Trading Collar each day, but that
Trading Collar would not be updated
intraday unless the series is halted.
Proposed Rule 900.3NYP(a)(4)(A)(i) is
identical to Arca Options Rule 6.62P–
O(a)(4)(A)(i) and would provide that an
order that is received during continuous
trading would be assigned a Trading
Collar before being processed for either
trading, repricing, or routing and that an
order that is routed on arrival and
returned unexecuted would use the
Trading Collar previously assigned to it.
Proposed Rule 900.3NYP(a)(4)(A)(ii) is
identical to Arca Options Rule 6.62P–
O(a)(4)(A)(ii) and would provide that an
order received during a pre-open state
would be assigned a Trading Collar after
an Auction concludes. Finally,
proposed Rule 900.3NYP(a)(4)(A)(iii) is
identical to Arca Options Rule 6.62P–
32 See Rule 967NY(a)(3) (‘‘Trade Collar Protection
does not apply to quotes, IOC Orders, AON Orders,
FOK Orders and NOW Orders.’’).
VerDate Sep<11>2014
18:41 Jul 14, 2023
Jkt 259001
O(a)(4)(A)(iii) and would provide that
the Trading Collar for an order resting
on the Consolidated Book before a
trading halt would be calculated again
after the Trading Halt Auction
concludes. The Exchange believes that
because Trading Collars are intended as
a price protection mechanism, updating
the Trading Collar after a series has
reopened would allow for the Trading
Collar assigned to an order to reflect
more updated pricing. As noted above,
proposed Rules 900.3NYP(a)(4)(A)(i)–
(iii) are identical to Arca Options Rules
6.62P–O(a)(4)(A)(i)–(iii).
Proposed Rule 900.3NYP(a)(4)(B) is
identical to Arca Options Rule 6.62P–
O(a)(4)(B) and would provide that the
Reference Price for calculating the
Trading Collar for an order to buy (sell)
would be the NBO (NBB), which is
consistent with how trading collars are
currently determined for Limit Orders,
with differences to use this Reference
Price for all orders and for how the
Reference Price would be determined
after an Auction.33 As is the case per
Arca Options Rule 6.62P–O(a)(4)(B), the
Exchange likewise proposes to use the
Pillar term ‘‘Reference Price’’ to describe
what would be used for Trading Collar
calculations.34 The proposed rule, like
the Arca Options Rule, would further
provide that for Auction-eligible orders
to buy (sell) that were received during
a pre-open state or orders that were reassigned a Trading Collar after a trading
halt, the Reference Price would be the
Auction Price or, if none, the upper
(lower) Auction Collar price or, if none,
the NBO (NBB). For reasons similar to
those described above, the Exchange
proposes to use a more conservative
view of the NBBO for purposes of risk
protection mechanisms. Therefore, the
Exchange proposes that for purposes of
calculating a Trading Collar, the
Exchange would not use an adjusted
NBBO. Proposed Rule
900.3NYP(a)(4)(B)(i) is identical to Arca
Options Rule 6.62P–O(a)(4)(B)(i) and
would further provide that a Trading
Collar would not be assigned to a Limit
Order if there is no Reference Price at
the time of calculation, which is
consistent with current functionality
and the proposed rule would add
granularity to Exchange rules.
Proposed Rule 900.3NYP(a)(4)(C) is
identical to Arca Options Rule 6.62P–
O(a)(4)(C) and would describe how the
Trading Collar would be calculated and
would provide that the Trading Collar
33 Under current rules, trading collars are
calculated based off of the contra-side NBBO. See
Rule 967NY(a)(1)(A)(ii).
34 See also discussion regarding Cboe Rule
5.34(a)(4) and Nasdaq Options 3, Section
15(a)(1)(B), supra note 31.
PO 00000
Frm 00007
Fmt 4701
Sfmt 4703
45735
for an order to buy (sell) would be a
specified amount above (below) the
Reference Price, as follows: (1) for
orders with a Reference Price of $1.00
or lower, $0.20; or (2) for orders with a
Reference Price above $1.00, the lesser
of an amount specified in the table in
proposed Rule 900.3NYP(a)(4)(C)
(ranging from $0.20 for orders with a
Reference Price of $1.01 to $2.00 to
$1.90 for orders with a Reference Price
of $100.01 and above) or 25% of the
Reference Price. Trading Collars under
the current rule are based on a specified
dollar amount (set forth in ten
tranches).35 As is the case with Trading
Collars on Arca Options, the proposed
functionality would tailor the Trading
Collar calculations with either a
specified dollar amount or percentage,
depending on the Reference Price, and
would align the specified thresholds
with the current parameters for
determining whether a trade is an
Obvious Error or Catastrophic Error.36
Proposed Rule 900.3NYP(a)(4)(C)(i) is
identical to Arca Options Rule 6.62P–
O(a)(4)(C)(i) and would further provide
that if the calculation of a Trading
Collar would not be in the MPV for the
series, it would be rounded down to the
nearest price within the applicable
MPV. Proposed Rule
900.3NYP(a)(4)(C)(ii) is identical to Arca
Options Rule 6.62P–O(a)(4)(C)(ii) and
would further provide that for orders to
sell, if subtracting the Trading Collar
from the Reference Price would result in
a negative number, the Trading Collar
for Limit Orders would be the limit
price and the Trading Collar for Market
Orders would be one MPV above zero,
which would provide more granularity
in Exchange rules and would ensure
that there will be a Trading Collar
calculated for low-priced orders to sell.
As noted above, this proposed rule is
identical to Arca Options Rule 6.62P–
O(a)(4)(C) and its subparagraphs (i)–(ii).
Proposed Rule 900.3NYP(a)(4)(D) is
identical to Arca Options Rule 6.62P–
O(a)(4)(D) and would describe how the
Trading Collar would be applied and
would provide that if an order to buy
(sell) would trade or route above (below)
the Trading Collar or would have its
working price repriced to a Trading
Collar that is below (above) its limit
35 Under current Rule 967NY(a)(2)(A)(i)–(v), the
Trading Collar for buy (sell) orders is as follows:
$0.25 for each option contract for which the NBB
(NBO) is less than $2.00; $0.40 where the NBB
(NBO) is between $2.00–$5.00; $0.50 where the
NBB (NBO) is between $5.01–$10.00; $0.80 where
the NBB (NBO) is more than $10.00 but does not
exceed $20.00; and $1.00 when the NBB (NBO) is
$20.01 or more.
36 See Rules 975NY(c)(1) (thresholds for Obvious
Errors) and 975NY(d)(1) (thresholds for
Catastrophic Errors).
E:\FR\FM\17JYN3.SGM
17JYN3
ddrumheller on DSK120RN23PROD with NOTICES3
45736
Federal Register / Vol. 88, No. 135 / Monday, July 17, 2023 / Notices
price, the order would be added to the
Consolidated Book at the Trading Collar
for 500 milliseconds and if not traded
within that period, would be cancelled.
In addition, once the 500-millisecond
timer begins for an order, the order
would be cancelled at the end of the
timer even if it repriced or has been
routed to an Away Market during that
period, in which case any portion of the
order that is returned unexecuted would
be cancelled.
The Exchange believes that the
proposed Trading Collar functionality is
designed to provide a similar type of
order protection as is currently available
(as described in Rule 967NY(a)) because
it would limit the price at which a
marketable order could be traded,
routed, or displayed. The proposed
differences from the current rule, which
are identical to Arca Options Rule
6.62P–O(a)(4), would simplify the
functionality by applying a static ceiling
price (for a buy order) or floor price (for
a sell order) at which such order could
be traded or routed, which price would
be determined at the time of entry (or
after a series opens or reopens) and
would be applicable to the order until
it is traded or cancelled. The Exchange
believes that the proposed functionality
would provide greater determinism to
an ATP Holder of the Trading Collar
that would be applicable to a Market
Order or Limit Order and when such
order may be cancelled if it reaches its
Trading Collar.
Time in Force Modifiers. Proposed
Rule 900.3NYP(b) is identical to Arca
Options Rule 6.62P–O(b) and would set
forth the time-in-force modifiers that
would be available for options trading
on Pillar. The Exchange proposes to
offer the same time-in-force modifiers
that are currently available for options
trading on the Exchange and use Pillar
terminology to describe the
functionality. As noted above, the
Exchange proposes to describe the Time
in Force Modifiers in proposed Rule
900.3NYP(b), and then specify for each
order type which Time in Force
Modifiers would be available for such
orders or quotes, which mirrors Arca
Options Rule 6.62P–O(b).
Day Modifier. Proposed Rule
900.3NYP(b)(1) would be identical to
Arca Options Rule 6.62P–O(b)(1) and
would provide that any order or quote
to buy or sell designated Day, if not
traded, would expire at the end of the
trading day on which it was entered and
that a Day Modifier cannot be combined
with any other Time in Force Modifier.
This proposed functionality would
operate no differently than how a ‘‘Day
Order,’’ as described in Rule
900.3NY(m), currently functions.
VerDate Sep<11>2014
18:41 Jul 14, 2023
Jkt 259001
Immediate-or-Cancel (‘‘IOC’’)
Modifier. Proposed Rule 900.3NYP(b)(2)
is identical to Arca Options Rule 6.62P–
O(b)(2) and would provide that a Limit
Order may be designated IOC or
Routable IOC, as described in proposed
Rules 900.3NYP(b)(2)(A) and (B) and
that a Limit Order designated IOC
would not be eligible to participate in
any Auctions.
Proposed Rule 900.3NYP(b)(2)(A) is
identical to Arca Options Rule 6.62P–
O(b)(2)(A) and would define a ‘‘Limit
IOC Order’’ as a Limit Order designated
IOC that would be traded in whole or in
part on the Exchange as soon as such
order is received, and the unexecuted
quantity would be cancelled and that a
Limit IOC Order does not route. The
proposed Pillar Limit IOC Order would
function the same as an ‘‘Immediate-orCancel Order (IOC Order),’’ as currently
described in Rule 900.3NY(k), without
any differences.
Proposed Rule 900.3NYP(b)(2)(B) is
identical to Arca Options Rule 6.62P–
O(b)(2)(B) and would define a ‘‘Limit
Routable IOC Order’’ as a Limit Order
designated Routable IOC that would be
traded in whole or in part on the
Exchange as soon as such order is
received, and the unexecuted quantity
routed to Away Market(s) and that any
quantity not immediately traded either
on the Exchange or an Away Market
would be cancelled. The proposed Pillar
Limit Routable IOC Order is also based
on (and would replace) the ‘‘NOW
Order,’’ as currently described in Rule
900.3NY(o).
Fill-or-Kill (‘‘FOK’’) Modifier.
Proposed Rule 900.3NYP(b)(3) is
identical to Arca Options Rule 6.62P–
O(b)(3) and would provide that a Limit
Order designated FOK would be traded
in whole on the Exchange as soon as
such order is received, and if not so
traded is to be cancelled and that a
Limit Order designated FOK does not
route and does not participate in any
Auctions. This proposed rule uses Pillar
terminology and would offer the same
functionality that is currently described
in Rule 900.3NY(l) as the ‘‘Fill-or-Kill
Order (FOK Order)’’ without any
substantive differences.
Good-‘Til-Cancelled (‘‘GTC’’)
Modifier. Proposed Rule 900.3NYP(b)(4)
is identical to Arca Options Rule 6.62P–
O(b)(4) and would provide that a Limit
Order or Market Order designated GTC
remains in force until the order is filled,
cancelled, the MPV in the series
changes overnight, the option contract
expires, or a corporate action results in
an adjustment to the terms of the option
contract. This proposed rule uses Pillar
terminology and would offer the same
functionality that is currently described
PO 00000
Frm 00008
Fmt 4701
Sfmt 4703
in 900.3NY(n) as the ‘‘Good-TillCancelled (GTC Order),’’ with the
substantive difference that the proposed
text makes clear (consistent with current
functionality) that such orders may be
cancelled if the MPV changes overnight.
Otherwise, the proposed rule describes
the same functionality that is currently
described in 900.3NY(n) as the ‘‘GoodTill-Cancelled (GTC Order).’’
Auction-Only Orders. Proposed Rule
900.3NYP(c) is identical to Arca
Options Rule 6.62P–O(c) and would
define an ‘‘Auction-Only Order’’ as a
Limit Order or Market Order that is to
be traded only in an Auction pursuant
to Rule 952NYP.37 This proposed rule
which uses Pillar terminology in lieu of
the current description of an ‘‘Opening
Only Order’’ set forth in Rule
900.3NY(q), without any functional
differences to how such orders trade on
Pillar.38 The proposed rule would
further provide that an Auction-Only
Order would not be accepted when a
series is opened for trading (i.e., would
be accepted only during a pre-open
state, which includes a trading halt) and
any portion of an Auction-Only Order
that is not traded in a Core Open
Auction or Trading Halt Auction would
be cancelled. This represents current
functionality, which is not described in
the current rule, and would provide
clarity, transparency, and consistency to
Exchange rules.
Proposed Rule 900.3NYP(c)(1) would
be identical to Arca Options Rule
6.62P–O(c)(1) and would define a
‘‘Limit-on-Open Order (‘LOO Order’)’’
as a Limit Order that is to be traded only
in an Auction. This proposed rule
describes functionality that would be no
different from current functionality, as
described in Rule 900.3NY(q).
Proposed Rule 900.3NYP(c)(2) would
be identical to Arca Options Rule
6.62P–O(c)(2) and would define a
‘‘Market-on-Open Order (‘MOO Order’)’’
as a Market Order that is to be traded
only in an Auction. This proposed rule
describes functionality that would be no
different from current functionality, as
described in Rule 900.3NY(q).
Proposed Rule 900.3NYP(c)(3) would
be identical to Arca Options Rule
6.62P–O(c)(3) and would define an
37 See discussion infra, regarding proposed Rule
952NYP and definitions relating to Auctions. As
proposed, an ‘‘Auction’’ includes the opening or
reopening of a series for trading either with or
without a trade. See proposed Rule 952NYP(a)(1).
38 Rule 900.3NY(q) defines an ‘‘Opening Only
Order’’ as ‘‘a Market Order or Limit Order which
is to be executed in whole or in part during the
Opening Auction of an options series or not at all.’’
Per Rule 952NY(e), the Exchange utilizes the same
process for orders eligible to participate in the
opening or reopening (following a trading halt) of
a series.
E:\FR\FM\17JYN3.SGM
17JYN3
Federal Register / Vol. 88, No. 135 / Monday, July 17, 2023 / Notices
ddrumheller on DSK120RN23PROD with NOTICES3
‘‘Imbalance Offset Order (‘IO Order’)’’
using Pillar terminology. To provide
ATP Holders with greater flexibility for
options trading on Pillar based on
functionality offered on Arca Options,
the Exchange proposes to offer the IO
Order for both Core Open Auctions and
Trading Halt Auctions.
As proposed, the IO Order
functionality is identical to IO Order
functionality on Arca Options Rule
6.62P–O(c)(3). Accordingly, proposed
Rule 900.3NYP(c)(3) would define an IO
Order as a Limit Order that is to be
traded only in an Auction.
• Proposed Rule 900.3NYP(c)(3)(A) is
identical to Arca Options Rule 6.62P–
O(c)(3)(A) and would provide that an IO
Order would participate in an Auction
only if: (1) there is an Imbalance in the
series on the opposite side of the market
from the IO Order after taking into
account all other orders and quotes
eligible to trade at the Indicative Match
Price; and (2) the limit price of the IO
Order to buy (sell) would be at or above
(below) the Indicative Match Price.
• Proposed Rule 900.3NYP(c)(3)(B) is
identical to Arca Options Rule 6.62P–
O(c)(3)(B) and would provide that the
working price of an IO Order to buy
(sell) would be adjusted to be equal to
the Indicative Match Price, provided
that the working price of an IO Order
would not be higher (lower) than its
limit price.
Orders with a Conditional or
Undisplayed Price and/or Size.
Proposed Rule 900.3NYP(d) is identical
to Arca Options Rule 6.62P–O(d) and
would set forth the orders with a
conditional or undisplayed price and/or
size that would be available for options
trading on Pillar. On Pillar, the
Exchange proposes to offer the same
type of orders that are available in the
Exchange System and that are currently
described in Rule 900.3NY(d) as a
‘‘Contingency Order or Working Order,’’
with changes as described below.39
Reserve Order. The Exchange
proposes to introduce Reserve Orders
for options traded on Pillar in proposed
Rule 900.3NYP(d)(1). On the Exchange,
the proposed Reserve Order
functionality would be identical to the
handling of Reserve Orders per Arca
Options Rule 6.62P–O(d)(1). As
proposed, a Reserve Order would be
defined as a Limit Order with a quantity
39 See American Pillar Priority Filing (explaining
that the term ‘‘Working Order File’’ will not be used
on Pillar and proposing to include details about
ranking of orders and quotes with contingencies in
this proposed Rule 900.3NYP(d) using the Pillar
priority scheme). Also, as discussed in the
American Pillar Priority Filing, the ranking and
priority of quotes under Pillar is consistent with
handling on the Exchange System unless otherwise
noted therein. See id.
VerDate Sep<11>2014
18:41 Jul 14, 2023
Jkt 259001
of the size displayed and with a reserve
quantity of the size (‘‘reserve interest’’)
that is not displayed and that the
displayed quantity of a Reserve Order is
ranked under the proposed category of
‘‘Priority 2—Display Orders’’ and the
reserve interest is ranked under the
proposed category of ‘‘Priority 3—NonDisplay Orders.’’ Proposed Rule
900.3NYP(d)(1) would further provide
that both the display quantity and the
reserve interest of an arriving
marketable Reserve Order would be
eligible to trade with resting interest in
the Consolidated Book or route to Away
Markets, unless designated as a NonRoutable Limit Order. Finally, proposed
Rule 900.3NYP(d)(1) would further
provide that the working price of the
reserve interest of a resting Reserve
Order to buy (sell) would be adjusted to
be the lower (higher) of the limit price
or the NBO (NBB), provided that it
would never be priced higher (lower)
than the working price of the display
quantity of the Reserve Order, which
text differs from Arca Options Rule
6.62P–O(d)(1) insofar as it does not
reference the working price being
adjusted in the same manner as a NonDisplayed Limit Order but instead states
precisely how such price would be
adjusted.40 Other than this nuance
regarding the rule text used to describe
how the working price of a resting
Reserve Order would be adjusted, the
operation of Reserve Orders on the
Exchange would be identical to how
such orders are handled per Arca
Options Rule 6.62P–O(d)(1).
• Proposed Rule 900.3NYP(d)(1)(A) is
identical to Arca Options Rule 6.62P–
O(d)(1)(A) and would provide that the
displayed portion of a Reserve Order
would be replenished when the display
quantity is decremented to zero and that
the replenish quantity would be the
minimum display size of the order or
the remaining quantity of the reserve
interest if it is less than the minimum
display quantity.
• Proposed Rule 900.3NYP(d)(1)(B) is
identical to Arca Options Rule 6.62P–
40 Per Arca Options Rule 6.62P–O(d)(1), ‘‘[t]he
working price of the reserve interest of a resting
Reserve Order to buy (sell) will be adjusted in the
same manner as a Non-Displayed Limit Order, as
provided for in paragraph (d)(2)(A) of this Rule.’’
Per Arca Options Rule 6.62P–O(d)(2)(A), ‘‘[t]he
working price of a Non-Displayed Limit Order to
buy (sell) will be the lower (higher) of the limit
price or the NBO (NBB).’’ Because the Exchange is
not proposing to adopt the Non-Displayed Limit
Order type, proposed Rule 900.3NYP(d)(1) simply
restates the relevant text from Arca Options Rule
6.62P–O(d)(2)(A) regarding how the working price
of the reserve interest of a resting Reserve Order
would be adjusted. The Exchange believes that this
distinction is immaterial because the Reserve Order
functionality being proposed would be identical to
Reserve Order functionality on Arca Options.
PO 00000
Frm 00009
Fmt 4701
Sfmt 4703
45737
O(d)(1)(B) and would provide that each
time the display quantity of a Reserve
Order is replenished from reserve
interest, a new working time would be
assigned to the replenished quantity.
• Proposed Rule 900.3NYP(d)(1)(C) is
identical to Arca Options Rule 6.62P–
O(d)(1)(C) and would provide that a
Reserve Order may be designated as a
Non-Routable Limit Order and if so
designated, the reserve interest that
replenishes the display quantity would
be assigned a display price and working
price consistent with the instructions
for the order. The Exchange believes
that the proposed rule would promote
transparency and granularity in
Exchange rules.
• Proposed Rule 900.3NYP(d)(1)(D) is
identical to Arca Options Rule 6.62P–
O(d)(1)(D) and would provide that a
routable Reserve Order would be
evaluated for routing both on arrival and
each time the display quantity is
replenished. Proposed Rule
900.3NYP(d)(1)(D)(i) is identical to Arca
Options Rule 6.62P–O(d)(1)(D)(i) and
would provide that if routing is
required, the Exchange would route
from reserve interest before publishing
the display quantity. And proposed
Rule 900.3NYP(d)(1)(D)(ii) is identical
to Arca Options Rule 6.62P–
O(d)(1)(D)(ii) and would provide that
any quantity of a Reserve Order that is
returned unexecuted would join the
working time of the reserve interest and
that if there is no reserve interest to join,
the returned quantity would be assigned
a new working time. As noted above,
proposed Rules 900.3NYP(d)(1)(D)(i)–
(ii) are identical to Arca Options Rule
6.62P–O(d)(1)(D)(i)–(ii) and would
promote transparency and granularity in
Exchange rules.
• Proposed Rule 900.3NYP(d)(1)(E) is
identical to Arca Options Rule 6.62P–
O(d)(1)(E) and would provide that a
request to reduce the size of a Reserve
Order would cancel the reserve interest
before cancelling the display quantity.
The Exchange believes that the
proposed rule would promote
transparency and granularity in
Exchange rules.
• Proposed Rule 900.3NYP(d)(1)(F) is
identical to Arca Options Rule 6.62P–
O(d)(1)(F) and would provide that a
Reserve Order may be designated Day or
GTC, except that the proposed rule does
not reference ALO Orders, which order
type is not offered by the Exchange
today nor will the order type be offered
on Pillar. The Exchange believes this
difference is immaterial because the
omitted text refers to an order modifier
(i.e., ALO) that the Exchange does not
propose to offer on Pillar and therefore
has no bearing on the proposed
E:\FR\FM\17JYN3.SGM
17JYN3
ddrumheller on DSK120RN23PROD with NOTICES3
45738
Federal Register / Vol. 88, No. 135 / Monday, July 17, 2023 / Notices
functionality. The Exchange believes
that the proposed rule would promote
transparency and granularity in
Exchange rules.
All-or-None (‘‘AON’’) Order. Proposed
Rule 900.3NYP(d)(3) would be identical
to Arca Options Rule 6.62P–O(d)(3) and
would describe the handling of AON
Orders on Pillar.41 AON Orders are
currently defined in Rule 900.3NY(d)(4)
and, consistent with current
functionality, AON Orders on Pillar
would only execute if such orders can
be satisfied in their entirety. However,
unlike the Exchange System, where
AON Orders are not integrated in the
Consolidated Book, on Pillar, the
Exchange proposes that AON Orders
would be ranked in the Consolidated
Book and function as conditional orders
that would trade only if their condition
could be met. In addition, on Pillar, the
Exchange would not support Market
Orders designated as AON, which
would be a change from current
functionality. The Exchange does not
believe it needs to continue offering
AON Market Orders because such
functionality was not used often on the
Exchange System, indicating a lack of
market participant interest in this
functionality.
Specifically, proposed Rule
900.3NYP(d)(3) would provide that an
AON Order is a Limit Order that is to
be traded in whole on the Exchange at
the same time or not at all, which
represents current functionality as
described in the first sentence of Rule
900.3NY(d)(4). Proposed Rule
900.3NYP(d)(3) uses Pillar terminology
and would further provide that an AON
Order that does not trade on arrival
would be ranked under the proposed
category of ‘‘Priority 3—Non-Display
Orders’’ and that an AON Order may be
designated Day or GTC, does not route,
and would not participate in any
Auctions. As noted above, this proposed
new functionality, including that AON
Orders would be ranked on the
Consolidated Book, is identical to the
handling of AON Order per Arca
Options Rule 6.62P–O(d)(3) and the
subsections thereunder.
• Proposed Rule 900.3NYP(d)(3)(A) is
identical to Arca Options Rule 6.62P–
O(d)(3)(A) and would provide that the
working price of an AON Order would
be assigned on arrival and adjusted
when resting on the Consolidated Book
and that the working price of an AON
41 The Exchange proposes to hold Rule
900.3NYP(d)(2) as ‘‘Reserved’’ to keep the
numbering of this rule consistent with Arca Options
Rule 6.62P–O(d), to account for the fact that the
Exchange does not propose to offer Non-Displayed
Limit Orders, which are described in Arca Options
Rule 6.62P–O(d)(2). See id.
VerDate Sep<11>2014
18:41 Jul 14, 2023
Jkt 259001
Order to buy (sell) would be the lower
(higher) of the limit price or NBO (NBB).
• Proposed Rule 900.3NYP(d)(3)(B) is
identical to Arca Options Rule 6.62P–
O(d)(3)(B) and would provide that an
Aggressing AON Order to buy (sell)
would trade with sell (buy) orders and
quotes that in the aggregate can satisfy
the AON Order in its entirety. This
proposed rule would promote clarity in
Exchange rules that an Aggressing AON
Order (whether on arrival or as a resting
order that becomes an Aggressing Order)
would be eligible to trade with more
than one contra-side order or quote,
provided that multiple orders and
quotes in the aggregate would satisfy the
AON Order in its entirety.
• Proposed Rule 900.3NYP(d)(3)(C) is
identical to Arca Options Rule 6.62P–
O(d)(3)(C) and would provide that a
resting AON Order to buy (sell) would
trade with an Aggressing Order or
Aggressing Quote to sell (buy) that
individually can satisfy the whole AON
Order. The Exchange believes this
proposed change would provide an
AON Order with additional execution
opportunities.
• Proposed Rule 900.3NYP(d)(3)(C)(i)
is identical to Arca Options Rule 6.62P–
O(d)(3)(C)(i) and would provide that if
an Aggressing Order or Aggressing
Quote to sell (buy) does not satisfy the
resting AON Order to buy (sell), that
Aggressing Order or Aggressing Quote
would not trade with and may trade
through such AON Order. Proposed
Rule 900.3NYP(d)(3)(C)(ii) is identical
to Arca Options Rule 6.62P–
O(d)(3)(C)(ii) and would further provide
that if a resting non-displayed order to
sell (buy) does not satisfy the quantity
of a same-priced resting AON Order to
buy (sell), a subsequently arriving order
or quote to sell (buy) that satisfies the
AON Order would trade before such
resting non-displayed order or quote to
sell (buy) at that price. Both of these
proposed rules are similar to current
Rule 900.3NY(d)(4), which provides that
a resting AON Order can be ignored if
its condition is not met. Similar to
current functionality, even though an
AON would be ranked in the
Consolidated Book, it is still a
conditional order type and therefore, by
its terms, can be skipped over for an
execution. As noted above, this
proposed rule text is identical to Arca
Options Rules 6.62P–O(d)(3)(C)(i) and
(ii).
• Proposed Rule 900.3NYP(d)(3)(D) is
identical to Arca Options Rule 6.62P–
O(d)(3)(D) and would provide that a
resting AON Order to buy (sell) would
not be eligible to trade against an
Aggressing Order or Aggressing Quote to
sell (buy): (i) at a price equal to or above
PO 00000
Frm 00010
Fmt 4701
Sfmt 4703
(below) any orders or quotes to sell
(buy) that are displayed at a price equal
to or below (above) the working price of
such AON Order; or (ii) at a price above
(below) any orders or quotes to sell
(buy) that are not displayed and that
have a working price below (above) the
working price of such AON Order.
• Proposed Rule 900.3NYP(d)(3)(E) is
identical to Arca Options Rule 6.62P–
O(d)(3)(E) and would provide that if a
resting AON Order to buy (sell) becomes
an Aggressing Order it would trade as
provided in paragraph (d)(3)(B) of this
proposed Rule (described above);
however, other resting orders or quotes
to buy (sell) ranked Priority 3—NonDisplay Orders that become Aggressing
Orders or Aggressing Quotes at the same
time as the resting AON Order would be
processed before the AON Order. This
proposed rule text is designed to
promote clarity in Exchange rules that if
multiple orders ranked Priority 3—NonDisplay Orders, including AON and
non-AON Orders, become Aggressing
Orders or Aggressing Quotes at the same
time, the AON Order would not be
eligible to trade until the other orders
ranked Priority 3- Non-Display Orders
have been processed, even if they have
later working times. The Exchange
believes that it would be consistent with
the conditional nature of AON Orders
for other same-side non-displayed
orders to have a trading opportunity
before the AON Order.
Stop Order. Stop Orders are currently
defined in Rule 900.3NY(d)(1). The
Exchange proposes to use Pillar
terminology with more granularity to
describe Stop Orders in proposed Rule
900.3NYP(d)(4), as specified below and
identical to Arca Options Rule 6.62P–
O(d)(4). Proposed Rule 900.3NYP(d)(4)
would provide that a Stop Order is an
order to buy (sell) a particular option
contract that becomes a Market Order
(or is ‘‘elected’’) when the Exchange BB
(BO) or the most recent consolidated
last sale price reported after the order
was placed in the Consolidated Book
(the ‘‘Consolidated Last Sale’’) (either,
the ‘‘trigger’’) is equal to or higher
(lower) than the specified ‘‘stop’’ price.
The proposed functionality is consistent
with existing functionality and provides
more granularity of the circumstances
when a Stop Order would be elected.42
Because a Stop Order becomes a Market
Order when it is elected, the Exchange
proposes that when it is elected, it
would be cancelled if it does not meet
the validations specified in proposed
42 The current rule states that a Stop Order to buy
(sell) will be triggered (i.e., elected) when the option
contract ‘‘trades at a price equal to or greater (less)
than the specified ‘stop’ price on the Exchange or
another Market Center.’’ See Rule 900.3NY(d)(1).
E:\FR\FM\17JYN3.SGM
17JYN3
ddrumheller on DSK120RN23PROD with NOTICES3
Federal Register / Vol. 88, No. 135 / Monday, July 17, 2023 / Notices
Rule 900.3NYP(a)(1)(A)(above) and if
not cancelled, it would be assigned a
Trading Collar. This is consistent with
current functionality, which is not
described in the current rule describing
Stop Orders, that once converted to a
Market Order, such order is subject to
the checks applicable in the current rule
for Market Orders, i.e., cancelling such
order if there is no NBBO. The proposed
rule, which as noted above is identical
to Arca Options Rule 6.62P–O(d)(4),
references the checks that would be
applicable to a Market Order on Pillar
and thus adds greater granularity and
transparency to Exchange rules.
Proposed Rule 900.3NYP(d)(4)(A) is
identical to Arca Options Rule 6.62P–
O(d)(4)(A) and would provide that a
Stop Order would be assigned a working
time when it is received but would not
be ranked or displayed in the
Consolidated Book until it is elected
and that once converted to a Market
Order, the order would be assigned a
new working time and be ranked
Priority 1—Market Orders. The original
working time assigned to a Stop Order
would be used to rank multiple Stop
Orders elected at the same time. This is
consistent with the current rule, which
provides that a Stop Order is not
displayed and has no standing in any
Order Process in the Consolidated Book,
unless or until it is triggered. The
proposed rule is identical to Arca
Options Rule 6.62P–O(d)(4)(A) and is
designed to provide greater granularity
and clarity regarding the treatment of
Stop Orders, both when received and
when elected.
Proposed Rule 900.3NYP(d)(4)(B) is
identical to Arca Options Rule 6.62P–
O(d)(4)(B) and would specify additional
events that are designed to limit when
a Stop Order may be elected so that a
Market Order does not trade during a
period of pricing uncertainty:
• Proposed Rule 900.3NYP(d)(4)(B)(i)
is identical to Arca Options Rule 6.62P–
O(d)(4)(B)(i) and would provide that if
not elected on arrival, a Stop Order that
is resting would not be eligible to be
elected based on a Consolidated Last
Sale unless the Consolidated Last Sale
is equal to or in between the NBBO.
This proposed rule text provides
additional transparency of when a
resting Stop Order would be eligible to
be elected.
• Proposed Rule
900.3NYP(d)(4)(B)(ii) is identical to
Arca Options Rule 6.62P–O(d)(4)(B)(ii)
and would provide that a Stop Order
would not be elected if the NBBO is
crossed.
• Proposed Rule
900.3NYP(d)(4)(B)(iii) is identical to
Arca Options Rule 6.62P–O(d)(4)(B)(iii)
VerDate Sep<11>2014
18:41 Jul 14, 2023
Jkt 259001
and would provide that after a Limit
State or Straddle State is lifted, the
trigger to elect a Stop Order would be
either the Consolidated Last Sale
received after such state was lifted or
the Exchange BB (BO).43
Stop Limit Order. Stop Limit Orders
are currently defined in Rule
900.3NY(d)(2).44 The Exchange
proposes to use Pillar terminology with
more granularity to describe Stop Limit
Orders in proposed Rule
900.3NYP(d)(5), as specified below and
identical to Arca Options Rule 6.62P–
O(d)(5).
Proposed Rule 900.3NYP(d)(5) would
provide that a Stop Limit Order is an
order to buy (sell) a particular option
contract that becomes a Limit Order (or
is ‘‘elected’’) when the Exchange BB
(BO) or the Consolidated Last Sale
(either, the ‘‘trigger’’) is equal to or
higher (lower) than the specified ‘‘stop’’
price.45 The proposed functionality is
consistent with existing functionality
and provides more granularity of when
a Stop Limit Order would be elected
than the current Rule 900.3NY(d)(2)
definition of Stop Limit Order. As
further proposed, a Stop Limit Order to
buy (sell) would be rejected if the stop
price is higher (lower) than its limit
price, which rejection mirrors Arca
Options Rule 6.62P–O(d)(5) and would
prevent the Exchange from accepting
potentially erroneously-priced orders.
Because a Stop Limit Order becomes a
Limit Order when it is elected, the
Exchange proposes that when it is
elected, it would be cancelled if it fails
Limit Order Price Protection or a Price
Reasonability Check and if not
cancelled, it would be assigned a
Trading Collar.46 This functionality is
consistent with current functionality,
though it is not explicitly stated in the
current rule describing Stop Limit
Orders. Specifically, both in the current
43 Rule 953.1NY(a)(2) currently provides that the
Exchange will not elect Stop Orders when the
underlying NMS stock is either in a Limit State or
a Straddle State, which would continue to be
applicable on Pillar. The Exchange proposes a nonsubstantive amendment to Rule 953.1NY(a)(2) to
add a cross-reference to proposed Rule
900.3NYP(d)(4). The proposed rule is also identical
to how Stop Orders are handled if the underlying
NMS stock enters a Limit State or a Straddle State
per Arca Options Rule 6.65A–O(a)(2).
44 The current rule states that a Stop Limit Order
to buy (sell) will be triggered (i.e., elected) when the
option contract ‘‘trades at a price equal to or greater
(less) than the specified ‘stop’ price on the
Exchange or another Market Center.’’ See Rule
900.3NY(d)(2). Given the contingent nature of Stop
Limit Orders, as is the case today, Stop Limit
Orders submitted as IOC would be rejected on
Pillar.
45 The term ‘‘Consolidated Last Sale’’ is defined
in proposed Rule 900.3NYP(d)(4).
46 See discussion infra, regarding proposed Rule
928.1NYP and Price Reasonability Checks.
PO 00000
Frm 00011
Fmt 4701
Sfmt 4703
45739
Exchange System and as proposed on
Pillar, once converted to a Limit Order,
such order is subject to the checks
applicable in the current rule for Limit
Orders, i.e., Limit Order Filter on the
Exchange System. The proposed rule,
which as noted above is identical to
Arca Options Rule 6.62P–O(d)(5),
references the checks that would be
applicable to a Limit Order on Pillar and
thus adds greater granularity and
transparency to Exchange rules.
Proposed Rule 900.3NYP(d)(5)(A) is
identical to Arca Options Rule 6.62P–
O(d)(5)(A) and would provide that a
Stop Limit Order would be assigned a
working time when it is received but
would not be ranked or displayed in the
Consolidated Book until it is elected
and that once converted to a Limit
Order, the order would be assigned a
new working time and be ranked under
the proposed category of ‘‘Priority 2—
Display Orders.’’ This functionality is
consistent with the current rule, which
provides that a Stop Limit Order is not
displayed and has no standing in any
Order Process in the Consolidated Book,
unless or until it is triggered. The
proposed rule is designed to provide
greater granularity and clarity.
Proposed Rule 900.3NYP(d)(5)(B) is
identical to Arca Options Rule 6.62P–
O(d)(5)(B) and would specify additional
events that are designed to limit when
a Stop Limit Order may be elected so
that a Limit Order would not have a
possibility of trading or being added to
the Consolidated Book during a period
of pricing uncertainty.
• Proposed Rule 900.3NYP(d)(5)(B)(i)
is identical to Arca Options Rule 6.62P–
O(d)(5)(B)(i) and would provide that if
not elected on arrival, a Stop Limit
Order that is resting would not be
eligible to be elected based on a
Consolidated Last Sale unless the
Consolidated Last Sale is equal to or in
between the NBBO.
• Proposed Rule
900.3NYP(d)(5)(B)(ii) is identical to
Arca Options Rule 6.62P–O(d)(5)(B)(ii)
and would provide that a Stop Limit
Order would not be elected if the NBBO
is crossed.
Orders with Instructions Not to Route.
Currently, the Exchange defines nonroutable orders in Rule 900.3NY as a
PNP Order (which includes a Repricing
PNP Order (‘‘RPNP’’)) (current Rule
900.3NY(p)) or a PNP-Blind Order
(current Rule 900.3NY(x)). The
Exchange also defines Intermarket
Sweep Orders (current Rule
900.3NY(u)), which are also nonroutable.
The Exchange separately defines
quotes—all of which are non-
E:\FR\FM\17JYN3.SGM
17JYN3
45740
Federal Register / Vol. 88, No. 135 / Monday, July 17, 2023 / Notices
ddrumheller on DSK120RN23PROD with NOTICES3
routable 47—in Rule 925.1NY and such
quotes may be designated as a Market
Maker—Light Only Quotation
(‘‘MMLO’’) (current Rule
925.1NY(a)(3)(A)) and a Market Maker—
Repricing Quotation (‘‘MMRP’’) (current
Rule 925.1NY(a)(3)(B)). On the
Exchange System, Market Maker quotes
not designated as MMRP will cancel
(rather than reprice) if they would lock
or cross the NBBO, per Rule
925.1NY(a)(4)(C)(i).
On Pillar, proposed Rule 900.3NYP(e)
is identical to Arca Options Rule 6.62P–
O(e) and would streamline the nonroutable order types and quotes that
would be available on the Exchange.48
As described in greater detail below,
proposed Rule 925.1NYP governing
Market Maker Quotations would no
longer define how quotations would
function. Instead, that rule would
specify that a Market Maker may
designate a Non-Routable Limit Order as
a Market Maker quote. Because the way
in which non-routable orders and
quotes would function on Pillar would
be virtually identical (with differences
described below), and because Market
Makers could enter a Non-Routable
Limit Order and then choose to
designate it either as a quote or an order,
the Exchange believes that it would
promote transparency in Exchange rules
to consolidate the description of the
functionality in a single rule and
eliminate duplication in Exchange rules.
As described below, proposed Rule
925.1NYP would cross reference
proposed Rule 900.3NYP(e).
On Pillar, like Arca Options, the
Exchange would no longer offer
functionality based on the PNP-Blind
Order or MMLO because it believes that
the proposed orders/quotes with
instructions not to route on Pillar
(described below) would continue to
provide ATP Holders with the core
functionality associated with these
existing order and quotation types,
including that the proposed rules would
provide for non-routable functionality
and the ability to either reprice or
cancel such orders/quotes.
Non-Routable Limit Order. Proposed
Rule 900.3NYP(e)(1) is identical to the
Arca Options Rule 6.62P–O(e)(1) and
47 See Rule 925.1NY(a)(2) (providing that ‘‘[a]
quotation will not route’’).
48 The Exchange proposes to include details about
ranking of orders and quotes with contingencies in
this proposed Rule 900.3NYP(e) using the Pillar
priority scheme. See, e.g., Rule 964NY(g) (providing
that ‘‘[t]he Exchange will apply ranking restrictions
applicable to specific order, quote, or modifier
instructions as provided for in [proposed] Rule
900.3NYP.’’). Also, as discussed infra, see, e.g., note
39, the ranking and priority of quotes under Pillar
is consistent with handling on the Exchange System
unless otherwise noted herein.
VerDate Sep<11>2014
18:41 Jul 14, 2023
Jkt 259001
would define the Non-Routable Limit
Order. As explained further below, this
proposed order type incorporates
functionality currently available in both
the existing PNP and RPNP order types,
as defined in Rule 900.3NY, and the
existing MMRP quotation type, as
defined in Rule 925.1NYP(a)(3)(C).49 As
described below, a Market Maker can
designate a Non-Routable Limit Order as
either a quote or an order and such
interest so designated would be handled
the same except as specified below.
Accordingly, references to the
capitalized term ‘‘Non-Routable Limit
Order’’ describe functionality for either
a quote or an order, unless otherwise
specified.
Proposed Rule 900.3NYP(e)(1) (like
Arca Options Rule 6.62P–O(e)(1) would
provide that a Non-Routable Limit
Order is a Limit Order or quote that
does not route and may be designated
Day or GTC and would further provide
that a Non-Routable Limit Order with a
working price different from the display
price would be ranked under the
proposed category of ‘‘Priority 3—NonDisplay Orders’’ and a Non-Routable
Limit Order with a working price equal
to the display price would be ranked
under the proposed category of ‘‘Priority
2—Display Orders.’’ This proposed rule,
which as noted above is identical to the
Arca Options Rule 6.62P–O(e)(1), and
uses Pillar terminology, including
references to the Pillar concepts of
‘‘working’’ and ‘‘display’’ price as well
to Priority rankings as proposed in
Rules 964NYP(e)(2) and (3).50 This
proposed rule also describes
functionality similar to that described in
the first clause of current Rule
900.3NY(p) relating to a PNP Order,
which states that the portion of such
order not executed on arrival is ranked
in the Consolidated Book without
routing any portion of the order to
another Market Center (although the
current rule does not include Pillar
concepts of ‘‘working’’ and ‘‘display’’
price or Pillar Priority rankings).
Proposed Rule 900.3NYP(e)(1)(A) is
identical to the Arca Options Rule
6.62P–O(e)(1)(A) and would provide
that a Non-Routable Limit Order would
not be displayed at a price that would
lock or cross the ABBO and that a NonRoutable Limit Order to buy (sell)
49 Both MMRPs and RPNPs function similarly.
Compare current Rule 925.1NY(a)(4)(B) and
subparagraphs (i) and (ii) with current Rule
900.3NY(p)(1)(A) and subparagraphs (i) and (ii).
They are currently defined in separate rules only
because the former rule addresses quotes and the
latter rule addresses orders.
50 See supra note 20 (regarding definitions of
‘‘display price’’ and ‘‘working price,’’ set forth in
Rules 964NYP(a)(1) and (a)(4), respectively.
PO 00000
Frm 00012
Fmt 4701
Sfmt 4703
would trade with orders or quotes to sell
(buy) in the Consolidated Book priced at
or below (above) the ABO (ABB). This
proposed text is designed to provide
granularity that a Non-Routable Limit
Order would never be displayed at a
price that would lock or cross the
ABBO, which is consistent with current
PNP and RPNP Order functionality and
with current Market Maker quoting
functionality, as described in Rules
900.3NY(p), (p)(1), and 925.1NY(a)(3)–
(4), respectively. The Exchange
proposes to use the new term ‘‘ABBO’’
(as proposed herein) to provide more
granularity in Exchange rules.
Proposed Rule 900.3NYP(e)(1)(A)(i) is
identical to the Arca Options Rule
6.62P–O(e)(1)(A)(i) and would provide
that a Non-Routable Limit Order can be
designated to be cancelled if it would be
displayed at a price other than its limit
price. This would be an optional
designation and would provide ATP
Holders with functionality similar to
how a PNP Order or a Market Maker
quote not designated as MMRP
currently functions, which cancels if
such order or quote locks or crosses the
NBBO.51 The Exchange proposes a
substantive difference from the current
PNP Order functionality such that if an
ATP Holder opts to cancel instead of
reprice a Non-Routable Limit Order,
such order would be cancelled only if
it could not be displayed at its limit
price—which could be because the
order would be repriced to display at a
price that would not lock or cross the
ABBO or because it would be repriced
due to Trading Collars.52 Stated
otherwise, if a Non-Routable Limit
Order with a designation to cancel
could be displayed at its original limit
price and not lock or cross the ABBO,
such order or quote would not be
cancelled. The Exchange believes that
the proposed rule provides granularity
of the operation of a Non-Routable Limit
Order and when such order or quote
51 A PNP Order cannot route, and any unexecuted
portion is ranked in the Consolidated Book except
that such order is canceled if it would lock or cross
the NBBO. See Rule 900.3NY(p). A Market Maker
quote not designated as MMLO or MMRP will
cancel (rather than reprice) if such quote would
lock or cross the NBBO. See Rule 925.1NY(a)(4)(C).
52 Current Rule 900.3NY(p)(1)(B) provides than
an incoming RPNP order would cancel if its limit
price is more than a configurable number of MPVs
outside its initial display price (on arrival). Under
Pillar, because Trading Collars would be applicable
to Non-Routable Limit Orders (and such orders may
be repriced or ‘‘collared’’ on arrival), the Exchange
(like Arca Options) does not propose to cancel an
incoming Non-Routable Limit Order if its limit
price is more than a configurable number of MPVs
outside its initial display price. As such, this aspect
of RPNP functionality is not incorporated in the
proposed Pillar rules and the Exchange instead
proposes to incorporate Trading Collar functionality
into the Non-Routable Limit Order.
E:\FR\FM\17JYN3.SGM
17JYN3
Federal Register / Vol. 88, No. 135 / Monday, July 17, 2023 / Notices
ddrumheller on DSK120RN23PROD with NOTICES3
would be cancelled, if so designated,
including specifying circumstances
when such order could be repriced,
such as to avoid locking or crossing the
ABBO or because of Trading collars.
Proposed Rule 900.3NYP(e)(1)(A)(ii)
is identical to Arca Options Rule 6.62P–
O(e)(1)(A)(ii) and would provide that if
not designated to cancel, if the limit
price of a Non-Routable Limit Order to
buy (sell) would lock or cross the ABO
(ABB), it would be repriced to have a
working price equal to the ABO (ABB)
and a display price one MPV below
(above) that ABO (ABB). Accordingly,
the proposed Non-Routable Limit Order,
if not designated to cancel, would
reprice in the same manner as an RPNP
order or MMRP quotation reprices on
arrival per Rules 900.3NY(p)(1)(A) and
925.1NY(a)(4)(B), which both offer
similar functionality.
The Exchange also proposes
functionality on Pillar for the NonRoutable Limit Order that is consistent
with but different in application to the
RPNP Order or MMRP on the Exchange
System. Specifically, proposed Rule
900.3NYP(e)(1)(B), which is identical to
Arca Options Rule 6.62P–O(e)(1)(B),
would provide that the display price of
a resting Non-Routable Limit Order to
buy (sell) that has been repriced would
be repriced higher (lower) only one
additional time.53 If after that second
repricing, the display price could be
repriced higher (lower) again, the order
can be designated to either remain at its
last working price and display price or
be cancelled, provided that a resting
Non-Routable Limit Order that is
designated as a quote cannot be
designated to be cancelled.54 As
compared to the proposal on Pillar to
limit the number of times that NonRoutable Limit Orders may be repriced,
the Exchange System restricts repricing
of RPNPs and MMRPs based on the
53 For example, on arrival, a Non-Routable Limit
Order to buy (sell) with a limit price higher (lower)
than the ABO (ABB), would have a display price
one MPV below (above) the ABO (ABB) and a
working price equal to the ABO (ABB). If the ABO
(ABB) reprices higher (lower), the resting NonRoutable Limit Order to buy (sell) would similarly
be repriced higher (lower). If the ABO (ABB) adjusts
higher (lower) again, the resting Non-Routable Limit
Order would not be adjusted again.
54 As described in the American Pillar Priority
Filing, the working time of a Non-Routable Limit
Order would be adjusted as described in Rule
964NYP(f)(2), which would be applicable to any
scenario when the working time of an order may
change, including a Non-Routable Limit Order.
Similar to how the Pillar rules function on Arca
Options, the Exchange does not propose to
separately describe how the working time of an
order changes in proposed Rule 900.3NYP. See also
Arca Options Rule 6.76P–O(f)(2) (describing when
the working time of an order or quote may change
and not repeating this information in Rule 6.62P–
O).
VerDate Sep<11>2014
18:41 Jul 14, 2023
Jkt 259001
limit price of the interest being a
configurable number of MPVs away
from its initial display price.55 The
Exchange therefore believes that the
proposed functionality is consistent
with current functionality because in
either case, there will be limited
repricing of resting interest, and would
increase determinism in order execution
based on the explicit restriction on the
number of times resting interest may be
repriced.
The Exchange notes that, as is the
case per Arca Options Rule 6.62P–
O(e)(1)(B), a designation to cancel after
an order has been repriced once is
separate from the designation to cancel
if a Non-Routable Limit Order cannot be
displayed at its limit price. When a
Non-Routable Limit Order is designated
to cancel if it cannot be displayed at its
limit price, there is no repricing and
therefore the option of a second
cancellation designation is moot.
Rather, this second cancellation
designation is applicable only to a
resting Non-Routable Limit Order that
has been designated to reprice on arrival
and was repriced before it was
displayed on the Consolidated Book.
This functionality provides ATP
Holders with an option to cancel a
resting order if market conditions are
such that a resting order could be
repriced again, e.g., the contra-side
ABBO changes. The Exchange proposes
that this second cancellation option
would not be available for any NonRoutable Limit Orders designated by a
Market Maker as a quote. The Exchange
believes that this proposed difference
would assist Market Makers in
maintaining quotes in their assigned
series by reducing the potential to
interfere with a Market Maker’s ability
to maintain their continuous quoting
obligations.56 As noted above, this
proposed functionality is identical to
Arca Options Rule 6.62P–O(e)(1)(B).
Proposed Rule 900.3NYP(e)(1)(B)(i) is
identical to Arca Options Rule 6.62P–
O(e)(1)(B)(i) and would provide that if
the limit price of the resting NonRoutable Limit Order to buy (sell) that
55 See, e.g., Rule 900.3NY(p)(1)(B) (providing that
‘‘[a]n incoming RPNP will be cancelled if its limit
price to buy (sell) is more than a configurable
number of MPVs above (below) the initial display
price (on arrival), after first trading with eligible
interest, if any,’’ which configurable number of
MPVs will be determined by the Exchange and be
announced by Trader Update) and Rule
925.1NY(a)(4)(C) (providing that, an MMRP to buy
(sell) will be canceled after trading with marketable
interest in the Consolidated Book up (down) to the
NBO (NBB), if its limit price is more than a
configurable number of MPVs above (below) the
initial display price (on arrival)).
56 Proposed Rules 925.1NYP(b) and (c) set forth
the continuous quoting obligations of Specialists
and Market Makers, respectively.
PO 00000
Frm 00013
Fmt 4701
Sfmt 4703
45741
has been repriced no longer locks or
crosses the ABO (ABB), it would be
assigned a working price and display
price equal to its limit price.57
Proposed Rule 900.3NYP(e)(1)(B)(ii) is
identical to Arca Options Rule 6.62P–
O(e)(1)(B)(ii) and would provide that the
working price of a resting Non-Routable
Limit Order to buy (sell) that has been
repriced would be adjusted to be equal
to its display price if the ABO (ABB) is
equal to or lower (higher) than its
display price. This proposed rule is
based in part on how an RPNP or MMRP
reprices when the NBO (NBB) updates
to lock or cross its display price (as
described in Rules 900.3NY(p)(1)(A)(i)
and 925.1NY(a)(4)(B)(i)) and uses Pillar
terminology (i.e., ABBO and concepts of
working price and display price).58 The
proposed rule would further provide
that once the working price and display
price of a Non-Routable Limit Order to
buy (sell) are the same, the working
price would be adjusted higher (lower)
only if the display price of the order is
adjusted.59
Finally, proposed Rule
900.3NYP(e)(1)(C) is identical to Arca
Options Rule 6.62P–O(e)(1)(C) and
would provide that the designation to
cancel a Non-Routable Limit Order
(including those designated as
quotations) 60 would not be applicable
in an Auction and, per proposed Rule
952NYP(g)(2) (described below) such
order would participate in an Auction at
its limit price. This proposed rule text
promotes clarity and transparency that a
57 See American Pillar Priority Filing (regarding
Rule 964NYP(b)(2), which describes when the
Exchange would not change the display price of any
Limit Orders or quotes ranked under the proposed
category of ‘‘Priority 2—Display Orders’’).
58 Rule 900.3NY(p)(1)(A)(i) provides that ‘‘if the
NBO (NBB) updates to lock or cross the RPNP’s
display price, such RPNP will trade at its display
price.’’ Rule 925.1NY(a)(4)(B)(i) provides that ‘‘if
the NBO (NBB) updates to lock or cross the MMRP’s
display price, such MMRP will trade at its display
price.’’ On Pillar, if the NBO (NBB) updates to lock
or cross the display price of a Non-Routable Order,
and the working price is adjusted to be equal to the
display price, the order will not receive a new
working time. See Rule 964NYP(f)(2)(B).
59 For example, if the ABO is 1.05 and the
Exchange receives a Non-Routable Limit Order to
buy priced at 1.10, it would be assigned a display
price of 1.00 and a working price of 1.05. If the ABO
adjusts to 1.00, the working price of the NonRoutable Limit Order to buy would be adjusted to
1.00 to be equal to its display price. However, if the
Away Market BO moves back to 1.05, the NonRoutable Limit Order’s working price would not
adjust again to 1.05 and would stay at 1.00.
60 See discussion, infra, regarding proposed Rule
952NYP(g)(1), which provides that ‘‘all resting
Market Maker quotations’’—including NonRoutable Limit Orders designated as quotations—
will be canceled in the event of a Trading Halt,
which functionality is consistent with current Rule
925.1NY(a)(5), which likewise provides that ‘‘[a]ll
resting quotations will be cancelled in the event of
a trading halt’’).
E:\FR\FM\17JYN3.SGM
17JYN3
45742
Federal Register / Vol. 88, No. 135 / Monday, July 17, 2023 / Notices
ddrumheller on DSK120RN23PROD with NOTICES3
Non-Routable Limit Order would be
eligible to participate in an Auction, but
that it would be repriced to its limit
price for participation in such Auction,
which is consistent with current RPNP
functionality, as described in the last
sentence of Rule 900.3NY(p) and
providing that an RPNP would be
processed as a Limit Order and would
not be repriced for purposes of
participating in an opening or reopening
auction. This proposal is also consistent
with Rule 925.1NY(a)(5), which
provides that MMRPs received when a
series is not open for trading will be
eligible to participate in the opening
auction and re-opening auction (as
applicable) at the limit price of the
MMRP.
Intermarket Sweep Order (‘‘ISO’’).
ISOs are currently defined in Rule
900.3NY(u) as a Limit Order for an
options series that instructs the
Exchange to execute the order up to the
price of its limit, regardless of the Away
Market Protected Quotations.61 The
Exchange proposes to offer identical
functionality on Pillar, including that an
ISO is a Limit Order that does not route
and meets the requirements of Rule
990NY(8), in proposed Rule
900.3NYP(e)(3), which is identical to
Arca Options Rule 6.62P–O(e)(3).62
On Pillar, the Exchange proposes to
add the ability for an ATP Holder to
designate an ISO either as IOC or with
a Day time-in-force designation. The
Exchange proposes to describe the
functionality for each type of ISO
separately, as follows:
• IOC ISO. Proposed Rule
900.3NYP(e)(3)(A) is identical to Arca
Options Rule 6.62P–O(e)(3)(A) and
would define an IOC ISO as an ISO
designated IOC to buy (sell) that would
be immediately traded with orders and
quotes to sell (buy) in the Consolidated
61 The terms ‘‘Protected Bid,’’ ‘‘Protected Offer,’’
and ‘‘Quotation’’ are defined in Rules 990NY(15)
and (16) and the term ‘‘Away Market’’ is defined in
Rule 900.2NY. Accordingly, Away Market Protected
Quotations refer to Protected Bids and Protected
Offers that are disseminated pursuant to the OPRA
Plan and are the Best Bid and Best Offer displayed
by an Eligible Exchange, as those terms are defined
in Rule 990NY.
62 The Exchange proposes to hold Rule
900.3NYP(e)(2) as ‘‘Reserved’’ to keep the
numbering of this rule consistent with Arca Options
Rule 6.62P–O(e), to account for the fact that the
Exchange does not propose to offer ALO Orders,
which are described in Arca Options Rule 6.62P–
O(e)(2). For avoidance of doubt (and if not
otherwise specifically noted herein), the Exchange
believes that the omission of reference to ALO
Orders (or DAY ISO ALOs) in any proposed rule
that is said to be ‘‘identical’’ to the analogous Arca
Options rule (that does include such reference(s)),
is an immaterial difference as it relates to an order
type/modifier not being offered on the Exchange. As
such, the omission(s) has no bearing on the
proposed Pillar functionality.
VerDate Sep<11>2014
18:41 Jul 14, 2023
Jkt 259001
Book up to its full size and limit price
and may trade through Away Market
Protected Quotations and any untraded
quantity of an IOC ISO would be
immediately and automatically
cancelled. This proposed rule describes
Pillar functionality that would be no
different from how ISOs currently
function on the Exchange.
• Day ISO. Proposed Rule
900.3NYP(e)(3)(B) is identical to Arca
Options Rule 6.62P–O(e)(3)(B) and
would define a Day ISO as an ISO
designated Day to buy (sell) that, if
marketable on arrival, would be
immediately traded with orders and
quotes to sell (buy) in the Consolidated
Book up to its full size and limit price
and may trade through Away Market
Protected Quotations and that any
untraded quantity of a Day ISO would
be displayed at its limit price and may
lock or cross Away Market Protected
Quotations at the time the Day ISO is
received by the Exchange. As noted
above, this proposed functionality
(allowing Day designation for ISOs)
would be consistent with functionality
offered on Arca Options and would offer
ATP Holders additional control over
their trading interest.63 In addition to
the proposed functionality being
identical to Arca Options Rule 6.62P–
O(e)(3)(B), this functionality is also
available on other options exchanges.64
The proposed Day ISO is also consistent
with current Rule 992NY(b)(3), which
describes an exception to the
prohibition on locking or crossing a
Protected Quotation if the Member
simultaneously routed an ISO to execute
against the full displayed size of any
locked or crossed Protected Bid or
Protected Offer.65 Although the
63 Unlike on Arca Options, the Exchange will not
allow a DAY ISO to be designated with an ALO
Modifier (as is available per Arca Options Rule
6.62P–O(e)(3)(C)) because, as noted above, the
Exchange does not propose to offer ALO Orders on
Pillar. The Exchanges believes that this textual
difference is immaterial as it does not impact the
proposed Pillar functionality.
64 See Nasdaq Options 3, Section 7(a)(7) (‘‘ISOs
may have any time-in-force designation . . . .’’)
and Cboe Rules 5.30(a)(2) and (3). See also Cboe US
Options Fix Specifications, dated March 29, 2023,
Section 4.4.7, available here: https://cdn.cboe.com/
resources/membership/US_Options_FIX_
Specification.pdf, which references how a Day ISO
would be processed under specified circumstances.
65 The Commission has previously stated that the
requirements in the Options Linkage Plan relating
to Locked and Crossed Markets are ‘‘virtually
identical to those applicable to market centers for
NMS stock under Regulation NMS.’’ See also
Securities Exchange Act Release No. 60405 (July 30,
2009), 74 FR 39362, 39368 (August 6, 2009) (Order
approving Options Linkage Plan). Accordingly,
guidance relating to the ISO exception for locked
and crossed markets for NMS stocks that
specifically contemplate use of Day ISOs is also
applicable to options trading. See Responses to
Frequently Asked Questions Concerning Rule 611
PO 00000
Frm 00014
Fmt 4701
Sfmt 4703
Exchange has not previously availed
itself of this exception, this exception to
locking and crossing Protected Bids and
Protected Offers would only be needed
if an ISO is designated as Day and
therefore would be displayed at a price
that would lock or cross a Protected
Quotation; an IOC ISO would never be
displayed and therefore this existing
exception would not be applicable to
such orders.
Complex Orders. Complex Orders are
defined in Rule 900.3NY(e). The
Exchange proposes to define Complex
Orders for Pillar in proposed Rule
900.3NYP(f), which is identical to Arca
Options Rule 6.62P–O(f). The proposed
rule is based on current Rule
900.3NY(e)(1)–(2) without any
substantive differences. However, like
Arca Options Rule 6.62P–O(f), the
proposed definition would add
clarifying text that the different options
series in a Complex Order are also
referred to as the ‘‘legs’’ or
‘‘components’’ of the Complex Order
and would provide that a Complex
Order would be any order involving the
simultaneous purchase and/or sale of
‘‘two or more options series in the same
underlying security,’’ without including
the superfluous and redundant modifier
‘‘different’’ before the phrase ‘‘more
option series.’’ In addition, proposed
Rule 900.3NYP(f) (like Arca Options
Rule 6.62P–O(f)) would not reference
mini-options contracts, which no longer
trade on the Exchange.
Cross Orders. The Exchange proposes
to describe the Cross Orders available
on the Exchange in proposed Rule
900.3NYP(g). Proposed Rule
900.3NYP(g)(1) would describe
Qualified Contingent Cross Orders,
which are defined in Rule 900.3NY(y)
and Commentary .01 to Rule 900.3NY.
In addition, current Rule 985NY
(Qualified Contingent Cross Trade)
describes how Qualified Contingent
Cross Orders are processed. As
proposed, QCC Orders on Pillar would
function identically to how Qualified
Contingent Cross Orders function on the
Exchange System, and for purposes of
the rules governing trading on Pillar, the
Exchange proposes to merge language
from two rules relating to QCC Orders
and Rule 610 of Regulation NMS, FAQ 5.02 (‘‘The
ISO exception to the SRO lock/cross rules, in
contrast, requires that ISOs be routed to execute
against all protected quotations with a price that is
equal to the display price (i.e., those protected
quotations that would be locked by the displayed
quotation), as well as all protected quotations with
prices that are better than the display price (i.e.,
those protected quotations that would be crossed by
the displayed quotation).’’ Consistent with this
guidance, the Exchange implemented Rule
992NY(b)(3). See also Cboe Rule 5.67(b)(3) and
Nasdaq Options 5, Section 3(b)(3).
E:\FR\FM\17JYN3.SGM
17JYN3
Federal Register / Vol. 88, No. 135 / Monday, July 17, 2023 / Notices
ddrumheller on DSK120RN23PROD with NOTICES3
into a single rule, proposed Rule
900.3NYP(g)(1). Proposed Rule
900.3NYP(g)(1) is identical to Arca
Options Rule 6.62P–O(g)(1) and would
describe rules applicable to
electronically-entered QCC Orders and
Complex QCC Orders. In addition, the
Exchange proposes to adopt new Rule
900.3NYP(g)(1)(D) to provide for the
trading of Complex QCC Orders
(described below).66 In addition, the
Exchange proposes to add, as a
placeholder, Rule 900.3NYP(g)(2) to
describe the new Customer-to-Customer
Cross Order type that will be available
on Pillar and described in a separate
rule filing. Further, for the sake of
clarity, the Exchange proposes to adopt
Rule 900.3NYP(g)(3) to include orders
submitted to the Customer Best
Execution (‘‘CUBE’’) Auction in the
proposed definition of ‘‘Cross Orders’’
as describe below.
Proposed Rule 900.3NYP(g)(1)(A) is
identical to Arca Options Rule 6.62P–
O(g)(1)(A) and would provide that a
QCC Order must be comprised of an
originating order to buy or sell at least
1,000 contracts that is identified as
being part of a qualified contingent
trade coupled with a contra-side order
or orders totaling an equal number of
contracts. This proposed rule text is
based on Rule 900.3NY(y) with a nonsubstantive difference that the Pillar
rule (like Arca Options Rule 6.62P–
O(g)(1)(A)) would not reference minioptions contracts, which no longer trade
on the Exchange. Proposed Rule
900.3NYP(g)(1)(A) would also specify
that if a QCC has more than one option
leg (a ‘‘Complex QCC Order’’), each
option leg must have at least 1,000
contracts, which is consistent with
existing functionality that is not
described in the current rule. Complex
QCCs, which are described below, and
function in the same manner as on Arca
Options, are not novel.67 The proposed
rule would further provide that a QCC
Order that is not rejected per proposed
Rules 900.3NYP(g)(1)(C) or (D) would
immediately trade in full at its price,
would not route, and may be entered
with an MPV of $0.01 regardless of the
MPV of the options series 68 and that
66 See also Securities Exchange Act Release No.
97739 (June 15, 2023), 88 FR 40893 (June 22, 2023)
(SR–NYSEAMER–2023–17) (order approving new
Rule 980NYP (Complex Order Trading)) (the ‘‘Pillar
Complex Approval Order’’).
67 In addition to trading on Arca Options, other
options exchanges also offer Complex QCCs. See,
e.g., Cboe Rule 5.6(c) (setting forth operation of
Complex QCC Orders) and MIAX Rule 515(h)(4)
(same).
68 Allowing QCC Orders to trade in pennies under
Pillar is consistent with current functionality. See
Rule 985NY(2) (providing that QCC Orders may
only be entered in the regular trading increments
VerDate Sep<11>2014
18:41 Jul 14, 2023
Jkt 259001
QCC Orders may be entered by Floor
Brokers from the Trading Floor or
routed to the Exchange from off-Floor.
This proposed rule is consistent with
current Rule 985NY, which provides
that QCC Orders are automatically
executed upon entry provided that they
meet specified criteria. On Pillar, the
Exchange proposes to specify those
criteria in proposed Rule
900.3NYP(g)(1)(C), described below. In
addition, the proposed Rule would
provide that Rule 935NY (related to
exposure of orders on the Exchange)
does not apply to Cross Orders, which
text is substantively identical to
Commentary .03 to current Rule
935NY.69
Proposed Rule 900.3NYP(g)(1)(B) and
subparagraphs (i)–(vi) is identical to
Arca Options Rule 6.62P–O(g)(1)(B)(i)–
(vi) and would define a ‘‘qualified
contingent trade’’ as a transaction
consisting of two or more component
orders, executed as agent or principal,
where specified requirements are also
met and uses the same text as currently
set forth in Commentary .01 and its subparagraphs (a)–(f) to Rule 900.3NY
without any differences.
Proposed Rule 900.3NYP(g)(1)(C) is
identical to Arca Options Rule 6.62P–
O(g)(1)(C) would describe general rules
relating to execution of QCC Orders and
would provide that a QCC Order with
one option leg would be rejected if
received when the NBBO is crossed or
if it would be traded at a price that (i)
is at the same price as a displayed
Customer order on the Consolidated
Book and (ii) is not at or between the
NBBO and would provide that the QCC
Order would never trade at a price
worse than the Exchange BBO. This
proposed rule is based on Rule 985NY
without any substantive differences but
adds detail about pricing of a QCC
Order vis a vis the Exchange BBO. The
Exchange believes that specifying that a
QCC Order would be rejected when the
NBBO is crossed, which is new text,
provides greater granularity than current
985NY(1), which provides that
‘‘Qualified Contingent Cross Orders will
be automatically cancelled if they
cannot be executed.’’ The other two
proposed conditions are identical to the
current functionality, as specified in
Rule 985NY: that Qualified Contingent
Cross Orders are automatically executed
‘‘provided that the execution (i) is not
at the same price as a Customer Order
applicable to the options class under Rule
960NY(b)). Rule 960NY(b) provides that minimum
trading increment for option contracts traded on the
Exchange will be one cent ($0.01) for all series.
69 Commentary .03 to Rule 985NY provides that
‘‘Rule 935NY does not apply to Qualified
Contingent Cross Orders.’’
PO 00000
Frm 00015
Fmt 4701
Sfmt 4703
45743
in the Consolidated Book and (ii) is at
or between the NBBO.’’
Proposed Rule 900.3NYP(g)(1)(D) is
identical to Arca Options Rule 6.62P–
O(g)(1)(D) would describe how Complex
QCC Orders would be executed on the
Exchange. As proposed, as is the case
per Arca Options Rules 6.62P–
O(g)(1)(D)(i)–(iv) (and described below),
a Complex QCC Order must include a
limit price, no option leg would trade at
a price worse than the Exchange BBO,
and would be rejected if:
• any option leg cannot execute in
compliance with proposed paragraph
(g)(1)(C) of this Rule as described above
(proposed Rule 900.3NYP(g)(1)(D)(i)),
which mirrors Complex QCC handling
on Arca Options and is consistent with
other options exchanges; 70
• the best-priced Complex Order(s)
on the Exchange contain(s) displayed
Customer interest and the Complex QCC
Order price does not improve such
displayed Customer interest by $0.01
(proposed Rule 900.3NYP(g)(1)(D)(ii)),
which mirrors Complex QCC handling
on Arca Options and is consistent with
other options exchanges; 71
• the price of the QCC Order is worse
than the best-priced Complex Orders in
the Consolidated Book or the prices of
the best-priced Complex Orders in the
Consolidated Book are crossed
(proposed Rule 900.3NYP(g)(1)(D)(iii)),
which mirrors Complex QCC handling
on Arca Options, provides additional
protections against potentially
erroneous executions, and adds
transparency and granularity to the
proposed rule; or
• there is no NBO for a given leg
(proposed Rule 900.3NYP(g)(1)(D)(iv)),
which mirrors Complex QCC handling
on Arca Options, provides additional
protections against potentially
erroneous executions, and adds
transparency and granularity to the
proposed rule.
As noted above, this proposed rule
text is identical to Arca Options Rules
6.62P–O(g)(1)(D)(i)–(iv) and is designed
to promote clarity and transparency in
Exchange rules regarding the price
70 See, e.g., MIAX Rule 515(h)(4) (which provides
that each Complex QCC or ‘‘cQCC’’ is
‘‘automatically executed upon entry provided that,
with respect to each option leg of the cQCC Order,
the execution (i) is not at the same price as a
Priority Customer Order on the Exchange’s Book;
and (ii) is at or between the NBBO’’).
71 See, e.g., Cboe Rule 5.6(c) (Order Instructions,
QCC Orders (requiring for the ‘‘Execution of QCC
Orders’’ that the ‘‘execution price is better than the
price of any complex order resting in the [Cboe
Complex Order Book], unless the Complex QCC
Order is a Priority Customer Order and the resting
complex order is a non-Priority Customer Order, in
which case the execution price may be the same as
or better than the price of the resting complex
order’’).
E:\FR\FM\17JYN3.SGM
17JYN3
45744
Federal Register / Vol. 88, No. 135 / Monday, July 17, 2023 / Notices
ddrumheller on DSK120RN23PROD with NOTICES3
requirements for a Complex QCC Order,
which requirements to protect priority
of resting interest are consistent with
the rules of other options exchanges, as
described above, and to provide
additional safeguards against potentially
erroneous executions of Complex QCCs.
Proposed Rule 900.3NYP(g)(1)(E) is
identical to Arca Options Rule 6.62P–
O(g)(1)(E) and would specify rules
governing QCC Orders entered from the
Trading Floor, which can be entered
only by Floor Brokers,72 and is based on
Commentary .01 to Rule 985NY without
any substantive differences.73 The
Exchange proposes textual changes as
compared to the current Rule that are
not designed to change the substance of
the Rule, but to instead promote clarity
and transparency. The proposed rule
would provide that while on the
Trading Floor, only Floor Brokers can
enter QCC Orders, and that Floor
Brokers may not enter QCC Orders for
their own account, the account of an
associated person, or an account with
respect to which it or an associated
person thereof exercises investment
discretion (each a ‘‘prohibited
account’’). As further proposed, when
executing such orders, Floor Brokers
would not be subject to Rules 934NY,
934.1NY, 934.2NY, and 934.3NY
regarding ‘‘Crossing’’ orders. Floor
Brokers must maintain books and
records demonstrating that each QCC
Order entered from the Floor was not
entered for a prohibited account. Any
QCC Order entered from the Floor that
does not have a corresponding record
required by this paragraph would be
deemed to have been entered for a
prohibited account in violation of this
Rule.
Proposed Rule 900.3NYP(g)(1)(F) is
identical to Arca Options Rule 6.62P–
O(g)(1)(F) and would specify rules
governing QCC Orders entered off-Floor
72 An options Floor Broker is ‘‘a sole proprietor
ATP Holder or a representative of an ATP Holder
who is registered with the Exchange for the
purpose, while on the Exchange Floor, of accepting
and executing option orders.’’ See Rule 930NY(a).
73 Commentary .01 to Rule 985NY provides:
‘‘Qualified Contingent Cross Orders can be entered
into the System from on the Floor of the Exchange
only by Floor Brokers. Floor Brokers shall not enter
such orders for their own account, the account of
an associated person, or an account with respect to
which it or an associated person thereof exercises
investment discretion (each a ‘prohibited account’).
When executing such orders, Floor Brokers shall
not be subject to Rules 934NY, 934.1NY, 934.2NY,
and 934.3NY. Floor Brokers must maintain books
and records demonstrating that each Qualified
Contingent Cross Order entered from the Floor was
not entered for a prohibited account. Any Qualified
Contingent Cross Order entered from the Floor that
does not have a corresponding record required by
this Commentary .01 shall be deemed to have been
entered for a prohibited account in violation of this
Rule.’’
VerDate Sep<11>2014
18:41 Jul 14, 2023
Jkt 259001
and that ATP Holders must maintain
books and records demonstrating that
each such order was so routed. This
proposed rule is based on Commentary
.02 to Rule 985NY without any
substantive differences.74 The Exchange
proposes textual differences as
compared to the current Rule that are
not designed to change the substance of
the Rule, but instead promote clarity
and transparency.
In connection with adding QCC to
proposed Rule 900.3NYP, the Exchange
proposes to add the following preamble
to Rule 985NY: ‘‘This Rule is not
applicable to trading on Pillar.’’ This
proposed preamble is designed to
promote clarity and transparency in
Exchange rules that Rule 985NY would
not be applicable to trading on Pillar.
The Exchange plans to file a separate
rule filing to adopt ‘‘Customer-toCustomer Cross Orders.’’ Because this
would be a new cross order that does
not exist on Arca Options, the Exchange
proposes to simply adopt the name of
this order type as proposed Rule
900.3NYP(g)(2) and to hold the
description of how such order would
trade as ‘‘Reserved.’’
The Exchange proposes to include
CUBE Orders in the list of Cross Orders.
Proposed Rule 900.3NYP(g)(3) would
add clarity to Exchange rules that CUBE
Orders are Cross Orders governed by
separate Exchange rules.75 Specifically,
proposed Rule 900.3NYP(g)(3) would
provide that Single-Leg CUBE Orders
submitted pursuant to proposed Rule
971.1NYP and Complex CUBE Orders
submitted pursuant proposed Rule
971.2NYP would be considered Cross
Orders.76
Orders Available Only in Open
Outcry. The Exchange proposes Rule
74 Commentary .02 to Rule 985NY provides:
‘‘With respect to a Qualified Contingent Cross Order
that was routed to the System from off of the Floor,
ATP Holders must maintain books and records
demonstrating that each such order was routed to
the system from off of the Floor. This provision
would not apply to a Qualified Contingent Cross
Order covered by Commentary .01 to this Rule
985NY (i.e., a Qualified Contingent Cross Order
routed to a Floor Broker for entry into the System).’’
The Exchange does not propose to include the last
sentence of this Commentary in the proposed Pillar
rule because the Exchange does not believe it is
necessary to specify that Floor Brokers that enter
orders electronically are subject to rules relating to
electronic order entry as opposed to rules governing
open outcry.
75 See, e.g., Rules 971.1NY and 971.2NY
describing Single-Leg and Complex CUBE Auctions,
respectively.
76 The Exchange plans to submit separate rule
filings to adopt CUBE Auction functionality on
Pillar, which will be set forth in proposed Rules
971.1NYP (for the single-leg CUBE Auction) and
971.2NYP (for the Complex CUBE Auction),
respectively. See, e.g., NYSEAMER–2023–21P
(prefiling to adopt Rule 971.1NYP for single-leg
CUBE Auctions on Pillar).
PO 00000
Frm 00016
Fmt 4701
Sfmt 4703
900.3NYP(h) to describe orders that are
available only in open outcry, most of
which are currently defined in Rule
900.3NY.
First, proposed Rule 900.3NYP(h)(1)
would codify an existing order type, the
Clear-the-Book (‘‘CTB’’) Order, which is
currently described only in a Regulatory
Bulletin.77 This proposed rule is
substantially the same as Arca Options
Rule 6.62P–O(h)(1), except that
paragraph (h)(1)(B) of the proposed rule
accounts for the Exchange’s Customercentric trading model as described
below. Proposed Rule 900.3NYP(h)(1)
would describe the CTB Order in the
same manner as it is described in Arca
Options Rule 6.62P–O(h)(1), which
would be an order type available in
open outcry that would interface with
the Consolidated Book, and therefore
with Pillar. As proposed, a CTB Order
would be a Limit IOC Order that may be
entered only by a Floor Broker,
contemporaneous with executing an
order in open outcry, that is approved
by a Trading Official (the ‘‘TO
Approval’’). The CTB Order would be
eligible to trade only with contra-side
orders and quotes that were resting in
the Consolidated Book prior to the TO
Approval. In addition, proposed Rules
900.3NYP(h)(1)(A)–(C) would provide
that:
• A CTB Order to buy (sell) would
trade with contra-side orders and quotes
with a display price below (above) the
limit price of the CTB Order (proposed
Rule 900.3NYP(h)(1)(A), which is
identical to Arca Options Rule 6.62P–
O(h)(1)(A));
• A CTB Order to buy (sell) would
trade with contra-side orders and quotes
that have a display price and working
price equal to the limit price of the CTB
Order only if there is displayed
Customer sell (buy) interest at that
price, in which case, the CTB Order to
buy (sell) would trade with the
displayed Customer interest to sell (buy)
(proposed Rule 900.3NYP(h)(1)(B)); 78
and
• Any unexecuted portion of the CTB
Order would cancel after trading with
all better-priced interest and eligible
same-priced interest on the
77 See NYSE Amex Options RB–16–02, dated
February 19, 2016 (Rules of Priority and Order
Protection in Open Outcry), available here: https://
www.nyse.com/publicdocs/nyse/markets/americanoptions/rule-interpretations/2016/NYSE
%20Amex%20Options%2016-02.pdf.
78 This proposed rule differs from Arca Options
Rule 6.62P–O(h)(1)(B) because it does not provide
for the CTB Order to trade with ‘‘any non-Customer
interest to sell (buy) with a working time earlier
than the latest-arriving displayed Customer interest
to sell (buy),’’ because Customer interest has
priority of same-priced non-Customer interest on
the Exchange.
E:\FR\FM\17JYN3.SGM
17JYN3
Federal Register / Vol. 88, No. 135 / Monday, July 17, 2023 / Notices
ddrumheller on DSK120RN23PROD with NOTICES3
Consolidated Book (proposed Rule
900.3NYP(h)(1)(C), which is identical to
Arca Options Rule 6.62P–O(h)(1)(C)).
Currently, CTB Orders only trade with
displayed Customer interest, but do not
trade with better-priced displayed nonCustomer interest. In Pillar, as described
above, CTB Orders would trade with
displayed Customer interest at a price
and would also trade with displayed
non-Customer interest priced better than
displayed Customer interest (i.e., a CTB
order buying with a $1.00 limit would
now trade with displayed interest
offered at $0.99, whether on behalf of a
Customer or a non-Customer). In
addition to being similar to Arca
Options Rule 6.62P–O(h)(1), the
Exchange believes that codifying CTB
Order functionality, and thus
automating priority would make it
easier for Floor Brokers to comply with
their obligation to satisfy better-priced
interest on the Consolidated Book. In
addition, the Exchange believes that this
proposed change would increase
execution opportunities and achieve the
goal of a CTB Order, which is to clear
priority on the Consolidated Book at the
time of the TO Approval.
In addition, proposed Rule
900.3NYP(h)(1)(D) is identical to Arca
Options Rule 6.62P–O(h)(1)(D) and
would codify existing regulatory
responsibilities of Floor Brokers
utilizing CTB Orders to submit such
orders in a timely manner after
receiving TO Approval and would also
provide that because CTB Orders are
non-routable (and thus ineligible to
clear Protected Quotations), Floor
Brokers would still be obligated to route
any other eligible orders (i.e., not the
CTB Order) to better-priced interest on
Away Markets per Rule 992NY.79
The Exchange also proposes to
include in Rule 900.3NYP additional
open outcry order types that are
currently defined in Rule 900.3NY:
• Proposed Rule 900.3NYP(h)(2)
would define ‘‘Facilitation Order’’ to be
identical to the definition of Facilitation
Order set forth in Rule 900.3NY(j). The
proposed definition is also identical to
Arca Options Rule 6.62P–O(h)(2).
• Proposed Rule 900.3NYP(h)(3)
would be designated as Reserved.80
79 See id. at pp. 2–3 (describing regulatory
responsibilities related to CTB Orders, including
that it is the Floor Broker’s responsibility to comply
with the terms of the Options Order Protection and
Locked/Crossed Market Plan, including by sending
ISOs to trade with Protected Quotes).
80 The Exchange proposes to hold Rule
900.3NYP(h)(3) as ‘‘Reserved’’ to keep the
numbering of this rule consistent with Arca Options
Rule 6.62P–O(h), to account for the fact that the
Exchange does not propose to offer (nor does the
Exchange currently offer) Mid-Point Crossing
Orders, which are described in Arca Options Rule
6.62P–O(h)(3).
VerDate Sep<11>2014
18:41 Jul 14, 2023
Jkt 259001
• Proposed Rule 900.3NYP(h)(4)
would define ‘‘Not Held Order’’ to be
identical to the definition of Not Held
Order set forth in Rule 900.3NY(f). The
proposed definition is also identical to
Arca Options Rule 6.62P–O(h)(4).
• Proposed Rule 900.3NYP(h)(5)
would define ‘‘Single Stock Future
(‘‘SSF’’)/Option Order’’ to be identical
to the definition of Single Stock Future
(‘‘SSF’’)/Option Order set forth in Rule
900.3NY(i). The proposed definition is
also identical to Arca Options Rule
6.62P–O(h)(5).
• Proposed Rule 900.3NYP(h)(6)(A)
would define a ‘‘Stock/Option Order’’ to
be identical to the definition of Stock/
Option Order set forth in Rule
900.3NY(h)(1). The proposed definition
is also identical to Arca Options Rule
6.62P–O(h)(6)(A).
• Proposed Rules
900.3NYP(h)(6)(B)(i)–(ii) would define a
‘‘Stock/Complex Order’’ to be identical
to the definition of Stock/Complex
Order set forth in Rule
900.3NY(h)(2)(A)–(B). The proposed
definition is also identical to Arca
Options Rule 6.62P–O(h)(6)(B)(i)–(ii).
The Exchange proposes that after the
transition to Pillar, the One-cancels-theother (OCO) Order, which is currently
described in Rule 900.3NY(g) but is not
used by Floor Brokers, would not be
added to proposed Rule 900.3NYP
governing orders and modifiers.
Additional Order Instructions and
Modifiers. The Exchange proposes to
specify the additional order instructions
and modifiers that would be available in
Pillar in proposed Rule 900.3NYP(i),
which are identical to the order
instructions and modifiers set forth in
Arca Options Rule 6.62P–O(i).
Proactive if Locked/Crossed Modifier.
Proposed Rule 900.3NYP(i)(1) is
identical to Arca Options Rule 6.62P–
O(i)(1) and would provide that a Limit
Order that is displayed and eligible to
route and designated with a Proactive if
Locked/Crossed Modifier would route to
an Away Market if the Away Market
locks or crosses the display price of the
order and that if any quantity of the
routed order is returned unexecuted, the
order would be displayed in the
Consolidated Book. The Exchange
believes that offering this as an optional
modifier for Limit Orders would
provide ATP Holders with additional
flexibility to designate a resting
displayed order to route if it becomes
locked or crossed by an Away Market.
Self-Trade Prevention (‘‘STP’’)
Modifier. Self-Trade Prevention (‘‘STP’’)
Modifiers are currently defined in
Commentary .02 to Rule 964NY and are
available only for Market Maker orders
and quotes. On Pillar, and identical to
PO 00000
Frm 00017
Fmt 4701
Sfmt 4703
45745
STP functionality on Arca Options Rule
6.62P–O(i)(2), the Exchange proposes to
expand the availability of STP to all
orders and quotes to offer this
protection to trading interest of all ATP
Holders, not just Market Makers. The
Exchange believes this expansion is
appropriate because it would facilitate
market participants’ compliance and
risk management by assisting them in
avoiding unintentional wash-sale
trading. Because STP Modifiers are an
instruction that can be added to an
order or quote, the Exchange proposes
that for Pillar, STP Modifiers would be
described in proposed Rule
900.3NYP(i)(2) and would be available
to all market participants.
Proposed Rule 900.3NYP(i)(2) is
identical to Arca Options Rule 6.62P–
O(i)(2) and would provide that an
Aggressing Order or Aggressing Quote to
buy (sell) designated with one of the
STP modifiers in proposed Rule
900.3NYP(i)(2) would be prevented
from trading with a resting order or
quote to sell (buy) also designated with
an STP modifier and from the same
Client ID; the same MPID, and, if
specified, any sub-identifier of that
MPID; or an Affiliate (as defined in Rule
900.2NY) identifier, with any such
identifier referred to as a ‘‘Unique
Identifier.’’ Proposed Rule
900.3NYP(i)(2) would also provide that
the STP modifier on the Aggressing
Order or Aggressing Quote would
control the interaction between two
orders and/or quotes marked with STP
modifiers. In addition, STP would not
be applicable during an Auction or to
Cross Orders or when a Complex Order
legs out. This proposed rule text is
based on Commentary .02 to Rule
964NY with non-substantive differences
to use Pillar terminology.
Proposed Rule 900.3NYP(i)(2) would
further provide that if the condition for
a Limit Order designated FOK, an AON
Order, or an arriving order with an MTS
modifier designated under proposed
Rule 900.3NYP(i)(3)(B)(i) (described
below) cannot be met because of STP
modifiers, such order would either be
cancelled or placed on the Consolidated
Book, as applicable. This functionality
would be the same as on Arca Options
Pillar and reflects that for order types
that must trade a specified quantity
(either in full or a specified minimum
quantity) and could trade with multiple
contra-side orders to meet that size
requirement, such order types would
not be compatible with applying STP,
which examines a one-on-one
relationship between two interacting
orders. This proposed rule text provides
clarity that if a condition of an order
cannot be met because of STP modifiers,
E:\FR\FM\17JYN3.SGM
17JYN3
ddrumheller on DSK120RN23PROD with NOTICES3
45746
Federal Register / Vol. 88, No. 135 / Monday, July 17, 2023 / Notices
the order would either cancel (i.e., a
Limit Order designated FOK or an order
with an MTS modifier), or be added to
the Consolidated Book (i.e., an AON
Order), and then such resting orders
would function as described in Rule
900.3NYP.
The proposed rule would further
provide that Aggressing Orders or
Aggressing Quotes would be processed
as follows:
• Proposed Rule 900.3NYP(i)(2)(A) is
identical to Arca Options Rule 6.62P–
O(i)(2)(A) and would describe STP
Cancel Newest (‘‘STPN’’) and provide
that an Aggressing Order or Aggressing
Quote to buy (sell) marked with the
STPN modifier would not trade with
resting interest to sell (buy) marked with
any STP modifier from the same Unique
Identifier; that the Aggressing Order or
Aggressing Quote marked with the
STPN modifier would be cancelled; and
that the resting order or quote marked
with one of the STP modifiers would
remain on the Consolidated Book. This
proposed rule is based on Commentary
.02(a) to Rule 964NY with differences to
use Pillar terminology and to extend
STP functionality to orders with the
same Unique Identifiers.
• Proposed Rule 900.3NYP(i)(2)(B) is
identical to Arca Options Rule 6.62P–
O(i)(2)(B) and would describe STP
Cancel Oldest (‘‘STPO’’) and provide
that an Aggressing Order or Aggressing
Quote to buy (sell) marked with the
STPO modifier would not trade with
resting interest to sell (buy) marked with
any STP modifier from the same Unique
Identifier; that the resting order or quote
marked with the STP modifier would be
cancelled; and that the Aggressing Order
or Aggressing Quote marked with the
STPO modifier would be placed on the
Consolidated Book. This proposed rule
is based on Commentary .02(b) to Rule
964NY with differences to use Pillar
terminology and to extend STP
functionality to orders with the same
Unique Identifiers.
• Proposed Rule 900.3NYP(i)(2)(C) is
identical to Arca Options Rule 6.62P–
O(i)(2)(C) and would describe STP
Cancel Both (‘‘STPC’’) and provide that
an Aggressing Order or Aggressing
Quote to buy (sell) marked with the
STPC modifier would not trade with
resting interest to sell (buy) marked with
any STP modifier from the same Unique
Identifier and that the entire size of both
orders and/or quotes would be
cancelled. This proposed rule is based
on Commentary .02(c) to Rule 964NY
with differences to use Pillar
terminology and to extend STP
functionality to orders with the same
Unique Identifiers.
VerDate Sep<11>2014
18:41 Jul 14, 2023
Jkt 259001
Minimum Trade Size Modifier. The
Exchange proposes to add the Minimum
Trade Size (‘‘MTS’’) Modifier, which is
based on the same functionality
described in Arca Options Rule 6.62P–
O(i)(3), except that the MTS Modifier
would only be available for Limit IOC
Orders and, as such, the Exchange
would not include rule text describing
how the MTS Modifier would apply to
resting orders.81 The Exchange proposes
to provide this modifier for options
trading to provide ATP Holders with
more features with respect to order
handling. The proposed MTS Modifier
is similar in concept to both FOK and
AON, which are currently available for
options trading. With the MTS Modifier,
an ATP Holder would have greater
flexibility to designate a size smaller
than the entire quantity (which is
current FOK and AON functionality) as
a condition for execution. In addition to
Arca Options, other options exchanges
also offer the use of an MTS Modifier.82
Proposed Rule 900.3NYP(i)(3)(A) is
identical to Arca Options Rule 6.62P–
O(3)(A) and would provide that the
quantity of the MTS Modifier may be
less than the order quantity; however,
an order would be rejected if it has an
MTS Modifier quantity that is larger
than the size of the order.
Proposed Rule 900.3NYP(i)(3)(B) is
identical to Arca Options Rule 6.62P–
O(3)(B) and would provide that one of
the following instructions must be
specified with respect to whether an
order to buy (sell) with an MTS
Modifier would trade on arrival with: (i)
orders or quotes to sell (buy) in the
Consolidated Book that in the aggregate
meet such order’s MTS; or (ii) only
individual order(s) or quote(s) to sell
(buy) in the Consolidated Book that
each meets such order’s MTS. As noted
above, this proposed rule is identical to
Arca Options Rule 6.62P–O(i)(3)(B) and
sub-paragraphs (i) and (ii).
81 On Arca Options, in addition to Limit IOC
Orders, the MTS Modifier can apply to NonDisplayed Limit Orders. See Arca Options Rule
6.62P–O(i)(3). However, as discussed infra, the
Exchange is not adopting Non-Displayed Limit
Orders and therefore has no reason to discuss the
application of MTS functionality to such order
types. Similarly, because the MTS Modifier may
only be applied to IOC Orders, the Exchange is not
adopting rule text regarding how MTS functionality
is applied to orders not executed immediately as
such text would be inapplicable. See e.g., Arca
Options Rules 6.62P–O(i)(3)(C), (E) and (F). The
Exchange believes this distinction is immaterial
because the MTS Modifier operates in the same
manner on both exchanges when applied to Limit
IOC Orders.
82 See, e.g., Nasdaq Options 3, Section 7(a)(3)(B)
(describing ‘‘Minimum Quantity Order’’ as ‘‘an
order that requires that a specified minimum
quantity of contracts be obtained, or the order is
cancelled’’).
PO 00000
Frm 00018
Fmt 4701
Sfmt 4703
Proposed Rule 900.3NYP(i)(3)(C)
would provide that an order with an
MTS Modifier cannot be immediately
executed would be cancelled. This
proposed rule is based on Arca Options
Rule 6.62P–O(i)(3)(D).
Finally, proposed Rule 900.3NYP(i)(4)
would define a ‘‘Directed Orders’’ to be
the same as the Rule 900.3NY(s)
definition of Directed Order, except that
the wording of the proposed definition
is more streamlined with regard to the
requirement that a Directed Order be
submitted electronically.
In connection with proposed Rule
900.3NYP, the Exchange proposes to
add the following preamble to Rule
900.3NY: ‘‘This Rule is not applicable to
trading on Pillar.’’ This proposed
preamble is designed to promote clarity
and transparency in Exchange rules that
Rule 900.3NY would not be applicable
to trading on Pillar.
Proposed Rule 925.1NYP: Market Maker
Quotations
Current Rule 925.1NY describes
Market Maker quoting obligations,
including defining ‘‘quotations,’’
describing the treatment of such
quotations, and specifying Market
Maker and Specialist quoting
obligations. Proposed Rule 925.1NYP is
identical to Arca Options Rule 6.37AP–
O and would set forth Market Maker
quoting obligations under Pillar.
Current Rule 925.1NY(a)(1) provides
that ‘‘[t]he term ‘quote’ or ‘quotation’
means a bid or offer entered by a Market
Maker that updates the Market Maker’s
previous bid or offer, if any.’’ Pursuant
to this Rule, a Market Maker’s same-side
quote would be updated when a Market
Maker uses the same ATP for quote
entry.83 Although not specified in the
current rule, the Exchange System
utilizes a unique identifier for each
Specialist to send quotes, and, as a
result, a Specialist cannot have more
than one same-side quote in an assigned
series.84 Therefore, Specialist quotes are
subject to the current Rule
925.1NY(a)(1) requirement that a new
same-side quote sent by that Specialist
updates the previous bid or offer, if any.
On Pillar, Specialists (like Market
Markets not acting as Specialists) would
83 See NYSE American Options Fee Schedule,
Section V.A. Port Fees (setting forth fees for order/
quote entry ports, which fees are currently $450 per
port per month for the first forty such ports and
$150 per port per month for each port in excess of
forty (i.e., 41 and greater), available here: https://
www.nyse.com/publicdocs/nyse/markets/americanoptions/NYSE_American_Options_Fee_
Schedule.pdf.
84 On the Exchange System, Market Makers not
acting as Specialists may opt to utilize multiple
ATPs to send more than one same-side quote in the
same assigned series.
E:\FR\FM\17JYN3.SGM
17JYN3
Federal Register / Vol. 88, No. 135 / Monday, July 17, 2023 / Notices
ddrumheller on DSK120RN23PROD with NOTICES3
be able to send multiple same-side
quotes associated with its ATP by
utilizing different order/quote entry
ports (i.e., in Pillar, Specialist 1 can
send a bid for 1.00 in XYZ over order/
quote entry port 1 and another bid for
1.00 in XYZ over order/quote entry port
2 and the bid sent via order/quote entry
port 2 would not replace the quote sent
over order/quote entry port 1).85
Consistent with current functionality,
on Pillar, the Exchange would provide
Market Makers with the ability to
designate bids and offers as quotations.
Currently, the Exchange offers
designated ‘‘quotation’’ types to Market
Makers, which are described in Rule
925.1NY(a)(3).86 On Pillar, as described
above in connection with proposed Rule
900.3NYP(e)(1), the Exchange is
proposing to offer quotation
functionality for Market Makers that
would be displayed, traded, repriced, or
cancelled in the same manner as NonRoutable Limit Orders. As such, Market
Makers may designate this ‘‘order’’ type
as a quotation and, if designated as a
quotation, such bids and offers would
be displayed, traded, repriced, or
cancelled as described in proposed Rule
900.3NYP(e)(1), as discussed in detail
above. In addition, such quotations
would be ranked and executed as
described in Rule 964NYP.87 Moreover,
if designated as a quotation, such bids
or offers would be identifiable to the
Exchange as ‘‘quotations,’’ subject to the
Market Maker and Specialist
requirements relating to quotations and
the Exchange would be able to monitor
a Market Maker’s compliance with
quoting obligations because its bids or
offers would be designated as
quotations. If a Market Maker does not
choose to designate a bid or offer as a
quotation, such bid or offer would be
processed as an ‘‘order’’ and would not
count towards a Market Maker’s quoting
obligations.88
85 See, e.g., Rules 964NYP(h)(1)(A)(ii) and
(h)(2)(B) (providing for the handling of multiple
same-side quotes in an assigned series submitted by
a Directed Order Market Makers or Specialist,
respectively). See also Arca Options Rule 6.37AP–
O(a)(1)(A) (providing for the handling of multiple
same-side quotations submitted via the same quote
entry port).
86 As described in Rule 925.1NY(a)(3)(A) and (B),
respectively, a Market Maker may designate a quote
as Market Maker-Light Only Quotation (‘‘MMLO’’)
or Market Maker—Repricing Quotation (‘‘MMRP’’).
87 See Rule 964NYP.
88 For example, a Market Maker could choose to
designate a Non-Routable Limit Order as either a
quote or as an order, which is consistent with
current Rule 925.2NY, which provides that a
Market Maker may enter all order types permitted
to be entered by Users under the Rules to buy or
sell options in all classes of options listed on the
Exchange. Accordingly, the functionality set forth
in proposed Rule 925.1NYP(a)(2) herein is not
materially different for Market Makers because,
VerDate Sep<11>2014
18:41 Jul 14, 2023
Jkt 259001
• Rule 925.1NYP(a) is identical to
Arca Options Rule 6.37AP–O(a) and
would provide that a Market Maker may
send quotations only in the issues
included in its appointment. This
functionality is based on current Rule
925.1NY(a) but differs in that the
proposed rule would use the term
‘‘send’’ rather than ‘‘enter,’’ which is a
stylistic preference that does not alter
the functionality.
• Proposed Rule 925.1NYP(a)(1) is
identical to Arca Options Rule 6.37AP–
O(a)(1) and would provide that the term
‘‘quote’’ or ‘‘quotation’’ means ‘‘a bid or
offer sent by a Market Maker that is not
sent as an order,’’ and that ‘‘[a]
quotation sent by a Market Maker will
replace a previously displayed sameside quotation that was sent from the
same order/quote entry port of that
Market Maker’’ and ‘‘[i]f multiple sameside quotations are submitted via the
same quote entry port, the Exchange
will display the Market Maker’s most
recent same-side quotation.’’ The
proposed Rule reflects that, on Pillar
and as described above, Specialists
would be able to send multiple sameside quotes associated with its ATP by
utilizing different order/quote entry
ports.89 Because Specialists would be
Market Makers on Pillar, this
functionality would also be available to
Specialists.90
The NYSE American Options Fee
Schedule makes clear that Market
Makers can obtain upwards of forty
ports for quote entry. Thus, the
Exchange believes that establishing
when a Market Maker’s previously
displayed same-side quotation would be
replaced (i.e., when sent via the same
order/quote entry port) would add
clarity and transparency to Exchange
rules. This proposed rule text is also
designed to clarify the Exchange’s
handling of successive Market Maker
quotations (from the same quote entry
port in the same side and series) should
a Market Maker’s quotations queue
during a period of excessive message
traffic. No system, including Pillar, has
unlimited capacity. Accordingly, should
the Exchange be in receipt of multiple
same-side quotations in the same series
from the same Market Maker, the
Exchange proposed that it would
display only the most recent quotation
under current functionality, they can choose to
send as Market Maker orders any order type
described in current Rule 900.3NY, including, for
example, RPNP and PNP-Blind Order.
89 See supra note 85 (regarding Rules
964NYP(h)(1)(A)(ii) and (h)(2)(B)).
90 See Rule 920NY (Market Makers) (providing
that for purposes of Exchange rules, the term
Market Maker includes Specialists, unless the
context otherwise indicates).
PO 00000
Frm 00019
Fmt 4701
Sfmt 4703
45747
to ensure accurate representation of that
Market Maker’s quoting interest. In
addition, because the Exchange
proposes that a Market Maker may
designate Non-Routable Limit Orders as
quotes, the Exchange proposes a
difference from the current Rule to
provide that a quote is a bid or offer not
designated as an order.
• Proposed Rule 925.1NYP(a)(2)
would provide that a Market Maker may
designate a Non-Routable Limit Order as
a quote and such quotes would be
processed as described in proposed Rule
900.3NYP(e)(1).91 Proposed Rule
925.1NYP(a)(2) is the same as Arca
Options Rule 6.37AP–O(a)(2), except
that the proposed rule does not
reference ALO Orders, which order type
is not offered by the Exchange today nor
will the order type be offered on Pillar.
The similarities and differences between
the proposed Non-Routable Limit
Orders on Pillar compared to the
existing quote types (e.g., MMRP) are
described in more detail above.92
Because proposed Rule 900.3NYP(e)(1)),
described above, would set forth the
treatment of a Non-Routable Limit Order
designated as a quote, the Exchange is
not proposing to include a (duplicative)
section in proposed Rule 925.1NYP
regarding the treatment of such quotes.
• Proposed Rules 925.1NYP(b)–(e)
would be substantively identical to
current Rules 925.1NY(b)–(e), with nonsubstantive differences to change the
term ‘‘shall’’ to ‘‘will,’’ which is a
stylistic preference that would add
consistency to Exchange rules. These
proposed rules would also be the same
as Arca Options Rules 6.37AP–O(b)–(e),
except that Arca Options Rule 6.37AP–
O(b) describes quoting obligations for
Lead Market Makers or LMMs, whereas
proposed Rule 925.1NYP(b) would
describe quoting obligations for
Specialists.
Proposed Commentary .01 to Rule
925.1NYP is identical to Commentary
.01 to Arca Options Rule 6.37AP–O and
would also be substantively identical to
Commentary .01 to Rule 925.1NY, with
non-substantive differences to
streamline the rule text.
91 See discussion supra regarding proposed Rule
900.3NYP(e)(1), Non-Routable Limit Orders, being
available as quote types and how such orders
compare to the existing MMRP quotation
functionality.
92 The Exchange notes that it is not proposing the
functionality set forth in current Rule
925.1NY(a)(4)(D) that provides for the cancellation
of a Market Maker’s quote on the opposite side of
the market whenever that Market Maker’s same-side
quotation is cancelled because such quotation
would lock or cross another options exchange is not
designated to reprice (e.g., as an MMRP). This
current functionality is based on a system limitation
that would not exist under Pillar.
E:\FR\FM\17JYN3.SGM
17JYN3
45748
Federal Register / Vol. 88, No. 135 / Monday, July 17, 2023 / Notices
ddrumheller on DSK120RN23PROD with NOTICES3
The Exchange also proposes a nonsubstantive change to paragraph (b) of
Rule 953.1NY (Limit-Up and LimitDown During Extraordinary Market
Volatility) to update the cross reference
to Market Maker quoting obligations as
set forth in Rules 925.1NYP(b) and (c).
In connection with proposed Rule
925.1NYP, the Exchange proposes to
add the following preamble to Rule
925.1NY: ‘‘This Rule is not applicable to
trading on Pillar.’’ This proposed
preamble is designed to promote clarity
and transparency in Exchange rules that
Rule 925.1NY would not be applicable
to trading on Pillar.
Proposed Rule 928NY: Pre-Trade and
Activity-Based Risk Controls
Current Rule 928NY sets forth the
activity-based Risk Limitation
Mechanisms for orders and quotes,
which are designed to help ATP Holders
effectively manage risk during periods
of increased and significant trading
activity. With the transition to Pillar, the
Exchange proposes to incorporate new
risk control functionality that is based
on the Exchange’s existing activitybased risk controls and on pre-trade risk
controls that are available on Arca
Options. Specifically, proposed Rule
928NYP is identical to Arca Options
Rule 6.40P–O and would describe the
activity-based controls with updated
functionality under Pillar and would
also describe new optional pre-trade
risk controls. The Exchange believes
that adding pre-trade risk controls
(together with the enhanced activitybased controls), as described below,
would provide greater flexibility to ATP
Holders in establishing risk controls to
align with their risk tolerance for both
orders and quotes.
Proposed Rule 928NYP(a) is identical
to Arca Options Rule 6.40P–O(a) and
would set forth the following definitions
that would be used for purposes of the
Rule:
• The term ‘‘Entering Firm’’ would
mean an ATP Holder (including those
acting as Market Makers) (proposed
Rule 928NYP(a)(1), which is identical to
Arca Options Rule 6.40P–O(a)(1)). The
Exchange believes that the addition of
this term would add clarity to the
proposed rule by using a single, defined
term to describe which entities,
including Market Makers, could avail
themselves of the proposed pre-trade
risk controls.
• The term ‘‘Pre-Trade Risk Controls’’
would refer to optional limits that an
Entering Firm may utilize with respect
to its trading activity on the Exchange
(excluding interest represented in open
outcry except CTB Orders (proposed
Rule 928NYP(a)(2), which is identical to
VerDate Sep<11>2014
18:41 Jul 14, 2023
Jkt 259001
Arca Options Rule 6.40P–O(a)(2)).
Proposed Rules 928NYP(a)(2)(A)(i)–(v)
would define the available ‘‘SingleOrder Risk Controls,’’ which are
identical to the checks offered per Arca
Options Rules 6.40P–O(a)(2)(A)(i)–(v),
as follows:
Æ controls related to the maximum
dollar amount for a single order to be
applied one time (‘‘Single Order
Maximum Notional Value Risk Limit’’)
and the maximum number of contracts
that may be included in a single order
before it can be traded (‘‘Single Order
Maximum Quantity Risk Limit’’) and
providing that GTC Orders would be
subject to these checks only once
(proposed Rule 928NYP(a)(2)(A)(i),
which is identical to Arca Options Rule
6.40P–O(a)(2)(A)(i)).
Æ controls related to the price of an
order or quote (including percentagebased and dollar-based controls)
(proposed Rule 928NYP(a)(2)(A)(ii),
which is identical to Arca Options Rule
6.40P–O(a)(2)(A)(ii));
Æ controls related to the order types
or modifiers that can be utilized
(proposed Rule 928NYP(a)(2)(A)(iii),
which is identical to Arca Options Rule
6.40P–O(a)(2)(A)(iii));
Æ controls to restrict the options class
transacted (proposed Rule
928NYP(a)(2)(A)(iv), which is identical
to Arca Options Rule 6.40P–
O(a)(2)(A)(iv)); and
Æ controls to prohibit duplicative
orders (proposed Rule
928NYP(a)(2)(A)(v), which is identical
to Arca Options Rule 6.40P–
O(a)(2)(A)(v)).
Like on Arca Options, use of the pretrade risk controls proposed would be
optional, but all orders and quotes on
the Exchange would pass through these
risk checks.93 As such, an Entering Firm
that does not choose to set limits
pursuant to the new proposed pre-trade
risk controls would not achieve any
latency advantage with respect to its
trading activity on the Exchange.94 The
93 The Exchange notes that there is nothing
unique about this approach as functionality on the
Exchange is often applied uniformly to all orders
and quotes, regardless of whether a particular client
has opted to use that functionality for a particular
order or quote. For example, the Exchange’s limit
order price protection applies generally to trading
on the Exchange and orders or quotes with limit
prices are not processed more slowly than those
without. Similarly, the Exchange’s trading systems
check all orders and quotes for a variety of details
and modifiers (e.g., duplicative client order check,
order capacity check, and self-trade prevention).
See, e.g., Securities Exchange Act Release Nos.
97147 (March 21, 2023), 88 FR 17072, at 17073–76
(March 15, 2023) (SR–NYSEArca–2023–24).
94 See id., 88 FR, at 17073–76 (discussing, among
other things, that ‘‘because all orders on the
Exchange would pass through the pre-trade risk
controls, there would be no difference in the
PO 00000
Frm 00020
Fmt 4701
Sfmt 4703
Exchange understands that the risk
checks of other exchanges, on which the
proposed functionality is modeled, also
apply symmetrically to all orders.95
• The term ‘‘Activity-Based Risk
Controls’’ would refer to three activitybased risk limits that an Entering Firm
may apply to its orders and quotes in an
options class (excluding those
represented in open outcry except CTB
Orders) based on specified thresholds
measured over the course of an Interval
(to be defined below) (proposed Rule
928NYP(a)(3), which is identical to Arca
Options Rule 6.40P–O(a)(3)). The
proposed Activity-Based Risk Controls
are based on the substantially identical
risk controls set forth in current Rules
928NY(b)–(d), except that, on Pillar (and
identical to Arca Options), a Market
Maker’s orders and quotes would be
aggregated and applied towards each
risk limit (as opposed to current
functionality, where a Market Maker’s
orders and quotes are counted
separately). The Exchange believes that
aggregating a Market Maker’s quotes and
orders for purposes of calculating
activity-based risk controls, which
mirrors the application of such controls
on Arca Options, would better reflect
the aggregate risk that a Market Maker
has with respect to its quotes and
orders. The proposed rule would also
add detail to make clear that orders and
quotes represented in open outcry,
except CTB Orders, would not be
subject to these controls, which is
consistent with current functionality.
Æ The term ‘‘Transaction-Based Risk
Limit’’ would refer to a pre-established
limit on the number of an Entering
Firm’s orders and quotes executed in a
specified class of options per Interval
(proposed Rule 928NYP(a)(3)(A), which
is identical to Arca Options Rule 6.40P–
O(a)(3)(A)). This risk control is based on
latency experienced by [Arca Options] OTP Holders
who have opted to use the additional ‘Pre-Trade
Risk Controls’ versus those who have not opted to
use them.’’). To the extent that any latency occurs
in connection with the proposed pre-trade risk
controls, the Exchange expects that (like on Arca
Options) such latency would be significantly less
than one microsecond. See id., 88 FR, at 17073.
95 See, e.g., MEMX Risk FAQ, dated October 13,
2020, available at https://info.memxtrading.com/usequities-faq/#Bookmark21 (‘‘The risk checks are
applied in a consistent manner to all participant
orders in order to mitigate risk without incurring
latency disadvantage.’’); MIAX Pearl Equities
Exchange User Manual, updated October 2022,
available at https://www.miaxequities.com/sites/
default/files/website_file-files/MIAX_Pearl_
Equities_User_Manual_October_2022.pdf, at 29
(stating that all but two of the exchange’s 14 risk
checks ‘‘are latency equalized i.e. there is no latency
penalty for a member when opting into and
leveraging a risk protection available on the
exchange when entering an order as compared to
a member not opting into the risk protection when
entering an order’’).
E:\FR\FM\17JYN3.SGM
17JYN3
ddrumheller on DSK120RN23PROD with NOTICES3
Federal Register / Vol. 88, No. 135 / Monday, July 17, 2023 / Notices
the substantially identical risk control
set forth in current Rule 928NY(b), with
the difference described above that a
Market Maker’s orders and quotes
would be aggregated.
Æ The term ‘‘Volume-Based Risk
Limit’’ would refer to a pre-established
limit on the number of contracts of an
Entering Firm’s orders and quotes that
could be executed in a specified class of
options per Interval (proposed Rule
928NYP(a)(3)(B), which is identical to
Arca Options Rule 6.40P–O(a)(3)(B)).
This risk control is based on the
substantially identical risk control set
forth in current Rule 928NY(c), with the
difference described above that a Market
Maker’s orders and quotes would be
aggregated.
Æ The term ‘‘Percentage-Based Risk
Limit’’ would refer to a pre-established
limit on the percentage of contracts
executed in a specified class of options
as measured against the full size of such
Entering Firm’s orders and quotes
executed per Interval (proposed Rule
928NYP(a)(3)(C), which is identical to
Arca Options Rule 6.40P–O(a)(3)(C)).
The proposed definition, like the Arca
Options definition, would also provide
that to determine whether an Entering
Firm has breached the specified
percentage limit, the Exchange would
calculate the percent of each order or
quote in a specified class of option that
is executed during an Interval (each, a
‘‘percentage’’), and sum up those
percentages. As further proposed (and
like on Arca Options), this proposed
definition would state that this risk
limit would be breached if the sum of
the percentages exceeds the preestablished limit. This risk control is
based on the substantially identical risk
control set forth in current Rule
928NY(d), with the difference described
above that a Market Maker’s orders and
quotes would be aggregated.
• The term ‘‘Global Risk Control’’
would refer to a pre-established limit on
the number of times an Entering Firm
may breach its Activity-Based Risk
Controls per Interval (proposed Rule
928NYP(a)(4), which is identical to Arca
Options Rule 6.40P–O(a)(4)). This
proposed definition is also based on the
substantially similar functionality set
forth in current Rule 928NY(f). The
Exchange believes this proposed
definition would add clarity and
transparency to Exchange rules.
• The term ‘‘Interval’’ would refer to
the configurable time period during
which the Exchange would determine if
an Activity-Based Risk Control or the
Global Risk Control has been breached
(proposed Rule 928NYP(a)(5), which is
identical to Arca Options Rule 6.40P–
O(a)(5)). This proposed definition is
VerDate Sep<11>2014
18:41 Jul 14, 2023
Jkt 259001
consistent with current Rule 928NY,
which contains references throughout to
a ‘‘time period’’ during which the
Exchange will determine whether a
breach has occurred. The Exchange
believes this proposed definition would
add clarity and transparency to
Exchange rules.
• The term ‘‘Auction-Only Orders’’
would refer to the order types set for in
proposed Rule 900.3NYP(c), as
described in detail above (proposed
Rule 928NYP(a)(6), which is identical to
Arca Options Rule 6.40P–O(a)(6)).
Proposed Rules 928NYP(b)(1)–(2) are
identical to Arca Options Rules 6.40P–
O(b)(1)–(2) and would set forth how the
Pre-Trade, Activity-Based and Global
Risk Controls could be set or adjusted.
Proposed Rule 928NYP(b)(1) would
provide that these risk controls may be
set before the beginning of a trading day
and may be adjusted during the trading
day. Proposed Rule 928NYP(b)(2) would
provide that Entering Firms may set
these risk controls at the MPID level or
at one or more sub-IDs associated with
that MPID, or both, and further provide
that Pre-Trade Risk Controls to restrict
the options class(es) transacted must be
set per option class.
Proposed Rule 928NYP(c) is identical
to Arca Options Rule 6.40P–O(c) and
would set forth the Automated Breach
Actions that the Exchange would take if
a designated risk limit is breached.
Proposed Rules 928NYP(c)(1)(A)(i)–(iii)
are identical to Arca Options Rules
6.40P–O(c)(1)(A)(i)–(iii) and would set
forth the automated breach actions for
the Pre-Trade Risk Controls as described
below.
• Proposed Rule 928NYP(c)(1)(A)(i)
would provide that a Limit Order or
quote that breaches any Single-Order
Risk Control would be rejected.
• Proposed Rule 928NYP(c)(1)(A)(ii)
would provide that a Market Order that
arrives during a pre-open state will be
cancelled if the quantity remaining to
trade after an Auction breaches the
Single Order Maximum Notional Value
Risk Limit, and that at all other times,
a Market Order that triggers or breaches
any Single-Order Risk Control will be
rejected.96
• Proposed Rule 928NYP(c)(1)(A)(iii)
would provide that a Limit Order or
quote that would breach a price control
under paragraph (a)(2)(A)(ii) above
would be rejected or cancelled as
specified in Rule 900.3NYP(a)(3)(A)
(Limit Order Price Protection).
96 The term ‘‘Auction’’ is defined in proposed
Rule 952NYP(a)(1), described below in the
discussion of proposed Rule 952NYP, to mean the
opening or reopening of a series for trading either
on a trade or quote.
PO 00000
Frm 00021
Fmt 4701
Sfmt 4703
45749
Consistent with Arca Options, the
Exchange likewise proposes to process
Market Orders differently from Limit
Orders because, until a series is opened,
the Exchange is not able to calculate the
Single Order Notional Value Risk Limit
for a Market Order.97 Accordingly, as is
the case on Arca Options, this proposed
risk limit would be applied only after a
series opens, at which point, a Market
Order would be cancelled if it fails the
risk limit.
Proposed Rule 928NYP(c)(2) is
identical to Arca Options Rule 6.40P–
O(c)(2) and would set forth the
automated breach actions for the
Activity-Based Risk Controls.
• Proposed Rule 928NYP(c)(2)(A) is
identical to Arca Options Rule 6.40P–
O(c)(2)(A) and would first specify that
an Entering Firm acting as a Market
Maker would be required to apply one
of the Activity-Based Risk Controls to
all of its orders and quotes; whereas an
Entering Firm that is not acting as a
Market Maker would have the option,
but would not be required, to apply one
of the Activity-Based Risk Controls to its
orders. The requirement that Market
Makers utilize Activity-Based Risk
Controls for all quotes mirrors the
requirements set forth in Rule 928NY,
Commentary .04(a); however, the
proposed rule differs in that it likewise
requires Market Makers to apply one of
the Activity-Based Risk Controls to all
of its orders. The Exchange believes that
requiring that both Market Maker quotes
and Market Maker orders be subject to
one of the Activity-Based Controls
would enhance Market Makers’ ability
to assess their total risk exposure on the
Exchange. The proposed optionality of
the Activity-Based Risk controls for
orders sent by an Entering Firm not
acting as a Market Maker mirrors
current Rule 928NY, Commentary
.04(b).
• Proposed Rule 928NYP(c)(2)(B) is
identical to Arca Options Rule 6.40P–
O(c)(2)(B) and would provide that to
determine when an Activity-Based Risk
Control has been breached, the
Exchange would maintain Trade
Counters that would be incremented
every time an order or quote trades,
including any leg of a Complex Order,
and would aggregate the number of
contracts traded during each such
execution. As further proposed, an
Entering Firm may opt to exclude any
orders designated IOC or FOK from
being considered by a Trade Counter.
This is consistent with existing
functionality set forth in Rule 928NY(a)
97 Compare Arca Options Rules 6.40P–
O(c)(1)(A)(ii) and (iii) with proposed Rules
928NYP(c)(1)(A)(ii) and (iii).
E:\FR\FM\17JYN3.SGM
17JYN3
ddrumheller on DSK120RN23PROD with NOTICES3
45750
Federal Register / Vol. 88, No. 135 / Monday, July 17, 2023 / Notices
and Commentary .07, with a proposed
difference to allow an Entering Firm to
also exclude orders designated FOK,
which, like orders designated IOC,
cancel if not executed on arrival and is
based on current functionality.98 The
Exchange believes that specifying that
orders designated FOK could be
excluded from being considered for a
Trade Counter would mirror handling of
such orders on Arca Options and would
add granularity and clarity to Exchange
rules. In addition, as noted above, a
Market Maker’s quotes and orders in a
given option class would be aggregated
and therefore the Exchange proposes
that there would not be separate Trade
Counters for a Market Maker’s quotes
and orders.
• Proposed Rule 928NYP(c)(2)(C) is
identical to Arca Options Rule 6.40P–
O(c)(2)(C) and would provide that each
Entering Firm must select one of three
Automated Breach Actions for the
Exchange to take should the Entering
Firm breach an Activity-Based Risk
Control.
Æ ‘‘Notification Only.’’ As set forth in
proposed Rule 928NYP(c)(2)(C)(i)
(which is identical to Arca Options Rule
6.40P–O(c)(2)(C)(i)), if this option is
selected, the Exchange would continue
to accept new order and quote messages
and related instructions and would not
cancel any unexecuted orders or quotes
in the Consolidated Book. With the
‘‘Notification Only’’ action, the
Exchange would provide such
notifications, but would not take any
other automated actions with respect to
new or unexecuted orders. The
Exchange believes that making this
Automated Breach Action available to
Activity-Based Risk Controls, which are
unique to options trading, would
provide Entering Firms more control
and flexibility over setting risk tolerance
and, as such, over how Activity-Based
Risk Controls are implemented.
Æ ‘‘Block Only.’’ As set forth in
proposed Rule 928NYP(c)(2)(C)(ii)
(which is identical to Arca Options Rule
6.40P–O(c)(2)(C)(ii)), if this option is
selected, the Exchange would reject new
order and quote messages and related
instructions, provided that the Exchange
would continue to process instructions
from the Entering Firm to cancel one or
more orders or quotes (including
Auction-Only Orders) in full. The
98 See Securities Exchange Act Release No. 81716
(September 25, 2017), 82 FR 45653 (September 29,
2017) (SR–NYSEAMER–2017–10) (immediately
effective filing to exclude IOC Orders from risk
settings because such exclusion, among other
things, would result in risk settings that may be
better calibrated to suit the needs of certain market
participants (i.e., those that routinely utilize IOC
orders to access liquidity on the Exchange)).
VerDate Sep<11>2014
18:41 Jul 14, 2023
Jkt 259001
proposed rule would also provide that
the Exchange would follow any
instructions specified in paragraph (e) of
the proposed Rule (and described
below). The Exchange believes that
making this Automated Breach Action
available to Activity-Based Risk
Controls, which are unique to options
trading, would provide Entering Firms
more control and flexibility over setting
risk tolerance and, as such, over how
Activity-Based Risk Controls are
implemented.
Æ ‘‘Cancel and Block.’’ As set forth in
proposed Rule 928NYP(c)(2)(C)(iii)
(which is identical to Arca Options Rule
6.40P–O(c)(2)(C)(i)), if this option is
selected, in addition to the Block Only
actions described above, the Exchange
would also cancel all unexecuted orders
and quotes in the Consolidated Book
other than Auction-Only Orders and
orders designated GTC. This proposed
Cancel and Block functionality is
substantially similar to the automated
breach action taken by the Exchange per
current Rule 928NY(e) and
Commentaries .01 and .02 thereto,
except that under the current rules, this
is default (not optional) functionality.
The Exchange believes that making this
Automated Breach Action available to
respond to a breach of Activity-Based
Risk Controls, which are unique to
options trading, would provide Entering
Firms more control and flexibility over
setting risk tolerance and, as such, over
how Activity-Based Risk Controls are
implemented.
• Finally, proposed Rule
928NYP(c)(2)(D) is identical to Arca
Options Rules 6.40P–O(c)(2)(D) and
would provide that if an Entering Firm
breaches an Activity-Based Risk
Control, the Automated Breach Action
selected would be applied to its orders
and quotes in the affected class of
options. This proposed action is
consistent with current Rule 928NY(e)
and Commentaries .01 and .02 thereto,
which provide that, upon a breach, the
Exchange will cancel existing and
suspend new orders and quotes trading
in the affected class.
Proposed Rule 928NYP(c)(2)(E) is
identical to Arca Options Rule 6.40P–
O(c)(2)(E) and would provide that the
Exchange would specify by Trader
Update any applicable minimum,
maximum and/or default settings for the
Activity-Based Risk Controls, subject to
the following:
• For the Transaction-Based Risk
Limit, the minimum setting would not
be less than one and the maximum
setting would not be more than 2,000
(proposed Rule 928NYP(c)(2)(E)(i)),
which settings are identical to the
Exchange-determined settings provided
PO 00000
Frm 00022
Fmt 4701
Sfmt 4703
under current Rule 928NY, Commentary
.03 and identical to Arca Options Rule
6.40P–O(c)(2)(E)(i).
• For the Volume-Based Risk Limit,
the minimum setting would not be less
than one and the maximum setting
would not be more than 500,000
(proposed Rule 928NYP(c)(2)(E)(ii)),
which settings are identical to the
Exchange-determined settings provided
under current Rule 928NY, Commentary
.03 and identical to Arca Options Rule
6.40P–O(c)(2)(E)(ii).
• For the Percentage-Based Risk
Limit, the minimum setting would not
be less than 50 and the maximum
setting would not be more than 200,000
(proposed Rule 928NYP(c)(2)(E)(iii)),
which maximum setting is the same as
the minimum Exchange-determined
setting set forth in current Rule 928NY,
Commentary .03 and identical to Arca
Options Rule 6.40P–O(c)(2)(E)(iii). The
Exchange proposes to increase the
minimum setting from less than one (in
current rule) to not be less than 50 to
better reflect actual practice, because
under current Rules, there are no ATP
Holders that have set their PercentageBased Risk Limits below 50.
Proposed Rule 928NYP(c)(2)(F) is
identical to Arca Options Rule 6.40P–
O(c)(2)(F) and would provide that the
Exchange would specify by Trader
Update the Interval for the ActivityBased Risk Controls, subject to the
following:
• The Interval would not be less than
100 milliseconds and would not be
greater than 300,000 milliseconds,
inclusive of the duration of any trading
halt occurring within that time
(proposed Rule 928NYP(c)(2)(F)(i)),
which minimum setting is identical to
the Exchange-determined minimum set
forth in current Rule 928NY,
Commentary .03 and identical to Arca
Options Rule 6.40P–O(c)(2)(F)(i).
Although the Exchange’s current rule
does not include a maximum time
period, the Exchange proposes to
include a maximum allowable Interval
to promote clarity in Exchange rules of
the longest time an Interval could be.
• For transactions occurring in the
Core Open Auction, per proposed Rule
952NYP, the applicable time period
would be the lesser of (i) the time
between the Core Open Auction of a
series and the initial transaction or (ii)
the Interval (proposed Rule
928NYP(c)(2)(F)(ii)), which proposed
time period is identical to the timing
provided under current Rule 928NY,
Commentary .03 and also identical to
Arca Options Rule 6.40P–O(c)(2)(F)(ii).
Proposed Rule 928NYP(c)(3) is
identical to Arca Options Rule 6.40P–
O(c)(3) and would set forth the
E:\FR\FM\17JYN3.SGM
17JYN3
ddrumheller on DSK120RN23PROD with NOTICES3
Federal Register / Vol. 88, No. 135 / Monday, July 17, 2023 / Notices
automated breach actions for the Global
Risk Controls set by an Entering Firm.
• Proposed Rule 928NYP(c)(3)(A) is
identical to Arca Options Rule 6.40P–
O(c)(3)(A) and would provide that if the
Global Risk Control limit is breached,
the Exchange would Cancel and Block,
per proposed Rule 928NYP(c)(2)(C)(iii),
which proposed functionality is
substantively the same as the
functionality provided under current
Rule 928NY, Commentaries .01
(regarding cancellation of existing
orders) and .02 (regarding block/
rejection of new orders).
• Proposed Rule 928NYP(c)(3)(B) is
identical to Arca Options Rule 6.40P–
O(c)(3)(B) and would provide that if an
Entering Firm breaches the Global Risk
Control, the Automated Breach Action
would be applied to all orders and
quotes of the Entering Firm in all classes
of options regardless of which class(es)
of options caused the underlying breach
of Activity-Based Risk Controls, which
proposed functionality is substantively
the same as the functionality provided
(in the last sentence) of current Rule
928NY, Commentary .02 in the event of
a breach of current Rule 928NY(f) (i.e.,
breach of global risk setting).
• Proposed Rule 928NYP(c)(3)(C) is
identical to Arca Options Rule 6.40P–
O(c)(3)(C) and would provide that the
Exchange would specify by Trader
Update any applicable minimum,
maximum and/or default settings for the
Global Risk Controls, provided that the
minimum setting would not be less than
25 and the maximum setting would not
be more than 100. These proposed
settings are based on the Exchangedetermined setting provided under
current Rule 928NY, Commentary .03,
except that the current rule allows for a
minimum setting of one (1) whereas the
proposed rule (like Arca Options) is
increasing that minimum to twenty-five
(25), which the Exchange believes
would better reflect actual practice,
because under current Rules, there are
no ATP Holders that have set their
Global Risk Controls below 25.
• Proposed Rules 928NYP(c)(3)(D)(i)–
(ii) are identical to Arca Options Rules
6.40P–O(c)(3)(D)(i)–(ii) and would
provide that the Exchange would
specify by Trader Update the Interval
for the Global Risk Controls, subject to
the following:
Æ The Interval would not be less than
100 milliseconds and would not be
greater than 300,000 milliseconds,
inclusive of the duration of any trading
halt occurring within that time, per
proposed Rule 928NYP(c)(3)(D)(i),
which minimum setting is identical to
the Exchange-determined minimum set
forth in current Rule 928NY,
VerDate Sep<11>2014
18:41 Jul 14, 2023
Jkt 259001
Commentary .03. Although the
Exchange’s current rule does not
include a maximum time period, the
Exchange proposes to mimic Arca
Options Rule 6.40P–O(c)(3)(D)(i) by
including a maximum allowable
Interval to allow an outside parameter
by which the counters would be reset,
which would promote transparency in
Exchange rules regarding the maximum
allowable Interval.
Æ For transactions occurring in the
Core Open Auction, per proposed Rule
952NYP, the applicable time period is
the lesser of (i) the time between the
Core Open Auction of a series and the
initial transaction or (ii) the Interval, per
proposed Rule 928NYP(c)(3)(D)(ii),
which proposed time period is identical
to the timing provided under current
Rule 928NY, Commentary .03 and is
also identical to Arca Options Rule
6.40P–O(c)(3)(D)(ii).
Proposed Rule 928NYP(d) is identical
to Arca Options Rules 6.40P–O(d) and
would describe how an Entering Firm’s
ability to enter orders, quotes, and
related instructions would be reinstated
after a ‘‘Block Only’’ or ‘‘Cancel and
Block’’ Automated Breach Action has
been triggered. In such case, proposed
Rule 928NYP(d) provides that the
Exchange would not reinstate the
Entering Firm’s ability to enter orders
and quotes and related instructions on
the Exchange (other than instructions to
cancel one or more orders or quotes in
full (including Auction-Only Orders,
and orders designated GTC)) without
the consent of the Entering Firm, which
may be provided via automated contact
if it was a breach of an Activity-Based
Risk Control. As further proposed, an
Entering Firm that breaches the Global
Risk Control would not be reinstated
unless the Entering Firm provides
consent via non-automated contact with
the Exchange. This proposed
functionality is consistent with current
Rule 928NY, Commentary .02 regarding
the need for an Entering Firm to make
automated or non-automated contact
with the Exchange, as applicable, prior
to being reinstated.
Proposed Rule 928NYP(e) is identical
to Arca Options Rules 6.40P–O(e) and
would set forth new ‘‘Kill Switch
Action’’ functionality, which would
allow an Entering Firm to direct the
Exchange to take certain bulk cancel or
block actions with respect to orders and
quotes. In contrast to the Automated
Breach Actions described above, which
the Exchange would take automatically
after the breach of a risk limit, the
Exchange would not take any of the Kill
Switch Actions without express
direction from an Entering Firm. The
Exchange believes that the proposed
PO 00000
Frm 00023
Fmt 4701
Sfmt 4703
45751
Kill Switch Action functionality would
also provide ATP Holders with greater
flexibility to provide bulk instructions
to the Exchange with respect to
cancelling existing orders and quotes
and blocking new orders and quotes.
In particular, proposed Rule
928NYP(e) would specify that an
Entering Firm could direct the Exchange
to take one or more of the following
actions with respect to orders and
quotes (excluding those represented in
open outcry except CTB Orders), at
either an MPID, or if designated, sub-ID
Level: (1) Cancel all Auction-Only
Orders; (2) Cancel all orders designated
GTC; (3) Cancel all unexecuted orders
and quotes in the Consolidated Book
other than Auction-Only Orders and
orders designated GTC; or (4) Block the
entry of any new order and quote
messages and related instructions,
provided that the Exchange would
continue to accept instructions from
Entering Firms to cancel one or more
orders or quotes (including AuctionOnly Orders, and orders designated
GTC) in full, and later, reverse that
block. The proposed post-trade Kill
Switch Actions are not only identical to
Arca Options Rule 6.40P–O(e) but are
also consistent with the rules of other
options exchanges.99 The Exchange
believes that offering this functionality
for options trading under Pillar would
give Entering Firms more flexibility in
setting risk controls for options trading
(as noted above).
Proposed Commentary .01 to Rule
928NYP is identical to Commentary .01
to Arca Options Rule 6.40P–O and
would provide that the Pre-Trade,
Activity-Based, and Global Risk
Controls described in the proposed Rule
98NYP are meant to supplement, and
not replace, the ATP Holder’s own
internal systems, monitoring, and
procedures related to risk management
and are not designed for compliance
with Rule 15c3–5 under the Exchange
Act.100 Responsibility for compliance
with all Exchange and SEC rules
remains with the ATP Holder. The
Exchange does not guarantee that these
controls will be sufficiently
comprehensive to meet all of an ATP
Holder’s needs, the controls are not
designed to be the sole means of risk
management, and using these controls
99 See, e.g., Cboe Rule 5.34(c)(6) (describing the
optional ‘‘Kill Switch’’ functionality, which allows
a Cboe participant to instruct Cboe to
simultaneously cancel or reject all orders or quotes
(or a subset thereof) as well as to instruct Cboe to
block all orders or quotes (or a subset thereof),
which block instructions will remain in effect until
such participant contacts Cboe’s trade desk to
remove the block).
100 17 CFR 240.15c3–5.
E:\FR\FM\17JYN3.SGM
17JYN3
45752
Federal Register / Vol. 88, No. 135 / Monday, July 17, 2023 / Notices
ddrumheller on DSK120RN23PROD with NOTICES3
will not necessarily meet an ATP
Holder’s obligations required by the
Exchange or federal rules including,
without limitation, the Rule 15c3–5. Use
of the Exchange’s proposed Pre-Trade
Risk Controls will not automatically
constitute compliance with Exchange or
federal rules, and responsibility for
compliance with all Exchange and SEC
rules remains with the ATP Holder. The
proposed rule, which is new text, makes
clear that (like on Arca Options) use of
the proposed controls alone does not
constitute compliance with Exchange
rules or the Exchange Act.
Proposed Commentary .02 to Rule
928NYP is identical to Commentary .02
to Arca Options Rule 6.40P–O and
would provide that an Entering Firm
may set price controls under proposed
Rule 928NYP(a)(2)(A)(ii) (described
above) that are equal to or more
restrictive than the price level provided
per the Exchange’s Limit Order Price
Protection feature, as set forth in
proposed Rule 900.3NYP(a)(3)(A). This
proposed commentary is intended to
clarify the interplay between the
Exchange’s Limit Order Price Protection
functionality and the price controls that
may be set by an Entering Firm pursuant
to proposed Rule 928NYP(a)(2)(A)(ii).
In connection with proposed Rule
928NYP, the Exchange proposes to add
the following preamble to Rule 928NY:
‘‘This Rule is not applicable to trading
on Pillar.’’ This proposed preamble is
designed to promote clarity and
transparency in Exchange rules that
Rule 928NY would not be applicable to
trading on Pillar.
Proposed Rule 928.1NYP: Price
Reasonability Checks—Orders and
Quotes
The Exchange proposes to describe its
Price Reasonability Checks for orders
and quotes in proposed Rule 928.1NYP.
For the Exchange System, the concept of
‘‘Price Reasonability Checks’’ for Limit
Orders is described in Rule 967NY(c)
and the concept of price protection
filters for quotes are described in Rule
967.1NY. The proposed ‘‘Price
Reasonability Checks’’ on Pillar are
identical to those set forth in Arca
Options Rule 6.41P–O. As is the case on
Arca Options, the proposed ‘‘Price
Reasonability Checks’’ would be
applicable to both orders and quotes
and are designed to provide similar
price protections as the current price
checks for Limit Orders and price
protection filters for quotes on the
Exchange System, with differences from
the current rule described in detail
below. The Exchange believes that
applying the same Price Reasonability
Checks to both orders and quotes and
VerDate Sep<11>2014
18:41 Jul 14, 2023
Jkt 259001
describing them in a single rule would
make the Exchange’s rules easier to
navigate, while continuing to provide
price protection features for both orders
and quotes. The Exchange proposes to
locate the rule text for the proposed
Price Reasonability Checks in proposed
Rule 928.1NYP to immediately follow
proposed Rule 928NYP regarding the
Pre-Trade and Activity-Based Controls,
as this placement would group the risk
controls together and make Exchange
rules easier to navigate.
Proposed Rules 928.1NYP(a)(1)–(3)
are identical to Arca Options Rules
6.41P–O(a)(1)–(3) and would set forth
the circumstances under which the
proposed Price Reasonability Checks
would apply. Proposed Rule 928.1NY(a)
would provide that the Exchange would
apply the Price Reasonability Checks, as
defined in proposed paragraphs (b) and
(c), to all Limit Orders and quotes
(excluding those represented in open
outcry, except CTB Orders), during
continuous trading on each trading day,
subject to the following:
• Proposed Rule 928.1NYP(a)(1) is
identical to Arca Options Rule 6.41P–
O(a)(1) and would provide that a Limit
Order or quote received during a preopen state would be subject to the
proposed Price Reasonability Checks
after an Auction concludes; that a Limit
Order or quote that was resting on the
Consolidated Book before a trading halt
would be subject to the proposed Price
Reasonability Checks again after the
Trading Halt Auction; and that a put
option message to buy would be subject
to the Arbitrage Check regardless of
when it arrives. This proposed rule is
based on current Rule 967NY(c), which
provides that the Price Reasonability
Checks (for orders) are applied when a
series opens or reopens for trading and
is similar to Rule 967.1NY(a)(1), which
provides that Market Maker quote
protection will be applied when an
NBBO is available. NBBO protection is
available when a series is opened for
trading. Proposed Rule 928.1NYP(a)(1)
includes additional detail and
granularity regarding when the
proposed Price Reasonability Checks
would be applied under Pillar. The
proposed Rule also adds new
functionality that a put option message
to buy would be subject to the Arbitrage
Check even if a series is not open for
trading. The Exchange believes that it is
appropriate to apply this check to put
option messages to buy at any time
because the check is not dependent on
an external reference price.
• Proposed Rule 928.1NYP(a)(2) is
identical to Arca Options Rule 6.41P–
O(a)(2) and would provide that if the
calculation of the Price Reasonability
PO 00000
Frm 00024
Fmt 4701
Sfmt 4703
Check is not consistent with the MPV
for the series, it would be rounded
down to the nearest price within the
applicable MPV, which is consistent
with current functionality. The
Exchange believes this proposed rule
would promote clarity and transparency
in Exchange rules regarding how the
Price Reasonability Check would be
calculated.
• Proposed Rule 928.1NYP(a)(3) is
identical to Arca Options Rule 6.41P–
O(a)(3) and would provide that the
proposed Price Reasonability Checks
would not apply to (i) any options series
for which the underlying security has a
non-standard cash or stock deliverable
as part of a corporate action; (ii) any
options series for which the underlying
security is identified as over-the-counter
(‘‘OTC’’); (iii) any option series on an
index; and (iv) any option series for
which the Exchange determines it is
necessary to exclude underlying
securities in the interests of maintaining
a fair and orderly market, which the
Exchange would announce by Trader
Update. Proposed Rule 928.1NYP(a)(3)
is based on current Commentary .01 to
Rules 967NY (orders) and 967.1NY
(quotes), with a non-substantive
difference that the proposed rule no
longer references Binary Return
Derivatives (‘‘ByRDs’’) because ByRDs
are no longer traded on the Exchange.
Proposed Rule 928.1NYP(b) is
identical to Arca Options Rule 6.41P–
O(b) and would set forth the ‘‘Arbitrage
Checks’’ for buy orders or quotes, which
subset of Price Reasonability Checks are
based on the principle that an option
order or quote is in error and should be
rejected (or canceled) when the same
result can be achieved on the market for
the underlying equity security at a lesser
cost.
• Proposed Rule 928.1NYP(b)(1) is
identical to Arca Options Rule 6.41P–
O(b)(1) and relates to ‘‘puts’’ and would
provide that order or quote messages to
buy for put options would be rejected if
the price of the order or quote is equal
to or greater than the strike price of the
option, which is substantively identical
to current Rules 967NY(c)(1)(A) (for
orders) and 967.1NY(a)(3) (for quotes).
• Proposed Rule 928.1NYP(b)(2) is
identical to Arca Options Rule 6.41P–
O(b)(2) and relates to ‘‘calls’’ and would
provide that order or quote messages to
buy for call options would be rejected
or canceled (if resting) if the price of the
order or quote is equal to or greater than
the price of the last trade (of any size)
of the underlying security on the
Primary Market, plus a specified
threshold to be determined by the
Exchange and announced by Trader
Update. This proposed rule is
E:\FR\FM\17JYN3.SGM
17JYN3
Federal Register / Vol. 88, No. 135 / Monday, July 17, 2023 / Notices
ddrumheller on DSK120RN23PROD with NOTICES3
substantially similar to current Rules
967NY(c)(1)(B) (for orders) and
967.1NY(a)(2)(B) (for quotes), with
several differences.
First, because the Exchange is
monitoring last sales from the Primary
Market, the Exchange proposes that the
Exchange-specified threshold for the
Checks would be based on the price of
the last trade (of any size) on the
Primary Market rather than on the
Consolidated Last Sale.101 The
Exchange believes that the last trade on
the Primary Market would be indicative
of the price of the underlying security
and that by using the last trade of the
Primary Market rather than the
Consolidated Last Sale, the Pillar system
would need to ingest and process less
data, thereby improving efficiency and
performance of the system. The
Exchange also believes that applying the
Checks to trades in underlying
securities of any size, i.e., both round
lots and odd lots, would enhance the
efficacy of the Checks as this proposed
functionality would provide a better
representation of the trade prices
occurring in the underlying market.102
Second, current Rules
967.1NY(a)(2)(A) and (C) specify which
price would be used for Market Maker
bids made before the underlying
security is open or during a trading halt,
pause, or suspension of the underlying
security. Because on Pillar the proposed
Arbitrage Checks for calls (for orders
and quotes) would be applied only once
a series has opened or reopened for
trading, the Exchange no longer needs to
specify prices other than the last trade
(of any size) on the Primary Market for
purposes of calculating the Arbitrage
Checks for calls. The Exchange believes
the difference in proposed Rule
928.1NYP(b)(2) from current
functionality (which is identical to Arca
Options Rule 6.41P–O(b)(2)) would not
compromise the price protection feature
of the proposed Arbitrage Checks.
Proposed Rule 928.1NYP(c) is
identical to Arca Options Rule 6.41P–
O(c) and would set forth the ‘‘Intrinsic
Value Checks’’ for orders or quotes to
sell, which are designed to protect
101 Per Rule 900.2NY, the term ‘‘Primary Market’’
with respect to options traded on the Exchange
means the principal market in which the
underlying security is traded. The Exchange also
notes a difference in that proposed Rule
928.1NYP(b)(2) refers to a ‘‘specified threshold,’’
whereas current Rule 967NY(c)(1)(B) refers to a
‘‘specified dollar amount,’’ which difference is
designed to give the Exchange more flexibility in
applying the Arbitrage Checks to use a percentagebased threshold.
102 The Exchange notes that trades in higherpriced underlying securities tend to be odd lots,
which highlights the importance of capturing such
trades in the Checks.
VerDate Sep<11>2014
18:41 Jul 14, 2023
Jkt 259001
sellers of calls and puts from
presumptively erroneous executions
based on the ‘‘Intrinsic Value’’ of an
option.
• Proposed Rules 928.1NYP(c)(1)–(2)
are identical to Arca Options Rules
6.41P–O(c)(1)–(2) and would set forth
how the Intrinsic Value of an option
would be determined. Proposed Rule
928.1NYP(c)(1) would provide that the
Intrinsic Value for a put option is equal
to the strike price minus the price of the
last trade (of any size) of the underlying
security on the Primary Market.
Proposed Rule 928.1NYP(c)(2) would
provide that the Intrinsic Value for a
call option is equal to the price of the
last trade (of any size) of the underlying
security on the Primary Market minus
the strike price. Proposed Rules
928.1NYP(c)(1)–(2) are based on how
the intrinsic value is calculated in
current Rule 967NY(c)(2) for orders,
with two differences. First, the proposed
‘‘Intrinsic Value Checks’’ would also
apply to quotes, which would be new
on Pillar (but would mimic Arca
Options Rules 6.41P–O(c)(1)–(2)) and
would provide Market Makers with
additional protection for quotes to sell.
Second, the Intrinsic Value of an option
would be based on the price of the last
trade (of any size) on the Primary
Market rather than on the Consolidated
Last Sale for the same reasons discussed
above, that it would enhance
performance without compromising the
price protection feature of the Intrinsic
Value Checks.
• Proposed Rule 928.1NYP(c)(3) is
identical to Arca Options Rule 6.41P–
O(c)(3) and would provide that ISOs to
sell would not be subject to the Intrinsic
Value Check, which carve out is
substantively identical to current Rule
967NY(c)(2).
• Proposed Rule 928.1NYP(c)(4) is
identical to Arca Options Rule 6.41P–
O(c)(4) and would describe the
application of the Intrinsic Value
Checks to puts and calls to sell.
Æ Proposed Rule 928.1NYP(c)(4)(A) is
identical to Arca Options Rule 6.41P–
O(c)(4)(A) and would provide that
orders or quotes to sell for both puts and
calls would be rejected or canceled (if
resting) if the price of the order or quote
is equal to or lower than its Intrinsic
Value, minus a specified threshold to be
determined by the Exchange and
announced by Trader Update.
Æ Proposed Rule 928.1NYP(c)(4)(B) is
identical to Arca Options Rule 6.41P–
O(c)(4)(B) and would provide that the
Exchange-determined threshold
percentage (per proposed paragraph
(c)(4)(A)) would be based on the NBB,
provided that, immediately following an
Auction, it would be based on the
PO 00000
Frm 00025
Fmt 4701
Sfmt 4703
45753
Auction Price, or, if none, the lower
Auction Collar price, or, if none, the
NBB.103 This proposed threshold
percentage is similar to how the
Reference Price would be determined
for Trading Collars, as described above
pursuant to proposed Rule
900.3NYP(a)(4). As further proposed,
Rule 928.1NYP(c)(4)(B) would provide
that for purposes of determining the
Intrinsic Value, the Exchange would not
use an adjusted NBBO. The Exchange
further proposes that the Intrinsic Value
Check for sell orders and quotes would
not be applied if the Intrinsic Value
cannot be calculated.
Proposed Rules 928.1NYP(c)(4)(A)–
(B) are substantially similar to current
Rule 967NY(a)(2)(A), which describes
the application of the Intrinsic Value
check for orders, with the following
differences:
• The proposed rule would extend
this price protection to quotes,
providing Market Makers with
additional protection mechanisms;
• The proposed rule would provide
additional detail regarding how the
specified threshold percentage would be
determined immediately following an
Auction;
• The proposed rule would establish
that an unadjusted NBBO (as opposed to
an adjusted NBBO) would be used to
calculate the Intrinsic Value; and
• The proposed rule includes text
providing that if the Intrinsic Value
cannot be calculated, the Check would
not be applied.
The Exchange believes that these
additions, which mirror Arca Options
Rules 6.41P–O(c)(4)(A)–(B), would both
add granularity to the rule and enhance
the functionality for calculating and
applying the Intrinsic Value. For the
same reasons described above in
connection with Limit Order Price
Protection and Trading Collars, the
Exchange believes that using an
unadjusted NBBO (as opposed to using
an adjusted NBBO) would serve price
protection purposes by using a more
conservative view of the NBBO.
Proposed Rule 928.1NYP(d) is
identical to Arca Options Rule 6.41P–
O(d) and would provide the Automated
Breach Action to be applied when a
Market Maker’s order or quote fails one
of the Price Reasonability Checks. As
proposed, if a Market Maker’s order or
quote message is rejected or cancelled
(if resting) pursuant to proposed
paragraph (b) (Arbitrage Checks) or (c)
(Intrinsic Value Checks) of proposed
103 See discussion infra, regarding proposed Rule
952NYP(a) and proposed definitions for the terms
‘‘Auction,’’ ‘‘Auction Price,’’ Auction Collar,’’ ‘‘preopen state,’’ and ‘‘Trading Halt Auction.’’
E:\FR\FM\17JYN3.SGM
17JYN3
45754
Federal Register / Vol. 88, No. 135 / Monday, July 17, 2023 / Notices
ddrumheller on DSK120RN23PROD with NOTICES3
Rule 928.1NYP, the Exchange would
Cancel and Block orders and quotes in
the affected class of options as described
in Rule 928NYP(c)(2)(C)(iii) (as
described above in section ‘‘Proposed
Rule 928NYP’’).
Proposed Rule 928.1NYP(d)(1) is
identical to Arca Options Rule 6.41P–
O(d)(1) and would provide that a breach
of proposed Rule 928.1NYP(d) would
count towards a Market Maker’s Global
Risk Control limit per proposed Rule
928NYP(a)(4) (as described above in
section ‘‘Proposed Rule 928NYP’’).
Proposed Rule 928.1NYP(d)(2) is
identical to Arca Options Rule 6.41P–
O(d)(2) and concerns how a Market
Maker would be reinstated following an
automated breach action. As proposed,
the Exchange would not reinstate the
Market Maker’s ability to enter orders
and quotes and related instructions on
the Exchange in that class of options
(other than instructions to cancel one or
more orders/quotes (including AuctionOnly Orders and orders designated
GTC) in full) without the consent of the
Market Maker, which may be provided
via automated contact.
Rule 928.1NYP(d) is substantially
similar to current Rule 967.1NY(b),
except that the proposed rule applies to
both the orders and quotes of a Market
Maker (not just quotes) and provides the
additional functionality that a breach of
the Price Reasonability Checks would
count towards a Market Maker’s Global
Risk Control limit under proposed Rule
928NYP(c)(3), which functionality
would be new under Pillar. The
Exchange believes that the proposed
new functionality, which mirrors Arca
Options Rule 6.41P–O(d), would
provide ATP Holders greater control
and flexibility over setting risk tolerance
and exposure for both orders and
quotes. In connection with proposed
Rule 928.1NYP, the Exchange proposes
to add the following preamble to Rules
967NY and 967.1NY: ‘‘This Rule is not
applicable to trading on Pillar.’’ This
proposed preamble is designed to
promote clarity and transparency in
Exchange rules that Rules 967NY and
967.1NY would not be applicable to
trading on Pillar.
Proposed Rule 952NYP: Auction
Process
Current Rule 952NY sets forth the
opening process currently used on the
Exchange System for opening trading in
a series each day and reopening trading
in a series following a trading halt.
Current Rule 952NY(a) defines the term
‘‘Trading Auction’’ as the process by
which trading is initiated in a specified
options class that may be employed at
the opening of the Exchange each
VerDate Sep<11>2014
18:41 Jul 14, 2023
Jkt 259001
business day or to re-open trading after
a trading halt, and that Trading
Auctions will be conducted
automatically by the Exchange System.
Current Rules 952NY(b) and (c) describe
the manner for the automated Trading
Auctions and provide that, once the
primary market for the underlying
security disseminates a quote and a
trade that is at or within the quote, the
Exchange System then conducts an
Auction Process (‘‘current Auction
Process’’) whereby the Exchange System
determines a single price at which a
series may be opened by looking to the
price at which the greatest number of
contracts can trade at or between the
NBBO disseminated by OPRA.104
As described in Rule 952NY(b)(D), the
Exchange will not conduct the current
Auction Process to open a series if the
bid-ask differential for that series is not
within an acceptable range, i.e., is not
within the bid-ask differential
guidelines established in Rule
925NY(b)(4).105 If a series does not open
for trading, Market and Limit Orders
entered in advance of the current
Auction Process remain in the
Consolidated Book and will not be
routed, even if another exchange opens
that series for trading and such resting
orders become Marketable against the
ABBO.106
The Exchange proposes that new Rule
952NYP which is identical to Arca
Options Rule 6.64P–O would set forth
the automated process for both opening
and reopening trading in a series on the
Exchange on Pillar. The Exchange
proposes to specify that current Rule
952NY would not be applicable to
trading on Pillar. With the transition to
Pillar, the fundamental process of how
an option series would be opened (or
reopened) on the Exchange would not
materially change because the Exchange
would continue to assess whether a
series can be opened based on whether
104 If the same number of contracts can trade at
multiple prices, the opening price is the price at
which the greatest number of contracts can trade
that is at or nearest to the midpoint of the NBBO
disseminated by OPRA; unless one such price is
equal to the price of any resting Limit Order(s) in
which case the opening price is the same price as
the Limit Order(s) with the greatest size and, if the
same size, the highest price and if there is a tie
between price levels and no Limit Orders exist at
either of the prices, the Exchange uses the higher
price. See Rule 952NY(c).
105 Because Rule 952NY(b)(D) cross-references the
bid-ask differential requirement of Rule
925NY(b)(4), which relates to the obligations of
Market Makers in appointed classes, the Exchange
will not open a series for trading if the NBBO
disseminated by OPRA in a series is not within
such bid-ask differentials.
106 The term ‘‘Marketable’’ is defined in Rule
900.2NY to mean, for a Limit Order, an order that
can be immediately executed or routed and Market
Orders are always considered marketable.
PO 00000
Frm 00026
Fmt 4701
Sfmt 4703
the bid-ask differential for a series is
within a specified range. However, with
the availability of Pillar technology, the
Exchange proposes differences to the
proposed auction process that mirror
Arca Options Rule 6.64P–O and are
designed to provide additional
opportunities for an options series to
open or reopen for trading even if the
bid-ask differential is wider than the
specified guidelines. The Exchange
notes that other options exchanges also
provide additional opportunities for a
series to open after a specified period of
time in a wide market.107 In addition,
the Exchange proposes to specify
minimum time periods to allow a
Market Maker(s) to quote in an assigned
series before the series is opened or
reopened. With the proposed Auction
Process, described further below, the
Exchange endeavors to attract the
highest quality quote for each series at
the open to attract order flow for the
auction. While the Exchange does not
require Market Makers assigned to a
series to quote before a series can be
opened (or reopened), the Exchange
believes that providing time for such
Market Makers to do so would provide
both better and more consistent prices
on executions to ATP Holders in an
Auction and a smoother transition to
continuous trading. In addition, the
Exchange believes that the proposed
changes would enhance the opening/
reopening process on the Exchange by
providing a transparent and
deterministic process for the Exchange
to open additional series for trading.
Further, the Exchange proposes
additional enhancements (and details
them in the rule) that mirror Arca
Options Rule 6.64P–O relating to how
orders and quotes would be processed if
they arrive during the period when the
Exchange is processing an Auction and
how the Exchange would process orders
and quotes when it transitions to
continuous trading following an
Auction. Accordingly, the structure of
proposed Rule 952NYP is identical to
Arca Options Rule 6.64P–O and
includes a description of how the
Exchange would process orders and
quotes during a trading halt, which
107 For example, in 2021, Cboe amended its
opening process set forth in Cboe Rule 5.31 to
provide for a ‘‘forced opening’’ process that is used
if an option class is unable to open because it does
not meet the applicable bid-ask differential. In such
case, if the ‘‘Composite Market’’ is not crossed and
there is no non-zero offer, within a specified time
period, Cboe will open the series without a trade.
See Securities Exchange Act Release No. 90967
(January 22, 2021), 86 FR 7249 (January 28, 2021)
(SR–Cboe–2021–005) (Notice of filing and
immediate effectiveness of proposed rule change to
amend Cboe’s opening process for simple orders).
E:\FR\FM\17JYN3.SGM
17JYN3
Federal Register / Vol. 88, No. 135 / Monday, July 17, 2023 / Notices
ddrumheller on DSK120RN23PROD with NOTICES3
would provide granularity and
transparency in Exchange rules.
Definitions. Proposed Rule 952NYP(a)
contains proposed definitions for
options trading on Pillar that are
identical to those set forth in Arca
Options Rule 6.64P–O(a) and would
provide that the proposed Rule would
be applicable to all series that trade on
the Exchange other than Flex
Options.108
• Proposed Rule 952NYP(a)(1) is
identical to Arca Options Rule 6.64P–
O(a)(1) and would define the term
‘‘Auction’’ to mean the opening or
reopening of a series for trading either
with or without a trade. This proposed
definition is based in part on current
Rule 952NY(a), which defines the term
‘‘Trading Auction’’ to be a process by
which trading is initiated in a specified
options class that may be employed at
the opening of the Exchange each
business day or to re-open trading after
a trading halt.109 On Pillar, the
Exchange proposes that the term
‘‘Auction’’ would refer to the point in
the process where the Exchange
determines that a series can be opened
or reopened either with or without a
trade. After an Auction concludes, the
series then transitions to continuous
trading. Proposed Rules
952NYP(a)(1)(A)–(B) are identical to
Arca Options Rule 6.64P–O(a)(1)(A)–(B).
Proposed Rule 952NYP(a)(1)(A) would
provide that a ‘‘Core Open Auction’’
means the Auction that opens trading
after the beginning of Core Trading
Hours and proposed Rule
952NYP(a)(1)(B) would provide that a
‘‘Trading Halt Auction’’ means the
Auction that reopens trading following
a trading halt. These are Pillar terms
that would be new to options trading on
the Exchange.
• Proposed Rule 952NYP(a)(2) is
identical to Arca Options Rule 6.64P–
O(a)(2) and would define the term
‘‘Auction Collar’’ to mean the price
collar thresholds for the Indicative
108 With the transition to Pillar, the Exchange is
not making any changes to how Flex Options trade.
Rule 901G provides that Flex Options transactions
may be effected during normal Exchange options
trading hours on any business day and Rule 902G
provides that there will be no trading rotations in
Flex Options. Rule 904G sets forth the procedures
for trading Flex Options. The opening process for
Electronic Complex Orders is set forth in Rule
980NY. The opening process for Electronic
Complex Orders is set forth in Rule 980NY. In
connection with the transition to Pillar, the
Exchange has adopted new Rule 980NYP regarding
complex trading on Pillar. See the Pillar Complex
Approval Order, supra note 66.
109 See also Rule 952NY(e) (providing that a
Trading Auction to reopen an option class after a
trading halt is conducted in the same manner as a
Trading Auction to open each option class at the
start of each trading day, i.e., as described in Rule
952NY(a)–(d)).
VerDate Sep<11>2014
18:41 Jul 14, 2023
Jkt 259001
Match Price (defined below) for an
Auction. As further proposed, the upper
Auction Collar would be the offer of the
Legal Width Quote (defined below) and
the lower Auction Collar would be the
bid of the Legal Width Quote, provided
that if the bid of the Legal Width Quote
is zero, the lower Auction Collar would
be one MPV above zero for the series
(per proposed Rule 952NYP(a)(2)(A),
which is identical to Arca Options Rule
6.62P–O(a)(2)(A)). In addition, as
proposed, if there is no Legal Width
Quote, the Auction Collars would be
published in the Auction Imbalance
Information (defined below) as zero (per
proposed Rule 952NYP(a)(2)(B), which
is identical to Arca Options Rule 6.62P–
O(a)(2)(B)).
As proposed, the Auction Collars
would be set at the Legal Width Quote
(described below) and would prevent an
Auction trade from occurring at a price
outside of the Legal Width Quote. The
Exchange believes that the concept of
Auction Collars is similar to the current
requirement that the Exchange will not
open a series if the bid-ask differential
is not within the bid-ask differential
guidelines established under Rule
925NY(b)(4).110 Thus, the proposed
Auction Collars (based on a Legal Width
Quote) would use Pillar terminology to
prevent an Auction that results in a
trade from being priced outside the bidask differential applicable to Auctions
on Pillar.111
Proposed Rule 952NYP(a)(3) is
identical to Arca Options Rule 6.64P–
O(a)(3) and would define the term
‘‘Auction Imbalance Information’’ to
mean the information that the Exchange
disseminates about an Auction via its
proprietary data feeds and includes the
Auction Collars, Auction Indicator,
Book Clearing Price, Far Clearing Price,
Indicative Match Price, Matched
Volume, Market Imbalance, and Total
Imbalance. With Pillar, the Exchange
proposes to disseminate Auction
Imbalance Information in the same
manner that such information is
disseminated on Arca Options. The
Exchange currently makes certain
auction imbalance information available
on its proprietary data feed and the
Exchange believes that enhancing this
information by disseminating the
proposed Auction Collars, Auction
Indicator, Book Clearing Price, and Far
Clearing Price, which would be new for
the Exchange, would promote
110 See Rule 952NY(b)(D) and (E). The Exchange
notes that in common parlance bid-ask differentials
are known as ‘‘legal-width quotes.’’
111 See also Cboe Rule 5.31(a) (defining the
‘‘Opening Collar’’ as the price range that establishes
limits at or inside of which Cboe determines the
opening trade price for a series).
PO 00000
Frm 00027
Fmt 4701
Sfmt 4703
45755
transparency. In addition, the Exchange
proposes that the Auction Imbalance
Information would reflect the quotes
and orders eligible to participate in an
Auction, which contribute to price
discovery. As such, proposed Rule
952NYP(a)(3) (like Arca Options Rule
6.64P–O(a)(3)) would further provide
that Auction Imbalance Information
would be based on all quotes and orders
(including the non-displayed quantity of
Reserve Orders) eligible to participate in
an Auction, excluding IO Orders. The
Exchange believes that specifying that
the non-displayed quantity of Reserve
Orders would be included in the
Auction Imbalance Information is
consistent with current functionality
that the full quantity of Reserve Orders
are eligible to participate in the current
Auction Process.
Proposed Rule 952NYP(a)(3)(A) is
identical to Arca Options Rule 6.64P–
O(a)(3)(A) and would define the term
‘‘Auction Indicator’’ to mean the
indicator that provides a status update
of whether an Auction cannot be
conducted because either (i) there is no
Legal Width Quote, or (ii) a Market
Maker quote has not been received
during the parameters of the Opening
MMQ Timer(s) (defined below). This
proposed definition would be new for
the Exchange and would provide
transparency of when an Auction could
not be conducted.112
Proposed Rule 952NYP(a)(3)(B) is
identical to Arca Options Rule 6.64P–
O(a)(3)(B) and would define the term
‘‘Book Clearing Price’’ to mean the price
at which all contracts could be traded in
an Auction if not subject to the Auction
Collar and states that the Book Clearing
Price would be zero if a sell (buy)
Imbalance cannot be filled by any buy
(sell) interest. The Exchange proposes
that the manner that the Book Clearing
Price would be calculated would be
identical to how it is calculated per
Arca Options Rule 6.64P–O(a)(3)(B).
Proposed Rule 952NYP(a)(3)(C) is
identical to Arca Options Rule 6.64P–
O(a)(3)(C) and would define the term
‘‘Far Clearing Price’’ to mean the price
at which Auction-Only Orders could be
traded in an Auction within the Auction
Collar. The Exchange proposes that the
manner that the Far Clearing Price
would be calculated would be identical
to how it is calculated per Arca Options
Rule 6.64P–O(a)(3)(C).
Proposed Rule 952NYP(a)(3)(D) is
identical to Arca Options Rule 6.64P–
O(a)(3)(D) and would define the term
112 Consistent with the proposed rule, Rule
952NY(b)(D) provides that the Exchange will not
conduct the current Auction Process if the bid-ask
differential for a series is not within an acceptable
range.
E:\FR\FM\17JYN3.SGM
17JYN3
ddrumheller on DSK120RN23PROD with NOTICES3
45756
Federal Register / Vol. 88, No. 135 / Monday, July 17, 2023 / Notices
‘‘Imbalance’’ to mean the number of buy
(sell) contracts that cannot be matched
with sell (buy) contracts at the
Indicative Match Price at any given
time. The Exchange proposes to
calculate the Imbalance in a manner
identical to how it is calculated per
Arca Options Rule 6.64P–O(a)(3)(D).
Proposed Rule 952NYP(a)(3)(D)(i) is
identical to Arca Options Rule 6.64P–
O(a)(3)(D)(i) and would define the term
‘‘Total Imbalance’’ to mean the
Imbalance of all buy (sell) contracts at
the Indicative Match Price for all orders
and quotes eligible to trade in an
Auction. The Exchange proposes to
calculate the Total Imbalance in a
manner identical to how it is calculated
per Arca Options Rule 6.64P–
O(a)(3)(D)(i). Proposed Rule
952NYP(a)(3)(D)(ii) is identical to Arca
Options Rule 6.64P–O(a)(3)(D)(ii) and
would define the term ‘‘Market
Imbalance’’ to mean the Imbalance of
any remaining buy (sell) Market Orders
and MOO Orders that are not matched
for trading in the Auction. The
Exchange proposes to calculate the
Market Imbalance in a manner identical
to how it is calculated per Arca Options
Rule 6.64P–O(a)(3)(D)(ii).
• Proposed Rule 952NYP(a)(4) is
identical to Arca Options Rule 6.64P–
O(a)(4) and would define the term
‘‘Auction Price’’ to mean the price at
which an Auction that results in a trade
is conducted. This proposed definition
is designed to add clarity and
transparency to Exchange rules as this
term would be used as a reference price
in proposed Rules 900.3NYP(a)(3)(B),
900.3NYP(a)(4)(B), and
928.1NYP(c)(4)(B).113
Proposed Rule 952NYP(a)(5) is
identical to Arca Options Rule 6.64P–
O(a)(5) and would define the term
‘‘Auction Process’’ to mean the process
that begins when the Exchange receives
an Auction Trigger (defined below) for
a series and ends when the Auction is
conducted. This proposed term is
designed to add clarity and
transparency to Exchange rules and
address all steps in the process that
culminates in an Auction, as described
in proposed Rule 952NYP(d).
Æ Proposed Rule 952NYP(a)(5)(i) is
identical to Arca Options Rule 6.64P–
O(a)(5)(i) and would define the term
‘‘initial Auction Process time period’’ as
113 See also Cboe Rule 5.31(a) (defining the
‘‘Opening Trade Price’’ as the price at which Cboe
executes opening trades in a series). The Exchange
notes that the term ‘‘Auction Price’’ is distinguished
from the proposed term of ‘‘Indicative Match
Price,’’ as the latter term is the content included in
the Auction Imbalance Information in advance of an
Auction, and the Auction Price is the price of an
Auction that results in a trade.
VerDate Sep<11>2014
18:41 Jul 14, 2023
Jkt 259001
an Exchange-determined time period
after the commencement of the Auction
Process as specified by Trader Update.
This term describes the period after
which the Exchange may transition an
option series to continuous trading
pursuant to proposed Rule
952NYP(d)(4), as discussed below.
• Proposed Rule 952NYP(a)(6) is
identical to Arca Options Rule 6.64P–
O(a)(6) and would define the term
‘‘Auction Processing Period’’ to mean
the period during which the Auction is
being processed. The Auction
Processing Period is at the end of the
Auction Process and is the period when
the actual Auction is conducted and the
Exchange transitions from a pre-open
state (described below) to continuous
trading. The end of the Auction
Processing Period is the end of the
Auction and, depending on the orders
and quotes in the Consolidated Book, it
concludes either with or without a
trade.
• Proposed Rule 952NYP(a)(7) is
identical to Arca Options Rule 6.64P–
O(a)(7) and would define the term
‘‘Auction Trigger’’ to mean the
information disseminated by the
Primary Market in the underlying
security that triggers the Auction
Process for a series to begin. For a Core
Open Auction, the proposed Auction
Trigger would be when the Primary
Market first disseminates at or after 9:30
a.m. Eastern Time both a two-sided
quote and a trade of any size that is at
or within the quote per proposed Rule
952NYP(a)(7)(A), which is identical to
Arca Options Rule 6.64P–O(a)(7)(A). For
a Trading Halt Auction, the proposed
Auction Trigger would be when the
Primary Market disseminates at the end
of a trading halt or pause a resume
message, a two-sided quote, and a trade
of any size that is at or within the quote,
per proposed Rule 952NYP(a)(7)(B),
which is identical to Arca Options Rule
6.64P–O(a)(7)(B).
This proposed term is also based on
how the Exchange currently opens or
reopens a series for trading, as set forth
in the last sentence of current Rule
952NY(b).114 The proposed rule adds
detail not found in the current rule by
referring to a ‘‘two-sided quote’’ rather
than a ‘‘quote,’’ without any changes to
functionality. The Exchange also
proposes a difference that an opening
trade on the Primary Market may be ‘‘of
any size,’’ which would make clear that
an odd-lot transaction on the Primary
Market could be used as an Auction
114 Rule 952NY(b) provides, in relevant part, that
the related option series will be opened
automatically ‘‘once the primary market for the
underlying security disseminates a quote and a
trade that is at or within the quote.’’
PO 00000
Frm 00028
Fmt 4701
Sfmt 4703
Trigger, which would be new on Pillar.
The Exchange believes that because it
requires both a quote and a trade from
the Primary Market before it can open/
reopen trading in the overlying option,
and because a Primary Market that has
disseminated a quote for an underlying
security is open for trading, allowing
odd-lot sized trades to be included in
the trigger would increase the
opportunities to open/reopen trading
options that overlay low-volume
securities that have opened for trading
on the Primary Market and would
reduce the circumstances needed to
manually trigger an Auction for a series.
• Proposed Rule 952NYP(a)(8) is
identical to Arca Options Rule 6.64P–
O(a)(8) and would define the term
‘‘Calculated NBBO’’ to mean the highest
bid and lowest offer among all Market
Maker quotes and the ABBO during the
Auction Process. The Exchange
proposes to use the term ‘‘Calculated
NBBO’’ to specify which bids and offers
the Exchange would consider for
purposes of determining whether to
proceed with an Auction on Pillar, as
described in greater detail below. The
Exchange believes the proposed term
provides more clarity than referencing
an ‘‘NBBO disseminated by OPRA’’ and
is consistent with the proposed
definition of ABBO, which by its terms
is disseminated by OPRA.115
• Proposed Rule 952NYP(a)(9) is
identical to Arca Options Rule 6.64P–
O(a)(9) and would define the term
‘‘Indicative Match Price’’ to mean the
price at which the maximum number of
contracts can be traded in an Auction,
including the non-displayed quantity of
Reserve Orders, and excluding IO
Orders, subject to the Auction Collars.
This functionality is consistent with the
current process for establishing a single
opening price, as described in Rule
952NY(b)(A), but the proposed rule
adds more granularity and uses Pillar
terminology.116 In addition, the term
‘‘Indicative Match Price’’ refers to the
same functionality as the Exchange
System’s reference to the term
‘‘reference price’’ in its imbalance
information. Proposed Rule
952NYP(a)(9) (like Arca Options Rule
6.64P–O(a)(9)) would further provide
that if there is no Legal Width Quote,
115 The Exchange notes that the information used
to calculate the proposed Calculated NBBO is
consistent with the information that the Exchange
receives from OPRA in advance of the Exchange
opening or reopening trading (i.e., Market Maker
rotational quotes from the Exchange and ABBO)
and is similar to Cboe’s definition of ‘‘Composite
Market,’’ as described in Cboe Rule 5.31(a), which
includes Cboe Market Maker quotes and BBOs of
other options exchanges.
116 See Rules 952NY(b)(A) and (c) (describing
process for determining single opening price).
E:\FR\FM\17JYN3.SGM
17JYN3
ddrumheller on DSK120RN23PROD with NOTICES3
Federal Register / Vol. 88, No. 135 / Monday, July 17, 2023 / Notices
the Indicative Match Price included in
the Auction Imbalance Information
would be calculated without Auction
Collars. This would be a new feature
applicable to options trading on the
Exchange and an Indicative Match Price
without Auction Collars would be
accompanied with an Auction Indicator
that the Auction cannot be conducted
because there is no Legal Width
Quote.117
Proposed Rule 952NYP(a)(9)(A) is
identical to Arca Options Rule 6.64P–
O(a)(9)(A) and would provide that if
there is more than one price level at
which the maximum number of
contracts can be traded within the
Auction Collars, the Indicative Match
Price would be the price closest to the
midpoint of the Legal Width Quote,
rounded to the nearest MPV for the
series, provided that the Indicative
Match Price would not be lower (higher)
than the highest (lowest) price of a Limit
Order to buy (sell) ranked Priority 2—
Display Orders that is eligible to
participate in the Auction. This
functionality is similar to the current
process for establishing a single opening
price, as described in Rule 952NY(c),
which provides that when the same
number of contracts can trade at
multiple prices, the opening price is the
price at which the greatest number of
contracts can trade that is at or nearest
to the midpoint of the NBBO
disseminated by OPRA. The proposed
rule text provides more granularity,
such as describing that the Exchange
would round to the nearest MPV in the
series, which is consistent with current
functionality.
Proposed Rule 952NYP(a)(9)(B) is
identical to Arca Options Rule 6.64P–
O(a)(9)(B) and would provide that an
Indicative Match Price that is higher
(lower) than the upper (lower) Auction
Collar would be adjusted to the upper
(lower) Auction Collar and orders
eligible to participate in the Auction
would trade at the collared Indicative
Match Price. Proposed Rule
952NYP(a)(9)(B)(i) is identical to Arca
Options Rule 6.64P–O(a)(9)(B)(i) and
would provide that Limit Orders to buy
(sell) with a limit price above (below)
the upper (lower) Auction Collar would
be included in the Auction Imbalance
Information at the collared Indicative
Match Price and would be eligible to
trade at the Indicative Match Price. This
proposed rule text provides granularity
that, consistent with current
functionality, orders willing to buy (sell)
117 Currently, if there is no legal width NBBO, the
Exchange does not disseminate imbalance
information and does not calculate an indicative
match price.
VerDate Sep<11>2014
18:41 Jul 14, 2023
Jkt 259001
at a higher (lower) price than the
Auction Price would participate in an
Auction trade, which, by definition,
would be required to be at or between
the Auction Collars. Proposed Rule
952NYP(a)(9)(B)(ii) is identical to Arca
Options Rule 6.64P–O(a)(9)(B)(ii) and
would provide that Limit Orders and
quotes to buy (sell) with a limit price
below (above) the lower (upper) Auction
Collar would not be included in the
Auction Imbalance Information and
would not participate in an Auction.
This proposed rule text provides
granularity that is consistent with
current functionality.
Proposed Rule 952NYP(a)(9)(C) is
identical to Arca Options Rule 6.64P–
O(a)(9)(C) and would provide that if the
Matched Volume (defined below) for an
Auction consists of only buy and sell
Market Orders, the Indicative Match
Price would be the midpoint of the
Legal Width Quote, rounded to the MPV
for the series, or, if, the Legal Width
Quote is locked, then the locked price.
This proposed rule text is designed to
provide granularity of how the
Indicative Match Price would be
calculated if there are only Market
Orders.
Proposed Rule 952NYP(a)(9)(D) is
identical to Arca Options Rule 6.64P–
O(a)(9)(D) and would provide that if
there is no Matched Volume, including
if there are Market Orders on only one
side of the Market, the Indicative Match
Price and Total Imbalance for the
Auction Imbalance Information would
be zero. This proposed rule text is
designed to provide granularity
regarding how the Indicative Match
Price and Total Imbalance for the
Auction Imbalance Information would
be calculated if there is no Matched
Volume.
• Proposed Rule 952NYP(a)(10) is
identical to Arca Options Rule 6.64P–
O(a)(10) and would define a ‘‘Legal
Width Quote’’ as a Calculated NBBO
that: (A) may be locked, but not crossed;
(B) does not contain a zero offer; and (C)
has a spread between the Calculated
NBBO for each option contract that does
not exceed a maximum differential that
is determined by the Exchange on a
class basis, which amount may be
modified during the Auction Process,
and such maximum differentials (and
modifications thereto) would be
announced by Trader Update (as
discussed further below, provided that a
Trading Official may establish
differences other than the above for one
or more series or classes of options).118
118 See Rule 925NY(c) (Unusual Conditions—
Opening Auction) (providing that ‘‘[i[f the interest
of maintaining a fair and orderly market so requires,
PO 00000
Frm 00029
Fmt 4701
Sfmt 4703
45757
Requiring that the Legal Width Quote
not be crossed is consistent with current
Rule 952NY(b)(E) (and identical to Arca
Options Rule 6.64P–O(a)(10)), both of
which require an uncrossed NBBO
disseminated by OPRA before a series
can be opened (or reopened).119 The
Exchange believes that the additional
detail in proposed Rules
952NYP(a)(10)(A) and (B) regarding how
to determine a Legal Width Quote
provides clarity and granularity as to
when a Calculated NBBO would be
eligible to be considered a Legal Width
Quote. In addition, requiring that the
Calculated NBBO must not exceed a
maximum differential before an Auction
can proceed is based on the current
Exchange System Opening Process,
which requires the bid-ask differential
for a series to be in an acceptable
range.120 However, rather than specify
maximum bid-ask differentials in
proposed Rule 952NYP, the Exchange
believes it is appropriate to instead
retain flexibility to set the maximum
differentials so that the Exchange may
consider the different market models
and characteristics of different classes,
as well as modify amounts in response
to then-current market conditions.121
The proposed Rule would allow the
Exchange to modify these bid-ask
differentials at any time as it deems
necessary and appropriate, which
discretion the Exchange has today on
the Exchange System.122 In addition,
a Trading Official may declare that unusual market
conditions exist in a particular issue and allow
Market Makers in that issue to make auction bids
and offers with spread differentials of up to two
times, or in exceptional circumstances, up to three
times, the legal limits permitted under Rule
925NY’’).
119 The proposed calculation of a Legal Width
Quote is also similar to how Cboe determines
whether to perform a ‘‘Forced Opening,’’ because
Cboe requires a Composite Market that is not
crossed with a non-zero offer. See Cboe Rule
5.31(e)(4).
120 See Rule 952NY(b)(D) (providing that ‘‘[t]he
System will not conduct an Auction Process if the
bid-ask differential for that series is not within an
acceptable range,’’ which ‘‘acceptable range shall
mean within the bid-ask differential guidelines
established pursuant to Rule 952NY(b)(4)’’).
121 See also Cboe Rule 5.31(a) (regarding the
definition of ‘‘Maximum Composite Width’’ (i.e.,
the amount that the ‘‘Composite Width’’ of a series
may generally not be greater than for the series to
open), which term is used similarly to how the
Exchange proposes to use the term ‘‘Legal Width
Quote,’’ which provides that Cboe may determine
such amounts ‘‘on a class and Composite bid basis,
which amount [Cboe] may modify during the
opening auction process’’ and disseminate ‘‘to all
subscribers of [Cboe’s] data feeds that deliver
opening auction updates’’). See id.
122 See supra note 118 (regarding authority
conferred on Trading Officials, per Rule 925NY(c),
to make auction bids and offers with spread
differentials of up to two times, or in exceptional
circumstances, up to three times, the legal limits,
E:\FR\FM\17JYN3.SGM
Continued
17JYN3
45758
Federal Register / Vol. 88, No. 135 / Monday, July 17, 2023 / Notices
ddrumheller on DSK120RN23PROD with NOTICES3
allowing the Exchange to announce the
maximum differentials by Trader
Update (as opposed to by Rule) is
identical to Options Rule 6.64P–
O(a)(10), and consistent with the rules
of several options exchanges that
likewise may change the amounts of
valid opening widths by notice or
circular rather than by Rule change.123
The Exchange believes that the
proposed definition relating to ‘‘Legal
Width Quote’’ would promote clarity
and transparency in Exchange rules
regarding which quotes—both Market
Maker quotes on the Exchange and the
ABBO, i.e., the Calculated NBBO—that
the Exchange would use to determine if
there is a Legal Width Quote and
provide direction that to be a Legal
Width Quote, a Calculated NBBO may
not exceed a maximum differential.
The Exchange also proposes to make
a conforming change to Rule 925NY(c)
to update the title from ‘‘Unusual
Conditions—Opening Auction’’ to be
‘‘Unusual Conditions—Auctions,’’
which would align with the proposed
definition of ‘‘Auctions’’ in proposed
Rule 952NYP(a), which includes both
opening and reopening auctions, which
change mirrors Arca Options Rule 6.37–
O(c). This proposed change also
promotes clarity, consistent with
current functionality that Rule 925NY(c)
is also applicable to reopenings. In
addition, the Exchange proposes to
amend Rule 925NY(c), which authorizes
a Trading Official to widen the bid-ask
differentials in the event of unusual
conditions, to add a cross-reference to
extend such authority to proposed Rule
952NYP(a)(10) (regarding the Legal
Width Quote spreads). This proposed
amendment would ensure that the
existing procedures for auctions in the
event of unusual conditions, as
specified in Rule 925NY(c), would
continue to be available for option
symbols that have transitioned to Pillar
(and subject to new Rule
952NYP(a)(10)).
‘‘[i[f the interest of maintaining a fair and orderly
market so requires’’).
123 See, e.g., Cboe Rule 5.31(a) (definition of
Maximum Composite Width); Cboe EDGX Options
Exchange, Inc. (‘‘EDGX’’) Rule 21.7(a) (same); BZX
Rule 21.7(a) (same)); Cboe C2 Exchange Inc. (‘‘C2’’)
Rule 6.11(a) (same); see also Nasdaq Options Market
(‘‘NOM’’) Options 3, Section 8(a)(6) (defining
‘‘Valid Width NBBO’’ as ‘‘the combination of all
away market quotes and any combination of NOMregistered Market Maker orders and quotes received
over the QUO or SQF Protocols within a specified
bid/ask differential as established and published by
the Exchange’’ and allowing the Valid Width NBBO
to be ‘‘configurable by underlying, and tables with
valid width differentials will be posted by Nasdaq
on its website’’) and MIAX Rule 503(f)(2) (which
permits MIAX to determine by circular an
acceptable range in which openings are permissible
if there is no valid width national best bid or offer
(‘‘NBBO’’)).
VerDate Sep<11>2014
18:41 Jul 14, 2023
Jkt 259001
• Proposed Rule 952NYP(a)(11) is
identical to Arca Options Rule 6.64P–
O(a)(11) and would define the term
‘‘Matched Volume’’ to mean the number
of buy and sell contracts that can be
matched at the Indicative Match Price,
excluding IO Orders. The Exchange
believes this proposed definition
promotes granularity in Exchange rules.
• Proposed Rule 952NYP(a)(12) is
identical to Arca Options Rule 6.64P–
O(a)(12) and would define the term
‘‘pre-open state’’ to mean the period
before a series is opened or reopened for
trading and would provide that during
the pre-open state, the Exchange would
accept Auction-Only Orders, quotes,
and orders designated Day or GTC,
including orders ranked under the
proposed category of ‘‘Priority 3—NonDisplay Orders’’ that are not eligible to
participate in an Auction.124 This
proposed text is consistent with current
Rule 952NY(b), which provides that the
Exchange will accept market and limit
orders for inclusion in the opening
auction process and would add further
granularity regarding which interest
would be accepted by the Exchange
(even if not eligible for an Auction)
prior to the opening or reopening of
each option series and during which
time period.
Æ The proposed rule would further
provide that the pre-open state for the
Core Open Auction would begin at 6:00
a.m. Eastern Time and would end when
the Auction Processing Period begins,
which is similar to current
functionality, which allows order and
quote entry to begin at 5:30 a.m. Eastern
Time (per proposed Rule
952NYP(a)(12)(A), which is identical to
Arca Options Rule 6.64P–O(a)(12)(A)).
The Exchange believes that moving the
start time to 6:00 a.m. Eastern Time
would not materially impact the ability
of ATP Holders to enter orders or quotes
during the pre-open state. As further
proposed (and identical to Arca
Options), at the beginning of the preopen state before the Core Open
Auction, orders designated GTC that
remain from the prior trading day would
be included in the Consolidated Book,
which is consistent with current
functionality.
Æ The proposed rule would also
provide that the pre-open state for a
Trading Halt Auction would begin at the
124 The Exchange notes that Cboe refers to a
similar period as the ‘‘Queuing Period.’’ See Cboe
Rule 5.31(b). Similar to Cboe’s Queuing Period, the
proposed term of ‘‘pre-open state’’ means the period
when the Exchange accepts orders and quotes but
has not yet opened/reopened a series for continuous
trading. The proposed ‘‘Auction Process,’’ defined
above, is part of the pre-open state, but does not
begin until the Exchange receives an Auction
Trigger, as defined above.
PO 00000
Frm 00030
Fmt 4701
Sfmt 4703
beginning of the trading halt and would
end when the Auction Processing
Period begins (per proposed Rule
952NYP(a)(12)(B), which is identical to
Arca Options Rule 6.64P–O(a)(12)(B)).
This proposed definition of a preopen state is identical to Arca Options
Rule 6.64P–O(a)(12) and is designed to
distinguish the pre-open state (for a
Core Open Auction or a Trading Halt
Auction) from both the Auction
Processing Period and the period when
a given series opens for trading, thus
adding granularity to Exchange rules. As
noted above, this proposed definition of
pre-open state would also be used in
proposed Rules 928NYP, 928.1NYP, and
900.3NYP, which use is identical to
how this term is used in the analogous
Arca Options Rules 6.40P–O, 6.41P–O,
and 6.62P–O.
• Proposed Rule 952NYP(a)(13) is
identical to Arca Options Rule 6.64P–
O(a)(13) and would define the term
‘‘Rotational Quote’’ to mean the highest
Market Maker bid and lowest Market
Maker offer on the Exchange when the
Auction Process begins and would
provide that during the Auction Process,
the Exchange would update the price
and size of the Rotational Quote and
that such Rotational Quote can be
locked or crossed. The Exchange further
proposes that, if there are no Market
Maker quotes, the Rotational Quote
would be published with a zero price
and size. The Exchange notes that,
although not specified in the current
rule, it currently disseminates a
‘‘rotational quote’’ to OPRA when it is
in the process of opening or reopening
a series, i.e., a quote that is comprised
only of Market Maker quotes and does
not include orders. The Exchange
proposes a difference on Pillar because
currently, if the Market Maker quotes
are crossed, the Exchange flips the bid
and offer prices. In Pillar, the Exchange
would publish a Rotational Quote with
the actual bid and offer prices, even if
crossed, which would provide ATP
Holders with a more accurate view of
whether a Rotational Quote is crossed.
This proposed definition adds
granularity to Exchange rules by
codifying existing (albeit slightly
modified) functionality.
Auction Ranking and Allocation.
Proposed Rule 952NYP(b) is identical to
Arca Options Rule 6.64P–O(b) insofar as
it would provide that orders and quotes
on the side of the Imbalance are not
guaranteed to participate in the Auction
but would differ in that it would
address allocation (discussed below)
and would provide that orders and
quotes would be ranked pursuant to
Rule 964NYP(c)–(g). Further, with
regard to ranking (and identical to Arca
E:\FR\FM\17JYN3.SGM
17JYN3
Federal Register / Vol. 88, No. 135 / Monday, July 17, 2023 / Notices
ddrumheller on DSK120RN23PROD with NOTICES3
Options Rule 6.64P–O(b)), proposed
Rule 952NYP(b) would provide that: (1)
Limit Orders, quotes, and LOO Orders
would be ranked based on their limit
price and not the price at which they
would participate in the Auction; (2)
MOO Orders would be ranked under the
proposed category of ‘‘Priority 1—
Market Orders’’; (3) LOO Orders would
be ranked under the proposed category
of ‘‘Priority 2—Display Orders’’; and (4)
IO Orders would be ranked based on
time among IO Orders, subject to
eligibility to participate at the Indicative
Match Price based on their limit
price.125
In addition, proposed Rules
952NYP(b)(5)(A)–(B), would specify
how eligible orders and quotes would
trade in the Auction, which would be
based on whether such orders and
quotes are priced better than, or equal
to, the Auction Price.126 As proposed,
orders and quotes priced better than the
Auction Price would trade based on
their ranking 127 and orders and quotes
priced at the Auction Price would trade
in accordance with Rule 964NYP(j),128
provided that the participation
entitlement to a Directed Order Market
Maker (‘‘DOMM’’) or Specialist per Rule
964NYP(j)(4) is not available during the
Auction.129 The distinction between
how better-priced and at-priced interest
trades is relevant to non-Customer
125 See Rule 964NYP(e) (which provides that ‘‘[a]t
each price, all orders and quotes are assigned a
priority category, and, within each priority
category, Customer orders are ranked ahead of nonCustomer. If, at a price, there are no remaining
orders or quotes in a priority category, then samepriced interest in the next priority category has
priority.’’).
126 For an Auction that results in a trade, the
Auction Price is the price at which such Auction
is conducted. See proposed Rule 952NYP(a)(4).
127 See proposed Rule 952NYP(b)(5)(A). See also
Rule 964NYP(c) (providing that ‘‘orders and quotes
are ranked and maintained in the Consolidated
Book according to price-time priority,’’ with the
best-priced interest ranked first). See also Rule
964NY(b)(1)(Price Priority) (providing that ‘‘[t]he
highest bid has priority over all other bids; and the
lowest offer has priority over all other offers.’’).
128 This proposed allocation of orders and quotes
during the Auction Process is consistent with the
recently approved allocation of Electronic Complex
Orders (‘‘ECOs’’) during the ECO Opening (or
Reopening) Auction Process on Pillar, which occurs
after each leg of a complex strategy has opened for
trading. Specifically, eligible ECOs are ranked per
Rule 964NYP(c)–(g) and ECOs priced better than the
ECO Auction Price trade based on ranking and
ECOs priced at the ECO Auction Price trade per
Rule 964NYP(j)). See Rule 980NYP(d)(3)(B)((iii).
129 See proposed Rule 952NYP(b)(5)(B). See also
Rules 964NYP(j) (Order Execution) (providing how
orders and quotes, at each price, will be allocated
against contra-side interest for option series that are
open for trading) and (j)(4) (providing for fourth
priority ‘‘to interest ranked Priority 2—Display
Limit Orders that is eligible for the DOMM
Guarantee or the Specialist Pool Guarantee, as
applicable, pursuant to paragraph (h) of this Rule,
provided that the execution price is the NBBO.’’).
VerDate Sep<11>2014
18:41 Jul 14, 2023
Jkt 259001
interest because ‘‘at-priced’’ nonCustomer interest would trade on a size
pro rata basis, whereas ‘‘better-priced’’
non-Customer interest would not be
subject to a pro rata allocation. The
Exchange proposes to make clear that
participation entitlements that may be
available to a DOMM or a Specialist
when the execution price is the NBBO
would not be available during the
Auction (i.e., before an option series is
open for trading on the Exchange) even
though the execution price could be at
the NBBO because such NBBO would
not include quotes from the
Exchange.130 The Exchange believes this
proposed rule change would add clarity
and transparency to Exchange rules and
would not interfere with the purpose of
participation entitlements—which is to
encourage Market Makers to quote at the
NBBO during continuous trading.
This proposed rule is based in part on
current Rule 952NY(b)(B), which
provides that ‘‘[o]rders and quotes in the
system will be matched up with one
another based on price-time priority,
provided, however, that orders will
have priority over Market Maker quotes
at the same price.’’ The Exchange
proposes a difference in Pillar (identical
to Arca Options Rule 6.64P–O(b)), that
orders in the same priority category as
quotes would not have priority over
Market Maker quotes at the same price,
which distinction is an artifact of the
Exchange’s existing system limitation.
Instead, the Exchange proposes that
orders and Market Maker quotes in the
same priority category would be ranked
pursuant to Rule 964NYP, which rule is
described in the American Priority
Filing). In addition to mirroring the
equal ranking of orders and quotes by
Arca Options, this handling is also
consistent with how other options
markets handle orders and quotes
during the opening process.131
Auction Imbalance Information.
Proposed Rule 952NYP(c) is identical to
Arca Options Rule 6.64P–O(c) and
would provide that, unless otherwise
specified by Trader Update, Auction
Imbalance Information would be
updated at least every second until the
Auction is conducted, unless there is no
change to the information and would
further provide that the Exchange would
begin disseminating Auction Imbalance
Information at the following times: (1)
Core Open Auction Imbalance
130 Rules 964NYP(h)(1) and (h)(2) describe
participation entitlements available to a DOMM or
a Specialist when the execution price is the NBBO.
131 See Cboe Rule 5.31(e)(3)(i) (providing that
Cboe ‘‘prioritizes orders and quotes in the following
order: market orders, limit orders and quotes with
prices better than the Opening Trade Price, and
orders and quotes at the Opening Trade Price’’).
PO 00000
Frm 00031
Fmt 4701
Sfmt 4703
45759
Information would begin at 8:00 a.m.
Eastern Time; and (2) Trading Halt
Auction Imbalance Information would
begin at the beginning of the trading
halt.
Auction Process. Proposed Rule
952NYP(d) is identical to Arca Options
Rule 6.64P–O(d) and would set forth the
Exchange’s proposed Auction Process
on Pillar. Similar to current Exchange
System functionality, which requires
that the bid-ask differential for a given
series be within an acceptable range
before conducting an auction, under
Pillar, a series would not be opened or
reopened on a trade if there is no Legal
Width Quote, which concept, as
described above, incorporates (almost
identical) bid-ask differentials.132 As
described further below, the Exchange
proposes that for Pillar, a series should
(ideally) also have Market Maker quotes
and, as such, proposes to provide time
for Market Makers assigned to a series
to quote within the specified bid-ask
differentials, and if Market Makers do
not quote within those time frames,
determine whether to open or reopen a
series based on the ABBO. In addition
to mirroring the opening process
described in Arca Options Rule 6.64P–
O(d), this process is also consistent with
that used on other options exchanges.133
Proposed Rule 952NYP(d)(1) is
identical to Arca Options Rule 6.64P–
O(d)(1) and describes the process for
disseminating the Rotational Quote and
would provide that when the Exchange
receives the Auction Trigger for a series,
the Exchange would send a Rotational
Quote to both OPRA and proprietary
data feeds indicating that the Exchange
is in the process of transitioning from a
pre-open state to continuous trading for
that series. This proposed rule is
consistent with current functionality
and is designed to promote granularity.
Proposed Rule 952NYP(d)(2) is
identical to Arca Options Rule 6.64P–
O(d)(2) and would provide that once a
Rotational Quote has been sent, the
Exchange would conduct an Auction
provided there is both a Legal Width
132 See supra note 120 (describing Rule
952NY(b)(D), which provides that the Exchange
will not conduct its current Auction Process if the
bid-ask differential for a series is not ‘‘within an
acceptable range’’).
133 See, e.g., Nasdaq PHLX (‘‘PHLX’’) Section 8(d),
Options Opening Process (providing that the
Opening Process begins when (a) a ‘‘valid width’’
(i.e., a bid/ask differential that is compliant with
PHLX Rule 1014(c)(i)(A)(1)(a)) specialist quote is
submitted, (b) valid width quotes from at least two
PHLX market participants have been submitted
within 30 seconds of the opening trade or quote in
the underlying security from the primary exchange,
or (c) after 30 seconds of the opening trade or quote
in the underlying security from the primary
exchange, one PHLX market participant has
submitted a valid width quote).
E:\FR\FM\17JYN3.SGM
17JYN3
ddrumheller on DSK120RN23PROD with NOTICES3
45760
Federal Register / Vol. 88, No. 135 / Monday, July 17, 2023 / Notices
Quote and, if applicable, a Market
Maker quote with a non-zero offer in the
series (which would be subject to the
proposed requirements relating to
Market Maker quotes, including the
proposed new Opening MMQ Timer(s),
as discussed further below per proposed
Rule 952NYP(d)(3)). The proposed rule
would further provide that the Exchange
would wait a minimum of two
milliseconds after disseminating the
Rotational Quote before an Auction
could be conducted, which delay would
be new and is designed to enhance
market quality by promoting priceforming displayed liquidity to the
benefit of all market participants.
Because the Rotational Quote is
intended to provide notice that the
Exchange will begin transitioning from
a pre-open state, the Exchange believes
this short delay will provide market
participants with an opportunity to
participate in the Auction Process. This
proposed rule text is designed to
provide transparency and determinism
in Exchange rules regarding the earliest
potential time that a series could be
opened (after the Exchange receives an
Auction Trigger), and subject to the
series meeting all other requirements for
opening or reopening discussed herein.
Subject to the requirements specified
in proposed Rule 952NYP(d)(2),
proposed Rule 952NYP(d)(2)(A) (which
is identical to Arca Options Rule 6.64P–
O(d)(2)(A)) and would provide that if
there is Matched Volume that can trade
at or within the Auction Collars, the
Auction would result in a trade at the
Indicative Match Price, except as
specified in proposed Rule
952NYP(d)(4) below. Proposed Rule
952NYP(d)(2)(B) is identical to Arca
Options Rule 6.64P–O(d)(2)(B) and
would provide that if there is no
Matched Volume that can trade at or
within the Auction Collars, the Auction
would not result in a trade and the
Exchange would transition to
continuous trading as described in
proposed Rule 952NYP(f) (below) and
the Auction would result in a quote.
This proposed rule is designed to
provide transparency of when an
Auction would result in a trade.
Proposed Rule 952NYP(d)(3) is
identical to Arca Options Rule 6.64P–
O(d)(3) and would specify the
parameters of the Opening MMQ
Timers, which are designed to
encourage (but would not require)
Market Makers to submit Legal-Width
Quotes in connection with the
automated opening or reopening of a
series. On the Exchange System, the
Exchange does not impose on Market
Makers assigned to a series any special
obligations in connection with the
VerDate Sep<11>2014
18:41 Jul 14, 2023
Jkt 259001
opening process. On Pillar, the
Exchange will likewise not impose on
such Market Makers any additional
obligations at the open.134 The
Exchange believes that, rather than layer
additional requirements on the Market
Making community, it would be more
beneficial to all market participants to
employ alternative methods to help
ensure an orderly transition to
continuous trading. As such, the
Exchange believes that the proposed socalled ‘‘waterfall’’ approach to opening,
which is identical to the process
utilized on Arca Options, would offer a
number of checks that are intended to
provide adequate opportunity for a
greater number of Market Makers to
provide their liquidity interest and help
ensure increased liquidity at a level
commensurate with which the market is
accustomed during continuous trading
on the Exchange. In short, although the
Exchange does not require a Market
Maker assigned to a series to quote on
the Exchange in order to open or reopen
a series for trading, the Exchange
believes that providing Market Makers
assigned to a series the opportunity to
do so would promote a fair and orderly
Auction process and facilitate a fair and
orderly transition to continuous
trading.135 Accordingly, the Exchange
proposes to mirror the auction process
set forth in Arca Options Rule 6.64P–O
and provide time for Market Makers
assigned to a series to quote within the
specified bid-ask differentials before a
series would be opened or reopened for
trading.
Overall, the Exchange believes that
the proposed waterfall approach of
setting minimum time periods for a
Market Maker assigned to a series to
quote within the specified bid-ask
differential before opening a series, even
if there is a Legal Width Quote, would
appropriately balance the benefits of
increasing the opportunities for Market
Makers assigned to a series to enter
quotations within the specified bid-ask
differential, with a timely series opening
or reopening when there is a Legal
Width Quote even when it does not
include Market Makers assigned to the
series.
134 Although the Exchange does not require that
Market Makers assigned to a series quote at the
open, once a series is opened for trading, Market
Makers are nonetheless required to continuously
fulfill their obligations to engage in a course of
dealings reasonably calculated to contribute to the
maintenance of a fair and orderly market.
135 Currently, neither Market Makers nor
Specialists are obligated to provide a quote before
a series is opened or reopened, which is why the
proposed Pillar options Auction rule is designed to
provide Market Makers with time to submit their
quotes so a series can be opened.
PO 00000
Frm 00032
Fmt 4701
Sfmt 4703
In addition, the Exchange proposes to
expand opportunities for its designated
liquidity providers—i.e., Market
Makers—to enter the market. As
described in more detail below (and
identical to Arca Options Rule 6.64P–
O(d)(3)), the Exchange proposes
different time lengths depending on the
number of Market Makers assigned to a
series. For example, if there are no
Market Makers assigned to a series,
there is no need to wait to open or
reopen a series if there is a Legal Width
Quote based upon the disseminated
ABBO. If there is one Market Maker
assigned to the series, the Exchange will
delay opening (even if there is a Legal
Width Quote based upon the ABBO) to
give the Market Maker additional
opportunity to provide liquidity.
Furthermore, if there is more than one
Market Maker assigned to a series, the
Exchange designates longer periods to
provide time for multiple Market
Makers assigned to the series the chance
to quote within the specified bid-ask
differentials. The Exchange believes that
providing additional opportunity for its
liquidity providers to enter the market
would result in deeper liquidity—which
market participants have come to expect
in options with multiple assigned
Market Makers, and a more stable
trading environment.
The Exchange does not believe that
the proposed waterfall approach would
result in an undue burden on
competition. As is the case per Arca
Options Rule 6.64P–O, Market Makers
are encouraged but not required to quote
in their assigned series at the open, thus
they are not subject to additional
obligations. The Exchange believes that
encouraging, rather than requiring,
participation of such Market Makers at
the open, may increase the availability
of Legal Width Quotes in more series,
thereby allowing more series to open.
Improving the validity of the opening
price benefits all market participants
and benefits the reputation of the
Exchange as being a venue that provides
accurate price discovery.
As part of the Auction Process, which
is identical to the process used on Arca
Options, the Exchange proposes to
utilize ‘‘Opening MMQ Timers,’’ each of
which would last for an Exchangedetermined period, the duration of
which would be announced by Trader
Update. As proposed, once the Auction
Process begins, the Exchange would
begin one or more Opening MMQ
Timers for the Market Maker(s) assigned
to a series to (opt to) submit a quote
with a non-zero offer.136 The proposed
136 A Market Maker may send quotations only in
the issues included in its appointment, i.e., in series
E:\FR\FM\17JYN3.SGM
17JYN3
ddrumheller on DSK120RN23PROD with NOTICES3
Federal Register / Vol. 88, No. 135 / Monday, July 17, 2023 / Notices
rules describing Opening MMQ Timers
are identical to Arca Options Rule
6.64P–O(d)(3)(A)–(C) and are designed
to provide transparency in Exchange
rules of the circumstances of when the
Exchange would wait to open or reopen
a series for trading if the assigned
Market Maker(s) has not submitted a
quote within the specified time periods,
as follows:
• Proposed Rule 952NYP(d)(3)(A) is
identical to Arca Options Rule 6.64P–
O(d)(3)(A) and would provide that if
there are no Market Makers assigned to
a series, the Exchange would conduct an
Auction in that series based solely on a
Legal Width Quote, without waiting for
the Opening MMQ Timer to end. As set
forth in proposed Rules
952NYP(d)(2)(A) and (B) (which are
identical to Arca Options Rules 6.64P–
O(d)(2)(A) and (B)), if there is Matched
Volume, this Auction would result in a
trade, otherwise, the series would
transition to continuous trading as
described in proposed Rule 952NYP(f)
below.
• Proposed Rule 952NYP(d)(3)(B) is
identical to Arca Options Rule 6.64P–
O(d)(3)(B) and would provide that if
there is only one Market Maker assigned
to a series:
Æ The Exchange would conduct the
Auction, without waiting for the
Opening MMQ Timer to end, as soon as
there is both a Legal Width Quote and
the assigned Market Maker has
submitted a quote with a non-zero offer
(proposed Rule 952NYP(d)(3)(B)(i),
which is identical to Arca Options Rule
6.64P–O(d)(3)(B)(i)). As set forth in
proposed Rules 952NYP(d)(2)(A) and
(B), if there is Matched Volume, this
Auction would result in a trade,
otherwise, the series would transition to
continuous trading as described in
proposed Rule 952NYP(f) below.
Æ If the Market Maker assigned to the
series has not submitted a quote with a
non-zero offer by the end of the Opening
MMQ Timer and there is a Legal Width
Quote, the Exchange would conduct the
Auction (proposed Rule
952NYP(d)(3)(B)(ii), which is identical
to Arca Options Rule 6.64P–
O(d)(3)(B)(ii)). As set forth in proposed
Rules 952NYP(d)(2)(A) and (B), if there
is Matched Volume, this Auction would
result in a trade, otherwise, the series
would transition to continuous trading
as described in proposed Rule
952NYP(f) below.
to which such Market Maker is assigned. See
proposed Rule 925.1NYP(a). See also proposed
Rules 925.1NYP(b) and (c) (setting forth continuous
quoting obligations of Specialists and Market
Makers, respectively, which obligations are
identical to those set forth in Rule 925NY(b) and
(c)).
VerDate Sep<11>2014
18:41 Jul 14, 2023
Jkt 259001
• Proposed Rule 952NYP(d)(3)(C) is
identical to Arca Options Rule 6.64P–
O(d)(3)(C) and would provide that if
there are two or more Market Makers
assigned to a series:
Æ The Exchange would conduct the
Auction, without waiting for the
Opening MMQ Timer to end, as soon as
there is both a Legal Width Quote and
at least two quotes with a non-zero offer
have been submitted by assigned Market
Maker(s) (proposed Rule
952NYP(d)(3)(C)(i), which is identical to
Arca Options Rule 6.64P–O(d)(3)(C)(i)).
As set forth in proposed Rules
952NYP(d)(2)(A) and (B), if there is
Matched Volume, this Auction would
result in a trade; otherwise, the series
would transition to continuous trading
as described in proposed Rule
952NYP(f) below.
Æ If the Exchange has not received at
least two quotes with a non-zero offer
from any Market Maker(s) assigned to a
series by the end of the Opening MMQ
Timer, the Exchange would begin a
second Opening MMQ Timer (of the
same length) and during the second
Opening MMQ Timer, the Exchange
would conduct the Auction, without
waiting for the second Opening MMQ
Timer to end, if there is both a Legal
Width Quote and at least one Market
Maker assigned to the series has
submitted a quote with a non-zero offer
(proposed Rule 952NYP(d)(3)(C)(ii),
which is identical to Arca Options Rule
6.64P–O(d)(3)(C)(ii)). In such case, the
Exchange would not wait for the second
Opening MMQ Timer to end. Because
the Exchange does not require a Market
Maker assigned to a series to quote
before conducting an Auction, to reduce
the potential delay in opening or
reopening a series, the Exchange
believes that during the second Opening
MMQ Timer, it is appropriate to wait for
only one Market Maker to quote. As set
forth in proposed Rules
952NYP(d)(2)(A) and (B), if there is
Matched Volume, this Auction would
result in a trade; otherwise, the series
would transition to continuous trading
as described in proposed Rule
952NYP(f) below.
Æ If no Market Maker assigned to a
series has submitted a quote with a nonzero offer by the end of the second
Opening MMQ Timer and there is a
Legal Width Quote, the Exchange would
conduct the Auction (proposed Rule
952NYP(d)(3)(C)(iii), which is identical
to Arca Options Rule 6.64P–
O(d)(3)(C)(iii). As set forth in proposed
Rules 952NYP(d)(2)(A) and (B), if there
is Matched Volume, this Auction would
result in a trade, otherwise, the series
would transition to continuous trading
PO 00000
Frm 00033
Fmt 4701
Sfmt 4703
45761
as described in proposed Rule
952NYP(f) below.
As noted above, the proposed Auction
Process is designed to attract the highest
quality quote for each series at the open
to attract order flow to the Auction. As
such, the Exchange believes it is
reasonable to require more than one
Opening MMQ Timer (with a maximum
run time of one minute—30 seconds ×
2) to run when there are at least two
Market Makers because it allows the
Exchange time to attract the best quote
from these market participants, which
in turn should attract order flow to the
Exchange at the open (i.e., the Exchange
can leverage the highest bid and lowest
offer from the various Market Makers
that submit quotes). The Exchange
believes that if a Legal Width Quote is
not obtained in the first 30-second
Opening MMQ Timer, it is to the benefit
of all market participants to begin a
second Opening MMQ Timer to allow
the bid-ask differential to tighten before
a series is opened. The Exchange also
believes that the process described in
proposed Rule 952NYP(d)(3) (which is
identical to Arca Options Rule 6.64P–
O(d)(3)) would continue to encourage
Market Makers to participate at the
open, which may increase the
availability of Legal Width Quotes in
more series, thereby allowing more
series to open in a timely manner. The
Exchange believes that expanding the
opportunities for each Market Maker to
enter the market—whether by each
Market Maker submitting one quote or
a single Market Maker submitting two
quotes—could result in the depth of
liquidity that market participants have
come to expect in options with multiple
assigned Market Makers, and a more
stable trading environment. The
Exchange also believes the proposed
rule would provide more flexibility in
terms of how market depth is achieved
(i.e., based on quotes from a single
Market Maker as opposed to two) and
may result in a more timely and
efficient opening process.
Proposed Rule 952NYP(d)(4) is
identical to Arca Options Rule 6.64P–
O(d)(4) and would provide that, for any
option series that has not opened by the
end of the initial Auction Process time
period because the Calculated NBBO is
wider than the Legal Width Quote, if the
Calculated NBBO is not crossed and
does not contain a zero offer, the
Exchange would transition to
continuous trading as described in
proposed Rule 952NYP(f) below, after it
first cancels Market Orders, MOO
Orders, and Limit Orders to buy (sell)
priced equal to or higher (lower) than
the Indicative Match Price. In such case,
the Auction Process is not intended to
E:\FR\FM\17JYN3.SGM
17JYN3
45762
Federal Register / Vol. 88, No. 135 / Monday, July 17, 2023 / Notices
end with a trade, but it may result in a
trade even if there is no Legal Width
Quote if orders or quotes arrive during
the period when the Exchange is
evaluating the status of orders and
quotes.
The Exchange proposes functionality
for Pillar that is identical to Arca
Options Rule 6.64P–O(d)(4) to allow the
Exchange to open a series without a
trade, i.e., transition to continuous
trading as described in proposed Rule
952NYP(f), when there is a Calculated
NBBO that is wider than the Legal
Width Quote (a ‘‘wide Calculated
NBBO’’). Specifically, proposed Rule
952NYP(d)(4) would provide that if the
Calculated NBBO is not crossed and
does not contain a zero offer, the
Exchange would transition to
continuous trading as described below
in paragraph (f) of this Rule (as
described below, a trade could occur
during the transition to continuous
trading, but there would not be a trade
resulting from Matched Volume in the
Auction), after first cancelling Market
Orders, MOO Orders, and Limit Orders
to buy (sell) priced equal to or higher
(lower) than the Indicative Match Price.
The Exchange believes that the
cancellation of Market Orders and MOO
Orders before opening a series would
continue to protect Market Orders and
MOO Orders from being executed at
unintended prices before transitioning
to continuous trading, per proposed
paragraph (f) of the Pillar Rule when
there is a wide Calculated NBBO. The
Exchange also believes that cancelling
Limit Orders to buy (sell) priced equal
to or higher (lower) than the Indicative
Match Price when the Calculated NBBO
is wider than the Legal Width Quote
would allow the Exchange to help
ensure that potentially executable Limit
Orders would be cancelled rather than
execute at potentially extreme prices
before the Exchange transitions to
continuous trading. As further
proposed, in such case, the Auction
would not be intended to end with a
trade, but it may result in a trade (even
if there is no Legal Width Quote) if
orders or quotes arrive when the
Exchange is evaluating the status of
orders and quotes, but before the
Auction Processing Period begins.137
ddrumheller on DSK120RN23PROD with NOTICES3
137 The
Exchange expects this to be a rare race
condition that would result when the Exchange
receives orders and quotes at virtually the same
time that it is evaluating whether it can open a
series on a quote based on a wide Calculated NBBO
(and before the Auction Processing Period begins)
and that, as a result of that race condition, those
new orders or quotes are marketable against contraside interest, i.e., results in Matched Volume for the
Auction, at the same time that the Exchange
concludes, based on interest that had previously
been received, that it can proceed with an Auction
VerDate Sep<11>2014
18:41 Jul 14, 2023
Jkt 259001
The Exchange believes this proposed
rule would facilitate the opening or
reopening of a series so that it can begin
continuous trading when there is a
Calculated NBBO in a series that is
wider than the Legal Width Quote and
is not crossed and does not contain a
zero offer.138
Proposed Rule 952NYP(d)(5) is
identical to Arca Options Rule 6.64P–
O(d)(5) and would provide that the
Exchange may deviate from the standard
manner of the Auction Process,
including adjusting the timing of the
Auction Process in any option series or
opening or reopening a series when
there is no Legal Width Quote, when it
believes it is necessary in the interests
of a fair and orderly market. This
proposed rule is based on Rule
952NY(b)(F) and, consistent with
current functionality, is designed to
provide the Exchange with flexibility to
open a series even if there is no Legal
Width Quote.139 For example, a Floor
Broker may have a two-sided open
outcry order. If the series is not opened,
that trade could not be consummated.
Accordingly, this proposed rule would
allow the Exchange to open a series for
trading to facilitate open outcry trading.
Order Processing during an Auction
Processing Period. Proposed Rule
952NYP(e) is identical to Arca Options
Rule 6.64P–O(e) and would set forth
how orders and quotes are processed
during the Auction Processing Period.
As described above, and identical to
Arca Options, the Auction Processing
Period is the abbreviated time period
(i.e., generally measured in less than a
second) when the Exchange conducts
the Auction and therefore transitions a
series from a pre-open state to
continuous trading. For example, if
there is a Legal Width Quote, Market
Maker quotes, and Matched Volume, the
Auction Processing Period is when that
Matched Volume will trade at the
Indicative Match Price. As is the case
per Arca Options Rule 6.64P–O(e), new
orders and quotes received during the
Auction Processing Period would not be
eligible to participate in that Auction
trade. The proposed rule promotes
granularity and transparency of how
orders and quotes that arrive during the
in the absence of a Legal Width Quote. In such case,
the Auction could result in a trade.
138 Such opening is also similar to Cboe’s ‘‘Forced
Opening’’ process because it allows a series to open
without a trade after a specified time period when
the market is wider than the specified bid-ask
differentials. See Cboe Rule 5.31(e)(4).
139 See Rule 952NY(b)(F) (providing that ‘‘[t]he
Exchange may deviate from the standard manner of
the Auction Process, including adjusting the timing
of the Auction Process in any option class, when
it believes it is necessary in the interests of a fair
and orderly market’’).
PO 00000
Frm 00034
Fmt 4701
Sfmt 4703
Auction Processing Period would be
processed.
As with Arca Options Rule 6.64P–
O(e), for purposes of proposed Rules
952NYP(e) and (f), an ‘‘order
instruction’’ would likewise refer to a
request to cancel, cancel and replace, or
modify an order or quote. As further
proposed, during the Auction
Processing Period, the Exchange will
reject new quotes and, if the Exchange
receives order instructions for existing
quotes, the Exchange will cancel any
same-side quotes sent from the same
order/quote entry port of that Market
Maker. The Exchange believes that this
proposed treatment (which is identical
to the treatment of same-side quotes on
Arca Options) would allow for more
deterministic handling of order
instructions for quotes and, by
cancelling any same-side quotes of a
Market Maker, the Exchange would
eliminate potentially unexpected
exposure (or executions) for that Market
Maker.
In addition, and identical with Arca
Options, during the Auction Processing
Period, new orders will be accepted but
will not be processed until after the
Auction Processing Period and order
instructions for existing orders 140
would be processed as follows:
• An order instruction that arrives
during the Auction Processing Period
would not be processed until after the
Auction Processing Period if it relates to
an order that was received before the
Auction Processing Period. Any
subsequent order instructions relating to
such order would be rejected when a
prior order instruction is pending
(proposed Rule 952NYP(e)(1), which is
identical to Arca Options Rule 6.64P–
O(e)(1)).
• An order instruction that arrives
during the Auction Processing Period
would be processed on arrival if it
relates to an order that was received
during the Auction Processing Period
(proposed Rule 952NYP(e)(2), which is
identical to Arca Options Rule 6.64P–
O(e)(2)).
Transition to Continuous Trading.
Proposed Rule 952NYP(f) is identical to
Arca Options Rule 6.64P–O(f) and
would describe the transition to
continuous trading. After the Auction
Processing Period concludes, i.e., once
the Auction concludes either with or
without a trade, the Exchange
transitions to continuous trading.
During this transition, the way in which
140 As noted in proposed Rule 952NYP(e), the
Exchange will not accept order instructions related
to quotes during the Auction Processing Period and
therefore proposed paragraphs (e)(1) and (e)(2) to
this proposed Rule only refers to orders and does
not include reference to quotes.
E:\FR\FM\17JYN3.SGM
17JYN3
ddrumheller on DSK120RN23PROD with NOTICES3
Federal Register / Vol. 88, No. 135 / Monday, July 17, 2023 / Notices
orders, quotes, and order instructions
are processed would differ depending
on when such messages arrived at the
Exchange. As with Arca Options,
proposed Rule 952NYP(f) would
describe how the Exchange would
transition to continuous trading after the
Auction Processing Period concludes.
The Exchange believes that the
proposed rule provides granularity
regarding how orders and quotes would
be processed in connection with the
transition to continuous trading for
options trading and is also consistent
with the rules of other options
exchanges.141 As proposed, the
transition to continuous trading would
proceed as follows.
Proposed Rule 952NYP(f)(1) is
identical to Arca Options Rule 6.64P–
O(f)(1) and would provide that orders
that are no longer eligible to trade
would be cancelled. For options trading,
the only orders that would no longer be
eligible to trade after the Auction
Processing Period concludes would be
Auction-Only Orders and such orders
would cancel at the end of the Auction
Processing Period.
Proposed Rule 952NYP(f)(2) is
identical to Arca Options Rule 6.64P–
O(f)(2) and would provide that, during
the transition to continuous trading, the
Exchange will reject new quotes and, if
the Exchange receives order instructions
for existing quotes, the Exchange will
cancel any same-side quotes sent from
the same order/quote entry port of that
Market Maker (for the same reasons as
described above in connection with
proposed Rule 952NYP(e), and order
instructions would be processed as
follows:
• An order instruction that relates to
an order that was received before the
Auction Processing Period or that has
already transitioned to continuous
trading and that arrives during either
the transition to continuous trading or
the Auction Processing Period would be
processed in time sequence with the
processing of orders and quotes as
specified in paragraphs (f)(3)(A) or (B) of
this Rule. In addition, any subsequent
order instructions relating to such order
would be rejected when a prior order
instruction is pending (proposed Rule
952NYP(f)(2)(A)), which is identical to
Arca Options Rule 6.64P–O(f)(2)(A)).
This proposed rule text provides
transparency regarding how order
instructions that arrived during the
Auction Processing Period would be
processed if they relate to orders that
141 See, e.g., Cboe Rule 5.31(f) (describing Cboe’s
process for orders and quotes not executed in its
opening process).
VerDate Sep<11>2014
18:41 Jul 14, 2023
Jkt 259001
were received before the Auction
Processing Period.142
• An order instruction that arrives
during the transition to continuous
trading would be processed on arrival if
it relates to an order that was entered
during either the Auction Processing
Period or the transition to continuous
trading and such order has not yet
transitioned to continuous trading
(proposed Rule 952NYP(f)(2)(B), which
is identical to Arca Options Rule 6.64P–
O(f)(2)(B)).
Proposed Rule 952NYP(f)(3) is
identical to Arca Options Rule 6.64P–
O(f)(3) and would set forth how orders
and quotes would be processed during
the transition to continuous trading
following an Auction. The proposed
process for transitioning to continuous
trading is consistent with current
functionality (with differences
described below) relating to draining the
queue of unexecuted orders and quotes
following the current Auction Process.
The proposed rule text provides more
granularity regarding this process than
is set forth in the current Rule.
Specifically, the Exchange proposes that
it would process Auction-eligible orders
and quotes that were received before the
Auction Processing Period and orders
ranked under the proposed category of
‘‘Priority 3—Non-Display Orders’’
(which interest was not eligible to
participate in an Auction) received
before a trading halt as follows
(proposed Rule 925NYP(f)(3)(A), which
is identical to Arca Options Rule 6.64P–
O(f)(3)(A)):
• Proposed Rule 952NYP(f)(3)(A)(i) is
identical to Arca Options Rule 6.64P–
O(f)(3)(A)(i) and would provide that
Limit Orders and quotes would be
subject to the Limit Order Price
Protection, Arbitrage Check, and
Intrinsic Value Check, as applicable.
This proposed rule differs from current
functionality, whereby risk checks are
applied before an Auction. This
proposed rule text is consistent with the
proposed rule changes, described above,
regarding when the Limit Order Price
Check, Arbitrage Check, and Intrinsic
Value Check (per proposed Rules
900.3NYP(a)(3) and 928.1NYP,
respectively) would be applied to orders
and quotes that were received during a
pre-open state and is based on Arca
Options Rule 6.64P–O(f)(3)(A)(i). The
Exchange proposes to apply these
checks to orders and quotes before they
become eligible for trading or routing
during continuous trading.
• Proposed Rule 952NYP(f)(3)(A)(ii)
is identical to Arca Options Rule 6.64P–
142 See id. (unexecuted orders and quotes will be
entered into the Cboe book in time sequence).
PO 00000
Frm 00035
Fmt 4701
Sfmt 4703
45763
O(f)(3)(A)(ii) and would provide that
Limit Orders and Market Orders would
be assigned a Trading Collar. This
proposed rule is based on Arca Options
Rule 6.64P–O(f)(3)(A)(ii) and is
consistent with the proposed changes to
Trading Collars on Pillar, described
above (per Rule 900.3NYP(a)(4)), that an
order received during a pre-open state
would be assigned a Trading Collar after
an Auction concludes, or that an order
would be reassigned a Trading Collar
after a halt.
• Proposed Rule 952NYP(f)(3)(A)(iii)
is identical to Arca Options Rule 6.64P–
O(f)(3)(A)(iii) and would provide that
orders eligible to route that are
marketable against Away Market
Protected Quotations would route based
on the ranking of such orders as set
forth in Rule 964NY(c). This proposed
rule is consistent with current
functionality and uses Pillar
terminology based on Arca Options Rule
6.64P–O(f)(3)(A)(iii).143 As with current
functionality, routable orders would be
routed to Away Markets to avoid either
trading through or locking or crossing
an Away Market Protected Quotation.
• Proposed Rule 952NYP(f)(3)(A)(iv)
is identical to Arca Options Rule 6.64P–
O(f)(3)(A)(iv) and would provide that
after routing eligible orders, orders and
quotes not eligible to route that are
marketable against Away Market
Protected Quotations would cancel.
This functionality and proposed rule are
based on Arca Options Rule 6.64P–
O(f)(3)(A)(iv). By cancelling nonroutable orders and quotes marketable
against Away Market Protected
Quotations, the Exchange would avoid
locking or crossing such Away Market
Protected Quotations.
• Proposed Rule 952NYP(f)(3)(A)(v) is
identical to Arca Options Rule 6.64P–
O(f)(3)(A)(v) and would provide that
once there are no more unexecuted
orders marketable against Away Market
Protected Quotations, orders and quotes
that are marketable against other orders
and quotes in the Consolidated Book
would trade or be repriced. This
proposed rule is based on Arca Options
Rule 6.64P–O(f)(3)(A)(v). The Exchange
further notes that the Exchange could
transition to continuous trading without
the Auction resulting in a trade, but that
a trade(s) may occur during the
transition to continuous trading, which
trade(s) would be published to OPRA
before the Exchange publishes a quote
143 See supra note 61 (citing definitions of
‘‘Protected Bid,’’ ‘‘Protected Offer,’’ and
‘‘Quotation’’ set forth in Rules 990NY(15) and (16)
and of ‘‘Away Market’’ as set forth in Rule
900.2NY).
E:\FR\FM\17JYN3.SGM
17JYN3
45764
Federal Register / Vol. 88, No. 135 / Monday, July 17, 2023 / Notices
ddrumheller on DSK120RN23PROD with NOTICES3
to OPRA.144 The Exchange would not
consider a trade that occurs during the
transition to continuous trading to be an
Auction that results in a trade.145
• Proposed Rule 952NYP(f)(3)(A)(vi)
is identical to Arca Options Rule 6.64P–
O(f)(3)(A)(i) and would provide that
Market Orders received during a preopen state would be subject to the
validation specified in proposed Rule
900.3NYP(a)(1)(C). The Exchange notes
that because such Market Orders would
already have been received by the
Exchange, if such orders fail one of
those validations, they would be
cancelled instead of rejected. This rule
text would add transparency and
granularity to Exchange rules.
• Proposed Rule 952NYP(f)(3)(A)(vii)
is identical to Arca Options Rule 6.64P–
O(f)(3)(A)(vii) and would provide that
the display quantity of Reserve Orders
would be replenished. This proposed
rule is based on current functionality
and provides granularity in Exchange
rules.
• Proposed Rule 952NYP(f)(3)(A)(viii)
is identical to Arca Options Rule 6.64P–
O(f)(3)(A)(viii) and would describe the
last step in this process regarding
Auction-eligible interest received before
the Auction Processing Period.
Specifically, the Exchange would send a
quote to OPRA and proprietary data
feeds representing the highest-priced
bid and lowest-priced offer of any
remaining, unexecuted Auction-eligible
orders and quotes that were received
before the Auction Processing Period.
This proposed rule is consistent with
current options functionality. The
Exchange notes that this quote sent to
OPRA would be different than the
Rotational Quote sent at the beginning
of the Auction Process because it could
be comprised of both orders and quotes.
At a high level, this represents current
functionality because after a series
opens, the Exchange disseminates its
best bid and offer of its quotes and
orders to OPRA.
Proposed Rule 952NYP(f)(3)(B) is
identical to Arca Options Rule 6.64P–
O(f)(3)(B) and would provide that next,
144 For example, the Exchange may determine
that, as described in proposed Rule
952NYP(d)(4)(A), if there is a Calculated NBBO that
meets the requirements specified in that Rule, it can
conduct an Auction without a trade and transition
to continuous trading pursuant to proposed Rule
952NYP(f). In such case, there would not be an
Auction that results in a trade, but a trade(s) could
occur among orders and quotes that trade during
the transition to continuous trading.
145 OPRA does not distinguish between a trade
that results from an opening auction and a trade
that occurs during the transition to continuous
trading. By contrast, the Exchange’s proprietary
data feed would distinguish a trade that resulted
from an Auction from a trade that occurred during
the transition to continuous trading.
VerDate Sep<11>2014
18:41 Jul 14, 2023
Jkt 259001
orders ranked under the proposed
category of ‘‘Priority 3—Non-Display
Orders’’ that were received during a preopen state would be assigned a new
working time, in time sequence relative
to one another based on original entry
time, and would be subject to the Limit
Order Price Check, Arbitrage Check, and
Intrinsic Value Check, as applicable,
and if not cancelled, would be traded or
repriced. Even though orders ranked
Priority 3—Non-Display Orders would
not be eligible to trade in an Auction
(other than the reserve interest of
Reserve Orders), the Exchange proposes
to accept such orders during a pre-open
state. These orders would transition to
continuous trading after any unexecuted
Auction-eligible interest transitions to
continuous trading, as described above
in proposed Rules 952NYP(f)(3)(A)(i)–
(viii), which as stated above are
identical to Arca Options Rules 6.64P–
O(f)(3)(A)(i)–(viii). The Exchange
believes that waiting to process nondisplayed orders in this sequence would
ensure that there is an NBBO against
which such orders could be priced, as
described in proposed Rule
900.3NYP(d) (regarding Orders with a
Conditional or Undisplayed Price and/
or Size) above.
Proposed Rule 952NYP(f)(3)(C) is
identical to Arca Options Rule 6.64P–
O(f)(3)(B) and would provide that next,
orders and quotes that were received
during the Auction Processing Period
would be assigned a new working time
in time sequence relative to one another,
based on original entry time and would
be subject to the Limit Order Price
Protection, Pre-Trade Risk Controls,
Arbitrage Check, Intrinsic Value Check,
and validations specified in proposed
Rule 900.3NYP(a)(1)(A), as applicable to
certain Market Orders, and if not
cancelled would be processed
consistent with the terms of the order.
This proposed rule text is designed to
reflect that orders received during the
Auction Processing Period would not be
subjected to these price/risk validations
until after the Exchange has transitioned
to continuous trading, and that if such
interest fails these validations, those
orders would be cancelled instead of
rejected.
Proposed Rule 952NYP(f)(3)(D) is
identical to Arca Options Rule 6.64P–
O(f)(3)(D) and would further provide
that when transitioning to continuous
trading:
• The display price and working
price of orders and quotes would be
adjusted based on the ABBO, as
provided for in proposed Rule
900.3NYP (proposed Rule
952NYP(f)(3)(D)(i)), which is the same
as Arca Options Rule 6.64P–
PO 00000
Frm 00036
Fmt 4701
Sfmt 4703
O(f)(3)(D)(i), except that it does not
include reference to contra-side interest
in the Consolidated Book in relation to
adjustments to price because, unlike
Arca Options, the Exchange does not
offer ALO Orders, which non-routable
order types are priced based solely on
local interest in the Consolidated Book.
The Exchange believes this difference is
immaterial because the omitted text
relates to functionality that applies to an
order type (i.e., ALO Orders) that the
Exchange does not propose to offer on
Pillar and therefore has no bearing on
the proposed functionality.
• The display price and working
price of a Day ISO would be adjusted in
the same manner as a Non-Routable
Limit Order until the Day ISO is either
traded in full or displayed at its limit
price, as provided in proposed Rule
952NYP(f)(3)(D)(ii), which is the same
as Arca Options Rule 6.64P–
O(f)(3)(D)(ii), except that it does not
include reference to Day ISO ALO
Orders because the Exchange does not
propose to offer this order type on
Pillar. The Exchange believes this
difference is immaterial because the
omitted text relates to an order type (i.e.,
DAY ISO ALO Orders) that the
Exchange does not propose to offer on
Pillar and therefore has no bearing on
the proposed functionality.
Proposed Rule 952NYP(g) is identical
to Arca Options Rule 6.64P–O(g) and
would describe order processing during
a trading halt. The proposed rule is
designed to provide granularity in
Exchange rules about how new and
existing orders, quotes, and order
instructions would be processed during
a trading halt. As proposed, the
Exchange would process new and
existing orders and quotes in a series
during a trading halt as follows:
• Cancel any unexecuted quantity of
orders for which the 500-millisecond
Trading Collar timer has started and all
resting Market Maker quotes (proposed
Rule 952NYP(g)(1), which is identical to
Arca Options Rule 6.64P–O(g)(1)). As is
the case on Arca Options, the Exchange
proposes to cancel resting Market Maker
quotes when a trading halt is triggered,
which represents current functionality,
and as noted below, would accept new
Market Maker quotes during a trading
halt, which would be the basis for the
Rotational Quote that would be
published for a Trading Halt Auction. In
addition, and identical to functionality
on Arca Options, the Exchange also
proposes to cancel any unexecuted
quantity of orders for which the 500millisecond Trading Collar has started
because such timer would have ended
during a trading halt, and therefore such
E:\FR\FM\17JYN3.SGM
17JYN3
ddrumheller on DSK120RN23PROD with NOTICES3
Federal Register / Vol. 88, No. 135 / Monday, July 17, 2023 / Notices
orders were subject to cancellation
already.
• Re-price all other resting orders on
the Consolidated Book to their limit
price (proposed Rule 952NYP(g)(2)),
which is identical to Arca Options Rule
6.64P–O(g)(2), except that it does not
include reference to ALO Orders or Day
ISO ALO Orders, which (as described
herein) will not be offered on Pillar. The
Exchange believes this difference is
immaterial because the omitted text
refers to order types/modifiers that the
Exchange does not propose to offer on
Pillar and therefore has no bearing on
the proposed functionality. This
proposed repricing of certain resting
orders would be new functionality for
options trading on the Exchange;
currently, during a halt, resting orders
do not reprice to their limit price. The
proposed repricing of a Non-Routable
Limit Order to its limit price during a
trading halt would not be counted
toward the (limited) number of times
such order may be repriced, and any
subsequent repricing of such order
during the transition to continuous
trading would be permitted as the
additional (uncounted) repricing event
as provided for in proposed Rule
900.3NYP(e)(1)(B). As described above,
and also identical to handling of resting
orders on Arca Options, once resting, a
Non-Routable Limit Order that was
repriced on arrival is eligible to be
repriced only one additional time. This
proposed rule, which mirrors Arca
Options, provides transparency that the
repricing of such orders to their limit
price during a trading halt would not
count towards that ‘‘one’’ additional
repricing, but that any subsequent
repricing after the Auction concludes
would count.
• Accept and process all
cancellations (proposed Rule
952NYP(g)(3), which is identical to Arca
Options Rule 6.64P–O(g)(3)). This
proposed rule is consistent with current
functionality.
• Reject incoming Limit Orders
designated IOC or FOK (proposed Rule
952NYP(g)(4), which is identical to Arca
Options Rule 6.64P–O(g)(4)). This
proposed rule is consistent with current
functionality.
• Accept all other incoming order and
quote messages and instructions until
the Auction Processing Period for the
Trading Halt Auction ends, at which
point, paragraph (e) of proposed Rule
952NYP would govern the entry of
incoming orders, quotes, and order
instructions (proposed Rule
952NYP(g)(5), which is identical to Arca
Options Rule 6.64P–O(g)(5)).
• Disseminate a zero bid and zero
offer quote to OPRA and proprietary
VerDate Sep<11>2014
18:41 Jul 14, 2023
Jkt 259001
data feeds (proposed Rule 952NYP(g)(6),
which is identical to Arca Options Rule
6.64P–O(g)(6)) and is designed to
promote clarity and transparency in
Exchange rules that when a trading halt
begins, the Exchange will ‘‘zero’’ out the
Exchange’s BBO.
Finally, proposed Rule 952NYP(h) is
identical to Arca Options Rule 6.64P–
O(h) and would provide that whenever,
in the judgment of the Exchange, the
interests of a fair and orderly market so
require, the Exchange may adjust the
timing of or suspend the Auctions set
forth in this Rule with prior notice to
ATP Holders.
In connection with proposed Rule
952NYP, the Exchange proposes to add
the following preamble to Rule 952NY:
‘‘This Rule is not applicable to trading
on Pillar.’’ This proposed preamble is
designed to promote clarity and
transparency in Exchange rules that
Rule 952NY would not be applicable to
trading on Pillar.
*
*
*
*
*
As discussed above, because of the
technology changes associated with the
migration to the Pillar trading platform,
notwithstanding the timing of the
effectiveness 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 System will
continue to be available pending the full
migration to Pillar.
Implementation
As noted immediately above, the
Exchange will not implement the ‘‘P’’
rules proposed herein until all other
Pillar-related rule filings (i.e., proposed
rules with a ‘‘P’’ modifier) are approved
or operative, as applicable, and the
Exchange announces the migration of
underlying symbols to Pillar by Trader
Update.
2. Statutory Basis
The proposed rule change is
consistent with Section 6(b) of the
Securities Exchange Act of 1934 (the
‘‘Act’’),146 in general, and furthers the
objectives of Section 6(b)(5),147 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
PO 00000
146 15
147 15
U.S.C. 78f(b).
U.S.C. 78f(b)(5).
Frm 00037
Fmt 4701
Sfmt 4703
45765
transactions in securities, to remove
impediments to, and perfect the
mechanism of, a free and open market
and a national market system and, in
general, to protect investors and the
public interest. The Exchange believes
that the proposed rules to support Pillar
would remove impediments to and
perfect the mechanism of a free and
open market and a national market
system because the proposed rules
would promote transparency in
Exchange rules by using consistent
terminology governing trading on both
the Exchange’s cash equity and options
trading platforms, thereby ensuring that
members, regulators, and the public can
more easily navigate the Exchange’s
rulebook and better understand how
options trading is conducted on the
Exchange.
Generally, the Exchange believes that
adding new rules with the modifier ‘‘P’’
to denote those rules that would be
operative for the Pillar trading platform
would remove impediments to and
perfect the mechanism of a free and
open market and a national market
system by providing transparency of
which rules would govern trading once
a symbol has been migrated to the Pillar
platform. The Exchange similarly
believes that adding a preamble to those
current rules that would not be
applicable to trading on Pillar would
remove impediments to and perfect the
mechanism of a free and open market
and a national market system because it
would promote transparency regarding
which rules would govern trading on
the Exchange during and after the
transition to Pillar.
In addition, the Exchange believes
that incorporating Pillar functionality
currently available on Arca Options
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
with its affiliated options market.
Accordingly, with the transition to
Pillar, the Exchange will be able to offer
additional features to its ATP Holders
that are currently available on Arca
Options. For similar reasons, the
Exchange believes that using the same
Pillar terminology for the proposed new
rules as used on Arca Options 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 trading
rules across the affiliated options
exchanges. The Exchange believes this
proposed harmonization of functionality
and rules across the affiliated options
exchanges would foster greater
E:\FR\FM\17JYN3.SGM
17JYN3
45766
Federal Register / Vol. 88, No. 135 / Monday, July 17, 2023 / Notices
ddrumheller on DSK120RN23PROD with NOTICES3
uniformity and less burdensome and
more efficient regulatory compliance.
Given that the proposed rules for
trading options on Pillar are identical to
the Pillar trading rules on Arca Options,
unless otherwise specified herein, the
Exchange believes that the proposed
rules changes are not novel and do not
raise issues not previously considered
by the Commission.
Orders and Modifiers
The Exchange believes that proposed
new Rule 900.3NYP, which is identical
to Arca Options Rule 6.62P–O unless
otherwise specified herein, would
remove impediments to and perfect the
mechanism of a free and open market
and a national market system because it
would use existing Pillar terminology
based on Arca Options rules to describe
the order types and modifiers that
would be available on the Exchange’s
options Pillar trading system. As noted
above, the Exchange proposes to offer
order types and modifiers that are either
based on existing order types available
on the Exchange System as described in
Rule 900.3NY, or orders and modifiers
currently available for options trading
on Pillar on Arca Options. The
Exchange believes that structuring
proposed Rule 900.3NYP to mirror the
structure of Arca Options Rule 6.62P–O
would remove impediments to and
perfect the mechanism of a free and
open market and a national market
system because it would promote
transparency and consistency between
the Exchange’s rulebook and the rules of
its affiliated options exchange.
In addition to the terminology
changes to describe the order types and
modifiers that are currently available on
the Exchange, the Exchange further
believes that the order types and
modifiers proposed for options trading
on Pillar that either differ from order
types and modifiers available on the
Exchange System or that would be new
would remove impediments to and
perfect the mechanism of a free and
open market and national market system
because:
• Market Orders on Pillar would
function similarly to how Market Orders
function under current rules, including
being subject to Trading Collars.
However, the proposed functionality is
identical to Pillar functionality on Arca
Options and would expand the
circumstances under which Market
Orders may be rejected (or cancelled),
which expansion is designed to ensure
that Market Orders do not execute either
when there is no prevailing market in a
series, which can occur if there is no
NBO, no NBB and an NBO is higher
than $0.50, or an absence of contra-side
VerDate Sep<11>2014
18:41 Jul 14, 2023
Jkt 259001
Market Maker quotations or the contraside ABBO. In addition, the proposed
functionality would provide that if the
displayed prices are too wide to assure
a fair and orderly execution of a Market
Order, such Market Order would be
rejected. The proposed ‘‘wide-spread’’
check for Market Orders is identical to
the check offered per Arca Options Rule
6.62P–O, is similar to price protections
offered on other options exchanges, and
is designed to prevent Market Orders
from trading at a price that could be
considered a Catastrophic Error.148 The
Exchange believes that the proposed
rule describing Market Orders would
promote transparency by providing
notice of when a Market Order would be
subject to such validations.
• The Exchange is not proposing any
new or different behavior for Limit
Orders than is currently available on the
Exchange, other than the application of
Limit Order Price Protection and
Trading Collars, which features would
differ on Pillar but would be identical
to Pillar functionality on Arca Options.
The Exchange believes using Pillar
terminology to describe Limit Orders
would promote consistency and clarity
in Exchange rules and align them with
the rules of its affiliated options
exchange.
• The proposed Limit Order Price
Protection functionality, which is
identical to functionality on Arca
Options Rule 6.62P–O, is based in part
on the existing ‘‘Limit Order Filter’’ for
orders and price protection filters for
quotes because an order or quote would
be rejected if it is priced a specified
percentage away from the contra-side
NBB or NBO. The Exchange believes
that using the same mechanism for both
orders and quotes would simplify the
operation of the Exchange and achieve
similar results as the current rules,
which is to reject an order or quote that
is priced too far away from the
prevailing market. The Exchange
believes that re-applying Limit Order
Price Protection after an Auction
concludes would ensure that Limit
Orders and quotes continue to be priced
consistent with the prevailing market,
and that using an Auction Price (if
available, and if not available, Auction
Collars, and if not available, the NBBO)
to assess Limit Orders and quotes after
an Auction concludes would ensure that
the Exchange would be applying the
most recent price in a series in assessing
whether such orders or quotes should be
cancelled. The Exchange further
148 See supra note 21 (citing Cboe’s Market Order
NBBO Width Protection, which similarly looks to
the midpoint of the NBBO in applying this
protection).
PO 00000
Frm 00038
Fmt 4701
Sfmt 4703
believes that the proposed Specified
Thresholds for determining whether to
reject a Limit Order or quote would
remove impediments to and perfect the
mechanism of a free and open market
and a national market system because
they are designed to be tailored to the
applicable Reference Price, and thus
more granular than the current
thresholds.
The proposed Trading Collar
functionality, which is identical to Arca
Options Rule 6.62P–O, is based in part
on how trading collars currently
function on the Exchange because the
proposed functionality would create a
ceiling or floor price at which an order
could be traded or routed. The Exchange
believes that the proposed differences
for Trading Collars on Pillar (which are
based on Trading Collar functionality on
Arca Options), including applying the
same Trading Collar logic to both Limit
Orders and Market Orders, applying
them once per trading day (unless there
is a trading halt), tailoring the specified
thresholds to be within the current
parameters for determining whether a
trade would be an Obvious Error or
Catastrophic Error, and canceling orders
that have been displayed at their
Trading Collar for 500 milliseconds,
would remove impediments to and
perfect the mechanism of a free and
open market and a national market
system because they are designed to
provide a deterministic price protection
mechanism for orders. In addition, the
proposed Pillar Trading Collar
functionality is designed to simplify the
process by applying a static ceiling price
(for buy orders) or floor price (for sell
orders) at which such order could be
traded or routed that would be
applicable to the order until it is traded
or cancelled. The Exchange believes that
the proposal to explicitly add reference
to Cross Orders being excluded from
Trading Collars would add granularity
to the proposed rule functionality. The
Exchange believes that the proposed
functionality would provide greater
determinism to an ATP Holder of the
Trading Collar that would be applicable
to its orders and when such orders may
be cancelled if it reaches its Trading
Collar.
• The Exchange is not proposing any
new or different Time-in-Force
modifiers than are currently available
for options trading on the Exchange.
The Exchange believes using Pillar
terminology identical to terms used on
Arca Options Rule 6.62P–O(b) to
describe the time-in-force modifiers
would promote consistency and clarity
in Exchange rules.
• Auction-Only Orders, and
specifically, the proposed MOO and
E:\FR\FM\17JYN3.SGM
17JYN3
ddrumheller on DSK120RN23PROD with NOTICES3
Federal Register / Vol. 88, No. 135 / Monday, July 17, 2023 / Notices
LOO Orders, would operate no
differently than how ‘‘Opening-Only
Orders’’ currently function on the
Exchange System. However, rather than
refer to Opening-Only Orders, the
Exchange proposes to use Pillar
terminology that mirrors terms used on
Arca Options Rule 6.62P–O(c)
terminology. The Exchange further
believes that offering its IO Order type
for Auctions on the options trading
platform—both for Core Open Auctions
and Trading Halt Auctions—would
provide ATP Holders with new,
optional functionality to offset an
Imbalance in an Auction. The proposed
availability of the IO Order would be
consistent with the IO Order as offered
on Arca Options for Pillar options
trading. The Exchange believes this
proposed functionality would afford
ATP Holders with greater flexibility for
all Auctions on Pillar.
• The Exchange would continue to
offer AON Orders, Stop Orders, and
Stop Limit Orders, which are currently
available on the Exchange System. In
addition, on Pillar, the Exchange would
offer Reserve Orders that would
function identical to how this order type
functions on Arca Options. The
proposal that the reserve interest of a
Reserve Order could never have a
working price that is more aggressive
than the working price of the display
quantity of the Reserve Order would
remove impediments to and perfect the
mechanism of a free and open market
and a national market system because it
is designed to ensure that the reserve
interest of a Reserve Order to buy (sell)
would never trade at a price higher
(lower) than the working price of the
display quantity of the Reserve Order.
The proposed changes to AON Orders
would provide greater execution
opportunities for such orders by
allowing them to be integrated in the
Consolidated Book and once resting,
trade with incoming orders and quotes.
The changes are also based on how
orders with an MTS Modifier, which are
also conditional orders, function on
Arca Options. The Exchange believes it
is appropriate to opt not to support
Market Orders designated as AON on
Pillar because such functionality was
not used often on the Exchange System,
indicating a lack of market participant
interest in this functionality. The
proposed differences for Stop Orders
and Stop Limit Orders are designed to
promote transparency by providing
clarity of circumstances when either
order may be rejected on arrival (in the
case of Stop Limit Orders) or elected
and make clear that, once elected, such
orders are subject to the price protection
VerDate Sep<11>2014
18:41 Jul 14, 2023
Jkt 259001
and risk checks applicable to Market
Orders and Limit Orders, respectively.
• The Exchange believes that the
proposed orders (and quotes) with
instructions not to route (i.e., NonRoutable Limit Orders and ISOs) would
streamline the offerings available for
options trading on the Exchange by
making the functionality the same for
both orders and quotes and
consolidating the description of nonroutable orders and quotes in proposed
Rule 900.3NYP(e), thereby adding
clarity and transparency. The Exchange
believes that using Pillar terminology,
including order type names (for orders
and quotes), and identical functionality
as is used on Arca Options would
promote clarity and consistency across
the Exchange’s options trading platform
and its affiliated options trading
platform.
The Exchange believes that the
proposed Non-Routable Limit Order is
not novel because, in addition to being
identical to Non-Routable Limit Orders
currently available on Arca Options, the
order type is based on how the PNP,
RPNP, and MMRP orders and quotes
currently function on the Exchange
System, including the continued
availability of the option to designate a
non-routable order either to cancel or
reprice if it is marketable against an
ABBO.149 As such, the Exchange
believes that the proposed non-routable
order/quote types would continue to
provide ATP Holders with the core
functionality associated with existing
non-routable order/quote types,
including that the proposed rules would
provide for the ability to either reprice
or cancel such orders/quotes. The
Exchange believes that providing
additional options to cancel a resting
Non-Routable Limit Order rather than
reprice an additional time would
provide an additional choice to market
participants. The Exchange also believes
that not offering this second
cancellation designation to Market
Makers would assist Market Makers in
maintaining quotes in their assigned
series by reducing the potential to
interfere with a Market Maker’s ability
to maintain their continuous quoting
obligations. Finally, the proposed IOC
ISO Order is not novel for options
trading on the Exchange because both
the proposed Pillar terminology and
functionality would be identical to
terms and IOC ISO functionality
currently available on Arca Options
149 As discussed supra, the proposed NonRoutable Limit Order functionality is also
consistent with the treatment of Market Maker
quotes not designated as MMRP (i.e., such quotes
cancel if locking or crosses the NBBO). See supra
note 51.
PO 00000
Frm 00039
Fmt 4701
Sfmt 4703
45767
rules, which would promote
transparency. The proposed Day ISO
functionality would be identical to how
such order type functions on Arca
Options. In addition, the proposed Day
ISO functionality is consistent with
existing Rule 992NY(b)(3), which
currently provides an exception to
locking or crossing an Away Market
Protected Quotation if the ATP Holder
simultaneously routed an ISO to execute
against the full displayed size of any
locked or crossed Protected Bid or
Protected Offer. The Exchange notes
that this exception is not necessary for
IOC ISOs because such orders would
never be displayed at a price that would
lock or cross a Protected Quotation; they
cancel if they cannot trade. Accordingly,
this existing exception in the
Exchange’s rules contemplates an ISO
that would be displayed, which would
mean it would need a time-in-force
modifier of ‘‘Day.’’ In addition, Day
ISOs are available for options trading on
other options exchanges, and therefore
are not novel.150
• The Exchange believes that the
proposed additional detail defining
Complex Orders to define the ‘‘legs’’
and ‘‘components’’ of such orders
would promote transparency in
Exchange rules and is also identical to
how that order type is described on
Arca Options.
• On Pillar, the only electronicallyentered crossing orders would be QCC
Orders, which is consistent with current
functionality and identical to
functionality on Arca Options. The
Exchange believes that the proposed
differences to how QCC Orders would
function, including using Pillar
terminology and consolidating rule text
relating to QCC Orders in proposed Rule
900.3NYP, would promote transparency
and clarity in Exchange rules. The
proposed description of Complex QCC
Orders is designed to distinguish such
orders from single-leg QCC Orders and
to promote clarity and transparency in
Exchange rules regarding the price
requirements for a Complex QCC Order.
Further, Complex QCC Orders are
available for trading on Arca Options,
per Arca Options Rule 6.62P–O, and on
other options exchanges, and therefore
are not novel.151
• The Exchange believes that moving
the descriptions of orders available only
in open outcry from Rule 900.3NY to
proposed Rule 900.3NYP(h) (which
mirrors the placement of analogous text
on Arca Options) would ensure that
150 See supra note 64 (citing to availability of Day
ISO orders on Nasdaq and Cboe).
151 See supra note 67 (citing Complex QCC Order
type, as offered on MIAX and Cboe).
E:\FR\FM\17JYN3.SGM
17JYN3
45768
Federal Register / Vol. 88, No. 135 / Monday, July 17, 2023 / Notices
ddrumheller on DSK120RN23PROD with NOTICES3
these order types remain in the rulebook
after the transition to Pillar is complete.
On Pillar, a CTB Order would trade at
its limit price provided there is contraside displayed Customer interest at that
price. The CTB Order would also trade
with displayed non-Customer interest
that is priced better than the CTB
Order’s limit price. In addition to being
similar to Arca Options Rule 6.62P–
O(h)(1), the Exchange believes that
codifying CTB Order functionality, and
thus automating priority would make it
easier for Floor Brokers to comply with
their obligation to satisfy better-priced
interest on the Consolidated Book. In
addition, the Exchange believes that this
proposed change would increase
execution opportunities and achieve the
goal of a CTB Order, which is to clear
priority on the Consolidated Book at the
time of the TO Approval. The Exchange
also believes that codifying this order
type and the associated regulatory
obligations would add clarity and
transparency in Exchange rules.
• The proposed Proactive if Locked/
Crossed Modifier, STP Modifier, and
MTS Modifier are not novel and are
identical to modifiers of the same name
available on Arca Options. The
Exchange believes that offering these
existing modifiers for options trading on
Pillar would provide ATP Holders with
additional, optional functionality that is
not novel and is based on existing Arca
Options rules. Further, such proposed
optional functionality would afford ATP
Holders with greater flexibility in
specifying how their trading interest
should be handled. For example, the
proposed MTS Modifier works similarly
to the existing (and proposed) AON
functionality but provides the ATP
Holder with the alternative to designate
a portion smaller than the full quantity
as the minimum trade size. The
Exchange further believes that
extending the availability of STP
Modifiers to all orders and quotes, and
not just those of Market Makers, would
provide additional protections for ATP
Holders and facilitate their compliance
and risk management by assisting them
in avoiding unintentional wash-sale
trading.
Market Maker Quotations
The Exchange believes that proposed
Rule 925.1NYP, which is identical to
Arca Options Rule 6.37AP–O unless
otherwise specified herein, would
remove impediments to and perfect the
mechanism of a free and open market
and a national market system because it
is based on current Rule 925.1NY, with
such changes as necessary to clarify
functionality and to use Pillar
terminology consistent with Arca
VerDate Sep<11>2014
18:41 Jul 14, 2023
Jkt 259001
Options. The Exchange believes that the
proposed detail (consistent with current
functionality) to make clear that sameside quotations sent by a Market Maker
over the same order/quote entry port
would be replaced would clarify the
Exchange’s handling of multiple Market
Maker quotations should a Market
Maker’s quotations queue during a
period of excessive message traffic,
thereby adding clarity and transparency
to Exchange rules.152 No system,
including Pillar, has unlimited capacity.
The Exchange therefore believes that
displaying only the most recent Market
Maker quote when it is in receipt of
multiple same-side quotations in the
same series from such Market Maker,
would protect investors and the public
interest by ensuring accurate
representation of that Market Maker’s
quoting interest. The Exchange believes
that consolidating into one rule
functionality for orders and quotes, such
that Non-Routable Limit Orders may be
designated as quotes per proposed Rule
925.1NYP, would obviate the need to
separately describe the same
functionality in two rules and therefore
streamline the Exchange’s rules and
promote transparency and consistency.
As noted above, the Exchange believes
that the quoting functionality available
in the proposed Non-Routable Limit
Order would continue to provide
Market Makers with the core
functionality associated with existing
quote types, including that the proposed
rules would provide for the ability to
either reprice or cancel such quotes.
Pre-Trade and Activity-Based Risk
Controls
The Exchange believes that the
proposed Rule 928NYP, which is
identical to Arca Options Rule 6.40P–O
unless otherwise specified herein,
setting forth pre-trade and activity-based
risk controls, would remove
impediments to and perfect the
mechanism of a free and open market
and a national market system and
promote just and equitable principles of
trade because the proposed
functionality would incorporate existing
activity-based risk controls, without any
substantive differences, and augment
them with additional pre-trade risk
controls and related functionality that
are based on the pre-trade risk controls
currently available on Arca Options.
The Exchange believes that the
proposed differences from current
functionality are designed to provide
152 See supra note 83 (citing NYSE American
Options Fee Schedule, Port Fees, and the ability for
Market Makers to pay for upwards of forty order/
quote entry ports per month).
PO 00000
Frm 00040
Fmt 4701
Sfmt 4703
greater flexibility to ATP Holders in
how to set risk controls for both orders
and quotes. The Exchange does not
believe it is unfairly discriminatory to
have all orders on the Exchange pass
through the risk checks, even for ATP
Holders that opt not to use the
Exchange’s pre-trade risk controls. As
described above, the proposed pre-trade
risk checks are a functional
enhancement that the Exchange
proposes to apply uniformly to all
orders and quotes on the Exchange; by
applying them uniformly, the Exchange
would avoid producing incentives for
all firms to opt not to use the risk
controls for fear of suffering a
competitive disadvantage. Additionally,
any latency imposed by the proposed
pre-trade risk controls is de minimis and
would not have a material impact on the
order flow of ATP Holders that choose
to employ non-exchange providers to
provide them with risk control
solutions. The Exchange expects that
the potential latency added by the
proposed pre-trade risk controls would
be significantly less than one
microsecond.
The Exchange believes that using
Pillar terminology based on Arca
Options rules, including using the term
‘‘Entering Firm’’ to mean ATP Holders,
including Market Makers, would
promote transparency in Exchange
rules. In addition, the proposed SingleOrder Risk Controls would provide
Entering Firms with additional risk
protection mechanisms on an individual
order or quote basis. Moreover, the
Exchange believes that aggregating a
Market Maker’s quotes and orders for
purposes of calculating activity-based
risk controls (which is identical to
handling on Arca Options) would better
reflect the aggregate risk that a Market
Maker has with respect to its quotes and
orders. The Exchange further believes
that the proposed Automated Breach
Actions would provide Entering Firms
with additional flexibility in how they
could set their risk mechanisms and the
automated responses if a risk
mechanism is breached. The proposed
Kill Switch Action functionality would
also provide ATP Holders with greater
flexibility to provide bulk instructions
to the Exchange with respect to
cancelling existing orders and quotes
and blocking new orders and quotes.
Further, as noted herein, providing ‘‘Kill
Switch Action’’ functionality in
Exchange rules is consistent with the
rules of other options exchanges.153
153 See supra note 99 (citing optional ‘‘Kill
Switch’’ functionality available on Cboe).
E:\FR\FM\17JYN3.SGM
17JYN3
Federal Register / Vol. 88, No. 135 / Monday, July 17, 2023 / Notices
Price Reasonability Checks—Orders and
Quotes
The Exchange believes that the
proposed Rule 928.1NYP, which is
identical to Arca Options Rule 6.41P–O
unless otherwise specified herein,
setting forth Price Reasonability Checks
would remove impediments to and
perfect the mechanism of a free and
open market and a national market
system because they are based on
existing functionality, with differences
designed to use Pillar terminology based
on Arca Options rules and to promote
consistency and transparency in
Exchange rules. Specifically, on Pillar,
the Exchange proposes to apply the
same types of Price Reasonability
Checks to both orders and quotes, and
therefore proposes to describe those
checks in a single rule—proposed Rule
928.1NYP. Like on Arca Options, the
proposed rule would add an Intrinsic
Value Check for quotes under Pillar (in
addition to orders) and this check
would enhance existing price protection
features for quotes and provide Market
Makers greater control and flexibility
over setting risk tolerance and exposure
for their quotes. The proposed rule
would also provide specificity regarding
when the Price Reasonability Checks
would be applied to an order or quote,
which would promote transparency and
clarity in Exchange rules. The Exchange
further believes that applying the
Checks based on a broader range of
underlying transactions—both round
lots and odd lots—would enhance the
efficacy of the Checks as this proposed
functionality would provide a better
representation of the trade prices in
occurring in the underlying market.
ddrumheller on DSK120RN23PROD with NOTICES3
Auction Process
With the proposed Auction Process,
the Exchange endeavors to attract the
highest quality quote for each series at
the open to attract order flow for the
auction. While the Exchange does not
require Market Makers assigned to a
series to quote before a series can be
opened (or reopened)—which is
consistent with the current rule—the
Exchange believes that providing time
for such Market Makers to do so would
promote a fair and orderly market by
providing both better and more
consistent prices on executions to ATP
Holders in an Auction and facilitate a
fair and orderly transition to continuous
trading.
The Exchange believes that proposed
Rule 952NYP, which mirrors Arca
Options Rule 6.64P–O unless otherwise
specified herein, would remove
impediments to and perfect the
mechanism of a free and open market
VerDate Sep<11>2014
18:41 Jul 14, 2023
Jkt 259001
and a national market system because
the proposed rule maintains the
fundamentals of an auction process that
is tailored for options trading and
enhances the process by incorporating
Pillar auction functionality that is
currently available on Arca Options. For
example, the Exchange proposes to
augment the imbalance information that
would be disseminated in advance of an
Auction to include the same fields
available on Arca Options. The
Exchange believes that the proposed
additional Auction Imbalance
Information would promote
transparency to market participants in
advance of an Auction. The Exchange
also proposes to transition to
continuous trading following an
Auction in the same manner as Arca
Options, including how the Exchange
would process orders and quotes that
are received during an Auction
Processing Period and how unexecuted
quotes and orders would be transitioned
to continuous trading, which the
Exchange believes would promote
consistency across affiliated options
trading platforms. The proposed rule
describing how orders and quotes that
are received during the Auction
Processing Period would be handled
would add granularity and transparency
to Exchange rules.
The Exchange further believes that the
proposed Auction Process would
remove impediments to and perfect the
mechanism of a free and open market
and a national market system because it
would maintain the core functionality of
the Exchange’s current auction process.
With regard to Auction Ranking and
Allocation, the Exchange proposes to
treat Limit Orders, quotes, LOO Orders,
MOO Orders, and IO Orders in the same
manner as per Arca Options Rule 6.64P–
O(b), which would promote consistency
across the Exchange’s options trading
platforms. However, the proposed Rule
would differ to address how eligible
orders and quotes would trade per the
Pillar priority and allocation model
established in Rule 964NYP. As
proposed, orders and quotes priced
better than the Auction Price (i.e., the
price at which an Auction will be
conducted) would trade based on
ranking and orders and quotes priced at
(or equal to) the Auction Price would
trade per Rule 964NYP(j), except that
the Exchange would not apply any
participation guarantee during the
Auction Process. This proposed Rule
would remove impediments to and
perfect the mechanism of a free and
open market and a national market
system because it would align with the
ranking and allocation set forth in Rule
PO 00000
Frm 00041
Fmt 4701
Sfmt 4703
45769
964NYP, which would add clarity,
transparency, and internal consistency
to Exchange rules. As noted here, the
proposed auction ranking and allocation
is consistent with how the Exchange
ranks and allocates interest in the
opening auction for Complex Orders
and is also consistent with the handling
of opening interest on other
exchanges.154
As relates to the exclusion of the
participation entitlements (per Rule
964NYP(j)(4)) from the auction
allocation, the Exchange believes this
proposed change would promote
equitable principles of trade and would
remove impediments to and perfect the
mechanism of a free and open market
and a national market system because
this exclusion (which is consistent with
current functionality) would add clarity
and transparency to Exchange rules.
The Exchange also proposes to
maintain the core functionality of the
Auction Process as relates to the
requirement that the Exchange would
not conduct an Auction if the bid-ask
differential is not within an acceptable
range. As proposed, the Auction Process
on Pillar would begin with the proposed
Rotational Quote, which would provide
notice not only of when the process
would begin, but also whether Market
Makers on the Exchange have quoted in
a series. Similar to the current rule, the
Exchange would require a ‘‘Calculated
NBBO,’’ which is calculated using
information consistent with the
information the Exchange receives from
OPRA before the Exchange opens a
series, to meet specified requirements,
including that it not be crossed, not
have a zero offer, and that it not exceed
a maximum differential that is
determined by the Exchange on a class
by class basis and announced by Trader
Update, i.e., be a ‘‘Legal Width Quote’’
before a series can be opened with a
trade.155 Allowing the Exchange the
flexibility to determine the maximum
differential for the Calculated NBBO for
a Legal Width Quote is consistent with
functionality and accompanying
discretion available on Arca Options
and other options exchanges and allows
the Exchange to consider the different
market models and characteristics of
different classes, as well as modify
amounts in response to then-current
154 See supra notes 128 (regarding Rule 980NYP)
and 131 (regarding Cboe’s opening process).
155 As noted herein, the concept of a Calculated
NBBO is also consistent with similar concepts
utilized on other options exchanges. See, e.g., Cboe
Rule 5.31(a) (regarding use of ‘‘Composite Market’’
concept).
E:\FR\FM\17JYN3.SGM
17JYN3
45770
Federal Register / Vol. 88, No. 135 / Monday, July 17, 2023 / Notices
ddrumheller on DSK120RN23PROD with NOTICES3
market conditions.156 In addition, the
proposed discretion to modify
acceptable bid-ask differential is also
consistent with discretion Exchange has
today on the Exchange System.157 In
addition, the Exchange believes that the
proposed Auction Trigger, which would
begin the Auction Process, is consistent
with the current trigger for starting an
auction. The Exchange believes that the
proposed difference to allow the trade
on the Primary Market to be odd-lot
sized (in addition to having a quote
from the Primary Market, which means
that the underlying security would be
open on the Primary Market), would
allow for options series overlying lowvolume securities to open automatically
and reduce the need to manually trigger
an Auction in a series.
As with the current rule, on Pillar,
Market Makers are not obligated to
quote in their assigned series for an
Auction. However, the Exchange
believes that providing Market Maker(s)
assigned to a series the opportunity to
quote within the bid-ask differential
before opening a series for trading
would promote fair and orderly
Auctions and facilitate a fair and orderly
transition to continuous trading. In
particular, rather than layer additional
quoting requirements on the Market
Making community, the Exchange
believes it would be more beneficial to
all market participants to employ
alternative methods to help ensure an
orderly transition to continuous trading.
As such, the Exchange believes that the
proposed so-called ‘‘waterfall’’ approach
to opening, which mirrors Arca Options
Rule 6.64P–O, would offer a number of
checks that are intended to provide
adequate opportunity for a greater
number of Market Makers to provide
their liquidity interest and help ensure
increased liquidity at a level
commensurate with which the market is
accustomed during continuous trading
on the Exchange. In short, although the
Exchange does not require a Market
Maker assigned to a series to quote on
the Exchange in order to open or reopen
a series for trading, the Exchange
believes that providing Market Makers
assigned to a series the opportunity to
do so would promote a fair and orderly
Auction process and facilitate a fair and
orderly transition to continuous
trading.158
156 See supra note 121 (regarding the concept of
a ‘‘Maximum Composite Width,’’ per Cboe Rule
5.31(a)).
157 See supra note 118 (regarding discretion
afforded to the Exchange per Rule 925NY(c)).
158 As noted, infra, although the Exchange does
not require that Market Makers assigned to a series
quote at the open, once a series is opened for
trading, Market Makers are nonetheless required to
VerDate Sep<11>2014
18:41 Jul 14, 2023
Jkt 259001
Accordingly, the Exchange proposes a
difference on Pillar, consistent with
functionality on Arca Options, to
provide time for Market Maker(s)
assigned to a series to enter quotes
within the specified bid-ask differentials
before a series could be opened or
reopened for trading. The proposed
Opening MMQ Timer(s) would be
announced by Trader Update. The
proposed rule provides transparency of
how many Market Makers assigned to a
series would be required to quote in a
series and when the Exchange would
conduct an Auction in a series based on
a Legal Width Quote. As noted above,
the proposed Auction Process is
designed to attract the highest quality
quote for each series at the open to
attract order flow to the Auction. As
such, the Exchange believes it is
reasonable to require more than one
Opening MMQ Timer to run when there
are at least two Market Makers because
it allows the Exchange time to attract
the best quote from these market
participants, which in turn should
attract order flow to the Exchange at the
open (i.e., the Exchange can leverage the
highest bid and lowest offer from the
various Marker Makers that submit
quotes). The Exchange believes that if a
Legal Width Quote is not obtained in
the first Opening MMQ Timer, it is to
the benefit of all market participants to
begin a second Opening MMQ Timer to
allow the bid-ask differential to tighten
before a series is opened. However, if
there is a Legal Width Quote based on
the ABBO and the required number of
quotes with non-zero offers have been
submitted by Market Makers, the
Exchange would open or reopen that
series for trading. The Exchange
believes that the proposed waterfall
approach (i.e., setting minimum time
periods for a Market Maker assigned to
a series to quote within the specified
bid-ask differential before opening a
series, unless there is a Legal Width
Quote) would appropriately balance the
benefits of increasing the opportunities
for Market Makers assigned to a series
to enter quotations within the specified
bid-ask differential, with a timely series
opening or reopening when there is a
Legal Width Quote.
The Exchange believes its proposed
process for opening option series that
have two or more assigned Market
Makers would promote just and
equitable principles of trade and remove
impediments to and perfect the
mechanism of a free and open market
continuously fulfill their obligations to engage in a
course of dealings reasonably calculated to
contribute to the maintenance of a fair and orderly
market.
PO 00000
Frm 00042
Fmt 4701
Sfmt 4703
and a national market system and
protect investors because it would
continue to provide Market Makers
assigned to such series the opportunity
to submit a quote while potentially
promoting a more timely opening once
at least two quotes (even if from a single
Market Maker) have been submitted and
would add clarity and transparency to
Exchange rules. The Exchange believes
the proposed rule would provide more
flexibility in terms of how market depth
in the affected series is achieved (i.e.,
based on quotes from a single Market
Maker as opposed to two) and may
result in a more timely and efficient
opening process. Further, the proposed
change may increase the availability of
Legal Width Quotes in more series.
Improving the validity of the opening
price benefits all market participants
and benefits the reputation of the
Exchange as being a venue that provides
accurate price discovery. To the extent
that this proposed rule results in an
option series opening sooner, which, in
turn would increase the times during
which investors may conduct trading in
these options, this proposed rule would
benefit investors and the investing
public. In addition, the Exchange
believes that expanding the
opportunities for Market Makers to enter
the market would result in deeper
liquidity—which market participants
have come to expect in options with
multiple assigned Market Makers, and a
more stable trading environment.
The proposed rule would also provide
transparency of when the Exchange
would open or reopen a series for
trading when the Calculated NBBO is
wider than the Legal Width Quote for
the series. The Exchange believes that
the proposed process is designed to
provide additional opportunities for a
series to open or reopen not currently
available on the Exchange System,
while at the same time preserving the
existing requirement that a series would
not open on a trade if there is no Legal
Width Quote. The proposed
functionality to provide additional
opportunities to open or reopen a series
when the market is wider than the
specified bid-ask differentials is
consistent with functionality on Arca
Options, and the Exchange believes that
this proposed rule would allow for more
automated Auctions on the Exchange for
series that may already be opened on
another exchange.159 The Exchange also
believes that the proposed rule to permit
the Exchange to conduct an Auction on
a wide Calculated NBBO once it has
cancelled certain trading interest would
promote just and equitable principles of
159 See,
E:\FR\FM\17JYN3.SGM
e.g., Cboe Rule 5.31.
17JYN3
ddrumheller on DSK120RN23PROD with NOTICES3
Federal Register / Vol. 88, No. 135 / Monday, July 17, 2023 / Notices
trade and remove impediments to and
perfect the mechanism of a free and
open market and a national market
system and protect investors. In
particular, the Exchange believes that
the proposed change would improve the
speed and efficiency of the Exchange’s
opening process without impairing
price discovery, which should result in
better and more consistent prices on
Auction executions. The proposed
cancellation of Market Orders, MOO
Orders, and Limit Orders to buy (sell)
priced equal to or higher (lower) than
the Indicative Match Price, would allow
the Exchange to proceed with a timely
opening of each series while preventing
extreme executions for series opened
based on a wide Calculated NBBO. The
proposal to cancel Limit Orders to buy
(sell) priced equal to or higher (lower)
than the Indicative Match Price when
the Calculated NBBO is wider than the
Legal Width Quote would similarly
allow the Exchange to help ensure that
potentially executable Limit Orders
would be cancelled rather than execute
at potentially extreme prices before the
Exchange transitions to continuous
trading (in a wide market). As such, the
Exchange believes that providing for the
cancellation of potentially executable
interest (Market Orders, MOOs and
Limit Orders alike) would protect
investors as it would continue to limit
the risk of execution of orders at
extreme prices.
Finally, the proposed rule describing
how existing and new orders would be
processed during a trading halt is
designed to provide additional
granularity in Exchange rules. Certain of
the proposed functionality is based on
current processes. The Exchange
believes that the proposed differences in
order/quote handling would remove
impediments to and perfect the
mechanism of a free and open market
because they align with the proposed
differences in behavior for specified
orders and quotes on Pillar. For
example, the Exchange believes that
repricing resting non-routable orders
and quotes during a trading halt to their
limit price would be consistent with
how such orders would be processed in
an Auction if they arrived during a preopen state. In addition, the Exchange
believes that canceling orders that are
subject to the Trading Collar 500
millisecond timer would be consistent
with the intent of such functionality,
which is to cancel such collared orders
after a specified time period.
Conforming Changes to Rules 925NY,
953.1NY, and 994NY
The Exchange believes that the
proposed conforming non-substantive
VerDate Sep<11>2014
18:41 Jul 14, 2023
Jkt 259001
changes to Rules 925NY (Obligations of
Market Makers), 953.1NY (Limit-Up and
Limit-Down During Extraordinary
Market Volatility), and 994NY
(Broadcast Order Liquidity Delivery
Mechanism) to add cross-references to
certain of the new Pillar rules, including
Rule 964NYP and those proposed in this
filing 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.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change will impose
any burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Act. The
Exchange operates in a competitive
market and regularly competes with
other options exchanges for order flow.
The Exchange believes that the
transition to Pillar would promote
competition among options exchanges
by offering a low-latency, deterministic
trading platform. The proposed rule
changes would support that intermarket competition by allowing the
Exchange to offer additional
functionality to its ATP Holders that is
currently available on Arca Options,
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 to
support the transition to Pillar. As
discussed in detail above, unless
otherwise specified herein, the
Exchange is not proposing to change its
core functionality relating to order types
and modifiers, risk controls, Market
Maker quotations, or auctions. Rather,
the Exchange believes that the proposed
rule changes would promote consistent
functionality, rules, and use of
terminology for options trading on Pillar
across the Exchange and its affiliated
options trading platform, Arca Options.
The Exchange believes this uniformity
would make the Exchange’s rules easier
to navigate in connection with the
transition to Pillar.
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. In
particular, the proposed waterfall
PO 00000
Frm 00043
Fmt 4701
Sfmt 4703
45771
approach utilized during the Auction
Process, which mirrors Arca Options,
would not result in an undue burden on
intra-market competition because it
would apply equally to all similarlysituated Market Makers regarding their
assigned series. Market Makers are
encouraged but not required to quote in
their assigned series at the open, thus
they are not subject to additional
obligations. The Exchange believes that
encouraging, rather than requiring,
participation of such Market Makers at
the open, may increase the availability
of Legal Width Quotes in more series,
thereby allowing more series to open.
Improving the validity of the opening
price benefits all market participants
and benefits the reputation of the
Exchange as being a venue that provides
accurate price discovery. With respect
to inter-market competition, the
Exchange notes that most options
markets do not require Market Makers to
quote during the opening.160
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
No written comments were solicited
or received with respect to the proposed
rule change.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
The Exchange has filed the proposed
rule change pursuant to Section
19(b)(3)(A)(iii) of the Act 161 and Rule
19b–4(f)(6) thereunder.162 Because the
proposed rule change does not: (i)
significantly affect the protection of
investors or the public interest; (ii)
impose any significant burden on
competition; and (iii) become operative
prior to 30 days from the date on which
it was filed, or such shorter time as the
Commission may designate, if
consistent with the protection of
investors and the public interest, the
proposed rule change has become
effective pursuant to Section 19(b)(3)(A)
of the Act and Rule 19b–4(f)(6)(iii)
thereunder.
At any time within 60 days of the
filing of such proposed rule change, the
Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is necessary or appropriate in the
public interest, for the protection of
investors, or otherwise in furtherance of
the purposes of the Act. If the
Commission takes such action, the
160 See,
e.g., Cboe and its affiliated exchanges.
U.S.C. 78s(b)(3)(A)(iii).
162 17 CFR 240.19b–4(f)(6).
161 15
E:\FR\FM\17JYN3.SGM
17JYN3
45772
Federal Register / Vol. 88, No. 135 / Monday, July 17, 2023 / Notices
Commission shall institute proceedings
under Section 19(b)(2)(B) 163 of the Act
to determine whether the proposed rule
change should be approved or
disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include file number SR–
NYSEAMER–2023–34 on the subject
line.
Paper Comments
• Send paper comments in triplicate
to: Secretary, Securities and Exchange
ddrumheller on DSK120RN23PROD with NOTICES3
163 15
U.S.C. 78s(b)(2)(B).
VerDate Sep<11>2014
18:41 Jul 14, 2023
Jkt 259001
Commission, 100 F Street NE,
Washington, DC 20549–1090.
All submissions should refer to file
number SR–NYSEAMER–2023–34. 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
PO 00000
Frm 00044
Fmt 4701
Sfmt 9990
a.m. and 3 p.m. Copies of the filing also
will be available for inspection and
copying at the principal office of the
Exchange. Do not include personal
identifiable information in submissions;
you should submit only information
that you wish to make available
publicly. We may redact in part or
withhold entirely from publication
submitted material that is obscene or
subject to copyright protection. All
submissions should refer to file number
SR–NYSEAMER–2023–34 and should
be submitted on or before August 7,
2023.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.164
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023–14912 Filed 7–14–23; 8:45 am]
BILLING CODE 8011–01–P
164 17
E:\FR\FM\17JYN3.SGM
CFR 200.30–3(a)(12).
17JYN3
]]>Agencies
[Federal Register Volume 88, Number 135 (Monday, July 17, 2023)]
[Notices]
[Pages 45730-45772]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-14912]
[[Page 45729]]
Vol. 88
Monday,
No. 135
July 17, 2023
Part III
Securities and Exchange Commission
-----------------------------------------------------------------------
Self-Regulatory Organizations; NYSE American LLC; Notice of Filing and
Immediate Effectiveness of Proposed New Rules 900.3NYP, 925.1NYP,
928NYP, 928.1NYP, and 952NYP and Amendments to Rules 900.3NY, 925NY,
925.1NY, 928NY, 952NY, 953.1NY, 967NY, 967.1NY, and 985NY; Notice
Federal Register / Vol. 88 , No. 135 / Monday, July 17, 2023 /
Notices
[[Page 45730]]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-97869; File No. SR-NYSEAMER-2023-34]
Self-Regulatory Organizations; NYSE American LLC; Notice of
Filing and Immediate Effectiveness of Proposed New Rules 900.3NYP,
925.1NYP, 928NYP, 928.1NYP, and 952NYP and Amendments to Rules 900.3NY,
925NY, 925.1NY, 928NY, 952NY, 953.1NY, 967NY, 967.1NY, and 985NY
July 10, 2023.
Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of
1934 (``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby given
that, on, June 27, 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 and II
below, which Items have been prepared by the self-regulatory
organization. The Commission is publishing this notice to solicit
comments on the proposed rule change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 15 U.S.C. 78a.
\3\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to [sic] new Rules 900.3NYP (Orders and
Modifiers), 925.1NYP (Market Maker Quotations), 928NYP (Pre-Trade and
Activity-Based Risk Controls), 928.1NYP (Price Reasonability Checks--
Orders and Quotes), and 952NYP (Auction Process) and proposes
amendments to Rules 900.3NY (Orders Defined), 925NY (Obligations of
Market Makers), 925.1NY (Market Maker Quotes), 928NY (Risk Limitation
Mechanism), 952NY (Opening Process), 953.1NY (Limit-Up and Limit-Down
During Extraordinary Market Volatility), 967NY (Price Protection--
Orders), 967.1NY (Price Protection--Quotes), and 985NY (Qualified
Contingent Cross Trade) to reflect the implementation of the Exchange's
Pillar trading technology on its options market. 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 self-regulatory organization
included statements concerning the purpose of, and basis for, the
proposed rule change and discussed any comments it received on the
proposed rule change. The text of those statements may be examined at
the places specified in Item IV below. The Exchange has prepared
summaries, set forth in sections A, B, and C below, of the most
significant parts of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule Change
1. Purpose
Background
The Exchange plans to transition its options trading platform to
its Pillar technology platform. The Exchange's affiliated options
exchange, NYSE Arca, Inc. (``NYSE Arca'' or ``Arca Options'') is
currently operating on Pillar, as are the Exchange's cash equity market
and those of its national securities exchange affiliates' cash equity
markets.\4\ For this transition, the Exchange proposes to use the same
Pillar technology already in operation on Arca Options.\5\ In doing so,
the Exchange will be able to offer not only common specifications for
connecting to both of its equity and options markets, but also common
trading functions across the Exchange and its affiliated options
exchange, NYSE Arca Options. In this regard, the Exchange recently
adopted new rules to reflect the priority, ranking, and allocation of
single-leg interest on Pillar.\6\
---------------------------------------------------------------------------
\4\ The Exchange's national securities exchange affiliates' cash
equity markets include: the New York Stock Exchange LLC, NYSE
American LLC, NYSE Arca, Inc., NYSE National, Inc., and NYSE
Chicago, Inc.
\5\ See Securities Exchange Act Release No. 94072 (January 26,
2022), 87 FR 5592 (February 1, 2022) (SR-NYSEArca-2021-47) (the
``Arca Options Approval Order''). See also, e.g., Arca Options Rules
6.76P-O (Order Ranking and Display) and 6.76AP-O (Order Execution
and Routing) (together, the ``Arca Options Priority Rules''); Arca
Options Rules 6.37AP-O (Market Maker Quotations), 6.40P-O (Pre-Trade
and Activity-Based Risk Controls), 6.41P-O (Price Reasonability
Checks--Orders and Quotes), 6.62P-O (Orders and Modifiers), and
6.64P-O (Auction Process) (collectively, the ``Arca Options non-
Priority Rules''). See also NYSE Arca Rule 1.1 (Definitions) (which
includes definitions that describe terms applicable to options
trading on Pillar).
\6\ See Rules 964NYP (Order Ranking, Display, and Allocation),
964.1NYP (Directed Orders and DOMM Quoting Obligations) and 964.2NYP
(Participation Entitlement of Specialists and e-Specialists)
(collectively, the ``American Pillar Priority Rules''). See also
Securities Exchange Act Release No. 97297 (April 13, 2023), 88 FR
24225 (April 19, 2023) (SR-NYSEAmer-2023-16) (adopting new the
American Pillar Priority Rules on an immediately effective basis,
which rules utilize the Pillar concepts introduced in the Priority
Arca rules and incorporate the Exchange's current Customer priority
and pro rata allocation model) (the ``American Pillar Priority
Filing''). The American Pillar Priority Rules (like the rules
proposed herein) will not be implemented until all other Pillar-
related rule filings are either effective or approved, as
applicable. See id.
---------------------------------------------------------------------------
The Exchange plans to roll out the new technology platform over a
period of time based on a range of underlying symbols beginning on
October 23, 2023.\7\ As was the case for Arca Options when it
transitioned to Pillar, the Exchange will announce by Trader Update \8\
when underlying symbols will be transitioning to the Pillar trading
platform. With this transition, certain rules would continue to be
applicable to options overlying symbols trading on the current trading
platform--the ``Exchange System,'' \9\ but would not be applicable to
options overlying symbols that have transitioned to trading on Pillar.
---------------------------------------------------------------------------
\7\ 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. The Exchange would not begin to migrate
underlying symbols to the Pillar platform until all Pillar-related
rule filings (i.e., proposed rules with a ``P'' modifier) are either
approved or operative, as applicable.
\8\ Trader Updates are available here: https://www.nyse.com/trader-update/history. Anyone can subscribe to email updates of
Trader Updates, available here: https://www.nyse.com/subscriptions.
\9\ As noted in the American Pillar Priority Filing, on Pillar,
the Exchange will no longer use the terms ``Exchange System'' or
``System,'' which are defined in Rule 900.2NY as referring to the
Exchange's current ``electronic order delivery, execution, and
reporting system for designated option issues through which orders
and quotes of Users are consolidated for execution and/or display,''
and will file a subsequent proposed rule change to delete these
defined terms and any references thereto after the migration to
Pillar is completed.
---------------------------------------------------------------------------
Instead, the Exchange proposes new rules to reflect how options
would trade on the Exchange once Pillar is implemented. These proposed
rule changes will (1) use Pillar terminology that is identical to
Pillar terminology governing options trading on NYSE Arca, except as
otherwise noted; and (2) provide for common functionality on both its
options markets.\10\
---------------------------------------------------------------------------
\10\ The current proposal seeks to adopt rules based on the Arca
Options non-Priority Rules, as well as certain definitions that
describe terms applicable to options trading on Pillar set forth in
NYSE Arca Rule 1.1. See supra note 5.
---------------------------------------------------------------------------
Proposed Use of ``P'' Modifier
As proposed, and consistent with the American Pillar Priority
Filing, new rules governing options trading on Pillar would have the
same numbering as
[[Page 45731]]
current rules that address the same functionality, but with the
modifier ``P'' appended to the rule number. All other current rules
that have not had a version added with a ``P'' modifier will be
applicable to how trading functions on both the Exchange System and
Pillar. Once options overlying all symbols have migrated to the Pillar
platform, the Exchange will file a separate rule proposal to delete
rules that are no longer operative because they apply only to trading
on the Exchange System.\11\ As further proposed, and consistent with
the handling of the transition to Pillar by Arca Options, if a symbol
(and the option overlying such 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.\12\
---------------------------------------------------------------------------
\11\ See American Pillar Priority Filing (adopting, among other
rules, new Rule 964NYP, which would be operative instead of current
Rule 964NY). See id.
\12\ The Exchange believes that this explanation regarding the
``P'' modifier in Exchange rules provides transparency regarding
which rules would be operative during the symbol migration to
Pillar. See id. NYSE Arca used the same ``P'' modifier when it
transitioned its options platform to Pillar. See Arca Options
Approval Order.
---------------------------------------------------------------------------
The Exchange will not implement the ``P'' rules proposed herein
until all other Pillar-related rule filings (i.e., with a ``P''
modifier) are either approved or operative, as applicable, and the
Exchange announces the rollout of underlying symbols to Pillar by
Trader Update.
Summary of Proposed Rule Changes
In this filing, the Exchange proposes the following new Pillar
rules: Rules 900.3NYP (Orders and Modifiers), 925.1NYP (Market Maker
Quotations), 928NY (Pre-Trade and Activity-Based Risk Controls),
928.1NYP (Price Reasonability Checks--Orders and Quotes), and 952NYP
(Auction Process). Because certain proposed rules have definitions and
functions that carry forward to other proposed rules, the Exchange
proposes to describe the new rules in the following order (rather than
by rule number order): orders and modifiers, market maker quotations,
pre-trade and activity-based risk controls, price reasonability checks,
and auctions.
These proposed rules would describe the Exchange's options trading
model on Pillar and, among other things, would use existing Pillar
terminology and functionality currently in effect on Arca Options.
However, because the Exchange has (and will continue to have) a
priority and allocation scheme that differs from the price-time model
on Arca Options, certain of the proposed rules differ from Arca Options
insofar as they reflect the Exchange's existing (Customer priority and
pro rata allocation) model.\13\ As discussed in greater detail below,
except as noted herein, the Exchange is not proposing fundamentally
different functionality applicable to options trading on Pillar than on
the Exchange System. However, with Pillar, the Exchange would introduce
new terminology, and as applicable, new or updated functionality that
would be available for options trading on the Pillar platform, which
functionality is (unless otherwise specified) identical to--or nearly
identical to--functionality and rules already in place on Arca
Options.\14\
---------------------------------------------------------------------------
\13\ See, e.g., Rule 964NYP. See also the American Pillar
Priority Filing.
\14\ The Exchange notes that certain differences between the two
options markets will permeate the proposed rules, including that
each exchange uses different terms to describes their permit
holders--the Exchange refers to American Trading Permit (``ATP'')
Holders, whereas Arca Options refers to Options Trading Permit
(``OTP'') Holders or OTP Firms. See, e.g., Rule 900.2NY and NYSE
Arca Rule 1.1, respectively. In addition, the Exchange utilizes
Market Makers that act as Specialists whereas Arca Options has
Market Makers that act as Lead Market Makers or LMMs. See, e.g.,
Rule 927NY and Arca Options Rule 6.37-O, respectively. Also, because
the rule numbering differs on each options exchange, there will be
differences in the Exchange's proposed rule as compared to its
analogous Arca Options Rule to the extent that a proposed Exchange
rule includes a cross-reference to another Exchange rule. The
Exchange has not identified every such instance where these
specified differences occur as it believes the differences are
immaterial because they do not relate to the functionality proposed
herein.
---------------------------------------------------------------------------
To promote clarity and transparency, the Exchange further proposes
to add a preamble to the following current rules specifying that they
would not be applicable to trading on Pillar: 900.3NY (Orders Defined),
925.1NY (Market Maker Quotes), 928NY (Risk Limitation Mechanism), 952NY
(Opening Process), 967NY (Price Protection-Orders), 967.1NY (Price
Protection-Quotes), and 985NY (Qualified Contingent Crosses). In
addition, the Exchange also proposes conforming changes to current
Rules 925NY (Obligations of Market Makers), 953.1NY (Limit-Up and
Limit-Down During Extraordinary Market Volatility), and 994NY
(Broadcast Order Liquidity Delivery Mechanism) (the ``BOLD Mechanism'')
to add cross-references to certain of the new Pillar rules, including
those proposed in this filing.\15\
---------------------------------------------------------------------------
\15\ The proposed conforming changes to Rule 994NY regarding the
BOLD mechanism would include adding cross-references to new Rule
964NYP (in addition to existing references to current Rule 964NY)
and to paragraph (k) of this Rule, which latter reference would
state, in relevant part, that ``[f]ollowing the exposure period,
consistent with Rule 964NYP(k), the Exchange will route the
remaining portion of the exposed order to other exchanges'' and that
``[a]ny portion of a routed order that returns unfilled will trade
against the Exchange's best bid/offer unless another exchange is
quoting at a better price in which case new orders will be generated
and routed to trade against such better prices, consistent with Rule
964NYP(k).''). See proposed Rule 994NY(c)(1) and (c)(4),
respectively.
---------------------------------------------------------------------------
Proposed Rule Changes
Proposed Rule 900.3NYP: Orders and Modifiers
Current Rule 900.3NY (Orders Defined) defines the order types that
are currently available for options trading both on the Exchange System
and for open outcry trading on the Exchange. The Exchange proposes that
new Rule 900.3NYP would set forth the order types and modifiers that
would be available for options trading both on Pillar (i.e., electronic
order entry) and in open outcry trading. The Exchange proposes to
specify that Rule 900.3NY would not be applicable to trading on Pillar.
Because the Exchange would have the same orders and modifiers as
Arca Options, the Exchange proposes to structure proposed Rule 900.3NYP
to be identical to Arca Options Rule 6.62P-O and use the same
terminology. The Exchange also proposes to title proposed Rule 900.3NYP
as ``Orders and Modifiers,'' which title is identical to Arca Options
Rule 6.62P-O. In addition, as was done on Arca Options, the Exchange
proposes to include in the description of each order type the ``Pillar
Priority Category'' within which such order would be ranked for
priority, display, and allocation purposes. However, on the Exchange,
the Pillar Priority Categories assigned to each order type would be
handled in accordance with the Exchange's Customer priority/pro rata
allocation model, per Rule 964NYP.\16\
---------------------------------------------------------------------------
\16\ See Rule 964NYP(e) (which provides that ``[a]t each price,
all orders and quotes are assigned a priority category, and, within
each priority category, Customer orders are ranked ahead of non-
Customer. If, at a price, there are no remaining orders or quotes in
a priority category, then same-priced interest in the next priority
category has priority.'').
---------------------------------------------------------------------------
Primary Order Types. Proposed Rule 900.3NYP(a) is identical Arca
Options Rule 6.62P-O(a) and would specify the Exchange's primary order
types, which would be Market Orders and Limit Orders. Proposed Rule
900.3NYP(a) would also set forth the Exchange's proposed Limit Order
Price Protection functionality and Trading Collars, which proposed
functionality would likewise be identical to Arca Options Rule 6.62P-
O(a).
Market Orders. Proposed Rule 900.3NYP(a)(1) is identical to Arca
Options Rule 6.62P-O(a)(1) and would define a Market Order. As
proposed, a Market Order would be an unpriced
[[Page 45732]]
order message to buy or sell a stated number of option contracts at the
best price obtainable, subject to the Trading Collar assigned to the
order, and would further specify that unexecuted Market Orders may be
designated Day or GTC, which represents current functionality, and that
unexecuted Market Orders would be ranked Priority 1--Market Orders.\17\
Similarly, the Exchange proposes to reference that trading of a Market
Order would be subject to the Trading Collar assigned to the order,
which is similar to the third paragraph of the current definition of
Market Order in Rule 900.3NY(a). As described in greater detail below,
the Exchange proposes changes to its Trading Collar functionality on
Pillar.
---------------------------------------------------------------------------
\17\ Market Orders are currently defined in Rule 900.3NY(a) as
follows: ``A Market Order is an order to buy or sell a stated number
of option contracts and is to be executed at the best price
obtainable when the order reaches the Exchange. Market Orders
entered before the opening of trading will be eligible for trading
during the Opening Auction Process. The system will reject a Market
Order entered during Core Trading Hours if at the time the order is
received there is not an NBB and an NBO (``collectively NBBO'') for
that series as disseminated by OPRA. If the Exchange receives a
Market Order to buy (sell) and there is an NBB (NBO) but no NBO
(NBB) as disseminated by OPRA at the time the order is received, the
order will be processed pursuant to Rule 967NY(a)-Trade Collar
Protection.''
---------------------------------------------------------------------------
Proposed Rule 900.3NYP(a)(1) would further provide that for
purposes of processing Market Orders, the Exchange would not use an
adjusted NBBO.\18\ The Exchange proposes to not use an adjusted NBBO
when processing Market Orders, which processing is identical to Arca
Options Rule 6.62P-O(a)(1). The Exchange believes that because Market
Orders trade immediately on arrival, using an unadjusted NBBO would
provide a price protection mechanism by using a more conservative view
of the NBBO.
---------------------------------------------------------------------------
\18\ See American Pillar Priority Filing (amplifying the
definition of ``NBBO'' per Rule 900.2NY to provide that when using
an unadjusted NBBO, the NBBO would not be adjusted based on
information about orders the Exchange sends to Away Markets,
execution reports received from those Away Markets, and certain
orders received by the Exchange). As noted in the American Pillar
Filing, the Exchange believes that the unadjusted NBBO is a more
conservative view of the NBBO because the Exchange waits for an
update from OPRA rather than updating it based on its view of the
NBBO, which is identical to NYSE Arca Rule 1.1, as relates to
options trading.
---------------------------------------------------------------------------
Proposed Rule 900.3NYP(a)(1)(A) is identical to Arca Options Rule
6.62P-O(a)(1)(A) and would provide that a Market Order that arrives
during continuous trading would be rejected, or that was routed,
returns unexecuted, and has no resting quantity to join would be
cancelled if it fails the validations specified in proposed Rules
900.3NYP(a)(1)(A)(i)--(iv). This proposed rule is based in part on Rule
900.3NY(a), which specifies that a Market Order will be rejected during
Core Trading Hours if, when received, there is no NBBO for the
applicable option series as disseminated by OPRA, with differences to
use Pillar terminology and to expand the circumstances when a Market
Order would be rejected beyond the absence of an NBBO. As proposed, and
identical to Arca Options Rule 6.62P-O(a)(1)(A)(i)-(iv), a Market Order
would be rejected (or cancelled if routed first) if: \19\
---------------------------------------------------------------------------
\19\ The Exchange will also reject a Market Order if it is
entered when the underlying NMS stock is either in a Limit State or
a Straddle State, which is current functionality. See Rule
953.1NY(a)(1). The Exchange proposes a non-substantive amendment to
Rule 953.1NY(a)(1) to add a cross reference to proposed Rule
900.3NYP(a). The Exchange also proposes to amend the second sentence
of Rule 953.1NY(a)(1) to remove references to trading collars, and
instead specify that the Exchange would cancel any resting Market
Orders if the underlying NMS stock enters a Limit State or a
Straddle State and would notify ATP Holders of the reason for such
cancellation. This proposed change is identical to Arca Options Rule
6.65A-O(a)(1) and would describe both how Market Orders function
today on the Exchange System and how they would be processed on
Pillar.
---------------------------------------------------------------------------
There is no NBO (proposed Rule 900.3NYP(a)(1)(A)(i)). This
criterion is similar to the current rule, which provides that a Market
Order will be rejected if there is no NBO and is identical to Arca
Options Rule 6.62P-O(a)(1)(A)(i). The Exchange believes that in the
absence of an NBO, Market Orders should not trade as there is no market
for the option.
There is no NBB and the NBO is higher than $0.50 (for sell
Market Orders only). The Exchange further proposes that if there is no
NBB and the NBO is $0.50 or below, a Market Order to sell would not be
rejected and would have a working price and display price one MPV above
zero and would not be subject to a Trading Collar (proposed Rule
900.3NYP(a)(1)(A)(ii)).\20\ The Exchange believes that if there is no
NBB, but an NBO $0.50 or below, the Exchange would be able to price
that Market Order to sell at one MPV above zero. The functionality
described in this proposed rule is identical to Arca Options Rule
6.62P-O(a)(1)(A)(ii) and is designed to provide an opportunity for an
arriving sell Market Order to trade when the NBO is below $0.50. The
proposed rule would further provide that a Market Order to sell would
be cancelled if it was assigned a Trading Collar, routed, and when it
returns unexecuted, it has no resting portion to join and there is no
NBB, regardless of the price of the NBO. Accordingly, in this scenario,
if there is no NBB and there is an NBO that is $0.50 or below, the
returned, unexecuted Market Order would be cancelled rather than
displayed at one MPV above zero.
---------------------------------------------------------------------------
\20\ See Rules 964NYP(a)(3) (defining ``working price'' as the
price at which an order or quote is eligible to trade at any given
time, which may be different from the limit price or display price
of the order) and (a)(1) (defining ``display price'' as the price at
which an order or quote ranked Priority 2-Display Orders or Market
Order is displayed, which may be different from the limit price or
working price of the order).
---------------------------------------------------------------------------
There are no contra-side Market Maker quotes on the
Exchange or contra-side ABBO, provided that a Market Order to sell
would be accepted as provided for in proposed Rule
900.3NYP(a)(1)(A)(ii) (proposed Rule 900.3NYP(a)(1)(A)(iii)). This
functionality is identical to Arca Options Rule 6.62P-O(a)(1)(A)(iii)
and is designed to prevent a Market Order from trading at prices that
may not be current for that series in the absence of Market Maker
quotations or an ABBO.
The NBBO is not locked or crossed, and the spread is equal
to or greater than a minimum amount based on the midpoint of the NBBO
(proposed Rule 900.3NYP(a)(1)(A)(iv), which is identical to Arca
Options Rule 6.62P-O (a)(1)(A)(iv)). The proposed ``wide-spread''
parameter for purposes of determining whether to reject a Market Order
is similar to the wide-spread parameter applied when determining
whether a trade is a Catastrophic Error, as set forth in Rule
975NY(d)(3), with two differences. First, as shown below, the lowest
bucket would be $0.00 up to and including $2.00, instead of $0.00 to
$1.99, which means the $2.00 price point would be included in this
bucket. Second, the wide-spread calculation would be based off of the
midpoint of the NBBO, rather than off of the bid price, as follows:
------------------------------------------------------------------------
Spread
The midpoint of the NBBO parameter
------------------------------------------------------------------------
$0.00 to $2.00.......................................... $0.75
Above $2.00 to and including $5.00...................... 1.25
Above $5.00 to and including $10.00..................... 1.50
Above $10.00 to and including $20.00.................... 2.50
Above $20.00 to and including $50.00.................... 3.00
Above $50.00 to and including $100.00................... 4.50
Above $100.00........................................... 6.00
------------------------------------------------------------------------
The Exchange notes that this proposed protection for Market Orders
is identical to the protection afforded Market Orders per Arca Options
Rule 6.62P-O(a)(1)(A)(iv) and would provide a new risk control for
options trading on the Exchange that is designed to protect against
erroneous executions using the
[[Page 45733]]
midpoint of the NBBO as a basis for a price protection mechanism.\21\
---------------------------------------------------------------------------
\21\ The Exchange notes that using the midpoint of the NBBO as a
basis for a price protection mechanism is also consistent with
similar functionality on other options markets. See, e.g., Cboe Rule
5.34(a)(2) (setting forth the ``Market Order NBBO Width Protection''
wherein Cboe cancels or rejects market orders submitted ``when the
NBBO width is greater than x% of the midpoint of the NBBO,'' subject
to minimum and maximum dollar values determined by Cboe).
---------------------------------------------------------------------------
Proposed Rule 900.3NYP(a)(1)(B) is identical to Arca Options Rule
6.62P-O(a)(1)(B) and would provide that an Aggressing Market Order to
buy (sell) would trade with all orders or quotes to sell (buy) on the
Consolidated Book priced at or below (above) the Trading Collar before
routing to Away Market(s) at each price.\22\ Proposed Rule
900.3NYP(a)(1)(B) would further provide that after trading or routing,
or both, a Market Order would be displayed at the Trading Collar,
subject to proposed Rule 900.3NYP(a)(1)(C) (described immediately
below), which is consistent with current functionality that each Market
Order is displayed at a Trading Collar, per Rule 967NY(a)(5).
---------------------------------------------------------------------------
\22\ See Rule 964NYP(a)(5) (adopting the definition of an
Aggressing Order). For purposes of this proposed rule, an Aggressing
Market Order is a Market Order that is an Aggressing Order.
---------------------------------------------------------------------------
Proposed Rule 900.3NYP(a)(1)(C) is identical to Arca Options Rule
6.62P-O(a)(1)(C) and would provide that a Market Order would be
cancelled before being displayed if there are no remaining contra-side
Market Maker quotes on the Exchange or contra-side ABBO. Proposed Rule
900.3NYP(a)(1)(D) is identical to Arca Options Rule 6.62P-O(a)(1)(D)
and would provide that a Market Order would be cancelled after being
displayed at its Trading Collar if there ceases to be a contra-side
NBBO. These proposed cancellation events are similar to functionality
described in current Rule 967NY(a)(4)(E), which provides that ``[t]he
Exchange will cancel a Market Order, or the balance thereof, that has
been collared pursuant to paragraph (a)(1)(A) or (B) [of that Rule]
above, if after exhausting trading opportunities within the Collar
Range, the Exchange determines there are no quotes on the Exchange and/
or no interest on another market in the affected option series.'' As
proposed, in Pillar, the Exchange would cancel a Market Order in
similar circumstances, with proposed modifications that a Market Order
would be cancelled only if there are no remaining contra-side Market
Maker quotes on the Exchange or if there is no contra-side ABBO. The
Exchange believes that, as is the case on Arca Options, the proposal to
cancel a Market Order either before or after it is displayed in these
circumstances would help to prevent such order from being displayed
when there is no real market in a series.
Finally, proposed Rule 900.3NYP(a)(1)(E) is identical to Arca
Options Rule 6.62P-O(a)(1)(E) and would provide that a resting,
displayed Market Order that is locked or crossed by an Away Market
would be routed to that Away Market. Because Market Orders are intended
to trade at the best price obtainable, the Exchange proposes to route
displayed Market Orders if they are locked or crossed by an Away
Market.\23\ This proposed Rule is based on current functionality, which
is not described in the current rule. Therefore, the proposed rule is
designed to promote clarity and transparency in Exchange rules.
---------------------------------------------------------------------------
\23\ Per Rule 964NYP(b)(2), displayed interest other than
displayed Market Orders would stand their ground if locked or
crossed by an Away Market. The Exchange would provide an option for
Limit Orders to instead be routed, see discussion infra, regarding
proposed Rule 6.62P-O(i)(1) and the proposed Proactive if Locked/
Crossed Modifier.
---------------------------------------------------------------------------
Limit Orders. Proposed Rule 900.3NYP(a)(2) is identical to Arca
Options Rule 6.62P-O(a)(2) and would define a Limit Order as an order
message to buy or sell a stated number of option contracts at a
specified price or better, subject to Limit Order Price Protection and
the Trading Collar assigned to the order, and that a Limit Order may be
designated Day, IOC, or GTC. In addition, unless otherwise specified,
the working price and the display price of a Limit Order would be equal
to the limit price of the order, it is eligible to be routed, and it
would be ranked under the proposed category of ``Priority 2--Display
Orders.'' \24\ The ability for a Limit Order to be designated IOC, Day,
or GTC is also based on current Rules 900.3NY(k), (m) and (n),
respectively, and is consistent with current options trading
functionality. In addition, consistent with current options trading
functionality, Limit Orders would be subject to trading collars, and,
as described in more detail below, the Exchange proposes trading collar
functionality that will operate in the same manner as on Arca Options.
---------------------------------------------------------------------------
\24\ See Rule 964NYP(a)(2) (defining ``limit price'' as the
highest (lowest) specified price at which a Limit Order or quote to
buy (sell) is eligible to trade).
---------------------------------------------------------------------------
Proposed Rule 900.3NYP(a)(2)(A) is identical to Arca Options Rule
6.62P-O(a)(2)(A) and would provide that a marketable Limit Order to buy
(sell) received by the Exchange would trade with all orders and quotes
to sell (buy) on the Consolidated Book priced at or below (above) the
NBO (NBB) before routing to the ABO (ABB) and may route to prices
higher (lower) than the NBO (NBB) only after trading with orders and
quotes to sell (buy) on the Consolidated Book at each price point, and
once no longer marketable, the Limit Order would be ranked and
displayed on the Consolidated Book. This proposed rule text is based on
Rule 900.3NY(b), which provides that a `` `marketable' limit order is a
Limit Order to buy (sell) at or above (below) the NBBO.''
Limit Order Price Protection. The Exchange proposes to describe its
proposed Limit Order Price Protection functionality in proposed Rule
900.3NYP(a)(3), which functionality would operate in a manner identical
to Arca Options Rule 6.62P-O(a)(3). On the Exchange System, the concept
of ``Limit Order Price Protection'' for orders is set forth in Rule
967NY(b). For quotes, price protection filters are described in Rule
967.1NY. The proposed ``Limit Order Price Protection'' on Pillar would
be applicable to both Limit Orders and quotes and, at a high level,
would work similarly to how the current price protection mechanisms
function on the Exchange System because a Limit Order or quote would be
rejected if it is priced at a specified threshold away from the contra-
side NBB or NBO.\25\ The Exchange proposes to enhance the functionality
for options trading on Pillar by using new thresholds and reference
prices (as discussed further below) that would be applicable to both
orders and quotes. The concept of a ``Reference Price'' as used in
connection with risk controls is identical to the same concept used in
Arca Options Rule 6.62P-O(a)(3)(B) and would be consistent how this
term is used on other options exchanges.\26\ Thus, this term is not new
or novel.
---------------------------------------------------------------------------
\25\ Current Rule 967NY(b) provides that unless otherwise
determined by the Exchange, the specified threshold percentage for
orders is 100% when the contra-side NBB or NBO is priced at or below
$1.00 and 50% when the contra-side NBB or NBO is priced above $1.00.
Current Rule 967.1NY(a)(1)(A) provides that unless otherwise
determined by the Exchange, the specified threshold for Market Maker
bids is $1.00 if the contra-side NBO is priced at or below $1.00 and
for Market Maker offers no limit if the NBB is priced at or below
$1.00. Current Rule 967.1NY(a)(1)(B) provides that unless otherwise
determined by the Exchange, the specified threshold for Market Maker
bids (offers) is 50% if the contra-side NBO (NBB) is priced above
$1.00.
\26\ See, e.g., Cboe Rule 5.6(c) (setting forth the ``reference
price'' applicable to orders for which Cboe delta-adjusts the
execution price after the market close). As discussed infra, the
Exchange likewise proposes to use the term Reference Price in
connection with Trading Collars (proposed Rule 900.3NYP(a)(4)).
---------------------------------------------------------------------------
[[Page 45734]]
Proposed Rule 900.3NYP(a)(3)(A) is identical to Arca Options Rule
6.62P-O(a)(3)(A) and would provide that each trading day, a Limit Order
or quote to buy (sell) would be rejected or cancelled (if resting) if
it is priced at a ``Specified Threshold'' (described below), equal to
or above (below) the Reference Price, rounded down to the nearest price
within the MPV for the Series (``Limit Order Price Protection''). In
other words, a Limit Order designated GTC would be re-evaluated for
Limit Order Price Protection on each day that it is eligible to trade
and would be cancelled if the limit price is through the Specified
Threshold. In addition, the proposed rounding down is standard on
Pillar for price protection mechanisms and is identical to how Limit
Order Price Protection is calculated on Arca Options if it is not
within the MPV for the security. The proposed text would therefore
promote granularity in Exchange rules. The proposed rule would further
provide that Cross Orders and Limit-on-Open (``LOO'') Orders (described
below), as well as orders represented in open outcry (except CTB
Orders), would not be subject to Limit Order Price Protection and that
Limit Order Price Protection would not be applied to a Limit Order or
quote if there is no Reference Price, which is consistent with current
functionality.
Proposed Rule 900.3NYP(a)(3)(A)(i) is identical to Arca
Options Rule 6.62P-O(a)(3)(A)(i) and would provide that a Limit Order
or quote that arrives when a series is open would be evaluated for
Limit Order Price Protection on arrival.
Proposed Rule 900.3NYP(a)(3)(A)(ii) is identical to Arca
Options Rule 6.62P-O(a)(3)(A)(ii) and would provide that a Limit Order
or quote received during a pre-open state would be evaluated for Limit
Order Price Protection after an Auction concludes.\27\
---------------------------------------------------------------------------
\27\ See discussion infra, regarding proposed Rule 952NYP(a) and
proposed definitions for the terms ``Auction,'' ``Auction Price,''
Auction Collar,'' ``pre-open state,'' and ``Trading Halt Auction.''
---------------------------------------------------------------------------
Proposed Rule 900.3NYP(a)(3)(A)(iii) is identical to Arca
Options Rule 6.62P-O(a)(3)(A)(iii) would provide that a Limit Order or
quote that was resting on the Consolidated Book before a trading halt
would be evaluated for Limit Order Price Protection again after the
Trading Halt Auction concludes.
As noted above, these proposed rules are identical to Arca Options
Rules 6.62P-O(a)(3)(A)(i)-(iii), and the Exchange believes that these
proposed rules would add clarity and transparency to when the Exchange
would evaluate a Limit Order or quote for Limit Order Price Protection.
Proposed Rule 900.3NYP(a)(3)(B) is identical to Arca Options Rule
6.62P-O(a)(3)(B) and would specify that the Reference Price for
calculating Limit Order Price Protection for an order or quote to buy
(sell) would be the NBO (NBB), provided that, immediately following an
Auction, the Reference Price would be the Auction Price, or if none,
the upper (lower) Auction Collar price, or, if none, the NBO (NBB). The
Exchange believes that adjusting the Reference Price for Limit Order
Price Protection immediately following an Auction would ensure that the
most up-to-date price would be used to assess whether to cancel a Limit
Order that was received during a pre-open state or would be reevaluated
after a Trading Halt Auction. The Exchange further proposes that for
purposes of calculating Limit Order Price Protection, the Exchange
would not use an adjusted NBBO, which use of an unadjusted NBBO is
identical to how Limit Order Price Protection currently functions per
Arca Options Rule 6.62P-O(a)(3)(B).\28\ The Exchange believes that
using an unadjusted NBBO for risk protection mechanisms is consistent
with the goal of such mechanisms to prevent erroneous executions by
using a more conservative view of the NBBO.
---------------------------------------------------------------------------
\28\ References to the NBBO, NBB, and NBO in proposed Rule
900.3NYP (which are identical to Arca Options Rule 6.62P-O) refer to
using a determination of the national best bid and offer that has
not been adjusted.
---------------------------------------------------------------------------
Proposed Rule 900.3NYP(a)(3)(C) is identical to Arca Options Rule
6.62P-O(a)(3)(C) and would specify the Specified Threshold and would
provide that unless determined otherwise by the Exchange and announced
to American Trading Permit Holders or ``ATP Holders'' \29\ by Trader
Update, the Specified Threshold applicable to Limit Order Price
Protection would be:
---------------------------------------------------------------------------
\29\ An ATP Holder is a natural person, sole proprietorship,
partnership, corporation, limited liability company or other
organization, in good standing, which has been issued an ATP, and
references to ``member'', and ``member organization'' as those terms
are used in the Rules of the Exchange should be deemed to be
references to ATP Holders. See Rule 900.2NY. An ATP is an American
Trading Permit issued by the Exchange for effecting approved
securities transactions on the Exchange's Trading Facilities. See
id.
------------------------------------------------------------------------
Specified
Reference price threshold
------------------------------------------------------------------------
$0.00 to $1.00.......................................... $0.30
$1.01 to $10.00......................................... 50%
$10.01 to $20.00........................................ 40%
$20.01 to $50.00........................................ 30%
$50.01 to $100.00....................................... 20%
$100.01 and higher...................................... 10%
------------------------------------------------------------------------
The Exchange believes that it would provide a more reasonable and
deterministic trading outcome to use a fixed dollar amount (of $0.30)
rather than a percentage calculation when the Reference Price is $1.00
or less. The Exchange believes that the balance of the proposed
thresholds, which are percentages tied to the amount of the Reference
Price that decrease as that Price increases, are more granular than
those currently specified in Rules 967NY(b) (for orders) and
967.1NY(a)(1)(A) and (B) (for quotes) and therefore determining whether
to reject a Limit Order or quote will be more tailored to the
applicable Reference Price.\30\ In addition, consistent with Rules
967NY(b) and 967.1NY(a)(1), the Exchange proposes that these thresholds
could change, subject to announcing the changes by Trader Update.
Providing flexibility in Exchange rules regarding how the Specified
Thresholds would be set is not only identical to the flexibility
afforded per Arca Options Rule 6.62P-O(a)(3)(C) but is also consistent
with the rules of other options exchanges.\31\
---------------------------------------------------------------------------
\30\ On the Exchange System, the thresholds for price protection
on orders and quotes (per Rules 967NY(b) and 967.1NY(a)(1),
respectively), depend solely on whether the contra-side NBBO (i.e.,
the reference price) is more or less than $1.00. The Exchange
believes the additional Reference Price levels--and corresponding
Specified Thresholds--would make the application of the Limit Order
Price Protection more precise to the benefit of all market
participants.
\31\ See, e.g., Cboe Rule 5.34(a)(4) (describing the ``Drill-
Through Protection'' and that Cboe ``determines the buffer amount on
a class and premium basis'' without specifying the amount of such
buffers); and the Nasdaq Stock Market LLC (``Nasdaq'') Options 3,
Section 15(a)(1)(B) (specifying that ``Order Price Protection'' can
be a configurable dollar amount not to exceed $1.00 through such
contra-side Reference BBO as specified by Nasdaq and announced via
an Options Trader Alert).
---------------------------------------------------------------------------
Trading Collar. Trading Collars on the Exchange System are
currently described in Rule 967NY(a). Under the current rules, incoming
Market Orders and marketable Limit Orders are limited in having an
immediate execution if they would trade at a price greater than one
``Trading Collar.'' A collared order is displayed at that price and
then can be repriced to new collars as the NBBO updates. On Pillar, the
Exchange proposes Trading Collar functionality that would be identical
to Trading Collar functionality on Arca Options as described below.
As proposed, a Market Order or Limit Order would be assigned a
single Trading Collar that would be applicable to that order until it
is fully executed or cancelled (unless the series is halted). The new
proposed Trading Collar would function as a ceiling (for buy
[[Page 45735]]
orders) or floor (for sell orders) of the price at which such order
could be traded, displayed, or routed. The Exchange further proposes
that when an order is working at its assigned Trading Collar, it would
cancel if not executed within a specified time period.
More specifically, proposed Rule 900.3NYP(a)(4) is identical to
Arca Options Rule 6.62P-O(a)(4) and would provide that a Market Order
or Limit Order to buy (sell) would not trade or route to an Away Market
at a price above (below) the Trading Collar assigned to that order. As
further proposed, Auction-Only Orders, Limit Orders designated IOC or
FOK, Cross Orders, ISOs, and Market Maker quotes would not be subject
to Trading Collars, which interest is excluded under current
functionality.\32\ The proposed rule would also be the same as Arca
Options Rule 6.62P-O(a)(4) because it would explicitly add reference to
Auction-Only Orders, Cross Orders, ISOs, and Market Maker quotes being
excluded from Trading Collars, which new detail would add granularity
to the proposed rule and would also address that the proposed Day ISOs,
described below, would not be subject to Trading Collars. In addition,
Trading Collars would not be applicable during Auctions but (as
described below) would be calculated after such Auction concludes.
---------------------------------------------------------------------------
\32\ See Rule 967NY(a)(3) (``Trade Collar Protection does not
apply to quotes, IOC Orders, AON Orders, FOK Orders and NOW
Orders.'').
---------------------------------------------------------------------------
Proposed Rule 900.3NYP(a)(4)(A) is identical to Arca Options Rule
6.62P-O(a)(4)(A) and would provide that a Trading Collar assigned to an
order would be calculated once per trading day and would be updated
only if the series is halted. Accordingly, an order designated GTC
would receive a new Trading Collar each day, but that Trading Collar
would not be updated intraday unless the series is halted. Proposed
Rule 900.3NYP(a)(4)(A)(i) is identical to Arca Options Rule 6.62P-
O(a)(4)(A)(i) and would provide that an order that is received during
continuous trading would be assigned a Trading Collar before being
processed for either trading, repricing, or routing and that an order
that is routed on arrival and returned unexecuted would use the Trading
Collar previously assigned to it. Proposed Rule 900.3NYP(a)(4)(A)(ii)
is identical to Arca Options Rule 6.62P-O(a)(4)(A)(ii) and would
provide that an order received during a pre-open state would be
assigned a Trading Collar after an Auction concludes. Finally, proposed
Rule 900.3NYP(a)(4)(A)(iii) is identical to Arca Options Rule 6.62P-
O(a)(4)(A)(iii) and would provide that the Trading Collar for an order
resting on the Consolidated Book before a trading halt would be
calculated again after the Trading Halt Auction concludes. The Exchange
believes that because Trading Collars are intended as a price
protection mechanism, updating the Trading Collar after a series has
reopened would allow for the Trading Collar assigned to an order to
reflect more updated pricing. As noted above, proposed Rules
900.3NYP(a)(4)(A)(i)-(iii) are identical to Arca Options Rules 6.62P-
O(a)(4)(A)(i)-(iii).
Proposed Rule 900.3NYP(a)(4)(B) is identical to Arca Options Rule
6.62P-O(a)(4)(B) and would provide that the Reference Price for
calculating the Trading Collar for an order to buy (sell) would be the
NBO (NBB), which is consistent with how trading collars are currently
determined for Limit Orders, with differences to use this Reference
Price for all orders and for how the Reference Price would be
determined after an Auction.\33\ As is the case per Arca Options Rule
6.62P-O(a)(4)(B), the Exchange likewise proposes to use the Pillar term
``Reference Price'' to describe what would be used for Trading Collar
calculations.\34\ The proposed rule, like the Arca Options Rule, would
further provide that for Auction-eligible orders to buy (sell) that
were received during a pre-open state or orders that were re-assigned a
Trading Collar after a trading halt, the Reference Price would be the
Auction Price or, if none, the upper (lower) Auction Collar price or,
if none, the NBO (NBB). For reasons similar to those described above,
the Exchange proposes to use a more conservative view of the NBBO for
purposes of risk protection mechanisms. Therefore, the Exchange
proposes that for purposes of calculating a Trading Collar, the
Exchange would not use an adjusted NBBO. Proposed Rule
900.3NYP(a)(4)(B)(i) is identical to Arca Options Rule 6.62P-
O(a)(4)(B)(i) and would further provide that a Trading Collar would not
be assigned to a Limit Order if there is no Reference Price at the time
of calculation, which is consistent with current functionality and the
proposed rule would add granularity to Exchange rules.
---------------------------------------------------------------------------
\33\ Under current rules, trading collars are calculated based
off of the contra-side NBBO. See Rule 967NY(a)(1)(A)(ii).
\34\ See also discussion regarding Cboe Rule 5.34(a)(4) and
Nasdaq Options 3, Section 15(a)(1)(B), supra note 31.
---------------------------------------------------------------------------
Proposed Rule 900.3NYP(a)(4)(C) is identical to Arca Options Rule
6.62P-O(a)(4)(C) and would describe how the Trading Collar would be
calculated and would provide that the Trading Collar for an order to
buy (sell) would be a specified amount above (below) the Reference
Price, as follows: (1) for orders with a Reference Price of $1.00 or
lower, $0.20; or (2) for orders with a Reference Price above $1.00, the
lesser of an amount specified in the table in proposed Rule
900.3NYP(a)(4)(C) (ranging from $0.20 for orders with a Reference Price
of $1.01 to $2.00 to $1.90 for orders with a Reference Price of $100.01
and above) or 25% of the Reference Price. Trading Collars under the
current rule are based on a specified dollar amount (set forth in ten
tranches).\35\ As is the case with Trading Collars on Arca Options, the
proposed functionality would tailor the Trading Collar calculations
with either a specified dollar amount or percentage, depending on the
Reference Price, and would align the specified thresholds with the
current parameters for determining whether a trade is an Obvious Error
or Catastrophic Error.\36\ Proposed Rule 900.3NYP(a)(4)(C)(i) is
identical to Arca Options Rule 6.62P-O(a)(4)(C)(i) and would further
provide that if the calculation of a Trading Collar would not be in the
MPV for the series, it would be rounded down to the nearest price
within the applicable MPV. Proposed Rule 900.3NYP(a)(4)(C)(ii) is
identical to Arca Options Rule 6.62P-O(a)(4)(C)(ii) and would further
provide that for orders to sell, if subtracting the Trading Collar from
the Reference Price would result in a negative number, the Trading
Collar for Limit Orders would be the limit price and the Trading Collar
for Market Orders would be one MPV above zero, which would provide more
granularity in Exchange rules and would ensure that there will be a
Trading Collar calculated for low-priced orders to sell. As noted
above, this proposed rule is identical to Arca Options Rule 6.62P-
O(a)(4)(C) and its subparagraphs (i)-(ii).
---------------------------------------------------------------------------
\35\ Under current Rule 967NY(a)(2)(A)(i)-(v), the Trading
Collar for buy (sell) orders is as follows: $0.25 for each option
contract for which the NBB (NBO) is less than $2.00; $0.40 where the
NBB (NBO) is between $2.00-$5.00; $0.50 where the NBB (NBO) is
between $5.01-$10.00; $0.80 where the NBB (NBO) is more than $10.00
but does not exceed $20.00; and $1.00 when the NBB (NBO) is $20.01
or more.
\36\ See Rules 975NY(c)(1) (thresholds for Obvious Errors) and
975NY(d)(1) (thresholds for Catastrophic Errors).
---------------------------------------------------------------------------
Proposed Rule 900.3NYP(a)(4)(D) is identical to Arca Options Rule
6.62P-O(a)(4)(D) and would describe how the Trading Collar would be
applied and would provide that if an order to buy (sell) would trade or
route above (below) the Trading Collar or would have its working price
repriced to a Trading Collar that is below (above) its limit
[[Page 45736]]
price, the order would be added to the Consolidated Book at the Trading
Collar for 500 milliseconds and if not traded within that period, would
be cancelled. In addition, once the 500-millisecond timer begins for an
order, the order would be cancelled at the end of the timer even if it
repriced or has been routed to an Away Market during that period, in
which case any portion of the order that is returned unexecuted would
be cancelled.
The Exchange believes that the proposed Trading Collar
functionality is designed to provide a similar type of order protection
as is currently available (as described in Rule 967NY(a)) because it
would limit the price at which a marketable order could be traded,
routed, or displayed. The proposed differences from the current rule,
which are identical to Arca Options Rule 6.62P-O(a)(4), would simplify
the functionality by applying a static ceiling price (for a buy order)
or floor price (for a sell order) at which such order could be traded
or routed, which price would be determined at the time of entry (or
after a series opens or reopens) and would be applicable to the order
until it is traded or cancelled. The Exchange believes that the
proposed functionality would provide greater determinism to an ATP
Holder of the Trading Collar that would be applicable to a Market Order
or Limit Order and when such order may be cancelled if it reaches its
Trading Collar.
Time in Force Modifiers. Proposed Rule 900.3NYP(b) is identical to
Arca Options Rule 6.62P-O(b) and would set forth the time-in-force
modifiers that would be available for options trading on Pillar. The
Exchange proposes to offer the same time-in-force modifiers that are
currently available for options trading on the Exchange and use Pillar
terminology to describe the functionality. As noted above, the Exchange
proposes to describe the Time in Force Modifiers in proposed Rule
900.3NYP(b), and then specify for each order type which Time in Force
Modifiers would be available for such orders or quotes, which mirrors
Arca Options Rule 6.62P-O(b).
Day Modifier. Proposed Rule 900.3NYP(b)(1) would be identical to
Arca Options Rule 6.62P-O(b)(1) and would provide that any order or
quote to buy or sell designated Day, if not traded, would expire at the
end of the trading day on which it was entered and that a Day Modifier
cannot be combined with any other Time in Force Modifier. This proposed
functionality would operate no differently than how a ``Day Order,'' as
described in Rule 900.3NY(m), currently functions.
Immediate-or-Cancel (``IOC'') Modifier. Proposed Rule
900.3NYP(b)(2) is identical to Arca Options Rule 6.62P-O(b)(2) and
would provide that a Limit Order may be designated IOC or Routable IOC,
as described in proposed Rules 900.3NYP(b)(2)(A) and (B) and that a
Limit Order designated IOC would not be eligible to participate in any
Auctions.
Proposed Rule 900.3NYP(b)(2)(A) is identical to Arca Options Rule
6.62P-O(b)(2)(A) and would define a ``Limit IOC Order'' as a Limit
Order designated IOC that would be traded in whole or in part on the
Exchange as soon as such order is received, and the unexecuted quantity
would be cancelled and that a Limit IOC Order does not route. The
proposed Pillar Limit IOC Order would function the same as an
``Immediate-or-Cancel Order (IOC Order),'' as currently described in
Rule 900.3NY(k), without any differences.
Proposed Rule 900.3NYP(b)(2)(B) is identical to Arca Options Rule
6.62P-O(b)(2)(B) and would define a ``Limit Routable IOC Order'' as a
Limit Order designated Routable IOC that would be traded in whole or in
part on the Exchange as soon as such order is received, and the
unexecuted quantity routed to Away Market(s) and that any quantity not
immediately traded either on the Exchange or an Away Market would be
cancelled. The proposed Pillar Limit Routable IOC Order is also based
on (and would replace) the ``NOW Order,'' as currently described in
Rule 900.3NY(o).
Fill-or-Kill (``FOK'') Modifier. Proposed Rule 900.3NYP(b)(3) is
identical to Arca Options Rule 6.62P-O(b)(3) and would provide that a
Limit Order designated FOK would be traded in whole on the Exchange as
soon as such order is received, and if not so traded is to be cancelled
and that a Limit Order designated FOK does not route and does not
participate in any Auctions. This proposed rule uses Pillar terminology
and would offer the same functionality that is currently described in
Rule 900.3NY(l) as the ``Fill-or-Kill Order (FOK Order)'' without any
substantive differences.
Good-`Til-Cancelled (``GTC'') Modifier. Proposed Rule
900.3NYP(b)(4) is identical to Arca Options Rule 6.62P-O(b)(4) and
would provide that a Limit Order or Market Order designated GTC remains
in force until the order is filled, cancelled, the MPV in the series
changes overnight, the option contract expires, or a corporate action
results in an adjustment to the terms of the option contract. This
proposed rule uses Pillar terminology and would offer the same
functionality that is currently described in 900.3NY(n) as the ``Good-
Till-Cancelled (GTC Order),'' with the substantive difference that the
proposed text makes clear (consistent with current functionality) that
such orders may be cancelled if the MPV changes overnight. Otherwise,
the proposed rule describes the same functionality that is currently
described in 900.3NY(n) as the ``Good-Till-Cancelled (GTC Order).''
Auction-Only Orders. Proposed Rule 900.3NYP(c) is identical to Arca
Options Rule 6.62P-O(c) and would define an ``Auction-Only Order'' as a
Limit Order or Market Order that is to be traded only in an Auction
pursuant to Rule 952NYP.\37\ This proposed rule which uses Pillar
terminology in lieu of the current description of an ``Opening Only
Order'' set forth in Rule 900.3NY(q), without any functional
differences to how such orders trade on Pillar.\38\ The proposed rule
would further provide that an Auction-Only Order would not be accepted
when a series is opened for trading (i.e., would be accepted only
during a pre-open state, which includes a trading halt) and any portion
of an Auction-Only Order that is not traded in a Core Open Auction or
Trading Halt Auction would be cancelled. This represents current
functionality, which is not described in the current rule, and would
provide clarity, transparency, and consistency to Exchange rules.
---------------------------------------------------------------------------
\37\ See discussion infra, regarding proposed Rule 952NYP and
definitions relating to Auctions. As proposed, an ``Auction''
includes the opening or reopening of a series for trading either
with or without a trade. See proposed Rule 952NYP(a)(1).
\38\ Rule 900.3NY(q) defines an ``Opening Only Order'' as ``a
Market Order or Limit Order which is to be executed in whole or in
part during the Opening Auction of an options series or not at
all.'' Per Rule 952NY(e), the Exchange utilizes the same process for
orders eligible to participate in the opening or reopening
(following a trading halt) of a series.
---------------------------------------------------------------------------
Proposed Rule 900.3NYP(c)(1) would be identical to Arca Options
Rule 6.62P-O(c)(1) and would define a ``Limit-on-Open Order (`LOO
Order')'' as a Limit Order that is to be traded only in an Auction.
This proposed rule describes functionality that would be no different
from current functionality, as described in Rule 900.3NY(q).
Proposed Rule 900.3NYP(c)(2) would be identical to Arca Options
Rule 6.62P-O(c)(2) and would define a ``Market-on-Open Order (`MOO
Order')'' as a Market Order that is to be traded only in an Auction.
This proposed rule describes functionality that would be no different
from current functionality, as described in Rule 900.3NY(q).
Proposed Rule 900.3NYP(c)(3) would be identical to Arca Options
Rule 6.62P-O(c)(3) and would define an
[[Page 45737]]
``Imbalance Offset Order (`IO Order')'' using Pillar terminology. To
provide ATP Holders with greater flexibility for options trading on
Pillar based on functionality offered on Arca Options, the Exchange
proposes to offer the IO Order for both Core Open Auctions and Trading
Halt Auctions.
As proposed, the IO Order functionality is identical to IO Order
functionality on Arca Options Rule 6.62P-O(c)(3). Accordingly, proposed
Rule 900.3NYP(c)(3) would define an IO Order as a Limit Order that is
to be traded only in an Auction.
Proposed Rule 900.3NYP(c)(3)(A) is identical to Arca
Options Rule 6.62P-O(c)(3)(A) and would provide that an IO Order would
participate in an Auction only if: (1) there is an Imbalance in the
series on the opposite side of the market from the IO Order after
taking into account all other orders and quotes eligible to trade at
the Indicative Match Price; and (2) the limit price of the IO Order to
buy (sell) would be at or above (below) the Indicative Match Price.
Proposed Rule 900.3NYP(c)(3)(B) is identical to Arca
Options Rule 6.62P-O(c)(3)(B) and would provide that the working price
of an IO Order to buy (sell) would be adjusted to be equal to the
Indicative Match Price, provided that the working price of an IO Order
would not be higher (lower) than its limit price.
Orders with a Conditional or Undisplayed Price and/or Size.
Proposed Rule 900.3NYP(d) is identical to Arca Options Rule 6.62P-O(d)
and would set forth the orders with a conditional or undisplayed price
and/or size that would be available for options trading on Pillar. On
Pillar, the Exchange proposes to offer the same type of orders that are
available in the Exchange System and that are currently described in
Rule 900.3NY(d) as a ``Contingency Order or Working Order,'' with
changes as described below.\39\
---------------------------------------------------------------------------
\39\ See American Pillar Priority Filing (explaining that the
term ``Working Order File'' will not be used on Pillar and proposing
to include details about ranking of orders and quotes with
contingencies in this proposed Rule 900.3NYP(d) using the Pillar
priority scheme). Also, as discussed in the American Pillar Priority
Filing, the ranking and priority of quotes under Pillar is
consistent with handling on the Exchange System unless otherwise
noted therein. See id.
---------------------------------------------------------------------------
Reserve Order. The Exchange proposes to introduce Reserve Orders
for options traded on Pillar in proposed Rule 900.3NYP(d)(1). On the
Exchange, the proposed Reserve Order functionality would be identical
to the handling of Reserve Orders per Arca Options Rule 6.62P-O(d)(1).
As proposed, a Reserve Order would be defined as a Limit Order with a
quantity of the size displayed and with a reserve quantity of the size
(``reserve interest'') that is not displayed and that the displayed
quantity of a Reserve Order is ranked under the proposed category of
``Priority 2--Display Orders'' and the reserve interest is ranked under
the proposed category of ``Priority 3--Non-Display Orders.'' Proposed
Rule 900.3NYP(d)(1) would further provide that both the display
quantity and the reserve interest of an arriving marketable Reserve
Order would be eligible to trade with resting interest in the
Consolidated Book or route to Away Markets, unless designated as a Non-
Routable Limit Order. Finally, proposed Rule 900.3NYP(d)(1) would
further provide that the working price of the reserve interest of a
resting Reserve Order to buy (sell) would be adjusted to be the lower
(higher) of the limit price or the NBO (NBB), provided that it would
never be priced higher (lower) than the working price of the display
quantity of the Reserve Order, which text differs from Arca Options
Rule 6.62P-O(d)(1) insofar as it does not reference the working price
being adjusted in the same manner as a Non-Displayed Limit Order but
instead states precisely how such price would be adjusted.\40\ Other
than this nuance regarding the rule text used to describe how the
working price of a resting Reserve Order would be adjusted, the
operation of Reserve Orders on the Exchange would be identical to how
such orders are handled per Arca Options Rule 6.62P-O(d)(1).
---------------------------------------------------------------------------
\40\ Per Arca Options Rule 6.62P-O(d)(1), ``[t]he working price
of the reserve interest of a resting Reserve Order to buy (sell)
will be adjusted in the same manner as a Non-Displayed Limit Order,
as provided for in paragraph (d)(2)(A) of this Rule.'' Per Arca
Options Rule 6.62P-O(d)(2)(A), ``[t]he working price of a Non-
Displayed Limit Order to buy (sell) will be the lower (higher) of
the limit price or the NBO (NBB).'' Because the Exchange is not
proposing to adopt the Non-Displayed Limit Order type, proposed Rule
900.3NYP(d)(1) simply restates the relevant text from Arca Options
Rule 6.62P-O(d)(2)(A) regarding how the working price of the reserve
interest of a resting Reserve Order would be adjusted. The Exchange
believes that this distinction is immaterial because the Reserve
Order functionality being proposed would be identical to Reserve
Order functionality on Arca Options.
---------------------------------------------------------------------------
Proposed Rule 900.3NYP(d)(1)(A) is identical to Arca
Options Rule 6.62P-O(d)(1)(A) and would provide that the displayed
portion of a Reserve Order would be replenished when the display
quantity is decremented to zero and that the replenish quantity would
be the minimum display size of the order or the remaining quantity of
the reserve interest if it is less than the minimum display quantity.
Proposed Rule 900.3NYP(d)(1)(B) is identical to Arca
Options Rule 6.62P-O(d)(1)(B) and would provide that each time the
display quantity of a Reserve Order is replenished from reserve
interest, a new working time would be assigned to the replenished
quantity.
Proposed Rule 900.3NYP(d)(1)(C) is identical to Arca
Options Rule 6.62P-O(d)(1)(C) and would provide that a Reserve Order
may be designated as a Non-Routable Limit Order and if so designated,
the reserve interest that replenishes the display quantity would be
assigned a display price and working price consistent with the
instructions for the order. The Exchange believes that the proposed
rule would promote transparency and granularity in Exchange rules.
Proposed Rule 900.3NYP(d)(1)(D) is identical to Arca
Options Rule 6.62P-O(d)(1)(D) and would provide that a routable Reserve
Order would be evaluated for routing both on arrival and each time the
display quantity is replenished. Proposed Rule 900.3NYP(d)(1)(D)(i) is
identical to Arca Options Rule 6.62P-O(d)(1)(D)(i) and would provide
that if routing is required, the Exchange would route from reserve
interest before publishing the display quantity. And proposed Rule
900.3NYP(d)(1)(D)(ii) is identical to Arca Options Rule 6.62P-
O(d)(1)(D)(ii) and would provide that any quantity of a Reserve Order
that is returned unexecuted would join the working time of the reserve
interest and that if there is no reserve interest to join, the returned
quantity would be assigned a new working time. As noted above, proposed
Rules 900.3NYP(d)(1)(D)(i)-(ii) are identical to Arca Options Rule
6.62P-O(d)(1)(D)(i)-(ii) and would promote transparency and granularity
in Exchange rules.
Proposed Rule 900.3NYP(d)(1)(E) is identical to Arca
Options Rule 6.62P-O(d)(1)(E) and would provide that a request to
reduce the size of a Reserve Order would cancel the reserve interest
before cancelling the display quantity. The Exchange believes that the
proposed rule would promote transparency and granularity in Exchange
rules.
Proposed Rule 900.3NYP(d)(1)(F) is identical to Arca
Options Rule 6.62P-O(d)(1)(F) and would provide that a Reserve Order
may be designated Day or GTC, except that the proposed rule does not
reference ALO Orders, which order type is not offered by the Exchange
today nor will the order type be offered on Pillar. The Exchange
believes this difference is immaterial because the omitted text refers
to an order modifier (i.e., ALO) that the Exchange does not propose to
offer on Pillar and therefore has no bearing on the proposed
[[Page 45738]]
functionality. The Exchange believes that the proposed rule would
promote transparency and granularity in Exchange rules.
All-or-None (``AON'') Order. Proposed Rule 900.3NYP(d)(3) would be
identical to Arca Options Rule 6.62P-O(d)(3) and would describe the
handling of AON Orders on Pillar.\41\ AON Orders are currently defined
in Rule 900.3NY(d)(4) and, consistent with current functionality, AON
Orders on Pillar would only execute if such orders can be satisfied in
their entirety. However, unlike the Exchange System, where AON Orders
are not integrated in the Consolidated Book, on Pillar, the Exchange
proposes that AON Orders would be ranked in the Consolidated Book and
function as conditional orders that would trade only if their condition
could be met. In addition, on Pillar, the Exchange would not support
Market Orders designated as AON, which would be a change from current
functionality. The Exchange does not believe it needs to continue
offering AON Market Orders because such functionality was not used
often on the Exchange System, indicating a lack of market participant
interest in this functionality.
---------------------------------------------------------------------------
\41\ The Exchange proposes to hold Rule 900.3NYP(d)(2) as
``Reserved'' to keep the numbering of this rule consistent with Arca
Options Rule 6.62P-O(d), to account for the fact that the Exchange
does not propose to offer Non-Displayed Limit Orders, which are
described in Arca Options Rule 6.62P-O(d)(2). See id.
---------------------------------------------------------------------------
Specifically, proposed Rule 900.3NYP(d)(3) would provide that an
AON Order is a Limit Order that is to be traded in whole on the
Exchange at the same time or not at all, which represents current
functionality as described in the first sentence of Rule 900.3NY(d)(4).
Proposed Rule 900.3NYP(d)(3) uses Pillar terminology and would further
provide that an AON Order that does not trade on arrival would be
ranked under the proposed category of ``Priority 3--Non-Display
Orders'' and that an AON Order may be designated Day or GTC, does not
route, and would not participate in any Auctions. As noted above, this
proposed new functionality, including that AON Orders would be ranked
on the Consolidated Book, is identical to the handling of AON Order per
Arca Options Rule 6.62P-O(d)(3) and the subsections thereunder.
Proposed Rule 900.3NYP(d)(3)(A) is identical to Arca
Options Rule 6.62P-O(d)(3)(A) and would provide that the working price
of an AON Order would be assigned on arrival and adjusted when resting
on the Consolidated Book and that the working price of an AON Order to
buy (sell) would be the lower (higher) of the limit price or NBO (NBB).
Proposed Rule 900.3NYP(d)(3)(B) is identical to Arca
Options Rule 6.62P-O(d)(3)(B) and would provide that an Aggressing AON
Order to buy (sell) would trade with sell (buy) orders and quotes that
in the aggregate can satisfy the AON Order in its entirety. This
proposed rule would promote clarity in Exchange rules that an
Aggressing AON Order (whether on arrival or as a resting order that
becomes an Aggressing Order) would be eligible to trade with more than
one contra-side order or quote, provided that multiple orders and
quotes in the aggregate would satisfy the AON Order in its entirety.
Proposed Rule 900.3NYP(d)(3)(C) is identical to Arca
Options Rule 6.62P-O(d)(3)(C) and would provide that a resting AON
Order to buy (sell) would trade with an Aggressing Order or Aggressing
Quote to sell (buy) that individually can satisfy the whole AON Order.
The Exchange believes this proposed change would provide an AON Order
with additional execution opportunities.
Proposed Rule 900.3NYP(d)(3)(C)(i) is identical to Arca
Options Rule 6.62P-O(d)(3)(C)(i) and would provide that if an
Aggressing Order or Aggressing Quote to sell (buy) does not satisfy the
resting AON Order to buy (sell), that Aggressing Order or Aggressing
Quote would not trade with and may trade through such AON Order.
Proposed Rule 900.3NYP(d)(3)(C)(ii) is identical to Arca Options Rule
6.62P-O(d)(3)(C)(ii) and would further provide that if a resting non-
displayed order to sell (buy) does not satisfy the quantity of a same-
priced resting AON Order to buy (sell), a subsequently arriving order
or quote to sell (buy) that satisfies the AON Order would trade before
such resting non-displayed order or quote to sell (buy) at that price.
Both of these proposed rules are similar to current Rule 900.3NY(d)(4),
which provides that a resting AON Order can be ignored if its condition
is not met. Similar to current functionality, even though an AON would
be ranked in the Consolidated Book, it is still a conditional order
type and therefore, by its terms, can be skipped over for an execution.
As noted above, this proposed rule text is identical to Arca Options
Rules 6.62P-O(d)(3)(C)(i) and (ii).
Proposed Rule 900.3NYP(d)(3)(D) is identical to Arca
Options Rule 6.62P-O(d)(3)(D) and would provide that a resting AON
Order to buy (sell) would not be eligible to trade against an
Aggressing Order or Aggressing Quote to sell (buy): (i) at a price
equal to or above (below) any orders or quotes to sell (buy) that are
displayed at a price equal to or below (above) the working price of
such AON Order; or (ii) at a price above (below) any orders or quotes
to sell (buy) that are not displayed and that have a working price
below (above) the working price of such AON Order.
Proposed Rule 900.3NYP(d)(3)(E) is identical to Arca
Options Rule 6.62P-O(d)(3)(E) and would provide that if a resting AON
Order to buy (sell) becomes an Aggressing Order it would trade as
provided in paragraph (d)(3)(B) of this proposed Rule (described
above); however, other resting orders or quotes to buy (sell) ranked
Priority 3--Non-Display Orders that become Aggressing Orders or
Aggressing Quotes at the same time as the resting AON Order would be
processed before the AON Order. This proposed rule text is designed to
promote clarity in Exchange rules that if multiple orders ranked
Priority 3--Non-Display Orders, including AON and non-AON Orders,
become Aggressing Orders or Aggressing Quotes at the same time, the AON
Order would not be eligible to trade until the other orders ranked
Priority 3- Non-Display Orders have been processed, even if they have
later working times. The Exchange believes that it would be consistent
with the conditional nature of AON Orders for other same-side non-
displayed orders to have a trading opportunity before the AON Order.
Stop Order. Stop Orders are currently defined in Rule
900.3NY(d)(1). The Exchange proposes to use Pillar terminology with
more granularity to describe Stop Orders in proposed Rule
900.3NYP(d)(4), as specified below and identical to Arca Options Rule
6.62P-O(d)(4). Proposed Rule 900.3NYP(d)(4) would provide that a Stop
Order is an order to buy (sell) a particular option contract that
becomes a Market Order (or is ``elected'') when the Exchange BB (BO) or
the most recent consolidated last sale price reported after the order
was placed in the Consolidated Book (the ``Consolidated Last Sale'')
(either, the ``trigger'') is equal to or higher (lower) than the
specified ``stop'' price. The proposed functionality is consistent with
existing functionality and provides more granularity of the
circumstances when a Stop Order would be elected.\42\ Because a Stop
Order becomes a Market Order when it is elected, the Exchange proposes
that when it is elected, it would be cancelled if it does not meet the
validations specified in proposed
[[Page 45739]]
Rule 900.3NYP(a)(1)(A)(above) and if not cancelled, it would be
assigned a Trading Collar. This is consistent with current
functionality, which is not described in the current rule describing
Stop Orders, that once converted to a Market Order, such order is
subject to the checks applicable in the current rule for Market Orders,
i.e., cancelling such order if there is no NBBO. The proposed rule,
which as noted above is identical to Arca Options Rule 6.62P-O(d)(4),
references the checks that would be applicable to a Market Order on
Pillar and thus adds greater granularity and transparency to Exchange
rules.
---------------------------------------------------------------------------
\42\ The current rule states that a Stop Order to buy (sell)
will be triggered (i.e., elected) when the option contract ``trades
at a price equal to or greater (less) than the specified `stop'
price on the Exchange or another Market Center.'' See Rule
900.3NY(d)(1).
---------------------------------------------------------------------------
Proposed Rule 900.3NYP(d)(4)(A) is identical to Arca Options Rule
6.62P-O(d)(4)(A) and would provide that a Stop Order would be assigned
a working time when it is received but would not be ranked or displayed
in the Consolidated Book until it is elected and that once converted to
a Market Order, the order would be assigned a new working time and be
ranked Priority 1--Market Orders. The original working time assigned to
a Stop Order would be used to rank multiple Stop Orders elected at the
same time. This is consistent with the current rule, which provides
that a Stop Order is not displayed and has no standing in any Order
Process in the Consolidated Book, unless or until it is triggered. The
proposed rule is identical to Arca Options Rule 6.62P-O(d)(4)(A) and is
designed to provide greater granularity and clarity regarding the
treatment of Stop Orders, both when received and when elected.
Proposed Rule 900.3NYP(d)(4)(B) is identical to Arca Options Rule
6.62P-O(d)(4)(B) and would specify additional events that are designed
to limit when a Stop Order may be elected so that a Market Order does
not trade during a period of pricing uncertainty:
Proposed Rule 900.3NYP(d)(4)(B)(i) is identical to Arca
Options Rule 6.62P-O(d)(4)(B)(i) and would provide that if not elected
on arrival, a Stop Order that is resting would not be eligible to be
elected based on a Consolidated Last Sale unless the Consolidated Last
Sale is equal to or in between the NBBO. This proposed rule text
provides additional transparency of when a resting Stop Order would be
eligible to be elected.
Proposed Rule 900.3NYP(d)(4)(B)(ii) is identical to Arca
Options Rule 6.62P-O(d)(4)(B)(ii) and would provide that a Stop Order
would not be elected if the NBBO is crossed.
Proposed Rule 900.3NYP(d)(4)(B)(iii) is identical to Arca
Options Rule 6.62P-O(d)(4)(B)(iii) and would provide that after a Limit
State or Straddle State is lifted, the trigger to elect a Stop Order
would be either the Consolidated Last Sale received after such state
was lifted or the Exchange BB (BO).\43\
---------------------------------------------------------------------------
\43\ Rule 953.1NY(a)(2) currently provides that the Exchange
will not elect Stop Orders when the underlying NMS stock is either
in a Limit State or a Straddle State, which would continue to be
applicable on Pillar. The Exchange proposes a non-substantive
amendment to Rule 953.1NY(a)(2) to add a cross-reference to proposed
Rule 900.3NYP(d)(4). The proposed rule is also identical to how Stop
Orders are handled if the underlying NMS stock enters a Limit State
or a Straddle State per Arca Options Rule 6.65A-O(a)(2).
---------------------------------------------------------------------------
Stop Limit Order. Stop Limit Orders are currently defined in Rule
900.3NY(d)(2).\44\ The Exchange proposes to use Pillar terminology with
more granularity to describe Stop Limit Orders in proposed Rule
900.3NYP(d)(5), as specified below and identical to Arca Options Rule
6.62P-O(d)(5).
---------------------------------------------------------------------------
\44\ The current rule states that a Stop Limit Order to buy
(sell) will be triggered (i.e., elected) when the option contract
``trades at a price equal to or greater (less) than the specified
`stop' price on the Exchange or another Market Center.'' See Rule
900.3NY(d)(2). Given the contingent nature of Stop Limit Orders, as
is the case today, Stop Limit Orders submitted as IOC would be
rejected on Pillar.
---------------------------------------------------------------------------
Proposed Rule 900.3NYP(d)(5) would provide that a Stop Limit Order
is an order to buy (sell) a particular option contract that becomes a
Limit Order (or is ``elected'') when the Exchange BB (BO) or the
Consolidated Last Sale (either, the ``trigger'') is equal to or higher
(lower) than the specified ``stop'' price.\45\ The proposed
functionality is consistent with existing functionality and provides
more granularity of when a Stop Limit Order would be elected than the
current Rule 900.3NY(d)(2) definition of Stop Limit Order. As further
proposed, a Stop Limit Order to buy (sell) would be rejected if the
stop price is higher (lower) than its limit price, which rejection
mirrors Arca Options Rule 6.62P-O(d)(5) and would prevent the Exchange
from accepting potentially erroneously-priced orders. Because a Stop
Limit Order becomes a Limit Order when it is elected, the Exchange
proposes that when it is elected, it would be cancelled if it fails
Limit Order Price Protection or a Price Reasonability Check and if not
cancelled, it would be assigned a Trading Collar.\46\ This
functionality is consistent with current functionality, though it is
not explicitly stated in the current rule describing Stop Limit Orders.
Specifically, both in the current Exchange System and as proposed on
Pillar, once converted to a Limit Order, such order is subject to the
checks applicable in the current rule for Limit Orders, i.e., Limit
Order Filter on the Exchange System. The proposed rule, which as noted
above is identical to Arca Options Rule 6.62P-O(d)(5), references the
checks that would be applicable to a Limit Order on Pillar and thus
adds greater granularity and transparency to Exchange rules.
---------------------------------------------------------------------------
\45\ The term ``Consolidated Last Sale'' is defined in proposed
Rule 900.3NYP(d)(4).
\46\ See discussion infra, regarding proposed Rule 928.1NYP and
Price Reasonability Checks.
---------------------------------------------------------------------------
Proposed Rule 900.3NYP(d)(5)(A) is identical to Arca Options Rule
6.62P-O(d)(5)(A) and would provide that a Stop Limit Order would be
assigned a working time when it is received but would not be ranked or
displayed in the Consolidated Book until it is elected and that once
converted to a Limit Order, the order would be assigned a new working
time and be ranked under the proposed category of ``Priority 2--Display
Orders.'' This functionality is consistent with the current rule, which
provides that a Stop Limit Order is not displayed and has no standing
in any Order Process in the Consolidated Book, unless or until it is
triggered. The proposed rule is designed to provide greater granularity
and clarity.
Proposed Rule 900.3NYP(d)(5)(B) is identical to Arca Options Rule
6.62P-O(d)(5)(B) and would specify additional events that are designed
to limit when a Stop Limit Order may be elected so that a Limit Order
would not have a possibility of trading or being added to the
Consolidated Book during a period of pricing uncertainty.
Proposed Rule 900.3NYP(d)(5)(B)(i) is identical to Arca
Options Rule 6.62P-O(d)(5)(B)(i) and would provide that if not elected
on arrival, a Stop Limit Order that is resting would not be eligible to
be elected based on a Consolidated Last Sale unless the Consolidated
Last Sale is equal to or in between the NBBO.
Proposed Rule 900.3NYP(d)(5)(B)(ii) is identical to Arca
Options Rule 6.62P-O(d)(5)(B)(ii) and would provide that a Stop Limit
Order would not be elected if the NBBO is crossed.
Orders with Instructions Not to Route. Currently, the Exchange
defines non-routable orders in Rule 900.3NY as a PNP Order (which
includes a Repricing PNP Order (``RPNP'')) (current Rule 900.3NY(p)) or
a PNP-Blind Order (current Rule 900.3NY(x)). The Exchange also defines
Intermarket Sweep Orders (current Rule 900.3NY(u)), which are also non-
routable.
The Exchange separately defines quotes--all of which are non-
[[Page 45740]]
routable \47\--in Rule 925.1NY and such quotes may be designated as a
Market Maker--Light Only Quotation (``MMLO'') (current Rule
925.1NY(a)(3)(A)) and a Market Maker--Repricing Quotation (``MMRP'')
(current Rule 925.1NY(a)(3)(B)). On the Exchange System, Market Maker
quotes not designated as MMRP will cancel (rather than reprice) if they
would lock or cross the NBBO, per Rule 925.1NY(a)(4)(C)(i).
---------------------------------------------------------------------------
\47\ See Rule 925.1NY(a)(2) (providing that ``[a] quotation will
not route'').
---------------------------------------------------------------------------
On Pillar, proposed Rule 900.3NYP(e) is identical to Arca Options
Rule 6.62P-O(e) and would streamline the non-routable order types and
quotes that would be available on the Exchange.\48\ As described in
greater detail below, proposed Rule 925.1NYP governing Market Maker
Quotations would no longer define how quotations would function.
Instead, that rule would specify that a Market Maker may designate a
Non-Routable Limit Order as a Market Maker quote. Because the way in
which non-routable orders and quotes would function on Pillar would be
virtually identical (with differences described below), and because
Market Makers could enter a Non-Routable Limit Order and then choose to
designate it either as a quote or an order, the Exchange believes that
it would promote transparency in Exchange rules to consolidate the
description of the functionality in a single rule and eliminate
duplication in Exchange rules. As described below, proposed Rule
925.1NYP would cross reference proposed Rule 900.3NYP(e).
---------------------------------------------------------------------------
\48\ The Exchange proposes to include details about ranking of
orders and quotes with contingencies in this proposed Rule
900.3NYP(e) using the Pillar priority scheme. See, e.g., Rule
964NY(g) (providing that ``[t]he Exchange will apply ranking
restrictions applicable to specific order, quote, or modifier
instructions as provided for in [proposed] Rule 900.3NYP.''). Also,
as discussed infra, see, e.g., note 39, the ranking and priority of
quotes under Pillar is consistent with handling on the Exchange
System unless otherwise noted herein.
---------------------------------------------------------------------------
On Pillar, like Arca Options, the Exchange would no longer offer
functionality based on the PNP-Blind Order or MMLO because it believes
that the proposed orders/quotes with instructions not to route on
Pillar (described below) would continue to provide ATP Holders with the
core functionality associated with these existing order and quotation
types, including that the proposed rules would provide for non-routable
functionality and the ability to either reprice or cancel such orders/
quotes.
Non-Routable Limit Order. Proposed Rule 900.3NYP(e)(1) is identical
to the Arca Options Rule 6.62P-O(e)(1) and would define the Non-
Routable Limit Order. As explained further below, this proposed order
type incorporates functionality currently available in both the
existing PNP and RPNP order types, as defined in Rule 900.3NY, and the
existing MMRP quotation type, as defined in Rule 925.1NYP(a)(3)(C).\49\
As described below, a Market Maker can designate a Non-Routable Limit
Order as either a quote or an order and such interest so designated
would be handled the same except as specified below. Accordingly,
references to the capitalized term ``Non-Routable Limit Order''
describe functionality for either a quote or an order, unless otherwise
specified.
---------------------------------------------------------------------------
\49\ Both MMRPs and RPNPs function similarly. Compare current
Rule 925.1NY(a)(4)(B) and subparagraphs (i) and (ii) with current
Rule 900.3NY(p)(1)(A) and subparagraphs (i) and (ii). They are
currently defined in separate rules only because the former rule
addresses quotes and the latter rule addresses orders.
---------------------------------------------------------------------------
Proposed Rule 900.3NYP(e)(1) (like Arca Options Rule 6.62P-O(e)(1)
would provide that a Non-Routable Limit Order is a Limit Order or quote
that does not route and may be designated Day or GTC and would further
provide that a Non-Routable Limit Order with a working price different
from the display price would be ranked under the proposed category of
``Priority 3--Non-Display Orders'' and a Non-Routable Limit Order with
a working price equal to the display price would be ranked under the
proposed category of ``Priority 2--Display Orders.'' This proposed
rule, which as noted above is identical to the Arca Options Rule 6.62P-
O(e)(1), and uses Pillar terminology, including references to the
Pillar concepts of ``working'' and ``display'' price as well to
Priority rankings as proposed in Rules 964NYP(e)(2) and (3).\50\ This
proposed rule also describes functionality similar to that described in
the first clause of current Rule 900.3NY(p) relating to a PNP Order,
which states that the portion of such order not executed on arrival is
ranked in the Consolidated Book without routing any portion of the
order to another Market Center (although the current rule does not
include Pillar concepts of ``working'' and ``display'' price or Pillar
Priority rankings).
---------------------------------------------------------------------------
\50\ See supra note 20 (regarding definitions of ``display
price'' and ``working price,'' set forth in Rules 964NYP(a)(1) and
(a)(4), respectively.
---------------------------------------------------------------------------
Proposed Rule 900.3NYP(e)(1)(A) is identical to the Arca Options
Rule 6.62P-O(e)(1)(A) and would provide that a Non-Routable Limit Order
would not be displayed at a price that would lock or cross the ABBO and
that a Non-Routable Limit Order to buy (sell) would trade with orders
or quotes to sell (buy) in the Consolidated Book priced at or below
(above) the ABO (ABB). This proposed text is designed to provide
granularity that a Non-Routable Limit Order would never be displayed at
a price that would lock or cross the ABBO, which is consistent with
current PNP and RPNP Order functionality and with current Market Maker
quoting functionality, as described in Rules 900.3NY(p), (p)(1), and
925.1NY(a)(3)-(4), respectively. The Exchange proposes to use the new
term ``ABBO'' (as proposed herein) to provide more granularity in
Exchange rules.
Proposed Rule 900.3NYP(e)(1)(A)(i) is identical to the Arca Options
Rule 6.62P-O(e)(1)(A)(i) and would provide that a Non-Routable Limit
Order can be designated to be cancelled if it would be displayed at a
price other than its limit price. This would be an optional designation
and would provide ATP Holders with functionality similar to how a PNP
Order or a Market Maker quote not designated as MMRP currently
functions, which cancels if such order or quote locks or crosses the
NBBO.\51\ The Exchange proposes a substantive difference from the
current PNP Order functionality such that if an ATP Holder opts to
cancel instead of reprice a Non-Routable Limit Order, such order would
be cancelled only if it could not be displayed at its limit price--
which could be because the order would be repriced to display at a
price that would not lock or cross the ABBO or because it would be
repriced due to Trading Collars.\52\ Stated otherwise, if a Non-
Routable Limit Order with a designation to cancel could be displayed at
its original limit price and not lock or cross the ABBO, such order or
quote would not be cancelled. The Exchange believes that the proposed
rule provides granularity of the operation of a Non-Routable Limit
Order and when such order or quote
[[Page 45741]]
would be cancelled, if so designated, including specifying
circumstances when such order could be repriced, such as to avoid
locking or crossing the ABBO or because of Trading collars.
---------------------------------------------------------------------------
\51\ A PNP Order cannot route, and any unexecuted portion is
ranked in the Consolidated Book except that such order is canceled
if it would lock or cross the NBBO. See Rule 900.3NY(p). A Market
Maker quote not designated as MMLO or MMRP will cancel (rather than
reprice) if such quote would lock or cross the NBBO. See Rule
925.1NY(a)(4)(C).
\52\ Current Rule 900.3NY(p)(1)(B) provides than an incoming
RPNP order would cancel if its limit price is more than a
configurable number of MPVs outside its initial display price (on
arrival). Under Pillar, because Trading Collars would be applicable
to Non-Routable Limit Orders (and such orders may be repriced or
``collared'' on arrival), the Exchange (like Arca Options) does not
propose to cancel an incoming Non-Routable Limit Order if its limit
price is more than a configurable number of MPVs outside its initial
display price. As such, this aspect of RPNP functionality is not
incorporated in the proposed Pillar rules and the Exchange instead
proposes to incorporate Trading Collar functionality into the Non-
Routable Limit Order.
---------------------------------------------------------------------------
Proposed Rule 900.3NYP(e)(1)(A)(ii) is identical to Arca Options
Rule 6.62P-O(e)(1)(A)(ii) and would provide that if not designated to
cancel, if the limit price of a Non-Routable Limit Order to buy (sell)
would lock or cross the ABO (ABB), it would be repriced to have a
working price equal to the ABO (ABB) and a display price one MPV below
(above) that ABO (ABB). Accordingly, the proposed Non-Routable Limit
Order, if not designated to cancel, would reprice in the same manner as
an RPNP order or MMRP quotation reprices on arrival per Rules
900.3NY(p)(1)(A) and 925.1NY(a)(4)(B), which both offer similar
functionality.
The Exchange also proposes functionality on Pillar for the Non-
Routable Limit Order that is consistent with but different in
application to the RPNP Order or MMRP on the Exchange System.
Specifically, proposed Rule 900.3NYP(e)(1)(B), which is identical to
Arca Options Rule 6.62P-O(e)(1)(B), would provide that the display
price of a resting Non-Routable Limit Order to buy (sell) that has been
repriced would be repriced higher (lower) only one additional time.\53\
If after that second repricing, the display price could be repriced
higher (lower) again, the order can be designated to either remain at
its last working price and display price or be cancelled, provided that
a resting Non-Routable Limit Order that is designated as a quote cannot
be designated to be cancelled.\54\ As compared to the proposal on
Pillar to limit the number of times that Non-Routable Limit Orders may
be repriced, the Exchange System restricts repricing of RPNPs and MMRPs
based on the limit price of the interest being a configurable number of
MPVs away from its initial display price.\55\ The Exchange therefore
believes that the proposed functionality is consistent with current
functionality because in either case, there will be limited repricing
of resting interest, and would increase determinism in order execution
based on the explicit restriction on the number of times resting
interest may be repriced.
---------------------------------------------------------------------------
\53\ For example, on arrival, a Non-Routable Limit Order to buy
(sell) with a limit price higher (lower) than the ABO (ABB), would
have a display price one MPV below (above) the ABO (ABB) and a
working price equal to the ABO (ABB). If the ABO (ABB) reprices
higher (lower), the resting Non-Routable Limit Order to buy (sell)
would similarly be repriced higher (lower). If the ABO (ABB) adjusts
higher (lower) again, the resting Non-Routable Limit Order would not
be adjusted again.
\54\ As described in the American Pillar Priority Filing, the
working time of a Non-Routable Limit Order would be adjusted as
described in Rule 964NYP(f)(2), which would be applicable to any
scenario when the working time of an order may change, including a
Non-Routable Limit Order. Similar to how the Pillar rules function
on Arca Options, the Exchange does not propose to separately
describe how the working time of an order changes in proposed Rule
900.3NYP. See also Arca Options Rule 6.76P-O(f)(2) (describing when
the working time of an order or quote may change and not repeating
this information in Rule 6.62P-O).
\55\ See, e.g., Rule 900.3NY(p)(1)(B) (providing that ``[a]n
incoming RPNP will be cancelled if its limit price to buy (sell) is
more than a configurable number of MPVs above (below) the initial
display price (on arrival), after first trading with eligible
interest, if any,'' which configurable number of MPVs will be
determined by the Exchange and be announced by Trader Update) and
Rule 925.1NY(a)(4)(C) (providing that, an MMRP to buy (sell) will be
canceled after trading with marketable interest in the Consolidated
Book up (down) to the NBO (NBB), if its limit price is more than a
configurable number of MPVs above (below) the initial display price
(on arrival)).
---------------------------------------------------------------------------
The Exchange notes that, as is the case per Arca Options Rule
6.62P-O(e)(1)(B), a designation to cancel after an order has been
repriced once is separate from the designation to cancel if a Non-
Routable Limit Order cannot be displayed at its limit price. When a
Non-Routable Limit Order is designated to cancel if it cannot be
displayed at its limit price, there is no repricing and therefore the
option of a second cancellation designation is moot. Rather, this
second cancellation designation is applicable only to a resting Non-
Routable Limit Order that has been designated to reprice on arrival and
was repriced before it was displayed on the Consolidated Book. This
functionality provides ATP Holders with an option to cancel a resting
order if market conditions are such that a resting order could be
repriced again, e.g., the contra-side ABBO changes. The Exchange
proposes that this second cancellation option would not be available
for any Non-Routable Limit Orders designated by a Market Maker as a
quote. The Exchange believes that this proposed difference would assist
Market Makers in maintaining quotes in their assigned series by
reducing the potential to interfere with a Market Maker's ability to
maintain their continuous quoting obligations.\56\ As noted above, this
proposed functionality is identical to Arca Options Rule 6.62P-
O(e)(1)(B).
---------------------------------------------------------------------------
\56\ Proposed Rules 925.1NYP(b) and (c) set forth the continuous
quoting obligations of Specialists and Market Makers, respectively.
---------------------------------------------------------------------------
Proposed Rule 900.3NYP(e)(1)(B)(i) is identical to Arca Options
Rule 6.62P-O(e)(1)(B)(i) and would provide that if the limit price of
the resting Non-Routable Limit Order to buy (sell) that has been
repriced no longer locks or crosses the ABO (ABB), it would be assigned
a working price and display price equal to its limit price.\57\
---------------------------------------------------------------------------
\57\ See American Pillar Priority Filing (regarding Rule
964NYP(b)(2), which describes when the Exchange would not change the
display price of any Limit Orders or quotes ranked under the
proposed category of ``Priority 2--Display Orders'').
---------------------------------------------------------------------------
Proposed Rule 900.3NYP(e)(1)(B)(ii) is identical to Arca Options
Rule 6.62P-O(e)(1)(B)(ii) and would provide that the working price of a
resting Non-Routable Limit Order to buy (sell) that has been repriced
would be adjusted to be equal to its display price if the ABO (ABB) is
equal to or lower (higher) than its display price. This proposed rule
is based in part on how an RPNP or MMRP reprices when the NBO (NBB)
updates to lock or cross its display price (as described in Rules
900.3NY(p)(1)(A)(i) and 925.1NY(a)(4)(B)(i)) and uses Pillar
terminology (i.e., ABBO and concepts of working price and display
price).\58\ The proposed rule would further provide that once the
working price and display price of a Non-Routable Limit Order to buy
(sell) are the same, the working price would be adjusted higher (lower)
only if the display price of the order is adjusted.\59\
---------------------------------------------------------------------------
\58\ Rule 900.3NY(p)(1)(A)(i) provides that ``if the NBO (NBB)
updates to lock or cross the RPNP's display price, such RPNP will
trade at its display price.'' Rule 925.1NY(a)(4)(B)(i) provides that
``if the NBO (NBB) updates to lock or cross the MMRP's display
price, such MMRP will trade at its display price.'' On Pillar, if
the NBO (NBB) updates to lock or cross the display price of a Non-
Routable Order, and the working price is adjusted to be equal to the
display price, the order will not receive a new working time. See
Rule 964NYP(f)(2)(B).
\59\ For example, if the ABO is 1.05 and the Exchange receives a
Non-Routable Limit Order to buy priced at 1.10, it would be assigned
a display price of 1.00 and a working price of 1.05. If the ABO
adjusts to 1.00, the working price of the Non-Routable Limit Order
to buy would be adjusted to 1.00 to be equal to its display price.
However, if the Away Market BO moves back to 1.05, the Non-Routable
Limit Order's working price would not adjust again to 1.05 and would
stay at 1.00.
---------------------------------------------------------------------------
Finally, proposed Rule 900.3NYP(e)(1)(C) is identical to Arca
Options Rule 6.62P-O(e)(1)(C) and would provide that the designation to
cancel a Non-Routable Limit Order (including those designated as
quotations) \60\ would not be applicable in an Auction and, per
proposed Rule 952NYP(g)(2) (described below) such order would
participate in an Auction at its limit price. This proposed rule text
promotes clarity and transparency that a
[[Page 45742]]
Non-Routable Limit Order would be eligible to participate in an
Auction, but that it would be repriced to its limit price for
participation in such Auction, which is consistent with current RPNP
functionality, as described in the last sentence of Rule 900.3NY(p) and
providing that an RPNP would be processed as a Limit Order and would
not be repriced for purposes of participating in an opening or
reopening auction. This proposal is also consistent with Rule
925.1NY(a)(5), which provides that MMRPs received when a series is not
open for trading will be eligible to participate in the opening auction
and re-opening auction (as applicable) at the limit price of the MMRP.
---------------------------------------------------------------------------
\60\ See discussion, infra, regarding proposed Rule
952NYP(g)(1), which provides that ``all resting Market Maker
quotations''--including Non-Routable Limit Orders designated as
quotations--will be canceled in the event of a Trading Halt, which
functionality is consistent with current Rule 925.1NY(a)(5), which
likewise provides that ``[a]ll resting quotations will be cancelled
in the event of a trading halt'').
---------------------------------------------------------------------------
Intermarket Sweep Order (``ISO''). ISOs are currently defined in
Rule 900.3NY(u) as a Limit Order for an options series that instructs
the Exchange to execute the order up to the price of its limit,
regardless of the Away Market Protected Quotations.\61\ The Exchange
proposes to offer identical functionality on Pillar, including that an
ISO is a Limit Order that does not route and meets the requirements of
Rule 990NY(8), in proposed Rule 900.3NYP(e)(3), which is identical to
Arca Options Rule 6.62P-O(e)(3).\62\
---------------------------------------------------------------------------
\61\ The terms ``Protected Bid,'' ``Protected Offer,'' and
``Quotation'' are defined in Rules 990NY(15) and (16) and the term
``Away Market'' is defined in Rule 900.2NY. Accordingly, Away Market
Protected Quotations refer to Protected Bids and Protected Offers
that are disseminated pursuant to the OPRA Plan and are the Best Bid
and Best Offer displayed by an Eligible Exchange, as those terms are
defined in Rule 990NY.
\62\ The Exchange proposes to hold Rule 900.3NYP(e)(2) as
``Reserved'' to keep the numbering of this rule consistent with Arca
Options Rule 6.62P-O(e), to account for the fact that the Exchange
does not propose to offer ALO Orders, which are described in Arca
Options Rule 6.62P-O(e)(2). For avoidance of doubt (and if not
otherwise specifically noted herein), the Exchange believes that the
omission of reference to ALO Orders (or DAY ISO ALOs) in any
proposed rule that is said to be ``identical'' to the analogous Arca
Options rule (that does include such reference(s)), is an immaterial
difference as it relates to an order type/modifier not being offered
on the Exchange. As such, the omission(s) has no bearing on the
proposed Pillar functionality.
---------------------------------------------------------------------------
On Pillar, the Exchange proposes to add the ability for an ATP
Holder to designate an ISO either as IOC or with a Day time-in-force
designation. The Exchange proposes to describe the functionality for
each type of ISO separately, as follows:
IOC ISO. Proposed Rule 900.3NYP(e)(3)(A) is identical to
Arca Options Rule 6.62P-O(e)(3)(A) and would define an IOC ISO as an
ISO designated IOC to buy (sell) that would be immediately traded with
orders and quotes to sell (buy) in the Consolidated Book up to its full
size and limit price and may trade through Away Market Protected
Quotations and any untraded quantity of an IOC ISO would be immediately
and automatically cancelled. This proposed rule describes Pillar
functionality that would be no different from how ISOs currently
function on the Exchange.
Day ISO. Proposed Rule 900.3NYP(e)(3)(B) is identical to
Arca Options Rule 6.62P-O(e)(3)(B) and would define a Day ISO as an ISO
designated Day to buy (sell) that, if marketable on arrival, would be
immediately traded with orders and quotes to sell (buy) in the
Consolidated Book up to its full size and limit price and may trade
through Away Market Protected Quotations and that any untraded quantity
of a Day ISO would be displayed at its limit price and may lock or
cross Away Market Protected Quotations at the time the Day ISO is
received by the Exchange. As noted above, this proposed functionality
(allowing Day designation for ISOs) would be consistent with
functionality offered on Arca Options and would offer ATP Holders
additional control over their trading interest.\63\ In addition to the
proposed functionality being identical to Arca Options Rule 6.62P-
O(e)(3)(B), this functionality is also available on other options
exchanges.\64\ The proposed Day ISO is also consistent with current
Rule 992NY(b)(3), which describes an exception to the prohibition on
locking or crossing a Protected Quotation if the Member simultaneously
routed an ISO to execute against the full displayed size of any locked
or crossed Protected Bid or Protected Offer.\65\ Although the Exchange
has not previously availed itself of this exception, this exception to
locking and crossing Protected Bids and Protected Offers would only be
needed if an ISO is designated as Day and therefore would be displayed
at a price that would lock or cross a Protected Quotation; an IOC ISO
would never be displayed and therefore this existing exception would
not be applicable to such orders.
---------------------------------------------------------------------------
\63\ Unlike on Arca Options, the Exchange will not allow a DAY
ISO to be designated with an ALO Modifier (as is available per Arca
Options Rule 6.62P-O(e)(3)(C)) because, as noted above, the Exchange
does not propose to offer ALO Orders on Pillar. The Exchanges
believes that this textual difference is immaterial as it does not
impact the proposed Pillar functionality.
\64\ See Nasdaq Options 3, Section 7(a)(7) (``ISOs may have any
time-in-force designation . . . .'') and Cboe Rules 5.30(a)(2) and
(3). See also Cboe US Options Fix Specifications, dated March 29,
2023, Section 4.4.7, available here: https://cdn.cboe.com/resources/membership/US_Options_FIX_Specification.pdf, which references how a
Day ISO would be processed under specified circumstances.
\65\ The Commission has previously stated that the requirements
in the Options Linkage Plan relating to Locked and Crossed Markets
are ``virtually identical to those applicable to market centers for
NMS stock under Regulation NMS.'' See also Securities Exchange Act
Release No. 60405 (July 30, 2009), 74 FR 39362, 39368 (August 6,
2009) (Order approving Options Linkage Plan). Accordingly, guidance
relating to the ISO exception for locked and crossed markets for NMS
stocks that specifically contemplate use of Day ISOs is also
applicable to options trading. See Responses to Frequently Asked
Questions Concerning Rule 611 and Rule 610 of Regulation NMS, FAQ
5.02 (``The ISO exception to the SRO lock/cross rules, in contrast,
requires that ISOs be routed to execute against all protected
quotations with a price that is equal to the display price (i.e.,
those protected quotations that would be locked by the displayed
quotation), as well as all protected quotations with prices that are
better than the display price (i.e., those protected quotations that
would be crossed by the displayed quotation).'' Consistent with this
guidance, the Exchange implemented Rule 992NY(b)(3). See also Cboe
Rule 5.67(b)(3) and Nasdaq Options 5, Section 3(b)(3).
---------------------------------------------------------------------------
Complex Orders. Complex Orders are defined in Rule 900.3NY(e). The
Exchange proposes to define Complex Orders for Pillar in proposed Rule
900.3NYP(f), which is identical to Arca Options Rule 6.62P-O(f). The
proposed rule is based on current Rule 900.3NY(e)(1)-(2) without any
substantive differences. However, like Arca Options Rule 6.62P-O(f),
the proposed definition would add clarifying text that the different
options series in a Complex Order are also referred to as the ``legs''
or ``components'' of the Complex Order and would provide that a Complex
Order would be any order involving the simultaneous purchase and/or
sale of ``two or more options series in the same underlying security,''
without including the superfluous and redundant modifier ``different''
before the phrase ``more option series.'' In addition, proposed Rule
900.3NYP(f) (like Arca Options Rule 6.62P-O(f)) would not reference
mini-options contracts, which no longer trade on the Exchange.
Cross Orders. The Exchange proposes to describe the Cross Orders
available on the Exchange in proposed Rule 900.3NYP(g). Proposed Rule
900.3NYP(g)(1) would describe Qualified Contingent Cross Orders, which
are defined in Rule 900.3NY(y) and Commentary .01 to Rule 900.3NY. In
addition, current Rule 985NY (Qualified Contingent Cross Trade)
describes how Qualified Contingent Cross Orders are processed. As
proposed, QCC Orders on Pillar would function identically to how
Qualified Contingent Cross Orders function on the Exchange System, and
for purposes of the rules governing trading on Pillar, the Exchange
proposes to merge language from two rules relating to QCC Orders
[[Page 45743]]
into a single rule, proposed Rule 900.3NYP(g)(1). Proposed Rule
900.3NYP(g)(1) is identical to Arca Options Rule 6.62P-O(g)(1) and
would describe rules applicable to electronically-entered QCC Orders
and Complex QCC Orders. In addition, the Exchange proposes to adopt new
Rule 900.3NYP(g)(1)(D) to provide for the trading of Complex QCC Orders
(described below).\66\ In addition, the Exchange proposes to add, as a
placeholder, Rule 900.3NYP(g)(2) to describe the new Customer-to-
Customer Cross Order type that will be available on Pillar and
described in a separate rule filing. Further, for the sake of clarity,
the Exchange proposes to adopt Rule 900.3NYP(g)(3) to include orders
submitted to the Customer Best Execution (``CUBE'') Auction in the
proposed definition of ``Cross Orders'' as describe below.
---------------------------------------------------------------------------
\66\ See also Securities Exchange Act Release No. 97739 (June
15, 2023), 88 FR 40893 (June 22, 2023) (SR-NYSEAMER-2023-17) (order
approving new Rule 980NYP (Complex Order Trading)) (the ``Pillar
Complex Approval Order'').
---------------------------------------------------------------------------
Proposed Rule 900.3NYP(g)(1)(A) is identical to Arca Options Rule
6.62P-O(g)(1)(A) and would provide that a QCC Order must be comprised
of an originating order to buy or sell at least 1,000 contracts that is
identified as being part of a qualified contingent trade coupled with a
contra-side order or orders totaling an equal number of contracts. This
proposed rule text is based on Rule 900.3NY(y) with a non-substantive
difference that the Pillar rule (like Arca Options Rule 6.62P-
O(g)(1)(A)) would not reference mini-options contracts, which no longer
trade on the Exchange. Proposed Rule 900.3NYP(g)(1)(A) would also
specify that if a QCC has more than one option leg (a ``Complex QCC
Order''), each option leg must have at least 1,000 contracts, which is
consistent with existing functionality that is not described in the
current rule. Complex QCCs, which are described below, and function in
the same manner as on Arca Options, are not novel.\67\ The proposed
rule would further provide that a QCC Order that is not rejected per
proposed Rules 900.3NYP(g)(1)(C) or (D) would immediately trade in full
at its price, would not route, and may be entered with an MPV of $0.01
regardless of the MPV of the options series \68\ and that QCC Orders
may be entered by Floor Brokers from the Trading Floor or routed to the
Exchange from off-Floor. This proposed rule is consistent with current
Rule 985NY, which provides that QCC Orders are automatically executed
upon entry provided that they meet specified criteria. On Pillar, the
Exchange proposes to specify those criteria in proposed Rule
900.3NYP(g)(1)(C), described below. In addition, the proposed Rule
would provide that Rule 935NY (related to exposure of orders on the
Exchange) does not apply to Cross Orders, which text is substantively
identical to Commentary .03 to current Rule 935NY.\69\
---------------------------------------------------------------------------
\67\ In addition to trading on Arca Options, other options
exchanges also offer Complex QCCs. See, e.g., Cboe Rule 5.6(c)
(setting forth operation of Complex QCC Orders) and MIAX Rule
515(h)(4) (same).
\68\ Allowing QCC Orders to trade in pennies under Pillar is
consistent with current functionality. See Rule 985NY(2) (providing
that QCC Orders may only be entered in the regular trading
increments applicable to the options class under Rule 960NY(b)).
Rule 960NY(b) provides that minimum trading increment for option
contracts traded on the Exchange will be one cent ($0.01) for all
series.
\69\ Commentary .03 to Rule 985NY provides that ``Rule 935NY
does not apply to Qualified Contingent Cross Orders.''
---------------------------------------------------------------------------
Proposed Rule 900.3NYP(g)(1)(B) and subparagraphs (i)-(vi) is
identical to Arca Options Rule 6.62P-O(g)(1)(B)(i)-(vi) and would
define a ``qualified contingent trade'' as a transaction consisting of
two or more component orders, executed as agent or principal, where
specified requirements are also met and uses the same text as currently
set forth in Commentary .01 and its sub-paragraphs (a)-(f) to Rule
900.3NY without any differences.
Proposed Rule 900.3NYP(g)(1)(C) is identical to Arca Options Rule
6.62P-O(g)(1)(C) would describe general rules relating to execution of
QCC Orders and would provide that a QCC Order with one option leg would
be rejected if received when the NBBO is crossed or if it would be
traded at a price that (i) is at the same price as a displayed Customer
order on the Consolidated Book and (ii) is not at or between the NBBO
and would provide that the QCC Order would never trade at a price worse
than the Exchange BBO. This proposed rule is based on Rule 985NY
without any substantive differences but adds detail about pricing of a
QCC Order vis a vis the Exchange BBO. The Exchange believes that
specifying that a QCC Order would be rejected when the NBBO is crossed,
which is new text, provides greater granularity than current 985NY(1),
which provides that ``Qualified Contingent Cross Orders will be
automatically cancelled if they cannot be executed.'' The other two
proposed conditions are identical to the current functionality, as
specified in Rule 985NY: that Qualified Contingent Cross Orders are
automatically executed ``provided that the execution (i) is not at the
same price as a Customer Order in the Consolidated Book and (ii) is at
or between the NBBO.''
Proposed Rule 900.3NYP(g)(1)(D) is identical to Arca Options Rule
6.62P-O(g)(1)(D) would describe how Complex QCC Orders would be
executed on the Exchange. As proposed, as is the case per Arca Options
Rules 6.62P-O(g)(1)(D)(i)-(iv) (and described below), a Complex QCC
Order must include a limit price, no option leg would trade at a price
worse than the Exchange BBO, and would be rejected if:
any option leg cannot execute in compliance with proposed
paragraph (g)(1)(C) of this Rule as described above (proposed Rule
900.3NYP(g)(1)(D)(i)), which mirrors Complex QCC handling on Arca
Options and is consistent with other options exchanges; \70\
---------------------------------------------------------------------------
\70\ See, e.g., MIAX Rule 515(h)(4) (which provides that each
Complex QCC or ``cQCC'' is ``automatically executed upon entry
provided that, with respect to each option leg of the cQCC Order,
the execution (i) is not at the same price as a Priority Customer
Order on the Exchange's Book; and (ii) is at or between the NBBO'').
---------------------------------------------------------------------------
the best-priced Complex Order(s) on the Exchange
contain(s) displayed Customer interest and the Complex QCC Order price
does not improve such displayed Customer interest by $0.01 (proposed
Rule 900.3NYP(g)(1)(D)(ii)), which mirrors Complex QCC handling on Arca
Options and is consistent with other options exchanges; \71\
---------------------------------------------------------------------------
\71\ See, e.g., Cboe Rule 5.6(c) (Order Instructions, QCC Orders
(requiring for the ``Execution of QCC Orders'' that the ``execution
price is better than the price of any complex order resting in the
[Cboe Complex Order Book], unless the Complex QCC Order is a
Priority Customer Order and the resting complex order is a non-
Priority Customer Order, in which case the execution price may be
the same as or better than the price of the resting complex
order'').
---------------------------------------------------------------------------
the price of the QCC Order is worse than the best-priced
Complex Orders in the Consolidated Book or the prices of the best-
priced Complex Orders in the Consolidated Book are crossed (proposed
Rule 900.3NYP(g)(1)(D)(iii)), which mirrors Complex QCC handling on
Arca Options, provides additional protections against potentially
erroneous executions, and adds transparency and granularity to the
proposed rule; or
there is no NBO for a given leg (proposed Rule
900.3NYP(g)(1)(D)(iv)), which mirrors Complex QCC handling on Arca
Options, provides additional protections against potentially erroneous
executions, and adds transparency and granularity to the proposed rule.
As noted above, this proposed rule text is identical to Arca
Options Rules 6.62P-O(g)(1)(D)(i)-(iv) and is designed to promote
clarity and transparency in Exchange rules regarding the price
[[Page 45744]]
requirements for a Complex QCC Order, which requirements to protect
priority of resting interest are consistent with the rules of other
options exchanges, as described above, and to provide additional
safeguards against potentially erroneous executions of Complex QCCs.
Proposed Rule 900.3NYP(g)(1)(E) is identical to Arca Options Rule
6.62P-O(g)(1)(E) and would specify rules governing QCC Orders entered
from the Trading Floor, which can be entered only by Floor Brokers,\72\
and is based on Commentary .01 to Rule 985NY without any substantive
differences.\73\ The Exchange proposes textual changes as compared to
the current Rule that are not designed to change the substance of the
Rule, but to instead promote clarity and transparency. The proposed
rule would provide that while on the Trading Floor, only Floor Brokers
can enter QCC Orders, and that Floor Brokers may not enter QCC Orders
for their own account, the account of an associated person, or an
account with respect to which it or an associated person thereof
exercises investment discretion (each a ``prohibited account''). As
further proposed, when executing such orders, Floor Brokers would not
be subject to Rules 934NY, 934.1NY, 934.2NY, and 934.3NY regarding
``Crossing'' orders. Floor Brokers must maintain books and records
demonstrating that each QCC Order entered from the Floor was not
entered for a prohibited account. Any QCC Order entered from the Floor
that does not have a corresponding record required by this paragraph
would be deemed to have been entered for a prohibited account in
violation of this Rule.
---------------------------------------------------------------------------
\72\ An options Floor Broker is ``a sole proprietor ATP Holder
or a representative of an ATP Holder who is registered with the
Exchange for the purpose, while on the Exchange Floor, of accepting
and executing option orders.'' See Rule 930NY(a).
\73\ Commentary .01 to Rule 985NY provides: ``Qualified
Contingent Cross Orders can be entered into the System from on the
Floor of the Exchange only by Floor Brokers. Floor Brokers shall not
enter such orders for their own account, the account of an
associated person, or an account with respect to which it or an
associated person thereof exercises investment discretion (each a
`prohibited account'). When executing such orders, Floor Brokers
shall not be subject to Rules 934NY, 934.1NY, 934.2NY, and 934.3NY.
Floor Brokers must maintain books and records demonstrating that
each Qualified Contingent Cross Order entered from the Floor was not
entered for a prohibited account. Any Qualified Contingent Cross
Order entered from the Floor that does not have a corresponding
record required by this Commentary .01 shall be deemed to have been
entered for a prohibited account in violation of this Rule.''
---------------------------------------------------------------------------
Proposed Rule 900.3NYP(g)(1)(F) is identical to Arca Options Rule
6.62P-O(g)(1)(F) and would specify rules governing QCC Orders entered
off-Floor and that ATP Holders must maintain books and records
demonstrating that each such order was so routed. This proposed rule is
based on Commentary .02 to Rule 985NY without any substantive
differences.\74\ The Exchange proposes textual differences as compared
to the current Rule that are not designed to change the substance of
the Rule, but instead promote clarity and transparency.
---------------------------------------------------------------------------
\74\ Commentary .02 to Rule 985NY provides: ``With respect to a
Qualified Contingent Cross Order that was routed to the System from
off of the Floor, ATP Holders must maintain books and records
demonstrating that each such order was routed to the system from off
of the Floor. This provision would not apply to a Qualified
Contingent Cross Order covered by Commentary .01 to this Rule 985NY
(i.e., a Qualified Contingent Cross Order routed to a Floor Broker
for entry into the System).'' The Exchange does not propose to
include the last sentence of this Commentary in the proposed Pillar
rule because the Exchange does not believe it is necessary to
specify that Floor Brokers that enter orders electronically are
subject to rules relating to electronic order entry as opposed to
rules governing open outcry.
---------------------------------------------------------------------------
In connection with adding QCC to proposed Rule 900.3NYP, the
Exchange proposes to add the following preamble to Rule 985NY: ``This
Rule is not applicable to trading on Pillar.'' This proposed preamble
is designed to promote clarity and transparency in Exchange rules that
Rule 985NY would not be applicable to trading on Pillar.
The Exchange plans to file a separate rule filing to adopt
``Customer-to-Customer Cross Orders.'' Because this would be a new
cross order that does not exist on Arca Options, the Exchange proposes
to simply adopt the name of this order type as proposed Rule
900.3NYP(g)(2) and to hold the description of how such order would
trade as ``Reserved.''
The Exchange proposes to include CUBE Orders in the list of Cross
Orders. Proposed Rule 900.3NYP(g)(3) would add clarity to Exchange
rules that CUBE Orders are Cross Orders governed by separate Exchange
rules.\75\ Specifically, proposed Rule 900.3NYP(g)(3) would provide
that Single-Leg CUBE Orders submitted pursuant to proposed Rule
971.1NYP and Complex CUBE Orders submitted pursuant proposed Rule
971.2NYP would be considered Cross Orders.\76\
---------------------------------------------------------------------------
\75\ See, e.g., Rules 971.1NY and 971.2NY describing Single-Leg
and Complex CUBE Auctions, respectively.
\76\ The Exchange plans to submit separate rule filings to adopt
CUBE Auction functionality on Pillar, which will be set forth in
proposed Rules 971.1NYP (for the single-leg CUBE Auction) and
971.2NYP (for the Complex CUBE Auction), respectively. See, e.g.,
NYSEAMER-2023-21P (prefiling to adopt Rule 971.1NYP for single-leg
CUBE Auctions on Pillar).
---------------------------------------------------------------------------
Orders Available Only in Open Outcry. The Exchange proposes Rule
900.3NYP(h) to describe orders that are available only in open outcry,
most of which are currently defined in Rule 900.3NY.
First, proposed Rule 900.3NYP(h)(1) would codify an existing order
type, the Clear-the-Book (``CTB'') Order, which is currently described
only in a Regulatory Bulletin.\77\ This proposed rule is substantially
the same as Arca Options Rule 6.62P-O(h)(1), except that paragraph
(h)(1)(B) of the proposed rule accounts for the Exchange's Customer-
centric trading model as described below. Proposed Rule 900.3NYP(h)(1)
would describe the CTB Order in the same manner as it is described in
Arca Options Rule 6.62P-O(h)(1), which would be an order type available
in open outcry that would interface with the Consolidated Book, and
therefore with Pillar. As proposed, a CTB Order would be a Limit IOC
Order that may be entered only by a Floor Broker, contemporaneous with
executing an order in open outcry, that is approved by a Trading
Official (the ``TO Approval''). The CTB Order would be eligible to
trade only with contra-side orders and quotes that were resting in the
Consolidated Book prior to the TO Approval. In addition, proposed Rules
900.3NYP(h)(1)(A)-(C) would provide that:
---------------------------------------------------------------------------
\77\ See NYSE Amex Options RB-16-02, dated February 19, 2016
(Rules of Priority and Order Protection in Open Outcry), available
here: https://www.nyse.com/publicdocs/nyse/markets/american-options/rule-interpretations/2016/NYSE%20Amex%20Options%2016-02.pdf.
---------------------------------------------------------------------------
A CTB Order to buy (sell) would trade with contra-side
orders and quotes with a display price below (above) the limit price of
the CTB Order (proposed Rule 900.3NYP(h)(1)(A), which is identical to
Arca Options Rule 6.62P-O(h)(1)(A));
A CTB Order to buy (sell) would trade with contra-side
orders and quotes that have a display price and working price equal to
the limit price of the CTB Order only if there is displayed Customer
sell (buy) interest at that price, in which case, the CTB Order to buy
(sell) would trade with the displayed Customer interest to sell (buy)
(proposed Rule 900.3NYP(h)(1)(B)); \78\ and
---------------------------------------------------------------------------
\78\ This proposed rule differs from Arca Options Rule 6.62P-
O(h)(1)(B) because it does not provide for the CTB Order to trade
with ``any non-Customer interest to sell (buy) with a working time
earlier than the latest-arriving displayed Customer interest to sell
(buy),'' because Customer interest has priority of same-priced non-
Customer interest on the Exchange.
---------------------------------------------------------------------------
Any unexecuted portion of the CTB Order would cancel after
trading with all better-priced interest and eligible same-priced
interest on the
[[Page 45745]]
Consolidated Book (proposed Rule 900.3NYP(h)(1)(C), which is identical
to Arca Options Rule 6.62P-O(h)(1)(C)).
Currently, CTB Orders only trade with displayed Customer interest,
but do not trade with better-priced displayed non-Customer interest. In
Pillar, as described above, CTB Orders would trade with displayed
Customer interest at a price and would also trade with displayed non-
Customer interest priced better than displayed Customer interest (i.e.,
a CTB order buying with a $1.00 limit would now trade with displayed
interest offered at $0.99, whether on behalf of a Customer or a non-
Customer). In addition to being similar to Arca Options Rule 6.62P-
O(h)(1), the Exchange believes that codifying CTB Order functionality,
and thus automating priority would make it easier for Floor Brokers to
comply with their obligation to satisfy better-priced interest on the
Consolidated Book. In addition, the Exchange believes that this
proposed change would increase execution opportunities and achieve the
goal of a CTB Order, which is to clear priority on the Consolidated
Book at the time of the TO Approval.
In addition, proposed Rule 900.3NYP(h)(1)(D) is identical to Arca
Options Rule 6.62P-O(h)(1)(D) and would codify existing regulatory
responsibilities of Floor Brokers utilizing CTB Orders to submit such
orders in a timely manner after receiving TO Approval and would also
provide that because CTB Orders are non-routable (and thus ineligible
to clear Protected Quotations), Floor Brokers would still be obligated
to route any other eligible orders (i.e., not the CTB Order) to better-
priced interest on Away Markets per Rule 992NY.\79\
---------------------------------------------------------------------------
\79\ See id. at pp. 2-3 (describing regulatory responsibilities
related to CTB Orders, including that it is the Floor Broker's
responsibility to comply with the terms of the Options Order
Protection and Locked/Crossed Market Plan, including by sending ISOs
to trade with Protected Quotes).
---------------------------------------------------------------------------
The Exchange also proposes to include in Rule 900.3NYP additional
open outcry order types that are currently defined in Rule 900.3NY:
Proposed Rule 900.3NYP(h)(2) would define ``Facilitation
Order'' to be identical to the definition of Facilitation Order set
forth in Rule 900.3NY(j). The proposed definition is also identical to
Arca Options Rule 6.62P-O(h)(2).
Proposed Rule 900.3NYP(h)(3) would be designated as
Reserved.\80\
---------------------------------------------------------------------------
\80\ The Exchange proposes to hold Rule 900.3NYP(h)(3) as
``Reserved'' to keep the numbering of this rule consistent with Arca
Options Rule 6.62P-O(h), to account for the fact that the Exchange
does not propose to offer (nor does the Exchange currently offer)
Mid-Point Crossing Orders, which are described in Arca Options Rule
6.62P-O(h)(3).
---------------------------------------------------------------------------
Proposed Rule 900.3NYP(h)(4) would define ``Not Held
Order'' to be identical to the definition of Not Held Order set forth
in Rule 900.3NY(f). The proposed definition is also identical to Arca
Options Rule 6.62P-O(h)(4).
Proposed Rule 900.3NYP(h)(5) would define ``Single Stock
Future (``SSF'')/Option Order'' to be identical to the definition of
Single Stock Future (``SSF'')/Option Order set forth in Rule
900.3NY(i). The proposed definition is also identical to Arca Options
Rule 6.62P-O(h)(5).
Proposed Rule 900.3NYP(h)(6)(A) would define a ``Stock/
Option Order'' to be identical to the definition of Stock/Option Order
set forth in Rule 900.3NY(h)(1). The proposed definition is also
identical to Arca Options Rule 6.62P-O(h)(6)(A).
Proposed Rules 900.3NYP(h)(6)(B)(i)-(ii) would define a
``Stock/Complex Order'' to be identical to the definition of Stock/
Complex Order set forth in Rule 900.3NY(h)(2)(A)-(B). The proposed
definition is also identical to Arca Options Rule 6.62P-O(h)(6)(B)(i)-
(ii).
The Exchange proposes that after the transition to Pillar, the One-
cancels-the-other (OCO) Order, which is currently described in Rule
900.3NY(g) but is not used by Floor Brokers, would not be added to
proposed Rule 900.3NYP governing orders and modifiers.
Additional Order Instructions and Modifiers. The Exchange proposes
to specify the additional order instructions and modifiers that would
be available in Pillar in proposed Rule 900.3NYP(i), which are
identical to the order instructions and modifiers set forth in Arca
Options Rule 6.62P-O(i).
Proactive if Locked/Crossed Modifier. Proposed Rule 900.3NYP(i)(1)
is identical to Arca Options Rule 6.62P-O(i)(1) and would provide that
a Limit Order that is displayed and eligible to route and designated
with a Proactive if Locked/Crossed Modifier would route to an Away
Market if the Away Market locks or crosses the display price of the
order and that if any quantity of the routed order is returned
unexecuted, the order would be displayed in the Consolidated Book. The
Exchange believes that offering this as an optional modifier for Limit
Orders would provide ATP Holders with additional flexibility to
designate a resting displayed order to route if it becomes locked or
crossed by an Away Market.
Self-Trade Prevention (``STP'') Modifier. Self-Trade Prevention
(``STP'') Modifiers are currently defined in Commentary .02 to Rule
964NY and are available only for Market Maker orders and quotes. On
Pillar, and identical to STP functionality on Arca Options Rule 6.62P-
O(i)(2), the Exchange proposes to expand the availability of STP to all
orders and quotes to offer this protection to trading interest of all
ATP Holders, not just Market Makers. The Exchange believes this
expansion is appropriate because it would facilitate market
participants' compliance and risk management by assisting them in
avoiding unintentional wash-sale trading. Because STP Modifiers are an
instruction that can be added to an order or quote, the Exchange
proposes that for Pillar, STP Modifiers would be described in proposed
Rule 900.3NYP(i)(2) and would be available to all market participants.
Proposed Rule 900.3NYP(i)(2) is identical to Arca Options Rule
6.62P-O(i)(2) and would provide that an Aggressing Order or Aggressing
Quote to buy (sell) designated with one of the STP modifiers in
proposed Rule 900.3NYP(i)(2) would be prevented from trading with a
resting order or quote to sell (buy) also designated with an STP
modifier and from the same Client ID; the same MPID, and, if specified,
any sub-identifier of that MPID; or an Affiliate (as defined in Rule
900.2NY) identifier, with any such identifier referred to as a ``Unique
Identifier.'' Proposed Rule 900.3NYP(i)(2) would also provide that the
STP modifier on the Aggressing Order or Aggressing Quote would control
the interaction between two orders and/or quotes marked with STP
modifiers. In addition, STP would not be applicable during an Auction
or to Cross Orders or when a Complex Order legs out. This proposed rule
text is based on Commentary .02 to Rule 964NY with non-substantive
differences to use Pillar terminology.
Proposed Rule 900.3NYP(i)(2) would further provide that if the
condition for a Limit Order designated FOK, an AON Order, or an
arriving order with an MTS modifier designated under proposed Rule
900.3NYP(i)(3)(B)(i) (described below) cannot be met because of STP
modifiers, such order would either be cancelled or placed on the
Consolidated Book, as applicable. This functionality would be the same
as on Arca Options Pillar and reflects that for order types that must
trade a specified quantity (either in full or a specified minimum
quantity) and could trade with multiple contra-side orders to meet that
size requirement, such order types would not be compatible with
applying STP, which examines a one-on-one relationship between two
interacting orders. This proposed rule text provides clarity that if a
condition of an order cannot be met because of STP modifiers,
[[Page 45746]]
the order would either cancel (i.e., a Limit Order designated FOK or an
order with an MTS modifier), or be added to the Consolidated Book
(i.e., an AON Order), and then such resting orders would function as
described in Rule 900.3NYP.
The proposed rule would further provide that Aggressing Orders or
Aggressing Quotes would be processed as follows:
Proposed Rule 900.3NYP(i)(2)(A) is identical to Arca
Options Rule 6.62P-O(i)(2)(A) and would describe STP Cancel Newest
(``STPN'') and provide that an Aggressing Order or Aggressing Quote to
buy (sell) marked with the STPN modifier would not trade with resting
interest to sell (buy) marked with any STP modifier from the same
Unique Identifier; that the Aggressing Order or Aggressing Quote marked
with the STPN modifier would be cancelled; and that the resting order
or quote marked with one of the STP modifiers would remain on the
Consolidated Book. This proposed rule is based on Commentary .02(a) to
Rule 964NY with differences to use Pillar terminology and to extend STP
functionality to orders with the same Unique Identifiers.
Proposed Rule 900.3NYP(i)(2)(B) is identical to Arca
Options Rule 6.62P-O(i)(2)(B) and would describe STP Cancel Oldest
(``STPO'') and provide that an Aggressing Order or Aggressing Quote to
buy (sell) marked with the STPO modifier would not trade with resting
interest to sell (buy) marked with any STP modifier from the same
Unique Identifier; that the resting order or quote marked with the STP
modifier would be cancelled; and that the Aggressing Order or
Aggressing Quote marked with the STPO modifier would be placed on the
Consolidated Book. This proposed rule is based on Commentary .02(b) to
Rule 964NY with differences to use Pillar terminology and to extend STP
functionality to orders with the same Unique Identifiers.
Proposed Rule 900.3NYP(i)(2)(C) is identical to Arca
Options Rule 6.62P-O(i)(2)(C) and would describe STP Cancel Both
(``STPC'') and provide that an Aggressing Order or Aggressing Quote to
buy (sell) marked with the STPC modifier would not trade with resting
interest to sell (buy) marked with any STP modifier from the same
Unique Identifier and that the entire size of both orders and/or quotes
would be cancelled. This proposed rule is based on Commentary .02(c) to
Rule 964NY with differences to use Pillar terminology and to extend STP
functionality to orders with the same Unique Identifiers.
Minimum Trade Size Modifier. The Exchange proposes to add the
Minimum Trade Size (``MTS'') Modifier, which is based on the same
functionality described in Arca Options Rule 6.62P-O(i)(3), except that
the MTS Modifier would only be available for Limit IOC Orders and, as
such, the Exchange would not include rule text describing how the MTS
Modifier would apply to resting orders.\81\ The Exchange proposes to
provide this modifier for options trading to provide ATP Holders with
more features with respect to order handling. The proposed MTS Modifier
is similar in concept to both FOK and AON, which are currently
available for options trading. With the MTS Modifier, an ATP Holder
would have greater flexibility to designate a size smaller than the
entire quantity (which is current FOK and AON functionality) as a
condition for execution. In addition to Arca Options, other options
exchanges also offer the use of an MTS Modifier.\82\
---------------------------------------------------------------------------
\81\ On Arca Options, in addition to Limit IOC Orders, the MTS
Modifier can apply to Non-Displayed Limit Orders. See Arca Options
Rule 6.62P-O(i)(3). However, as discussed infra, the Exchange is not
adopting Non-Displayed Limit Orders and therefore has no reason to
discuss the application of MTS functionality to such order types.
Similarly, because the MTS Modifier may only be applied to IOC
Orders, the Exchange is not adopting rule text regarding how MTS
functionality is applied to orders not executed immediately as such
text would be inapplicable. See e.g., Arca Options Rules 6.62P-
O(i)(3)(C), (E) and (F). The Exchange believes this distinction is
immaterial because the MTS Modifier operates in the same manner on
both exchanges when applied to Limit IOC Orders.
\82\ See, e.g., Nasdaq Options 3, Section 7(a)(3)(B) (describing
``Minimum Quantity Order'' as ``an order that requires that a
specified minimum quantity of contracts be obtained, or the order is
cancelled'').
---------------------------------------------------------------------------
Proposed Rule 900.3NYP(i)(3)(A) is identical to Arca Options Rule
6.62P-O(3)(A) and would provide that the quantity of the MTS Modifier
may be less than the order quantity; however, an order would be
rejected if it has an MTS Modifier quantity that is larger than the
size of the order.
Proposed Rule 900.3NYP(i)(3)(B) is identical to Arca Options Rule
6.62P-O(3)(B) and would provide that one of the following instructions
must be specified with respect to whether an order to buy (sell) with
an MTS Modifier would trade on arrival with: (i) orders or quotes to
sell (buy) in the Consolidated Book that in the aggregate meet such
order's MTS; or (ii) only individual order(s) or quote(s) to sell (buy)
in the Consolidated Book that each meets such order's MTS. As noted
above, this proposed rule is identical to Arca Options Rule 6.62P-
O(i)(3)(B) and sub-paragraphs (i) and (ii).
Proposed Rule 900.3NYP(i)(3)(C) would provide that an order with an
MTS Modifier cannot be immediately executed would be cancelled. This
proposed rule is based on Arca Options Rule 6.62P-O(i)(3)(D).
Finally, proposed Rule 900.3NYP(i)(4) would define a ``Directed
Orders'' to be the same as the Rule 900.3NY(s) definition of Directed
Order, except that the wording of the proposed definition is more
streamlined with regard to the requirement that a Directed Order be
submitted electronically.
In connection with proposed Rule 900.3NYP, the Exchange proposes to
add the following preamble to Rule 900.3NY: ``This Rule is not
applicable to trading on Pillar.'' This proposed preamble is designed
to promote clarity and transparency in Exchange rules that Rule 900.3NY
would not be applicable to trading on Pillar.
Proposed Rule 925.1NYP: Market Maker Quotations
Current Rule 925.1NY describes Market Maker quoting obligations,
including defining ``quotations,'' describing the treatment of such
quotations, and specifying Market Maker and Specialist quoting
obligations. Proposed Rule 925.1NYP is identical to Arca Options Rule
6.37AP-O and would set forth Market Maker quoting obligations under
Pillar.
Current Rule 925.1NY(a)(1) provides that ``[t]he term `quote' or
`quotation' means a bid or offer entered by a Market Maker that updates
the Market Maker's previous bid or offer, if any.'' Pursuant to this
Rule, a Market Maker's same-side quote would be updated when a Market
Maker uses the same ATP for quote entry.\83\ Although not specified in
the current rule, the Exchange System utilizes a unique identifier for
each Specialist to send quotes, and, as a result, a Specialist cannot
have more than one same-side quote in an assigned series.\84\
Therefore, Specialist quotes are subject to the current Rule
925.1NY(a)(1) requirement that a new same-side quote sent by that
Specialist updates the previous bid or offer, if any.
---------------------------------------------------------------------------
\83\ See NYSE American Options Fee Schedule, Section V.A. Port
Fees (setting forth fees for order/quote entry ports, which fees are
currently $450 per port per month for the first forty such ports and
$150 per port per month for each port in excess of forty (i.e., 41
and greater), available here: https://www.nyse.com/publicdocs/nyse/markets/american-options/NYSE_American_Options_Fee_Schedule.pdf.
\84\ On the Exchange System, Market Makers not acting as
Specialists may opt to utilize multiple ATPs to send more than one
same-side quote in the same assigned series.
---------------------------------------------------------------------------
On Pillar, Specialists (like Market Markets not acting as
Specialists) would
[[Page 45747]]
be able to send multiple same-side quotes associated with its ATP by
utilizing different order/quote entry ports (i.e., in Pillar,
Specialist 1 can send a bid for 1.00 in XYZ over order/quote entry port
1 and another bid for 1.00 in XYZ over order/quote entry port 2 and the
bid sent via order/quote entry port 2 would not replace the quote sent
over order/quote entry port 1).\85\
---------------------------------------------------------------------------
\85\ See, e.g., Rules 964NYP(h)(1)(A)(ii) and (h)(2)(B)
(providing for the handling of multiple same-side quotes in an
assigned series submitted by a Directed Order Market Makers or
Specialist, respectively). See also Arca Options Rule 6.37AP-
O(a)(1)(A) (providing for the handling of multiple same-side
quotations submitted via the same quote entry port).
---------------------------------------------------------------------------
Consistent with current functionality, on Pillar, the Exchange
would provide Market Makers with the ability to designate bids and
offers as quotations. Currently, the Exchange offers designated
``quotation'' types to Market Makers, which are described in Rule
925.1NY(a)(3).\86\ On Pillar, as described above in connection with
proposed Rule 900.3NYP(e)(1), the Exchange is proposing to offer
quotation functionality for Market Makers that would be displayed,
traded, repriced, or cancelled in the same manner as Non-Routable Limit
Orders. As such, Market Makers may designate this ``order'' type as a
quotation and, if designated as a quotation, such bids and offers would
be displayed, traded, repriced, or cancelled as described in proposed
Rule 900.3NYP(e)(1), as discussed in detail above. In addition, such
quotations would be ranked and executed as described in Rule
964NYP.\87\ Moreover, if designated as a quotation, such bids or offers
would be identifiable to the Exchange as ``quotations,'' subject to the
Market Maker and Specialist requirements relating to quotations and the
Exchange would be able to monitor a Market Maker's compliance with
quoting obligations because its bids or offers would be designated as
quotations. If a Market Maker does not choose to designate a bid or
offer as a quotation, such bid or offer would be processed as an
``order'' and would not count towards a Market Maker's quoting
obligations.\88\
---------------------------------------------------------------------------
\86\ As described in Rule 925.1NY(a)(3)(A) and (B),
respectively, a Market Maker may designate a quote as Market Maker-
Light Only Quotation (``MMLO'') or Market Maker--Repricing Quotation
(``MMRP'').
\87\ See Rule 964NYP.
\88\ For example, a Market Maker could choose to designate a
Non-Routable Limit Order as either a quote or as an order, which is
consistent with current Rule 925.2NY, which provides that a Market
Maker may enter all order types permitted to be entered by Users
under the Rules to buy or sell options in all classes of options
listed on the Exchange. Accordingly, the functionality set forth in
proposed Rule 925.1NYP(a)(2) herein is not materially different for
Market Makers because, under current functionality, they can choose
to send as Market Maker orders any order type described in current
Rule 900.3NY, including, for example, RPNP and PNP-Blind Order.
---------------------------------------------------------------------------
Rule 925.1NYP(a) is identical to Arca Options Rule 6.37AP-
O(a) and would provide that a Market Maker may send quotations only in
the issues included in its appointment. This functionality is based on
current Rule 925.1NY(a) but differs in that the proposed rule would use
the term ``send'' rather than ``enter,'' which is a stylistic
preference that does not alter the functionality.
Proposed Rule 925.1NYP(a)(1) is identical to Arca Options
Rule 6.37AP-O(a)(1) and would provide that the term ``quote'' or
``quotation'' means ``a bid or offer sent by a Market Maker that is not
sent as an order,'' and that ``[a] quotation sent by a Market Maker
will replace a previously displayed same-side quotation that was sent
from the same order/quote entry port of that Market Maker'' and ``[i]f
multiple same-side quotations are submitted via the same quote entry
port, the Exchange will display the Market Maker's most recent same-
side quotation.'' The proposed Rule reflects that, on Pillar and as
described above, Specialists would be able to send multiple same-side
quotes associated with its ATP by utilizing different order/quote entry
ports.\89\ Because Specialists would be Market Makers on Pillar, this
functionality would also be available to Specialists.\90\
---------------------------------------------------------------------------
\89\ See supra note 85 (regarding Rules 964NYP(h)(1)(A)(ii) and
(h)(2)(B)).
\90\ See Rule 920NY (Market Makers) (providing that for purposes
of Exchange rules, the term Market Maker includes Specialists,
unless the context otherwise indicates).
---------------------------------------------------------------------------
The NYSE American Options Fee Schedule makes clear that Market
Makers can obtain upwards of forty ports for quote entry. Thus, the
Exchange believes that establishing when a Market Maker's previously
displayed same-side quotation would be replaced (i.e., when sent via
the same order/quote entry port) would add clarity and transparency to
Exchange rules. This proposed rule text is also designed to clarify the
Exchange's handling of successive Market Maker quotations (from the
same quote entry port in the same side and series) should a Market
Maker's quotations queue during a period of excessive message traffic.
No system, including Pillar, has unlimited capacity. Accordingly,
should the Exchange be in receipt of multiple same-side quotations in
the same series from the same Market Maker, the Exchange proposed that
it would display only the most recent quotation to ensure accurate
representation of that Market Maker's quoting interest. In addition,
because the Exchange proposes that a Market Maker may designate Non-
Routable Limit Orders as quotes, the Exchange proposes a difference
from the current Rule to provide that a quote is a bid or offer not
designated as an order.
Proposed Rule 925.1NYP(a)(2) would provide that a Market
Maker may designate a Non-Routable Limit Order as a quote and such
quotes would be processed as described in proposed Rule
900.3NYP(e)(1).\91\ Proposed Rule 925.1NYP(a)(2) is the same as Arca
Options Rule 6.37AP-O(a)(2), except that the proposed rule does not
reference ALO Orders, which order type is not offered by the Exchange
today nor will the order type be offered on Pillar. The similarities
and differences between the proposed Non-Routable Limit Orders on
Pillar compared to the existing quote types (e.g., MMRP) are described
in more detail above.\92\ Because proposed Rule 900.3NYP(e)(1)),
described above, would set forth the treatment of a Non-Routable Limit
Order designated as a quote, the Exchange is not proposing to include a
(duplicative) section in proposed Rule 925.1NYP regarding the treatment
of such quotes.
---------------------------------------------------------------------------
\91\ See discussion supra regarding proposed Rule
900.3NYP(e)(1), Non-Routable Limit Orders, being available as quote
types and how such orders compare to the existing MMRP quotation
functionality.
\92\ The Exchange notes that it is not proposing the
functionality set forth in current Rule 925.1NY(a)(4)(D) that
provides for the cancellation of a Market Maker's quote on the
opposite side of the market whenever that Market Maker's same-side
quotation is cancelled because such quotation would lock or cross
another options exchange is not designated to reprice (e.g., as an
MMRP). This current functionality is based on a system limitation
that would not exist under Pillar.
---------------------------------------------------------------------------
Proposed Rules 925.1NYP(b)-(e) would be substantively
identical to current Rules 925.1NY(b)-(e), with non-substantive
differences to change the term ``shall'' to ``will,'' which is a
stylistic preference that would add consistency to Exchange rules.
These proposed rules would also be the same as Arca Options Rules
6.37AP-O(b)-(e), except that Arca Options Rule 6.37AP-O(b) describes
quoting obligations for Lead Market Makers or LMMs, whereas proposed
Rule 925.1NYP(b) would describe quoting obligations for Specialists.
Proposed Commentary .01 to Rule 925.1NYP is identical to Commentary
.01 to Arca Options Rule 6.37AP-O and would also be substantively
identical to Commentary .01 to Rule 925.1NY, with non-substantive
differences to streamline the rule text.
[[Page 45748]]
The Exchange also proposes a non-substantive change to paragraph
(b) of Rule 953.1NY (Limit-Up and Limit-Down During Extraordinary
Market Volatility) to update the cross reference to Market Maker
quoting obligations as set forth in Rules 925.1NYP(b) and (c).
In connection with proposed Rule 925.1NYP, the Exchange proposes to
add the following preamble to Rule 925.1NY: ``This Rule is not
applicable to trading on Pillar.'' This proposed preamble is designed
to promote clarity and transparency in Exchange rules that Rule 925.1NY
would not be applicable to trading on Pillar.
Proposed Rule 928NY: Pre-Trade and Activity-Based Risk Controls
Current Rule 928NY sets forth the activity-based Risk Limitation
Mechanisms for orders and quotes, which are designed to help ATP
Holders effectively manage risk during periods of increased and
significant trading activity. With the transition to Pillar, the
Exchange proposes to incorporate new risk control functionality that is
based on the Exchange's existing activity-based risk controls and on
pre-trade risk controls that are available on Arca Options.
Specifically, proposed Rule 928NYP is identical to Arca Options Rule
6.40P-O and would describe the activity-based controls with updated
functionality under Pillar and would also describe new optional pre-
trade risk controls. The Exchange believes that adding pre-trade risk
controls (together with the enhanced activity-based controls), as
described below, would provide greater flexibility to ATP Holders in
establishing risk controls to align with their risk tolerance for both
orders and quotes.
Proposed Rule 928NYP(a) is identical to Arca Options Rule 6.40P-
O(a) and would set forth the following definitions that would be used
for purposes of the Rule:
The term ``Entering Firm'' would mean an ATP Holder
(including those acting as Market Makers) (proposed Rule 928NYP(a)(1),
which is identical to Arca Options Rule 6.40P-O(a)(1)). The Exchange
believes that the addition of this term would add clarity to the
proposed rule by using a single, defined term to describe which
entities, including Market Makers, could avail themselves of the
proposed pre-trade risk controls.
The term ``Pre-Trade Risk Controls'' would refer to
optional limits that an Entering Firm may utilize with respect to its
trading activity on the Exchange (excluding interest represented in
open outcry except CTB Orders (proposed Rule 928NYP(a)(2), which is
identical to Arca Options Rule 6.40P-O(a)(2)). Proposed Rules
928NYP(a)(2)(A)(i)-(v) would define the available ``Single-Order Risk
Controls,'' which are identical to the checks offered per Arca Options
Rules 6.40P-O(a)(2)(A)(i)-(v), as follows:
[cir] controls related to the maximum dollar amount for a single
order to be applied one time (``Single Order Maximum Notional Value
Risk Limit'') and the maximum number of contracts that may be included
in a single order before it can be traded (``Single Order Maximum
Quantity Risk Limit'') and providing that GTC Orders would be subject
to these checks only once (proposed Rule 928NYP(a)(2)(A)(i), which is
identical to Arca Options Rule 6.40P-O(a)(2)(A)(i)).
[cir] controls related to the price of an order or quote (including
percentage-based and dollar-based controls) (proposed Rule
928NYP(a)(2)(A)(ii), which is identical to Arca Options Rule 6.40P-
O(a)(2)(A)(ii));
[cir] controls related to the order types or modifiers that can be
utilized (proposed Rule 928NYP(a)(2)(A)(iii), which is identical to
Arca Options Rule 6.40P-O(a)(2)(A)(iii));
[cir] controls to restrict the options class transacted (proposed
Rule 928NYP(a)(2)(A)(iv), which is identical to Arca Options Rule
6.40P-O(a)(2)(A)(iv)); and
[cir] controls to prohibit duplicative orders (proposed Rule
928NYP(a)(2)(A)(v), which is identical to Arca Options Rule 6.40P-
O(a)(2)(A)(v)).
Like on Arca Options, use of the pre-trade risk controls proposed
would be optional, but all orders and quotes on the Exchange would pass
through these risk checks.\93\ As such, an Entering Firm that does not
choose to set limits pursuant to the new proposed pre-trade risk
controls would not achieve any latency advantage with respect to its
trading activity on the Exchange.\94\ The Exchange understands that the
risk checks of other exchanges, on which the proposed functionality is
modeled, also apply symmetrically to all orders.\95\
---------------------------------------------------------------------------
\93\ The Exchange notes that there is nothing unique about this
approach as functionality on the Exchange is often applied uniformly
to all orders and quotes, regardless of whether a particular client
has opted to use that functionality for a particular order or quote.
For example, the Exchange's limit order price protection applies
generally to trading on the Exchange and orders or quotes with limit
prices are not processed more slowly than those without. Similarly,
the Exchange's trading systems check all orders and quotes for a
variety of details and modifiers (e.g., duplicative client order
check, order capacity check, and self-trade prevention). See, e.g.,
Securities Exchange Act Release Nos. 97147 (March 21, 2023), 88 FR
17072, at 17073-76 (March 15, 2023) (SR-NYSEArca-2023-24).
\94\ See id., 88 FR, at 17073-76 (discussing, among other
things, that ``because all orders on the Exchange would pass through
the pre-trade risk controls, there would be no difference in the
latency experienced by [Arca Options] OTP Holders who have opted to
use the additional `Pre-Trade Risk Controls' versus those who have
not opted to use them.''). To the extent that any latency occurs in
connection with the proposed pre-trade risk controls, the Exchange
expects that (like on Arca Options) such latency would be
significantly less than one microsecond. See id., 88 FR, at 17073.
\95\ See, e.g., MEMX Risk FAQ, dated October 13, 2020, available
at https://info.memxtrading.com/us-equities-faq/#Bookmark21 (``The
risk checks are applied in a consistent manner to all participant
orders in order to mitigate risk without incurring latency
disadvantage.''); MIAX Pearl Equities Exchange User Manual, updated
October 2022, available at https://www.miaxequities.com/sites/default/files/website_file-files/MIAX_Pearl_Equities_User_Manual_October_2022.pdf, at 29 (stating
that all but two of the exchange's 14 risk checks ``are latency
equalized i.e. there is no latency penalty for a member when opting
into and leveraging a risk protection available on the exchange when
entering an order as compared to a member not opting into the risk
protection when entering an order'').
---------------------------------------------------------------------------
The term ``Activity-Based Risk Controls'' would refer to
three activity-based risk limits that an Entering Firm may apply to its
orders and quotes in an options class (excluding those represented in
open outcry except CTB Orders) based on specified thresholds measured
over the course of an Interval (to be defined below) (proposed Rule
928NYP(a)(3), which is identical to Arca Options Rule 6.40P-O(a)(3)).
The proposed Activity-Based Risk Controls are based on the
substantially identical risk controls set forth in current Rules
928NY(b)-(d), except that, on Pillar (and identical to Arca Options), a
Market Maker's orders and quotes would be aggregated and applied
towards each risk limit (as opposed to current functionality, where a
Market Maker's orders and quotes are counted separately). The Exchange
believes that aggregating a Market Maker's quotes and orders for
purposes of calculating activity-based risk controls, which mirrors the
application of such controls on Arca Options, would better reflect the
aggregate risk that a Market Maker has with respect to its quotes and
orders. The proposed rule would also add detail to make clear that
orders and quotes represented in open outcry, except CTB Orders, would
not be subject to these controls, which is consistent with current
functionality.
[cir] The term ``Transaction-Based Risk Limit'' would refer to a
pre-established limit on the number of an Entering Firm's orders and
quotes executed in a specified class of options per Interval (proposed
Rule 928NYP(a)(3)(A), which is identical to Arca Options Rule 6.40P-
O(a)(3)(A)). This risk control is based on
[[Page 45749]]
the substantially identical risk control set forth in current Rule
928NY(b), with the difference described above that a Market Maker's
orders and quotes would be aggregated.
[cir] The term ``Volume-Based Risk Limit'' would refer to a pre-
established limit on the number of contracts of an Entering Firm's
orders and quotes that could be executed in a specified class of
options per Interval (proposed Rule 928NYP(a)(3)(B), which is identical
to Arca Options Rule 6.40P-O(a)(3)(B)). This risk control is based on
the substantially identical risk control set forth in current Rule
928NY(c), with the difference described above that a Market Maker's
orders and quotes would be aggregated.
[cir] The term ``Percentage-Based Risk Limit'' would refer to a
pre-established limit on the percentage of contracts executed in a
specified class of options as measured against the full size of such
Entering Firm's orders and quotes executed per Interval (proposed Rule
928NYP(a)(3)(C), which is identical to Arca Options Rule 6.40P-
O(a)(3)(C)). The proposed definition, like the Arca Options definition,
would also provide that to determine whether an Entering Firm has
breached the specified percentage limit, the Exchange would calculate
the percent of each order or quote in a specified class of option that
is executed during an Interval (each, a ``percentage''), and sum up
those percentages. As further proposed (and like on Arca Options), this
proposed definition would state that this risk limit would be breached
if the sum of the percentages exceeds the pre-established limit. This
risk control is based on the substantially identical risk control set
forth in current Rule 928NY(d), with the difference described above
that a Market Maker's orders and quotes would be aggregated.
The term ``Global Risk Control'' would refer to a pre-
established limit on the number of times an Entering Firm may breach
its Activity-Based Risk Controls per Interval (proposed Rule
928NYP(a)(4), which is identical to Arca Options Rule 6.40P-O(a)(4)).
This proposed definition is also based on the substantially similar
functionality set forth in current Rule 928NY(f). The Exchange believes
this proposed definition would add clarity and transparency to Exchange
rules.
The term ``Interval'' would refer to the configurable time
period during which the Exchange would determine if an Activity-Based
Risk Control or the Global Risk Control has been breached (proposed
Rule 928NYP(a)(5), which is identical to Arca Options Rule 6.40P-
O(a)(5)). This proposed definition is consistent with current Rule
928NY, which contains references throughout to a ``time period'' during
which the Exchange will determine whether a breach has occurred. The
Exchange believes this proposed definition would add clarity and
transparency to Exchange rules.
The term ``Auction-Only Orders'' would refer to the order
types set for in proposed Rule 900.3NYP(c), as described in detail
above (proposed Rule 928NYP(a)(6), which is identical to Arca Options
Rule 6.40P-O(a)(6)).
Proposed Rules 928NYP(b)(1)-(2) are identical to Arca Options Rules
6.40P-O(b)(1)-(2) and would set forth how the Pre-Trade, Activity-Based
and Global Risk Controls could be set or adjusted. Proposed Rule
928NYP(b)(1) would provide that these risk controls may be set before
the beginning of a trading day and may be adjusted during the trading
day. Proposed Rule 928NYP(b)(2) would provide that Entering Firms may
set these risk controls at the MPID level or at one or more sub-IDs
associated with that MPID, or both, and further provide that Pre-Trade
Risk Controls to restrict the options class(es) transacted must be set
per option class.
Proposed Rule 928NYP(c) is identical to Arca Options Rule 6.40P-
O(c) and would set forth the Automated Breach Actions that the Exchange
would take if a designated risk limit is breached. Proposed Rules
928NYP(c)(1)(A)(i)-(iii) are identical to Arca Options Rules 6.40P-
O(c)(1)(A)(i)-(iii) and would set forth the automated breach actions
for the Pre-Trade Risk Controls as described below.
Proposed Rule 928NYP(c)(1)(A)(i) would provide that a
Limit Order or quote that breaches any Single-Order Risk Control would
be rejected.
Proposed Rule 928NYP(c)(1)(A)(ii) would provide that a
Market Order that arrives during a pre-open state will be cancelled if
the quantity remaining to trade after an Auction breaches the Single
Order Maximum Notional Value Risk Limit, and that at all other times, a
Market Order that triggers or breaches any Single-Order Risk Control
will be rejected.\96\
---------------------------------------------------------------------------
\96\ The term ``Auction'' is defined in proposed Rule
952NYP(a)(1), described below in the discussion of proposed Rule
952NYP, to mean the opening or reopening of a series for trading
either on a trade or quote.
---------------------------------------------------------------------------
Proposed Rule 928NYP(c)(1)(A)(iii) would provide that a
Limit Order or quote that would breach a price control under paragraph
(a)(2)(A)(ii) above would be rejected or cancelled as specified in Rule
900.3NYP(a)(3)(A) (Limit Order Price Protection).
Consistent with Arca Options, the Exchange likewise proposes to
process Market Orders differently from Limit Orders because, until a
series is opened, the Exchange is not able to calculate the Single
Order Notional Value Risk Limit for a Market Order.\97\ Accordingly, as
is the case on Arca Options, this proposed risk limit would be applied
only after a series opens, at which point, a Market Order would be
cancelled if it fails the risk limit.
---------------------------------------------------------------------------
\97\ Compare Arca Options Rules 6.40P-O(c)(1)(A)(ii) and (iii)
with proposed Rules 928NYP(c)(1)(A)(ii) and (iii).
---------------------------------------------------------------------------
Proposed Rule 928NYP(c)(2) is identical to Arca Options Rule 6.40P-
O(c)(2) and would set forth the automated breach actions for the
Activity-Based Risk Controls.
Proposed Rule 928NYP(c)(2)(A) is identical to Arca Options
Rule 6.40P-O(c)(2)(A) and would first specify that an Entering Firm
acting as a Market Maker would be required to apply one of the
Activity-Based Risk Controls to all of its orders and quotes; whereas
an Entering Firm that is not acting as a Market Maker would have the
option, but would not be required, to apply one of the Activity-Based
Risk Controls to its orders. The requirement that Market Makers utilize
Activity-Based Risk Controls for all quotes mirrors the requirements
set forth in Rule 928NY, Commentary .04(a); however, the proposed rule
differs in that it likewise requires Market Makers to apply one of the
Activity-Based Risk Controls to all of its orders. The Exchange
believes that requiring that both Market Maker quotes and Market Maker
orders be subject to one of the Activity-Based Controls would enhance
Market Makers' ability to assess their total risk exposure on the
Exchange. The proposed optionality of the Activity-Based Risk controls
for orders sent by an Entering Firm not acting as a Market Maker
mirrors current Rule 928NY, Commentary .04(b).
Proposed Rule 928NYP(c)(2)(B) is identical to Arca Options
Rule 6.40P-O(c)(2)(B) and would provide that to determine when an
Activity-Based Risk Control has been breached, the Exchange would
maintain Trade Counters that would be incremented every time an order
or quote trades, including any leg of a Complex Order, and would
aggregate the number of contracts traded during each such execution. As
further proposed, an Entering Firm may opt to exclude any orders
designated IOC or FOK from being considered by a Trade Counter. This is
consistent with existing functionality set forth in Rule 928NY(a)
[[Page 45750]]
and Commentary .07, with a proposed difference to allow an Entering
Firm to also exclude orders designated FOK, which, like orders
designated IOC, cancel if not executed on arrival and is based on
current functionality.\98\ The Exchange believes that specifying that
orders designated FOK could be excluded from being considered for a
Trade Counter would mirror handling of such orders on Arca Options and
would add granularity and clarity to Exchange rules. In addition, as
noted above, a Market Maker's quotes and orders in a given option class
would be aggregated and therefore the Exchange proposes that there
would not be separate Trade Counters for a Market Maker's quotes and
orders.
---------------------------------------------------------------------------
\98\ See Securities Exchange Act Release No. 81716 (September
25, 2017), 82 FR 45653 (September 29, 2017) (SR-NYSEAMER-2017-10)
(immediately effective filing to exclude IOC Orders from risk
settings because such exclusion, among other things, would result in
risk settings that may be better calibrated to suit the needs of
certain market participants (i.e., those that routinely utilize IOC
orders to access liquidity on the Exchange)).
---------------------------------------------------------------------------
Proposed Rule 928NYP(c)(2)(C) is identical to Arca Options
Rule 6.40P-O(c)(2)(C) and would provide that each Entering Firm must
select one of three Automated Breach Actions for the Exchange to take
should the Entering Firm breach an Activity-Based Risk Control.
[cir] ``Notification Only.'' As set forth in proposed Rule
928NYP(c)(2)(C)(i) (which is identical to Arca Options Rule 6.40P-
O(c)(2)(C)(i)), if this option is selected, the Exchange would continue
to accept new order and quote messages and related instructions and
would not cancel any unexecuted orders or quotes in the Consolidated
Book. With the ``Notification Only'' action, the Exchange would provide
such notifications, but would not take any other automated actions with
respect to new or unexecuted orders. The Exchange believes that making
this Automated Breach Action available to Activity-Based Risk Controls,
which are unique to options trading, would provide Entering Firms more
control and flexibility over setting risk tolerance and, as such, over
how Activity-Based Risk Controls are implemented.
[cir] ``Block Only.'' As set forth in proposed Rule
928NYP(c)(2)(C)(ii) (which is identical to Arca Options Rule 6.40P-
O(c)(2)(C)(ii)), if this option is selected, the Exchange would reject
new order and quote messages and related instructions, provided that
the Exchange would continue to process instructions from the Entering
Firm to cancel one or more orders or quotes (including Auction-Only
Orders) in full. The proposed rule would also provide that the Exchange
would follow any instructions specified in paragraph (e) of the
proposed Rule (and described below). The Exchange believes that making
this Automated Breach Action available to Activity-Based Risk Controls,
which are unique to options trading, would provide Entering Firms more
control and flexibility over setting risk tolerance and, as such, over
how Activity-Based Risk Controls are implemented.
[cir] ``Cancel and Block.'' As set forth in proposed Rule
928NYP(c)(2)(C)(iii) (which is identical to Arca Options Rule 6.40P-
O(c)(2)(C)(i)), if this option is selected, in addition to the Block
Only actions described above, the Exchange would also cancel all
unexecuted orders and quotes in the Consolidated Book other than
Auction-Only Orders and orders designated GTC. This proposed Cancel and
Block functionality is substantially similar to the automated breach
action taken by the Exchange per current Rule 928NY(e) and Commentaries
.01 and .02 thereto, except that under the current rules, this is
default (not optional) functionality. The Exchange believes that making
this Automated Breach Action available to respond to a breach of
Activity-Based Risk Controls, which are unique to options trading,
would provide Entering Firms more control and flexibility over setting
risk tolerance and, as such, over how Activity-Based Risk Controls are
implemented.
Finally, proposed Rule 928NYP(c)(2)(D) is identical to
Arca Options Rules 6.40P-O(c)(2)(D) and would provide that if an
Entering Firm breaches an Activity-Based Risk Control, the Automated
Breach Action selected would be applied to its orders and quotes in the
affected class of options. This proposed action is consistent with
current Rule 928NY(e) and Commentaries .01 and .02 thereto, which
provide that, upon a breach, the Exchange will cancel existing and
suspend new orders and quotes trading in the affected class.
Proposed Rule 928NYP(c)(2)(E) is identical to Arca Options Rule
6.40P-O(c)(2)(E) and would provide that the Exchange would specify by
Trader Update any applicable minimum, maximum and/or default settings
for the Activity-Based Risk Controls, subject to the following:
For the Transaction-Based Risk Limit, the minimum setting
would not be less than one and the maximum setting would not be more
than 2,000 (proposed Rule 928NYP(c)(2)(E)(i)), which settings are
identical to the Exchange-determined settings provided under current
Rule 928NY, Commentary .03 and identical to Arca Options Rule 6.40P-
O(c)(2)(E)(i).
For the Volume-Based Risk Limit, the minimum setting would
not be less than one and the maximum setting would not be more than
500,000 (proposed Rule 928NYP(c)(2)(E)(ii)), which settings are
identical to the Exchange-determined settings provided under current
Rule 928NY, Commentary .03 and identical to Arca Options Rule 6.40P-
O(c)(2)(E)(ii).
For the Percentage-Based Risk Limit, the minimum setting
would not be less than 50 and the maximum setting would not be more
than 200,000 (proposed Rule 928NYP(c)(2)(E)(iii)), which maximum
setting is the same as the minimum Exchange-determined setting set
forth in current Rule 928NY, Commentary .03 and identical to Arca
Options Rule 6.40P-O(c)(2)(E)(iii). The Exchange proposes to increase
the minimum setting from less than one (in current rule) to not be less
than 50 to better reflect actual practice, because under current Rules,
there are no ATP Holders that have set their Percentage-Based Risk
Limits below 50.
Proposed Rule 928NYP(c)(2)(F) is identical to Arca Options Rule
6.40P-O(c)(2)(F) and would provide that the Exchange would specify by
Trader Update the Interval for the Activity-Based Risk Controls,
subject to the following:
The Interval would not be less than 100 milliseconds and
would not be greater than 300,000 milliseconds, inclusive of the
duration of any trading halt occurring within that time (proposed Rule
928NYP(c)(2)(F)(i)), which minimum setting is identical to the
Exchange-determined minimum set forth in current Rule 928NY, Commentary
.03 and identical to Arca Options Rule 6.40P-O(c)(2)(F)(i). Although
the Exchange's current rule does not include a maximum time period, the
Exchange proposes to include a maximum allowable Interval to promote
clarity in Exchange rules of the longest time an Interval could be.
For transactions occurring in the Core Open Auction, per
proposed Rule 952NYP, the applicable time period would be the lesser of
(i) the time between the Core Open Auction of a series and the initial
transaction or (ii) the Interval (proposed Rule 928NYP(c)(2)(F)(ii)),
which proposed time period is identical to the timing provided under
current Rule 928NY, Commentary .03 and also identical to Arca Options
Rule 6.40P-O(c)(2)(F)(ii).
Proposed Rule 928NYP(c)(3) is identical to Arca Options Rule 6.40P-
O(c)(3) and would set forth the
[[Page 45751]]
automated breach actions for the Global Risk Controls set by an
Entering Firm.
Proposed Rule 928NYP(c)(3)(A) is identical to Arca Options
Rule 6.40P-O(c)(3)(A) and would provide that if the Global Risk Control
limit is breached, the Exchange would Cancel and Block, per proposed
Rule 928NYP(c)(2)(C)(iii), which proposed functionality is
substantively the same as the functionality provided under current Rule
928NY, Commentaries .01 (regarding cancellation of existing orders) and
.02 (regarding block/rejection of new orders).
Proposed Rule 928NYP(c)(3)(B) is identical to Arca Options
Rule 6.40P-O(c)(3)(B) and would provide that if an Entering Firm
breaches the Global Risk Control, the Automated Breach Action would be
applied to all orders and quotes of the Entering Firm in all classes of
options regardless of which class(es) of options caused the underlying
breach of Activity-Based Risk Controls, which proposed functionality is
substantively the same as the functionality provided (in the last
sentence) of current Rule 928NY, Commentary .02 in the event of a
breach of current Rule 928NY(f) (i.e., breach of global risk setting).
Proposed Rule 928NYP(c)(3)(C) is identical to Arca Options
Rule 6.40P-O(c)(3)(C) and would provide that the Exchange would specify
by Trader Update any applicable minimum, maximum and/or default
settings for the Global Risk Controls, provided that the minimum
setting would not be less than 25 and the maximum setting would not be
more than 100. These proposed settings are based on the Exchange-
determined setting provided under current Rule 928NY, Commentary .03,
except that the current rule allows for a minimum setting of one (1)
whereas the proposed rule (like Arca Options) is increasing that
minimum to twenty-five (25), which the Exchange believes would better
reflect actual practice, because under current Rules, there are no ATP
Holders that have set their Global Risk Controls below 25.
Proposed Rules 928NYP(c)(3)(D)(i)-(ii) are identical to
Arca Options Rules 6.40P-O(c)(3)(D)(i)-(ii) and would provide that the
Exchange would specify by Trader Update the Interval for the Global
Risk Controls, subject to the following:
[cir] The Interval would not be less than 100 milliseconds and
would not be greater than 300,000 milliseconds, inclusive of the
duration of any trading halt occurring within that time, per proposed
Rule 928NYP(c)(3)(D)(i), which minimum setting is identical to the
Exchange-determined minimum set forth in current Rule 928NY, Commentary
.03. Although the Exchange's current rule does not include a maximum
time period, the Exchange proposes to mimic Arca Options Rule 6.40P-
O(c)(3)(D)(i) by including a maximum allowable Interval to allow an
outside parameter by which the counters would be reset, which would
promote transparency in Exchange rules regarding the maximum allowable
Interval.
[cir] For transactions occurring in the Core Open Auction, per
proposed Rule 952NYP, the applicable time period is the lesser of (i)
the time between the Core Open Auction of a series and the initial
transaction or (ii) the Interval, per proposed Rule
928NYP(c)(3)(D)(ii), which proposed time period is identical to the
timing provided under current Rule 928NY, Commentary .03 and is also
identical to Arca Options Rule 6.40P-O(c)(3)(D)(ii).
Proposed Rule 928NYP(d) is identical to Arca Options Rules 6.40P-
O(d) and would describe how an Entering Firm's ability to enter orders,
quotes, and related instructions would be reinstated after a ``Block
Only'' or ``Cancel and Block'' Automated Breach Action has been
triggered. In such case, proposed Rule 928NYP(d) provides that the
Exchange would not reinstate the Entering Firm's ability to enter
orders and quotes and related instructions on the Exchange (other than
instructions to cancel one or more orders or quotes in full (including
Auction-Only Orders, and orders designated GTC)) without the consent of
the Entering Firm, which may be provided via automated contact if it
was a breach of an Activity-Based Risk Control. As further proposed, an
Entering Firm that breaches the Global Risk Control would not be
reinstated unless the Entering Firm provides consent via non-automated
contact with the Exchange. This proposed functionality is consistent
with current Rule 928NY, Commentary .02 regarding the need for an
Entering Firm to make automated or non-automated contact with the
Exchange, as applicable, prior to being reinstated.
Proposed Rule 928NYP(e) is identical to Arca Options Rules 6.40P-
O(e) and would set forth new ``Kill Switch Action'' functionality,
which would allow an Entering Firm to direct the Exchange to take
certain bulk cancel or block actions with respect to orders and quotes.
In contrast to the Automated Breach Actions described above, which the
Exchange would take automatically after the breach of a risk limit, the
Exchange would not take any of the Kill Switch Actions without express
direction from an Entering Firm. The Exchange believes that the
proposed Kill Switch Action functionality would also provide ATP
Holders with greater flexibility to provide bulk instructions to the
Exchange with respect to cancelling existing orders and quotes and
blocking new orders and quotes.
In particular, proposed Rule 928NYP(e) would specify that an
Entering Firm could direct the Exchange to take one or more of the
following actions with respect to orders and quotes (excluding those
represented in open outcry except CTB Orders), at either an MPID, or if
designated, sub-ID Level: (1) Cancel all Auction-Only Orders; (2)
Cancel all orders designated GTC; (3) Cancel all unexecuted orders and
quotes in the Consolidated Book other than Auction-Only Orders and
orders designated GTC; or (4) Block the entry of any new order and
quote messages and related instructions, provided that the Exchange
would continue to accept instructions from Entering Firms to cancel one
or more orders or quotes (including Auction-Only Orders, and orders
designated GTC) in full, and later, reverse that block. The proposed
post-trade Kill Switch Actions are not only identical to Arca Options
Rule 6.40P-O(e) but are also consistent with the rules of other options
exchanges.\99\ The Exchange believes that offering this functionality
for options trading under Pillar would give Entering Firms more
flexibility in setting risk controls for options trading (as noted
above).
---------------------------------------------------------------------------
\99\ See, e.g., Cboe Rule 5.34(c)(6) (describing the optional
``Kill Switch'' functionality, which allows a Cboe participant to
instruct Cboe to simultaneously cancel or reject all orders or
quotes (or a subset thereof) as well as to instruct Cboe to block
all orders or quotes (or a subset thereof), which block instructions
will remain in effect until such participant contacts Cboe's trade
desk to remove the block).
---------------------------------------------------------------------------
Proposed Commentary .01 to Rule 928NYP is identical to Commentary
.01 to Arca Options Rule 6.40P-O and would provide that the Pre-Trade,
Activity-Based, and Global Risk Controls described in the proposed Rule
98NYP are meant to supplement, and not replace, the ATP Holder's own
internal systems, monitoring, and procedures related to risk management
and are not designed for compliance with Rule 15c3-5 under the Exchange
Act.\100\ Responsibility for compliance with all Exchange and SEC rules
remains with the ATP Holder. The Exchange does not guarantee that these
controls will be sufficiently comprehensive to meet all of an ATP
Holder's needs, the controls are not designed to be the sole means of
risk management, and using these controls
[[Page 45752]]
will not necessarily meet an ATP Holder's obligations required by the
Exchange or federal rules including, without limitation, the Rule 15c3-
5. Use of the Exchange's proposed Pre-Trade Risk Controls will not
automatically constitute compliance with Exchange or federal rules, and
responsibility for compliance with all Exchange and SEC rules remains
with the ATP Holder. The proposed rule, which is new text, makes clear
that (like on Arca Options) use of the proposed controls alone does not
constitute compliance with Exchange rules or the Exchange Act.
---------------------------------------------------------------------------
\100\ 17 CFR 240.15c3-5.
---------------------------------------------------------------------------
Proposed Commentary .02 to Rule 928NYP is identical to Commentary
.02 to Arca Options Rule 6.40P-O and would provide that an Entering
Firm may set price controls under proposed Rule 928NYP(a)(2)(A)(ii)
(described above) that are equal to or more restrictive than the price
level provided per the Exchange's Limit Order Price Protection feature,
as set forth in proposed Rule 900.3NYP(a)(3)(A). This proposed
commentary is intended to clarify the interplay between the Exchange's
Limit Order Price Protection functionality and the price controls that
may be set by an Entering Firm pursuant to proposed Rule
928NYP(a)(2)(A)(ii).
In connection with proposed Rule 928NYP, the Exchange proposes to
add the following preamble to Rule 928NY: ``This Rule is not applicable
to trading on Pillar.'' This proposed preamble is designed to promote
clarity and transparency in Exchange rules that Rule 928NY would not be
applicable to trading on Pillar.
Proposed Rule 928.1NYP: Price Reasonability Checks--Orders and Quotes
The Exchange proposes to describe its Price Reasonability Checks
for orders and quotes in proposed Rule 928.1NYP. For the Exchange
System, the concept of ``Price Reasonability Checks'' for Limit Orders
is described in Rule 967NY(c) and the concept of price protection
filters for quotes are described in Rule 967.1NY. The proposed ``Price
Reasonability Checks'' on Pillar are identical to those set forth in
Arca Options Rule 6.41P-O. As is the case on Arca Options, the proposed
``Price Reasonability Checks'' would be applicable to both orders and
quotes and are designed to provide similar price protections as the
current price checks for Limit Orders and price protection filters for
quotes on the Exchange System, with differences from the current rule
described in detail below. The Exchange believes that applying the same
Price Reasonability Checks to both orders and quotes and describing
them in a single rule would make the Exchange's rules easier to
navigate, while continuing to provide price protection features for
both orders and quotes. The Exchange proposes to locate the rule text
for the proposed Price Reasonability Checks in proposed Rule 928.1NYP
to immediately follow proposed Rule 928NYP regarding the Pre-Trade and
Activity-Based Controls, as this placement would group the risk
controls together and make Exchange rules easier to navigate.
Proposed Rules 928.1NYP(a)(1)-(3) are identical to Arca Options
Rules 6.41P-O(a)(1)-(3) and would set forth the circumstances under
which the proposed Price Reasonability Checks would apply. Proposed
Rule 928.1NY(a) would provide that the Exchange would apply the Price
Reasonability Checks, as defined in proposed paragraphs (b) and (c), to
all Limit Orders and quotes (excluding those represented in open
outcry, except CTB Orders), during continuous trading on each trading
day, subject to the following:
Proposed Rule 928.1NYP(a)(1) is identical to Arca Options
Rule 6.41P-O(a)(1) and would provide that a Limit Order or quote
received during a pre-open state would be subject to the proposed Price
Reasonability Checks after an Auction concludes; that a Limit Order or
quote that was resting on the Consolidated Book before a trading halt
would be subject to the proposed Price Reasonability Checks again after
the Trading Halt Auction; and that a put option message to buy would be
subject to the Arbitrage Check regardless of when it arrives. This
proposed rule is based on current Rule 967NY(c), which provides that
the Price Reasonability Checks (for orders) are applied when a series
opens or reopens for trading and is similar to Rule 967.1NY(a)(1),
which provides that Market Maker quote protection will be applied when
an NBBO is available. NBBO protection is available when a series is
opened for trading. Proposed Rule 928.1NYP(a)(1) includes additional
detail and granularity regarding when the proposed Price Reasonability
Checks would be applied under Pillar. The proposed Rule also adds new
functionality that a put option message to buy would be subject to the
Arbitrage Check even if a series is not open for trading. The Exchange
believes that it is appropriate to apply this check to put option
messages to buy at any time because the check is not dependent on an
external reference price.
Proposed Rule 928.1NYP(a)(2) is identical to Arca Options
Rule 6.41P-O(a)(2) and would provide that if the calculation of the
Price Reasonability Check is not consistent with the MPV for the
series, it would be rounded down to the nearest price within the
applicable MPV, which is consistent with current functionality. The
Exchange believes this proposed rule would promote clarity and
transparency in Exchange rules regarding how the Price Reasonability
Check would be calculated.
Proposed Rule 928.1NYP(a)(3) is identical to Arca Options
Rule 6.41P-O(a)(3) and would provide that the proposed Price
Reasonability Checks would not apply to (i) any options series for
which the underlying security has a non-standard cash or stock
deliverable as part of a corporate action; (ii) any options series for
which the underlying security is identified as over-the-counter
(``OTC''); (iii) any option series on an index; and (iv) any option
series for which the Exchange determines it is necessary to exclude
underlying securities in the interests of maintaining a fair and
orderly market, which the Exchange would announce by Trader Update.
Proposed Rule 928.1NYP(a)(3) is based on current Commentary .01 to
Rules 967NY (orders) and 967.1NY (quotes), with a non-substantive
difference that the proposed rule no longer references Binary Return
Derivatives (``ByRDs'') because ByRDs are no longer traded on the
Exchange.
Proposed Rule 928.1NYP(b) is identical to Arca Options Rule 6.41P-
O(b) and would set forth the ``Arbitrage Checks'' for buy orders or
quotes, which subset of Price Reasonability Checks are based on the
principle that an option order or quote is in error and should be
rejected (or canceled) when the same result can be achieved on the
market for the underlying equity security at a lesser cost.
Proposed Rule 928.1NYP(b)(1) is identical to Arca Options
Rule 6.41P-O(b)(1) and relates to ``puts'' and would provide that order
or quote messages to buy for put options would be rejected if the price
of the order or quote is equal to or greater than the strike price of
the option, which is substantively identical to current Rules
967NY(c)(1)(A) (for orders) and 967.1NY(a)(3) (for quotes).
Proposed Rule 928.1NYP(b)(2) is identical to Arca Options
Rule 6.41P-O(b)(2) and relates to ``calls'' and would provide that
order or quote messages to buy for call options would be rejected or
canceled (if resting) if the price of the order or quote is equal to or
greater than the price of the last trade (of any size) of the
underlying security on the Primary Market, plus a specified threshold
to be determined by the Exchange and announced by Trader Update. This
proposed rule is
[[Page 45753]]
substantially similar to current Rules 967NY(c)(1)(B) (for orders) and
967.1NY(a)(2)(B) (for quotes), with several differences.
First, because the Exchange is monitoring last sales from the
Primary Market, the Exchange proposes that the Exchange-specified
threshold for the Checks would be based on the price of the last trade
(of any size) on the Primary Market rather than on the Consolidated
Last Sale.\101\ The Exchange believes that the last trade on the
Primary Market would be indicative of the price of the underlying
security and that by using the last trade of the Primary Market rather
than the Consolidated Last Sale, the Pillar system would need to ingest
and process less data, thereby improving efficiency and performance of
the system. The Exchange also believes that applying the Checks to
trades in underlying securities of any size, i.e., both round lots and
odd lots, would enhance the efficacy of the Checks as this proposed
functionality would provide a better representation of the trade prices
occurring in the underlying market.\102\
---------------------------------------------------------------------------
\101\ Per Rule 900.2NY, the term ``Primary Market'' with respect
to options traded on the Exchange means the principal market in
which the underlying security is traded. The Exchange also notes a
difference in that proposed Rule 928.1NYP(b)(2) refers to a
``specified threshold,'' whereas current Rule 967NY(c)(1)(B) refers
to a ``specified dollar amount,'' which difference is designed to
give the Exchange more flexibility in applying the Arbitrage Checks
to use a percentage-based threshold.
\102\ The Exchange notes that trades in higher-priced underlying
securities tend to be odd lots, which highlights the importance of
capturing such trades in the Checks.
---------------------------------------------------------------------------
Second, current Rules 967.1NY(a)(2)(A) and (C) specify which price
would be used for Market Maker bids made before the underlying security
is open or during a trading halt, pause, or suspension of the
underlying security. Because on Pillar the proposed Arbitrage Checks
for calls (for orders and quotes) would be applied only once a series
has opened or reopened for trading, the Exchange no longer needs to
specify prices other than the last trade (of any size) on the Primary
Market for purposes of calculating the Arbitrage Checks for calls. The
Exchange believes the difference in proposed Rule 928.1NYP(b)(2) from
current functionality (which is identical to Arca Options Rule 6.41P-
O(b)(2)) would not compromise the price protection feature of the
proposed Arbitrage Checks.
Proposed Rule 928.1NYP(c) is identical to Arca Options Rule 6.41P-
O(c) and would set forth the ``Intrinsic Value Checks'' for orders or
quotes to sell, which are designed to protect sellers of calls and puts
from presumptively erroneous executions based on the ``Intrinsic
Value'' of an option.
Proposed Rules 928.1NYP(c)(1)-(2) are identical to Arca
Options Rules 6.41P-O(c)(1)-(2) and would set forth how the Intrinsic
Value of an option would be determined. Proposed Rule 928.1NYP(c)(1)
would provide that the Intrinsic Value for a put option is equal to the
strike price minus the price of the last trade (of any size) of the
underlying security on the Primary Market. Proposed Rule 928.1NYP(c)(2)
would provide that the Intrinsic Value for a call option is equal to
the price of the last trade (of any size) of the underlying security on
the Primary Market minus the strike price. Proposed Rules
928.1NYP(c)(1)-(2) are based on how the intrinsic value is calculated
in current Rule 967NY(c)(2) for orders, with two differences. First,
the proposed ``Intrinsic Value Checks'' would also apply to quotes,
which would be new on Pillar (but would mimic Arca Options Rules 6.41P-
O(c)(1)-(2)) and would provide Market Makers with additional protection
for quotes to sell. Second, the Intrinsic Value of an option would be
based on the price of the last trade (of any size) on the Primary
Market rather than on the Consolidated Last Sale for the same reasons
discussed above, that it would enhance performance without compromising
the price protection feature of the Intrinsic Value Checks.
Proposed Rule 928.1NYP(c)(3) is identical to Arca Options
Rule 6.41P-O(c)(3) and would provide that ISOs to sell would not be
subject to the Intrinsic Value Check, which carve out is substantively
identical to current Rule 967NY(c)(2).
Proposed Rule 928.1NYP(c)(4) is identical to Arca Options
Rule 6.41P-O(c)(4) and would describe the application of the Intrinsic
Value Checks to puts and calls to sell.
[cir] Proposed Rule 928.1NYP(c)(4)(A) is identical to Arca Options
Rule 6.41P-O(c)(4)(A) and would provide that orders or quotes to sell
for both puts and calls would be rejected or canceled (if resting) if
the price of the order or quote is equal to or lower than its Intrinsic
Value, minus a specified threshold to be determined by the Exchange and
announced by Trader Update.
[cir] Proposed Rule 928.1NYP(c)(4)(B) is identical to Arca Options
Rule 6.41P-O(c)(4)(B) and would provide that the Exchange-determined
threshold percentage (per proposed paragraph (c)(4)(A)) would be based
on the NBB, provided that, immediately following an Auction, it would
be based on the Auction Price, or, if none, the lower Auction Collar
price, or, if none, the NBB.\103\ This proposed threshold percentage is
similar to how the Reference Price would be determined for Trading
Collars, as described above pursuant to proposed Rule 900.3NYP(a)(4).
As further proposed, Rule 928.1NYP(c)(4)(B) would provide that for
purposes of determining the Intrinsic Value, the Exchange would not use
an adjusted NBBO. The Exchange further proposes that the Intrinsic
Value Check for sell orders and quotes would not be applied if the
Intrinsic Value cannot be calculated.
---------------------------------------------------------------------------
\103\ See discussion infra, regarding proposed Rule 952NYP(a)
and proposed definitions for the terms ``Auction,'' ``Auction
Price,'' Auction Collar,'' ``pre-open state,'' and ``Trading Halt
Auction.''
---------------------------------------------------------------------------
Proposed Rules 928.1NYP(c)(4)(A)-(B) are substantially similar to
current Rule 967NY(a)(2)(A), which describes the application of the
Intrinsic Value check for orders, with the following differences:
The proposed rule would extend this price protection to
quotes, providing Market Makers with additional protection mechanisms;
The proposed rule would provide additional detail
regarding how the specified threshold percentage would be determined
immediately following an Auction;
The proposed rule would establish that an unadjusted NBBO
(as opposed to an adjusted NBBO) would be used to calculate the
Intrinsic Value; and
The proposed rule includes text providing that if the
Intrinsic Value cannot be calculated, the Check would not be applied.
The Exchange believes that these additions, which mirror Arca
Options Rules 6.41P-O(c)(4)(A)-(B), would both add granularity to the
rule and enhance the functionality for calculating and applying the
Intrinsic Value. For the same reasons described above in connection
with Limit Order Price Protection and Trading Collars, the Exchange
believes that using an unadjusted NBBO (as opposed to using an adjusted
NBBO) would serve price protection purposes by using a more
conservative view of the NBBO.
Proposed Rule 928.1NYP(d) is identical to Arca Options Rule 6.41P-
O(d) and would provide the Automated Breach Action to be applied when a
Market Maker's order or quote fails one of the Price Reasonability
Checks. As proposed, if a Market Maker's order or quote message is
rejected or cancelled (if resting) pursuant to proposed paragraph (b)
(Arbitrage Checks) or (c) (Intrinsic Value Checks) of proposed
[[Page 45754]]
Rule 928.1NYP, the Exchange would Cancel and Block orders and quotes in
the affected class of options as described in Rule 928NYP(c)(2)(C)(iii)
(as described above in section ``Proposed Rule 928NYP'').
Proposed Rule 928.1NYP(d)(1) is identical to Arca Options Rule
6.41P-O(d)(1) and would provide that a breach of proposed Rule
928.1NYP(d) would count towards a Market Maker's Global Risk Control
limit per proposed Rule 928NYP(a)(4) (as described above in section
``Proposed Rule 928NYP'').
Proposed Rule 928.1NYP(d)(2) is identical to Arca Options Rule
6.41P-O(d)(2) and concerns how a Market Maker would be reinstated
following an automated breach action. As proposed, the Exchange would
not reinstate the Market Maker's ability to enter orders and quotes and
related instructions on the Exchange in that class of options (other
than instructions to cancel one or more orders/quotes (including
Auction-Only Orders and orders designated GTC) in full) without the
consent of the Market Maker, which may be provided via automated
contact.
Rule 928.1NYP(d) is substantially similar to current Rule
967.1NY(b), except that the proposed rule applies to both the orders
and quotes of a Market Maker (not just quotes) and provides the
additional functionality that a breach of the Price Reasonability
Checks would count towards a Market Maker's Global Risk Control limit
under proposed Rule 928NYP(c)(3), which functionality would be new
under Pillar. The Exchange believes that the proposed new
functionality, which mirrors Arca Options Rule 6.41P-O(d), would
provide ATP Holders greater control and flexibility over setting risk
tolerance and exposure for both orders and quotes. In connection with
proposed Rule 928.1NYP, the Exchange proposes to add the following
preamble to Rules 967NY and 967.1NY: ``This Rule is not applicable to
trading on Pillar.'' This proposed preamble is designed to promote
clarity and transparency in Exchange rules that Rules 967NY and 967.1NY
would not be applicable to trading on Pillar.
Proposed Rule 952NYP: Auction Process
Current Rule 952NY sets forth the opening process currently used on
the Exchange System for opening trading in a series each day and
reopening trading in a series following a trading halt. Current Rule
952NY(a) defines the term ``Trading Auction'' as the process by which
trading is initiated in a specified options class that may be employed
at the opening of the Exchange each business day or to re-open trading
after a trading halt, and that Trading Auctions will be conducted
automatically by the Exchange System. Current Rules 952NY(b) and (c)
describe the manner for the automated Trading Auctions and provide
that, once the primary market for the underlying security disseminates
a quote and a trade that is at or within the quote, the Exchange System
then conducts an Auction Process (``current Auction Process'') whereby
the Exchange System determines a single price at which a series may be
opened by looking to the price at which the greatest number of
contracts can trade at or between the NBBO disseminated by OPRA.\104\
---------------------------------------------------------------------------
\104\ If the same number of contracts can trade at multiple
prices, the opening price is the price at which the greatest number
of contracts can trade that is at or nearest to the midpoint of the
NBBO disseminated by OPRA; unless one such price is equal to the
price of any resting Limit Order(s) in which case the opening price
is the same price as the Limit Order(s) with the greatest size and,
if the same size, the highest price and if there is a tie between
price levels and no Limit Orders exist at either of the prices, the
Exchange uses the higher price. See Rule 952NY(c).
---------------------------------------------------------------------------
As described in Rule 952NY(b)(D), the Exchange will not conduct the
current Auction Process to open a series if the bid-ask differential
for that series is not within an acceptable range, i.e., is not within
the bid-ask differential guidelines established in Rule
925NY(b)(4).\105\ If a series does not open for trading, Market and
Limit Orders entered in advance of the current Auction Process remain
in the Consolidated Book and will not be routed, even if another
exchange opens that series for trading and such resting orders become
Marketable against the ABBO.\106\
---------------------------------------------------------------------------
\105\ Because Rule 952NY(b)(D) cross-references the bid-ask
differential requirement of Rule 925NY(b)(4), which relates to the
obligations of Market Makers in appointed classes, the Exchange will
not open a series for trading if the NBBO disseminated by OPRA in a
series is not within such bid-ask differentials.
\106\ The term ``Marketable'' is defined in Rule 900.2NY to
mean, for a Limit Order, an order that can be immediately executed
or routed and Market Orders are always considered marketable.
---------------------------------------------------------------------------
The Exchange proposes that new Rule 952NYP which is identical to
Arca Options Rule 6.64P-O would set forth the automated process for
both opening and reopening trading in a series on the Exchange on
Pillar. The Exchange proposes to specify that current Rule 952NY would
not be applicable to trading on Pillar. With the transition to Pillar,
the fundamental process of how an option series would be opened (or
reopened) on the Exchange would not materially change because the
Exchange would continue to assess whether a series can be opened based
on whether the bid-ask differential for a series is within a specified
range. However, with the availability of Pillar technology, the
Exchange proposes differences to the proposed auction process that
mirror Arca Options Rule 6.64P-O and are designed to provide additional
opportunities for an options series to open or reopen for trading even
if the bid-ask differential is wider than the specified guidelines. The
Exchange notes that other options exchanges also provide additional
opportunities for a series to open after a specified period of time in
a wide market.\107\ In addition, the Exchange proposes to specify
minimum time periods to allow a Market Maker(s) to quote in an assigned
series before the series is opened or reopened. With the proposed
Auction Process, described further below, the Exchange endeavors to
attract the highest quality quote for each series at the open to
attract order flow for the auction. While the Exchange does not require
Market Makers assigned to a series to quote before a series can be
opened (or reopened), the Exchange believes that providing time for
such Market Makers to do so would provide both better and more
consistent prices on executions to ATP Holders in an Auction and a
smoother transition to continuous trading. In addition, the Exchange
believes that the proposed changes would enhance the opening/reopening
process on the Exchange by providing a transparent and deterministic
process for the Exchange to open additional series for trading.
---------------------------------------------------------------------------
\107\ For example, in 2021, Cboe amended its opening process set
forth in Cboe Rule 5.31 to provide for a ``forced opening'' process
that is used if an option class is unable to open because it does
not meet the applicable bid-ask differential. In such case, if the
``Composite Market'' is not crossed and there is no non-zero offer,
within a specified time period, Cboe will open the series without a
trade. See Securities Exchange Act Release No. 90967 (January 22,
2021), 86 FR 7249 (January 28, 2021) (SR-Cboe-2021-005) (Notice of
filing and immediate effectiveness of proposed rule change to amend
Cboe's opening process for simple orders).
---------------------------------------------------------------------------
Further, the Exchange proposes additional enhancements (and details
them in the rule) that mirror Arca Options Rule 6.64P-O relating to how
orders and quotes would be processed if they arrive during the period
when the Exchange is processing an Auction and how the Exchange would
process orders and quotes when it transitions to continuous trading
following an Auction. Accordingly, the structure of proposed Rule
952NYP is identical to Arca Options Rule 6.64P-O and includes a
description of how the Exchange would process orders and quotes during
a trading halt, which
[[Page 45755]]
would provide granularity and transparency in Exchange rules.
Definitions. Proposed Rule 952NYP(a) contains proposed definitions
for options trading on Pillar that are identical to those set forth in
Arca Options Rule 6.64P-O(a) and would provide that the proposed Rule
would be applicable to all series that trade on the Exchange other than
Flex Options.\108\
---------------------------------------------------------------------------
\108\ With the transition to Pillar, the Exchange is not making
any changes to how Flex Options trade. Rule 901G provides that Flex
Options transactions may be effected during normal Exchange options
trading hours on any business day and Rule 902G provides that there
will be no trading rotations in Flex Options. Rule 904G sets forth
the procedures for trading Flex Options. The opening process for
Electronic Complex Orders is set forth in Rule 980NY. The opening
process for Electronic Complex Orders is set forth in Rule 980NY. In
connection with the transition to Pillar, the Exchange has adopted
new Rule 980NYP regarding complex trading on Pillar. See the Pillar
Complex Approval Order, supra note 66.
---------------------------------------------------------------------------
Proposed Rule 952NYP(a)(1) is identical to Arca Options
Rule 6.64P-O(a)(1) and would define the term ``Auction'' to mean the
opening or reopening of a series for trading either with or without a
trade. This proposed definition is based in part on current Rule
952NY(a), which defines the term ``Trading Auction'' to be a process by
which trading is initiated in a specified options class that may be
employed at the opening of the Exchange each business day or to re-open
trading after a trading halt.\109\ On Pillar, the Exchange proposes
that the term ``Auction'' would refer to the point in the process where
the Exchange determines that a series can be opened or reopened either
with or without a trade. After an Auction concludes, the series then
transitions to continuous trading. Proposed Rules 952NYP(a)(1)(A)-(B)
are identical to Arca Options Rule 6.64P-O(a)(1)(A)-(B). Proposed Rule
952NYP(a)(1)(A) would provide that a ``Core Open Auction'' means the
Auction that opens trading after the beginning of Core Trading Hours
and proposed Rule 952NYP(a)(1)(B) would provide that a ``Trading Halt
Auction'' means the Auction that reopens trading following a trading
halt. These are Pillar terms that would be new to options trading on
the Exchange.
---------------------------------------------------------------------------
\109\ See also Rule 952NY(e) (providing that a Trading Auction
to reopen an option class after a trading halt is conducted in the
same manner as a Trading Auction to open each option class at the
start of each trading day, i.e., as described in Rule 952NY(a)-(d)).
---------------------------------------------------------------------------
Proposed Rule 952NYP(a)(2) is identical to Arca Options
Rule 6.64P-O(a)(2) and would define the term ``Auction Collar'' to mean
the price collar thresholds for the Indicative Match Price (defined
below) for an Auction. As further proposed, the upper Auction Collar
would be the offer of the Legal Width Quote (defined below) and the
lower Auction Collar would be the bid of the Legal Width Quote,
provided that if the bid of the Legal Width Quote is zero, the lower
Auction Collar would be one MPV above zero for the series (per proposed
Rule 952NYP(a)(2)(A), which is identical to Arca Options Rule 6.62P-
O(a)(2)(A)). In addition, as proposed, if there is no Legal Width
Quote, the Auction Collars would be published in the Auction Imbalance
Information (defined below) as zero (per proposed Rule 952NYP(a)(2)(B),
which is identical to Arca Options Rule 6.62P-O(a)(2)(B)).
As proposed, the Auction Collars would be set at the Legal Width
Quote (described below) and would prevent an Auction trade from
occurring at a price outside of the Legal Width Quote. The Exchange
believes that the concept of Auction Collars is similar to the current
requirement that the Exchange will not open a series if the bid-ask
differential is not within the bid-ask differential guidelines
established under Rule 925NY(b)(4).\110\ Thus, the proposed Auction
Collars (based on a Legal Width Quote) would use Pillar terminology to
prevent an Auction that results in a trade from being priced outside
the bid-ask differential applicable to Auctions on Pillar.\111\
---------------------------------------------------------------------------
\110\ See Rule 952NY(b)(D) and (E). The Exchange notes that in
common parlance bid-ask differentials are known as ``legal-width
quotes.''
\111\ See also Cboe Rule 5.31(a) (defining the ``Opening
Collar'' as the price range that establishes limits at or inside of
which Cboe determines the opening trade price for a series).
---------------------------------------------------------------------------
Proposed Rule 952NYP(a)(3) is identical to Arca Options Rule 6.64P-
O(a)(3) and would define the term ``Auction Imbalance Information'' to
mean the information that the Exchange disseminates about an Auction
via its proprietary data feeds and includes the Auction Collars,
Auction Indicator, Book Clearing Price, Far Clearing Price, Indicative
Match Price, Matched Volume, Market Imbalance, and Total Imbalance.
With Pillar, the Exchange proposes to disseminate Auction Imbalance
Information in the same manner that such information is disseminated on
Arca Options. The Exchange currently makes certain auction imbalance
information available on its proprietary data feed and the Exchange
believes that enhancing this information by disseminating the proposed
Auction Collars, Auction Indicator, Book Clearing Price, and Far
Clearing Price, which would be new for the Exchange, would promote
transparency. In addition, the Exchange proposes that the Auction
Imbalance Information would reflect the quotes and orders eligible to
participate in an Auction, which contribute to price discovery. As
such, proposed Rule 952NYP(a)(3) (like Arca Options Rule 6.64P-O(a)(3))
would further provide that Auction Imbalance Information would be based
on all quotes and orders (including the non-displayed quantity of
Reserve Orders) eligible to participate in an Auction, excluding IO
Orders. The Exchange believes that specifying that the non-displayed
quantity of Reserve Orders would be included in the Auction Imbalance
Information is consistent with current functionality that the full
quantity of Reserve Orders are eligible to participate in the current
Auction Process.
Proposed Rule 952NYP(a)(3)(A) is identical to Arca Options Rule
6.64P-O(a)(3)(A) and would define the term ``Auction Indicator'' to
mean the indicator that provides a status update of whether an Auction
cannot be conducted because either (i) there is no Legal Width Quote,
or (ii) a Market Maker quote has not been received during the
parameters of the Opening MMQ Timer(s) (defined below). This proposed
definition would be new for the Exchange and would provide transparency
of when an Auction could not be conducted.\112\
---------------------------------------------------------------------------
\112\ Consistent with the proposed rule, Rule 952NY(b)(D)
provides that the Exchange will not conduct the current Auction
Process if the bid-ask differential for a series is not within an
acceptable range.
---------------------------------------------------------------------------
Proposed Rule 952NYP(a)(3)(B) is identical to Arca Options Rule
6.64P-O(a)(3)(B) and would define the term ``Book Clearing Price'' to
mean the price at which all contracts could be traded in an Auction if
not subject to the Auction Collar and states that the Book Clearing
Price would be zero if a sell (buy) Imbalance cannot be filled by any
buy (sell) interest. The Exchange proposes that the manner that the
Book Clearing Price would be calculated would be identical to how it is
calculated per Arca Options Rule 6.64P-O(a)(3)(B).
Proposed Rule 952NYP(a)(3)(C) is identical to Arca Options Rule
6.64P-O(a)(3)(C) and would define the term ``Far Clearing Price'' to
mean the price at which Auction-Only Orders could be traded in an
Auction within the Auction Collar. The Exchange proposes that the
manner that the Far Clearing Price would be calculated would be
identical to how it is calculated per Arca Options Rule 6.64P-
O(a)(3)(C).
Proposed Rule 952NYP(a)(3)(D) is identical to Arca Options Rule
6.64P-O(a)(3)(D) and would define the term
[[Page 45756]]
``Imbalance'' to mean the number of buy (sell) contracts that cannot be
matched with sell (buy) contracts at the Indicative Match Price at any
given time. The Exchange proposes to calculate the Imbalance in a
manner identical to how it is calculated per Arca Options Rule 6.64P-
O(a)(3)(D).
Proposed Rule 952NYP(a)(3)(D)(i) is identical to Arca Options Rule
6.64P-O(a)(3)(D)(i) and would define the term ``Total Imbalance'' to
mean the Imbalance of all buy (sell) contracts at the Indicative Match
Price for all orders and quotes eligible to trade in an Auction. The
Exchange proposes to calculate the Total Imbalance in a manner
identical to how it is calculated per Arca Options Rule 6.64P-
O(a)(3)(D)(i). Proposed Rule 952NYP(a)(3)(D)(ii) is identical to Arca
Options Rule 6.64P-O(a)(3)(D)(ii) and would define the term ``Market
Imbalance'' to mean the Imbalance of any remaining buy (sell) Market
Orders and MOO Orders that are not matched for trading in the Auction.
The Exchange proposes to calculate the Market Imbalance in a manner
identical to how it is calculated per Arca Options Rule 6.64P-
O(a)(3)(D)(ii).
Proposed Rule 952NYP(a)(4) is identical to Arca Options
Rule 6.64P-O(a)(4) and would define the term ``Auction Price'' to mean
the price at which an Auction that results in a trade is conducted.
This proposed definition is designed to add clarity and transparency to
Exchange rules as this term would be used as a reference price in
proposed Rules 900.3NYP(a)(3)(B), 900.3NYP(a)(4)(B), and
928.1NYP(c)(4)(B).\113\
---------------------------------------------------------------------------
\113\ See also Cboe Rule 5.31(a) (defining the ``Opening Trade
Price'' as the price at which Cboe executes opening trades in a
series). The Exchange notes that the term ``Auction Price'' is
distinguished from the proposed term of ``Indicative Match Price,''
as the latter term is the content included in the Auction Imbalance
Information in advance of an Auction, and the Auction Price is the
price of an Auction that results in a trade.
---------------------------------------------------------------------------
Proposed Rule 952NYP(a)(5) is identical to Arca Options Rule 6.64P-
O(a)(5) and would define the term ``Auction Process'' to mean the
process that begins when the Exchange receives an Auction Trigger
(defined below) for a series and ends when the Auction is conducted.
This proposed term is designed to add clarity and transparency to
Exchange rules and address all steps in the process that culminates in
an Auction, as described in proposed Rule 952NYP(d).
[cir] Proposed Rule 952NYP(a)(5)(i) is identical to Arca Options
Rule 6.64P-O(a)(5)(i) and would define the term ``initial Auction
Process time period'' as an Exchange-determined time period after the
commencement of the Auction Process as specified by Trader Update. This
term describes the period after which the Exchange may transition an
option series to continuous trading pursuant to proposed Rule
952NYP(d)(4), as discussed below.
Proposed Rule 952NYP(a)(6) is identical to Arca Options
Rule 6.64P-O(a)(6) and would define the term ``Auction Processing
Period'' to mean the period during which the Auction is being
processed. The Auction Processing Period is at the end of the Auction
Process and is the period when the actual Auction is conducted and the
Exchange transitions from a pre-open state (described below) to
continuous trading. The end of the Auction Processing Period is the end
of the Auction and, depending on the orders and quotes in the
Consolidated Book, it concludes either with or without a trade.
Proposed Rule 952NYP(a)(7) is identical to Arca Options
Rule 6.64P-O(a)(7) and would define the term ``Auction Trigger'' to
mean the information disseminated by the Primary Market in the
underlying security that triggers the Auction Process for a series to
begin. For a Core Open Auction, the proposed Auction Trigger would be
when the Primary Market first disseminates at or after 9:30 a.m.
Eastern Time both a two-sided quote and a trade of any size that is at
or within the quote per proposed Rule 952NYP(a)(7)(A), which is
identical to Arca Options Rule 6.64P-O(a)(7)(A). For a Trading Halt
Auction, the proposed Auction Trigger would be when the Primary Market
disseminates at the end of a trading halt or pause a resume message, a
two-sided quote, and a trade of any size that is at or within the
quote, per proposed Rule 952NYP(a)(7)(B), which is identical to Arca
Options Rule 6.64P-O(a)(7)(B).
This proposed term is also based on how the Exchange currently
opens or reopens a series for trading, as set forth in the last
sentence of current Rule 952NY(b).\114\ The proposed rule adds detail
not found in the current rule by referring to a ``two-sided quote''
rather than a ``quote,'' without any changes to functionality. The
Exchange also proposes a difference that an opening trade on the
Primary Market may be ``of any size,'' which would make clear that an
odd-lot transaction on the Primary Market could be used as an Auction
Trigger, which would be new on Pillar. The Exchange believes that
because it requires both a quote and a trade from the Primary Market
before it can open/reopen trading in the overlying option, and because
a Primary Market that has disseminated a quote for an underlying
security is open for trading, allowing odd-lot sized trades to be
included in the trigger would increase the opportunities to open/reopen
trading options that overlay low-volume securities that have opened for
trading on the Primary Market and would reduce the circumstances needed
to manually trigger an Auction for a series.
---------------------------------------------------------------------------
\114\ Rule 952NY(b) provides, in relevant part, that the related
option series will be opened automatically ``once the primary market
for the underlying security disseminates a quote and a trade that is
at or within the quote.''
---------------------------------------------------------------------------
Proposed Rule 952NYP(a)(8) is identical to Arca Options
Rule 6.64P-O(a)(8) and would define the term ``Calculated NBBO'' to
mean the highest bid and lowest offer among all Market Maker quotes and
the ABBO during the Auction Process. The Exchange proposes to use the
term ``Calculated NBBO'' to specify which bids and offers the Exchange
would consider for purposes of determining whether to proceed with an
Auction on Pillar, as described in greater detail below. The Exchange
believes the proposed term provides more clarity than referencing an
``NBBO disseminated by OPRA'' and is consistent with the proposed
definition of ABBO, which by its terms is disseminated by OPRA.\115\
---------------------------------------------------------------------------
\115\ The Exchange notes that the information used to calculate
the proposed Calculated NBBO is consistent with the information that
the Exchange receives from OPRA in advance of the Exchange opening
or reopening trading (i.e., Market Maker rotational quotes from the
Exchange and ABBO) and is similar to Cboe's definition of
``Composite Market,'' as described in Cboe Rule 5.31(a), which
includes Cboe Market Maker quotes and BBOs of other options
exchanges.
---------------------------------------------------------------------------
Proposed Rule 952NYP(a)(9) is identical to Arca Options
Rule 6.64P-O(a)(9) and would define the term ``Indicative Match Price''
to mean the price at which the maximum number of contracts can be
traded in an Auction, including the non-displayed quantity of Reserve
Orders, and excluding IO Orders, subject to the Auction Collars. This
functionality is consistent with the current process for establishing a
single opening price, as described in Rule 952NY(b)(A), but the
proposed rule adds more granularity and uses Pillar terminology.\116\
In addition, the term ``Indicative Match Price'' refers to the same
functionality as the Exchange System's reference to the term
``reference price'' in its imbalance information. Proposed Rule
952NYP(a)(9) (like Arca Options Rule 6.64P-O(a)(9)) would further
provide that if there is no Legal Width Quote,
[[Page 45757]]
the Indicative Match Price included in the Auction Imbalance
Information would be calculated without Auction Collars. This would be
a new feature applicable to options trading on the Exchange and an
Indicative Match Price without Auction Collars would be accompanied
with an Auction Indicator that the Auction cannot be conducted because
there is no Legal Width Quote.\117\
---------------------------------------------------------------------------
\116\ See Rules 952NY(b)(A) and (c) (describing process for
determining single opening price).
\117\ Currently, if there is no legal width NBBO, the Exchange
does not disseminate imbalance information and does not calculate an
indicative match price.
---------------------------------------------------------------------------
Proposed Rule 952NYP(a)(9)(A) is identical to Arca Options Rule
6.64P-O(a)(9)(A) and would provide that if there is more than one price
level at which the maximum number of contracts can be traded within the
Auction Collars, the Indicative Match Price would be the price closest
to the midpoint of the Legal Width Quote, rounded to the nearest MPV
for the series, provided that the Indicative Match Price would not be
lower (higher) than the highest (lowest) price of a Limit Order to buy
(sell) ranked Priority 2--Display Orders that is eligible to
participate in the Auction. This functionality is similar to the
current process for establishing a single opening price, as described
in Rule 952NY(c), which provides that when the same number of contracts
can trade at multiple prices, the opening price is the price at which
the greatest number of contracts can trade that is at or nearest to the
midpoint of the NBBO disseminated by OPRA. The proposed rule text
provides more granularity, such as describing that the Exchange would
round to the nearest MPV in the series, which is consistent with
current functionality.
Proposed Rule 952NYP(a)(9)(B) is identical to Arca Options Rule
6.64P-O(a)(9)(B) and would provide that an Indicative Match Price that
is higher (lower) than the upper (lower) Auction Collar would be
adjusted to the upper (lower) Auction Collar and orders eligible to
participate in the Auction would trade at the collared Indicative Match
Price. Proposed Rule 952NYP(a)(9)(B)(i) is identical to Arca Options
Rule 6.64P-O(a)(9)(B)(i) and would provide that Limit Orders to buy
(sell) with a limit price above (below) the upper (lower) Auction
Collar would be included in the Auction Imbalance Information at the
collared Indicative Match Price and would be eligible to trade at the
Indicative Match Price. This proposed rule text provides granularity
that, consistent with current functionality, orders willing to buy
(sell) at a higher (lower) price than the Auction Price would
participate in an Auction trade, which, by definition, would be
required to be at or between the Auction Collars. Proposed Rule
952NYP(a)(9)(B)(ii) is identical to Arca Options Rule 6.64P-
O(a)(9)(B)(ii) and would provide that Limit Orders and quotes to buy
(sell) with a limit price below (above) the lower (upper) Auction
Collar would not be included in the Auction Imbalance Information and
would not participate in an Auction. This proposed rule text provides
granularity that is consistent with current functionality.
Proposed Rule 952NYP(a)(9)(C) is identical to Arca Options Rule
6.64P-O(a)(9)(C) and would provide that if the Matched Volume (defined
below) for an Auction consists of only buy and sell Market Orders, the
Indicative Match Price would be the midpoint of the Legal Width Quote,
rounded to the MPV for the series, or, if, the Legal Width Quote is
locked, then the locked price. This proposed rule text is designed to
provide granularity of how the Indicative Match Price would be
calculated if there are only Market Orders.
Proposed Rule 952NYP(a)(9)(D) is identical to Arca Options Rule
6.64P-O(a)(9)(D) and would provide that if there is no Matched Volume,
including if there are Market Orders on only one side of the Market,
the Indicative Match Price and Total Imbalance for the Auction
Imbalance Information would be zero. This proposed rule text is
designed to provide granularity regarding how the Indicative Match
Price and Total Imbalance for the Auction Imbalance Information would
be calculated if there is no Matched Volume.
Proposed Rule 952NYP(a)(10) is identical to Arca Options
Rule 6.64P-O(a)(10) and would define a ``Legal Width Quote'' as a
Calculated NBBO that: (A) may be locked, but not crossed; (B) does not
contain a zero offer; and (C) has a spread between the Calculated NBBO
for each option contract that does not exceed a maximum differential
that is determined by the Exchange on a class basis, which amount may
be modified during the Auction Process, and such maximum differentials
(and modifications thereto) would be announced by Trader Update (as
discussed further below, provided that a Trading Official may establish
differences other than the above for one or more series or classes of
options).\118\ Requiring that the Legal Width Quote not be crossed is
consistent with current Rule 952NY(b)(E) (and identical to Arca Options
Rule 6.64P-O(a)(10)), both of which require an uncrossed NBBO
disseminated by OPRA before a series can be opened (or reopened).\119\
The Exchange believes that the additional detail in proposed Rules
952NYP(a)(10)(A) and (B) regarding how to determine a Legal Width Quote
provides clarity and granularity as to when a Calculated NBBO would be
eligible to be considered a Legal Width Quote. In addition, requiring
that the Calculated NBBO must not exceed a maximum differential before
an Auction can proceed is based on the current Exchange System Opening
Process, which requires the bid-ask differential for a series to be in
an acceptable range.\120\ However, rather than specify maximum bid-ask
differentials in proposed Rule 952NYP, the Exchange believes it is
appropriate to instead retain flexibility to set the maximum
differentials so that the Exchange may consider the different market
models and characteristics of different classes, as well as modify
amounts in response to then-current market conditions.\121\ The
proposed Rule would allow the Exchange to modify these bid-ask
differentials at any time as it deems necessary and appropriate, which
discretion the Exchange has today on the Exchange System.\122\ In
addition,
[[Page 45758]]
allowing the Exchange to announce the maximum differentials by Trader
Update (as opposed to by Rule) is identical to Options Rule 6.64P-
O(a)(10), and consistent with the rules of several options exchanges
that likewise may change the amounts of valid opening widths by notice
or circular rather than by Rule change.\123\
---------------------------------------------------------------------------
\118\ See Rule 925NY(c) (Unusual Conditions--Opening Auction)
(providing that ``[i[f the interest of maintaining a fair and
orderly market so requires, a Trading Official may declare that
unusual market conditions exist in a particular issue and allow
Market Makers in that issue to make auction bids and offers with
spread differentials of up to two times, or in exceptional
circumstances, up to three times, the legal limits permitted under
Rule 925NY'').
\119\ The proposed calculation of a Legal Width Quote is also
similar to how Cboe determines whether to perform a ``Forced
Opening,'' because Cboe requires a Composite Market that is not
crossed with a non-zero offer. See Cboe Rule 5.31(e)(4).
\120\ See Rule 952NY(b)(D) (providing that ``[t]he System will
not conduct an Auction Process if the bid-ask differential for that
series is not within an acceptable range,'' which ``acceptable range
shall mean within the bid-ask differential guidelines established
pursuant to Rule 952NY(b)(4)'').
\121\ See also Cboe Rule 5.31(a) (regarding the definition of
``Maximum Composite Width'' (i.e., the amount that the ``Composite
Width'' of a series may generally not be greater than for the series
to open), which term is used similarly to how the Exchange proposes
to use the term ``Legal Width Quote,'' which provides that Cboe may
determine such amounts ``on a class and Composite bid basis, which
amount [Cboe] may modify during the opening auction process'' and
disseminate ``to all subscribers of [Cboe's] data feeds that deliver
opening auction updates''). See id.
\122\ See supra note 118 (regarding authority conferred on
Trading Officials, per Rule 925NY(c), to make auction bids and
offers with spread differentials of up to two times, or in
exceptional circumstances, up to three times, the legal limits,
``[i[f the interest of maintaining a fair and orderly market so
requires'').
\123\ See, e.g., Cboe Rule 5.31(a) (definition of Maximum
Composite Width); Cboe EDGX Options Exchange, Inc. (``EDGX'') Rule
21.7(a) (same); BZX Rule 21.7(a) (same)); Cboe C2 Exchange Inc.
(``C2'') Rule 6.11(a) (same); see also Nasdaq Options Market
(``NOM'') Options 3, Section 8(a)(6) (defining ``Valid Width NBBO''
as ``the combination of all away market quotes and any combination
of NOM-registered Market Maker orders and quotes received over the
QUO or SQF Protocols within a specified bid/ask differential as
established and published by the Exchange'' and allowing the Valid
Width NBBO to be ``configurable by underlying, and tables with valid
width differentials will be posted by Nasdaq on its website'') and
MIAX Rule 503(f)(2) (which permits MIAX to determine by circular an
acceptable range in which openings are permissible if there is no
valid width national best bid or offer (``NBBO'')).
---------------------------------------------------------------------------
The Exchange believes that the proposed definition relating to
``Legal Width Quote'' would promote clarity and transparency in
Exchange rules regarding which quotes--both Market Maker quotes on the
Exchange and the ABBO, i.e., the Calculated NBBO--that the Exchange
would use to determine if there is a Legal Width Quote and provide
direction that to be a Legal Width Quote, a Calculated NBBO may not
exceed a maximum differential.
The Exchange also proposes to make a conforming change to Rule
925NY(c) to update the title from ``Unusual Conditions--Opening
Auction'' to be ``Unusual Conditions--Auctions,'' which would align
with the proposed definition of ``Auctions'' in proposed Rule
952NYP(a), which includes both opening and reopening auctions, which
change mirrors Arca Options Rule 6.37-O(c). This proposed change also
promotes clarity, consistent with current functionality that Rule
925NY(c) is also applicable to reopenings. In addition, the Exchange
proposes to amend Rule 925NY(c), which authorizes a Trading Official to
widen the bid-ask differentials in the event of unusual conditions, to
add a cross-reference to extend such authority to proposed Rule
952NYP(a)(10) (regarding the Legal Width Quote spreads). This proposed
amendment would ensure that the existing procedures for auctions in the
event of unusual conditions, as specified in Rule 925NY(c), would
continue to be available for option symbols that have transitioned to
Pillar (and subject to new Rule 952NYP(a)(10)).
Proposed Rule 952NYP(a)(11) is identical to Arca Options
Rule 6.64P-O(a)(11) and would define the term ``Matched Volume'' to
mean the number of buy and sell contracts that can be matched at the
Indicative Match Price, excluding IO Orders. The Exchange believes this
proposed definition promotes granularity in Exchange rules.
Proposed Rule 952NYP(a)(12) is identical to Arca Options
Rule 6.64P-O(a)(12) and would define the term ``pre-open state'' to
mean the period before a series is opened or reopened for trading and
would provide that during the pre-open state, the Exchange would accept
Auction-Only Orders, quotes, and orders designated Day or GTC,
including orders ranked under the proposed category of ``Priority 3--
Non-Display Orders'' that are not eligible to participate in an
Auction.\124\ This proposed text is consistent with current Rule
952NY(b), which provides that the Exchange will accept market and limit
orders for inclusion in the opening auction process and would add
further granularity regarding which interest would be accepted by the
Exchange (even if not eligible for an Auction) prior to the opening or
reopening of each option series and during which time period.
---------------------------------------------------------------------------
\124\ The Exchange notes that Cboe refers to a similar period as
the ``Queuing Period.'' See Cboe Rule 5.31(b). Similar to Cboe's
Queuing Period, the proposed term of ``pre-open state'' means the
period when the Exchange accepts orders and quotes but has not yet
opened/reopened a series for continuous trading. The proposed
``Auction Process,'' defined above, is part of the pre-open state,
but does not begin until the Exchange receives an Auction Trigger,
as defined above.
---------------------------------------------------------------------------
[cir] The proposed rule would further provide that the pre-open
state for the Core Open Auction would begin at 6:00 a.m. Eastern Time
and would end when the Auction Processing Period begins, which is
similar to current functionality, which allows order and quote entry to
begin at 5:30 a.m. Eastern Time (per proposed Rule 952NYP(a)(12)(A),
which is identical to Arca Options Rule 6.64P-O(a)(12)(A)). The
Exchange believes that moving the start time to 6:00 a.m. Eastern Time
would not materially impact the ability of ATP Holders to enter orders
or quotes during the pre-open state. As further proposed (and identical
to Arca Options), at the beginning of the pre-open state before the
Core Open Auction, orders designated GTC that remain from the prior
trading day would be included in the Consolidated Book, which is
consistent with current functionality.
[cir] The proposed rule would also provide that the pre-open state
for a Trading Halt Auction would begin at the beginning of the trading
halt and would end when the Auction Processing Period begins (per
proposed Rule 952NYP(a)(12)(B), which is identical to Arca Options Rule
6.64P-O(a)(12)(B)).
This proposed definition of a pre-open state is identical to Arca
Options Rule 6.64P-O(a)(12) and is designed to distinguish the pre-open
state (for a Core Open Auction or a Trading Halt Auction) from both the
Auction Processing Period and the period when a given series opens for
trading, thus adding granularity to Exchange rules. As noted above,
this proposed definition of pre-open state would also be used in
proposed Rules 928NYP, 928.1NYP, and 900.3NYP, which use is identical
to how this term is used in the analogous Arca Options Rules 6.40P-O,
6.41P-O, and 6.62P-O.
Proposed Rule 952NYP(a)(13) is identical to Arca Options
Rule 6.64P-O(a)(13) and would define the term ``Rotational Quote'' to
mean the highest Market Maker bid and lowest Market Maker offer on the
Exchange when the Auction Process begins and would provide that during
the Auction Process, the Exchange would update the price and size of
the Rotational Quote and that such Rotational Quote can be locked or
crossed. The Exchange further proposes that, if there are no Market
Maker quotes, the Rotational Quote would be published with a zero price
and size. The Exchange notes that, although not specified in the
current rule, it currently disseminates a ``rotational quote'' to OPRA
when it is in the process of opening or reopening a series, i.e., a
quote that is comprised only of Market Maker quotes and does not
include orders. The Exchange proposes a difference on Pillar because
currently, if the Market Maker quotes are crossed, the Exchange flips
the bid and offer prices. In Pillar, the Exchange would publish a
Rotational Quote with the actual bid and offer prices, even if crossed,
which would provide ATP Holders with a more accurate view of whether a
Rotational Quote is crossed. This proposed definition adds granularity
to Exchange rules by codifying existing (albeit slightly modified)
functionality.
Auction Ranking and Allocation. Proposed Rule 952NYP(b) is
identical to Arca Options Rule 6.64P-O(b) insofar as it would provide
that orders and quotes on the side of the Imbalance are not guaranteed
to participate in the Auction but would differ in that it would address
allocation (discussed below) and would provide that orders and quotes
would be ranked pursuant to Rule 964NYP(c)-(g). Further, with regard to
ranking (and identical to Arca
[[Page 45759]]
Options Rule 6.64P-O(b)), proposed Rule 952NYP(b) would provide that:
(1) Limit Orders, quotes, and LOO Orders would be ranked based on their
limit price and not the price at which they would participate in the
Auction; (2) MOO Orders would be ranked under the proposed category of
``Priority 1--Market Orders''; (3) LOO Orders would be ranked under the
proposed category of ``Priority 2--Display Orders''; and (4) IO Orders
would be ranked based on time among IO Orders, subject to eligibility
to participate at the Indicative Match Price based on their limit
price.\125\
---------------------------------------------------------------------------
\125\ See Rule 964NYP(e) (which provides that ``[a]t each price,
all orders and quotes are assigned a priority category, and, within
each priority category, Customer orders are ranked ahead of non-
Customer. If, at a price, there are no remaining orders or quotes in
a priority category, then same-priced interest in the next priority
category has priority.'').
---------------------------------------------------------------------------
In addition, proposed Rules 952NYP(b)(5)(A)-(B), would specify how
eligible orders and quotes would trade in the Auction, which would be
based on whether such orders and quotes are priced better than, or
equal to, the Auction Price.\126\ As proposed, orders and quotes priced
better than the Auction Price would trade based on their ranking \127\
and orders and quotes priced at the Auction Price would trade in
accordance with Rule 964NYP(j),\128\ provided that the participation
entitlement to a Directed Order Market Maker (``DOMM'') or Specialist
per Rule 964NYP(j)(4) is not available during the Auction.\129\ The
distinction between how better-priced and at-priced interest trades is
relevant to non-Customer interest because ``at-priced'' non-Customer
interest would trade on a size pro rata basis, whereas ``better-
priced'' non-Customer interest would not be subject to a pro rata
allocation. The Exchange proposes to make clear that participation
entitlements that may be available to a DOMM or a Specialist when the
execution price is the NBBO would not be available during the Auction
(i.e., before an option series is open for trading on the Exchange)
even though the execution price could be at the NBBO because such NBBO
would not include quotes from the Exchange.\130\ The Exchange believes
this proposed rule change would add clarity and transparency to
Exchange rules and would not interfere with the purpose of
participation entitlements--which is to encourage Market Makers to
quote at the NBBO during continuous trading.
---------------------------------------------------------------------------
\126\ For an Auction that results in a trade, the Auction Price
is the price at which such Auction is conducted. See proposed Rule
952NYP(a)(4).
\127\ See proposed Rule 952NYP(b)(5)(A). See also Rule 964NYP(c)
(providing that ``orders and quotes are ranked and maintained in the
Consolidated Book according to price-time priority,'' with the best-
priced interest ranked first). See also Rule 964NY(b)(1)(Price
Priority) (providing that ``[t]he highest bid has priority over all
other bids; and the lowest offer has priority over all other
offers.'').
\128\ This proposed allocation of orders and quotes during the
Auction Process is consistent with the recently approved allocation
of Electronic Complex Orders (``ECOs'') during the ECO Opening (or
Reopening) Auction Process on Pillar, which occurs after each leg of
a complex strategy has opened for trading. Specifically, eligible
ECOs are ranked per Rule 964NYP(c)-(g) and ECOs priced better than
the ECO Auction Price trade based on ranking and ECOs priced at the
ECO Auction Price trade per Rule 964NYP(j)). See Rule
980NYP(d)(3)(B)((iii).
\129\ See proposed Rule 952NYP(b)(5)(B). See also Rules
964NYP(j) (Order Execution) (providing how orders and quotes, at
each price, will be allocated against contra-side interest for
option series that are open for trading) and (j)(4) (providing for
fourth priority ``to interest ranked Priority 2--Display Limit
Orders that is eligible for the DOMM Guarantee or the Specialist
Pool Guarantee, as applicable, pursuant to paragraph (h) of this
Rule, provided that the execution price is the NBBO.'').
\130\ Rules 964NYP(h)(1) and (h)(2) describe participation
entitlements available to a DOMM or a Specialist when the execution
price is the NBBO.
---------------------------------------------------------------------------
This proposed rule is based in part on current Rule 952NY(b)(B),
which provides that ``[o]rders and quotes in the system will be matched
up with one another based on price-time priority, provided, however,
that orders will have priority over Market Maker quotes at the same
price.'' The Exchange proposes a difference in Pillar (identical to
Arca Options Rule 6.64P-O(b)), that orders in the same priority
category as quotes would not have priority over Market Maker quotes at
the same price, which distinction is an artifact of the Exchange's
existing system limitation. Instead, the Exchange proposes that orders
and Market Maker quotes in the same priority category would be ranked
pursuant to Rule 964NYP, which rule is described in the American
Priority Filing). In addition to mirroring the equal ranking of orders
and quotes by Arca Options, this handling is also consistent with how
other options markets handle orders and quotes during the opening
process.\131\
---------------------------------------------------------------------------
\131\ See Cboe Rule 5.31(e)(3)(i) (providing that Cboe
``prioritizes orders and quotes in the following order: market
orders, limit orders and quotes with prices better than the Opening
Trade Price, and orders and quotes at the Opening Trade Price'').
---------------------------------------------------------------------------
Auction Imbalance Information. Proposed Rule 952NYP(c) is identical
to Arca Options Rule 6.64P-O(c) and would provide that, unless
otherwise specified by Trader Update, Auction Imbalance Information
would be updated at least every second until the Auction is conducted,
unless there is no change to the information and would further provide
that the Exchange would begin disseminating Auction Imbalance
Information at the following times: (1) Core Open Auction Imbalance
Information would begin at 8:00 a.m. Eastern Time; and (2) Trading Halt
Auction Imbalance Information would begin at the beginning of the
trading halt.
Auction Process. Proposed Rule 952NYP(d) is identical to Arca
Options Rule 6.64P-O(d) and would set forth the Exchange's proposed
Auction Process on Pillar. Similar to current Exchange System
functionality, which requires that the bid-ask differential for a given
series be within an acceptable range before conducting an auction,
under Pillar, a series would not be opened or reopened on a trade if
there is no Legal Width Quote, which concept, as described above,
incorporates (almost identical) bid-ask differentials.\132\ As
described further below, the Exchange proposes that for Pillar, a
series should (ideally) also have Market Maker quotes and, as such,
proposes to provide time for Market Makers assigned to a series to
quote within the specified bid-ask differentials, and if Market Makers
do not quote within those time frames, determine whether to open or
reopen a series based on the ABBO. In addition to mirroring the opening
process described in Arca Options Rule 6.64P-O(d), this process is also
consistent with that used on other options exchanges.\133\
---------------------------------------------------------------------------
\132\ See supra note 120 (describing Rule 952NY(b)(D), which
provides that the Exchange will not conduct its current Auction
Process if the bid-ask differential for a series is not ``within an
acceptable range'').
\133\ See, e.g., Nasdaq PHLX (``PHLX'') Section 8(d), Options
Opening Process (providing that the Opening Process begins when (a)
a ``valid width'' (i.e., a bid/ask differential that is compliant
with PHLX Rule 1014(c)(i)(A)(1)(a)) specialist quote is submitted,
(b) valid width quotes from at least two PHLX market participants
have been submitted within 30 seconds of the opening trade or quote
in the underlying security from the primary exchange, or (c) after
30 seconds of the opening trade or quote in the underlying security
from the primary exchange, one PHLX market participant has submitted
a valid width quote).
---------------------------------------------------------------------------
Proposed Rule 952NYP(d)(1) is identical to Arca Options Rule 6.64P-
O(d)(1) and describes the process for disseminating the Rotational
Quote and would provide that when the Exchange receives the Auction
Trigger for a series, the Exchange would send a Rotational Quote to
both OPRA and proprietary data feeds indicating that the Exchange is in
the process of transitioning from a pre-open state to continuous
trading for that series. This proposed rule is consistent with current
functionality and is designed to promote granularity.
Proposed Rule 952NYP(d)(2) is identical to Arca Options Rule 6.64P-
O(d)(2) and would provide that once a Rotational Quote has been sent,
the Exchange would conduct an Auction provided there is both a Legal
Width
[[Page 45760]]
Quote and, if applicable, a Market Maker quote with a non-zero offer in
the series (which would be subject to the proposed requirements
relating to Market Maker quotes, including the proposed new Opening MMQ
Timer(s), as discussed further below per proposed Rule 952NYP(d)(3)).
The proposed rule would further provide that the Exchange would wait a
minimum of two milliseconds after disseminating the Rotational Quote
before an Auction could be conducted, which delay would be new and is
designed to enhance market quality by promoting price-forming displayed
liquidity to the benefit of all market participants. Because the
Rotational Quote is intended to provide notice that the Exchange will
begin transitioning from a pre-open state, the Exchange believes this
short delay will provide market participants with an opportunity to
participate in the Auction Process. This proposed rule text is designed
to provide transparency and determinism in Exchange rules regarding the
earliest potential time that a series could be opened (after the
Exchange receives an Auction Trigger), and subject to the series
meeting all other requirements for opening or reopening discussed
herein.
Subject to the requirements specified in proposed Rule
952NYP(d)(2), proposed Rule 952NYP(d)(2)(A) (which is identical to Arca
Options Rule 6.64P-O(d)(2)(A)) and would provide that if there is
Matched Volume that can trade at or within the Auction Collars, the
Auction would result in a trade at the Indicative Match Price, except
as specified in proposed Rule 952NYP(d)(4) below. Proposed Rule
952NYP(d)(2)(B) is identical to Arca Options Rule 6.64P-O(d)(2)(B) and
would provide that if there is no Matched Volume that can trade at or
within the Auction Collars, the Auction would not result in a trade and
the Exchange would transition to continuous trading as described in
proposed Rule 952NYP(f) (below) and the Auction would result in a
quote. This proposed rule is designed to provide transparency of when
an Auction would result in a trade.
Proposed Rule 952NYP(d)(3) is identical to Arca Options Rule 6.64P-
O(d)(3) and would specify the parameters of the Opening MMQ Timers,
which are designed to encourage (but would not require) Market Makers
to submit Legal-Width Quotes in connection with the automated opening
or reopening of a series. On the Exchange System, the Exchange does not
impose on Market Makers assigned to a series any special obligations in
connection with the opening process. On Pillar, the Exchange will
likewise not impose on such Market Makers any additional obligations at
the open.\134\ The Exchange believes that, rather than layer additional
requirements on the Market Making community, it would be more
beneficial to all market participants to employ alternative methods to
help ensure an orderly transition to continuous trading. As such, the
Exchange believes that the proposed so-called ``waterfall'' approach to
opening, which is identical to the process utilized on Arca Options,
would offer a number of checks that are intended to provide adequate
opportunity for a greater number of Market Makers to provide their
liquidity interest and help ensure increased liquidity at a level
commensurate with which the market is accustomed during continuous
trading on the Exchange. In short, although the Exchange does not
require a Market Maker assigned to a series to quote on the Exchange in
order to open or reopen a series for trading, the Exchange believes
that providing Market Makers assigned to a series the opportunity to do
so would promote a fair and orderly Auction process and facilitate a
fair and orderly transition to continuous trading.\135\ Accordingly,
the Exchange proposes to mirror the auction process set forth in Arca
Options Rule 6.64P-O and provide time for Market Makers assigned to a
series to quote within the specified bid-ask differentials before a
series would be opened or reopened for trading.
---------------------------------------------------------------------------
\134\ Although the Exchange does not require that Market Makers
assigned to a series quote at the open, once a series is opened for
trading, Market Makers are nonetheless required to continuously
fulfill their obligations to engage in a course of dealings
reasonably calculated to contribute to the maintenance of a fair and
orderly market.
\135\ Currently, neither Market Makers nor Specialists are
obligated to provide a quote before a series is opened or reopened,
which is why the proposed Pillar options Auction rule is designed to
provide Market Makers with time to submit their quotes so a series
can be opened.
---------------------------------------------------------------------------
Overall, the Exchange believes that the proposed waterfall approach
of setting minimum time periods for a Market Maker assigned to a series
to quote within the specified bid-ask differential before opening a
series, even if there is a Legal Width Quote, would appropriately
balance the benefits of increasing the opportunities for Market Makers
assigned to a series to enter quotations within the specified bid-ask
differential, with a timely series opening or reopening when there is a
Legal Width Quote even when it does not include Market Makers assigned
to the series.
In addition, the Exchange proposes to expand opportunities for its
designated liquidity providers--i.e., Market Makers--to enter the
market. As described in more detail below (and identical to Arca
Options Rule 6.64P-O(d)(3)), the Exchange proposes different time
lengths depending on the number of Market Makers assigned to a series.
For example, if there are no Market Makers assigned to a series, there
is no need to wait to open or reopen a series if there is a Legal Width
Quote based upon the disseminated ABBO. If there is one Market Maker
assigned to the series, the Exchange will delay opening (even if there
is a Legal Width Quote based upon the ABBO) to give the Market Maker
additional opportunity to provide liquidity. Furthermore, if there is
more than one Market Maker assigned to a series, the Exchange
designates longer periods to provide time for multiple Market Makers
assigned to the series the chance to quote within the specified bid-ask
differentials. The Exchange believes that providing additional
opportunity for its liquidity providers to enter the market would
result in deeper liquidity--which market participants have come to
expect in options with multiple assigned Market Makers, and a more
stable trading environment.
The Exchange does not believe that the proposed waterfall approach
would result in an undue burden on competition. As is the case per Arca
Options Rule 6.64P-O, Market Makers are encouraged but not required to
quote in their assigned series at the open, thus they are not subject
to additional obligations. The Exchange believes that encouraging,
rather than requiring, participation of such Market Makers at the open,
may increase the availability of Legal Width Quotes in more series,
thereby allowing more series to open. Improving the validity of the
opening price benefits all market participants and benefits the
reputation of the Exchange as being a venue that provides accurate
price discovery.
As part of the Auction Process, which is identical to the process
used on Arca Options, the Exchange proposes to utilize ``Opening MMQ
Timers,'' each of which would last for an Exchange-determined period,
the duration of which would be announced by Trader Update. As proposed,
once the Auction Process begins, the Exchange would begin one or more
Opening MMQ Timers for the Market Maker(s) assigned to a series to (opt
to) submit a quote with a non-zero offer.\136\ The proposed
[[Page 45761]]
rules describing Opening MMQ Timers are identical to Arca Options Rule
6.64P-O(d)(3)(A)-(C) and are designed to provide transparency in
Exchange rules of the circumstances of when the Exchange would wait to
open or reopen a series for trading if the assigned Market Maker(s) has
not submitted a quote within the specified time periods, as follows:
---------------------------------------------------------------------------
\136\ A Market Maker may send quotations only in the issues
included in its appointment, i.e., in series to which such Market
Maker is assigned. See proposed Rule 925.1NYP(a). See also proposed
Rules 925.1NYP(b) and (c) (setting forth continuous quoting
obligations of Specialists and Market Makers, respectively, which
obligations are identical to those set forth in Rule 925NY(b) and
(c)).
---------------------------------------------------------------------------
Proposed Rule 952NYP(d)(3)(A) is identical to Arca Options
Rule 6.64P-O(d)(3)(A) and would provide that if there are no Market
Makers assigned to a series, the Exchange would conduct an Auction in
that series based solely on a Legal Width Quote, without waiting for
the Opening MMQ Timer to end. As set forth in proposed Rules
952NYP(d)(2)(A) and (B) (which are identical to Arca Options Rules
6.64P-O(d)(2)(A) and (B)), if there is Matched Volume, this Auction
would result in a trade, otherwise, the series would transition to
continuous trading as described in proposed Rule 952NYP(f) below.
Proposed Rule 952NYP(d)(3)(B) is identical to Arca Options
Rule 6.64P-O(d)(3)(B) and would provide that if there is only one
Market Maker assigned to a series:
[cir] The Exchange would conduct the Auction, without waiting for
the Opening MMQ Timer to end, as soon as there is both a Legal Width
Quote and the assigned Market Maker has submitted a quote with a non-
zero offer (proposed Rule 952NYP(d)(3)(B)(i), which is identical to
Arca Options Rule 6.64P-O(d)(3)(B)(i)). As set forth in proposed Rules
952NYP(d)(2)(A) and (B), if there is Matched Volume, this Auction would
result in a trade, otherwise, the series would transition to continuous
trading as described in proposed Rule 952NYP(f) below.
[cir] If the Market Maker assigned to the series has not submitted
a quote with a non-zero offer by the end of the Opening MMQ Timer and
there is a Legal Width Quote, the Exchange would conduct the Auction
(proposed Rule 952NYP(d)(3)(B)(ii), which is identical to Arca Options
Rule 6.64P-O(d)(3)(B)(ii)). As set forth in proposed Rules
952NYP(d)(2)(A) and (B), if there is Matched Volume, this Auction would
result in a trade, otherwise, the series would transition to continuous
trading as described in proposed Rule 952NYP(f) below.
Proposed Rule 952NYP(d)(3)(C) is identical to Arca Options
Rule 6.64P-O(d)(3)(C) and would provide that if there are two or more
Market Makers assigned to a series:
[cir] The Exchange would conduct the Auction, without waiting for
the Opening MMQ Timer to end, as soon as there is both a Legal Width
Quote and at least two quotes with a non-zero offer have been submitted
by assigned Market Maker(s) (proposed Rule 952NYP(d)(3)(C)(i), which is
identical to Arca Options Rule 6.64P-O(d)(3)(C)(i)). As set forth in
proposed Rules 952NYP(d)(2)(A) and (B), if there is Matched Volume,
this Auction would result in a trade; otherwise, the series would
transition to continuous trading as described in proposed Rule
952NYP(f) below.
[cir] If the Exchange has not received at least two quotes with a
non-zero offer from any Market Maker(s) assigned to a series by the end
of the Opening MMQ Timer, the Exchange would begin a second Opening MMQ
Timer (of the same length) and during the second Opening MMQ Timer, the
Exchange would conduct the Auction, without waiting for the second
Opening MMQ Timer to end, if there is both a Legal Width Quote and at
least one Market Maker assigned to the series has submitted a quote
with a non-zero offer (proposed Rule 952NYP(d)(3)(C)(ii), which is
identical to Arca Options Rule 6.64P-O(d)(3)(C)(ii)). In such case, the
Exchange would not wait for the second Opening MMQ Timer to end.
Because the Exchange does not require a Market Maker assigned to a
series to quote before conducting an Auction, to reduce the potential
delay in opening or reopening a series, the Exchange believes that
during the second Opening MMQ Timer, it is appropriate to wait for only
one Market Maker to quote. As set forth in proposed Rules
952NYP(d)(2)(A) and (B), if there is Matched Volume, this Auction would
result in a trade; otherwise, the series would transition to continuous
trading as described in proposed Rule 952NYP(f) below.
[cir] If no Market Maker assigned to a series has submitted a quote
with a non-zero offer by the end of the second Opening MMQ Timer and
there is a Legal Width Quote, the Exchange would conduct the Auction
(proposed Rule 952NYP(d)(3)(C)(iii), which is identical to Arca Options
Rule 6.64P-O(d)(3)(C)(iii). As set forth in proposed Rules
952NYP(d)(2)(A) and (B), if there is Matched Volume, this Auction would
result in a trade, otherwise, the series would transition to continuous
trading as described in proposed Rule 952NYP(f) below.
As noted above, the proposed Auction Process is designed to attract
the highest quality quote for each series at the open to attract order
flow to the Auction. As such, the Exchange believes it is reasonable to
require more than one Opening MMQ Timer (with a maximum run time of one
minute--30 seconds x 2) to run when there are at least two Market
Makers because it allows the Exchange time to attract the best quote
from these market participants, which in turn should attract order flow
to the Exchange at the open (i.e., the Exchange can leverage the
highest bid and lowest offer from the various Market Makers that submit
quotes). The Exchange believes that if a Legal Width Quote is not
obtained in the first 30-second Opening MMQ Timer, it is to the benefit
of all market participants to begin a second Opening MMQ Timer to allow
the bid-ask differential to tighten before a series is opened. The
Exchange also believes that the process described in proposed Rule
952NYP(d)(3) (which is identical to Arca Options Rule 6.64P-O(d)(3))
would continue to encourage Market Makers to participate at the open,
which may increase the availability of Legal Width Quotes in more
series, thereby allowing more series to open in a timely manner. The
Exchange believes that expanding the opportunities for each Market
Maker to enter the market--whether by each Market Maker submitting one
quote or a single Market Maker submitting two quotes--could result in
the depth of liquidity that market participants have come to expect in
options with multiple assigned Market Makers, and a more stable trading
environment. The Exchange also believes the proposed rule would provide
more flexibility in terms of how market depth is achieved (i.e., based
on quotes from a single Market Maker as opposed to two) and may result
in a more timely and efficient opening process.
Proposed Rule 952NYP(d)(4) is identical to Arca Options Rule 6.64P-
O(d)(4) and would provide that, for any option series that has not
opened by the end of the initial Auction Process time period because
the Calculated NBBO is wider than the Legal Width Quote, if the
Calculated NBBO is not crossed and does not contain a zero offer, the
Exchange would transition to continuous trading as described in
proposed Rule 952NYP(f) below, after it first cancels Market Orders,
MOO Orders, and Limit Orders to buy (sell) priced equal to or higher
(lower) than the Indicative Match Price. In such case, the Auction
Process is not intended to
[[Page 45762]]
end with a trade, but it may result in a trade even if there is no
Legal Width Quote if orders or quotes arrive during the period when the
Exchange is evaluating the status of orders and quotes.
The Exchange proposes functionality for Pillar that is identical to
Arca Options Rule 6.64P-O(d)(4) to allow the Exchange to open a series
without a trade, i.e., transition to continuous trading as described in
proposed Rule 952NYP(f), when there is a Calculated NBBO that is wider
than the Legal Width Quote (a ``wide Calculated NBBO''). Specifically,
proposed Rule 952NYP(d)(4) would provide that if the Calculated NBBO is
not crossed and does not contain a zero offer, the Exchange would
transition to continuous trading as described below in paragraph (f) of
this Rule (as described below, a trade could occur during the
transition to continuous trading, but there would not be a trade
resulting from Matched Volume in the Auction), after first cancelling
Market Orders, MOO Orders, and Limit Orders to buy (sell) priced equal
to or higher (lower) than the Indicative Match Price. The Exchange
believes that the cancellation of Market Orders and MOO Orders before
opening a series would continue to protect Market Orders and MOO Orders
from being executed at unintended prices before transitioning to
continuous trading, per proposed paragraph (f) of the Pillar Rule when
there is a wide Calculated NBBO. The Exchange also believes that
cancelling Limit Orders to buy (sell) priced equal to or higher (lower)
than the Indicative Match Price when the Calculated NBBO is wider than
the Legal Width Quote would allow the Exchange to help ensure that
potentially executable Limit Orders would be cancelled rather than
execute at potentially extreme prices before the Exchange transitions
to continuous trading. As further proposed, in such case, the Auction
would not be intended to end with a trade, but it may result in a trade
(even if there is no Legal Width Quote) if orders or quotes arrive when
the Exchange is evaluating the status of orders and quotes, but before
the Auction Processing Period begins.\137\ The Exchange believes this
proposed rule would facilitate the opening or reopening of a series so
that it can begin continuous trading when there is a Calculated NBBO in
a series that is wider than the Legal Width Quote and is not crossed
and does not contain a zero offer.\138\
---------------------------------------------------------------------------
\137\ The Exchange expects this to be a rare race condition that
would result when the Exchange receives orders and quotes at
virtually the same time that it is evaluating whether it can open a
series on a quote based on a wide Calculated NBBO (and before the
Auction Processing Period begins) and that, as a result of that race
condition, those new orders or quotes are marketable against contra-
side interest, i.e., results in Matched Volume for the Auction, at
the same time that the Exchange concludes, based on interest that
had previously been received, that it can proceed with an Auction in
the absence of a Legal Width Quote. In such case, the Auction could
result in a trade.
\138\ Such opening is also similar to Cboe's ``Forced Opening''
process because it allows a series to open without a trade after a
specified time period when the market is wider than the specified
bid-ask differentials. See Cboe Rule 5.31(e)(4).
---------------------------------------------------------------------------
Proposed Rule 952NYP(d)(5) is identical to Arca Options Rule 6.64P-
O(d)(5) and would provide that the Exchange may deviate from the
standard manner of the Auction Process, including adjusting the timing
of the Auction Process in any option series or opening or reopening a
series when there is no Legal Width Quote, when it believes it is
necessary in the interests of a fair and orderly market. This proposed
rule is based on Rule 952NY(b)(F) and, consistent with current
functionality, is designed to provide the Exchange with flexibility to
open a series even if there is no Legal Width Quote.\139\ For example,
a Floor Broker may have a two-sided open outcry order. If the series is
not opened, that trade could not be consummated. Accordingly, this
proposed rule would allow the Exchange to open a series for trading to
facilitate open outcry trading.
---------------------------------------------------------------------------
\139\ See Rule 952NY(b)(F) (providing that ``[t]he Exchange may
deviate from the standard manner of the Auction Process, including
adjusting the timing of the Auction Process in any option class,
when it believes it is necessary in the interests of a fair and
orderly market'').
---------------------------------------------------------------------------
Order Processing during an Auction Processing Period. Proposed Rule
952NYP(e) is identical to Arca Options Rule 6.64P-O(e) and would set
forth how orders and quotes are processed during the Auction Processing
Period. As described above, and identical to Arca Options, the Auction
Processing Period is the abbreviated time period (i.e., generally
measured in less than a second) when the Exchange conducts the Auction
and therefore transitions a series from a pre-open state to continuous
trading. For example, if there is a Legal Width Quote, Market Maker
quotes, and Matched Volume, the Auction Processing Period is when that
Matched Volume will trade at the Indicative Match Price. As is the case
per Arca Options Rule 6.64P-O(e), new orders and quotes received during
the Auction Processing Period would not be eligible to participate in
that Auction trade. The proposed rule promotes granularity and
transparency of how orders and quotes that arrive during the Auction
Processing Period would be processed.
As with Arca Options Rule 6.64P-O(e), for purposes of proposed
Rules 952NYP(e) and (f), an ``order instruction'' would likewise refer
to a request to cancel, cancel and replace, or modify an order or
quote. As further proposed, during the Auction Processing Period, the
Exchange will reject new quotes and, if the Exchange receives order
instructions for existing quotes, the Exchange will cancel any same-
side quotes sent from the same order/quote entry port of that Market
Maker. The Exchange believes that this proposed treatment (which is
identical to the treatment of same-side quotes on Arca Options) would
allow for more deterministic handling of order instructions for quotes
and, by cancelling any same-side quotes of a Market Maker, the Exchange
would eliminate potentially unexpected exposure (or executions) for
that Market Maker.
In addition, and identical with Arca Options, during the Auction
Processing Period, new orders will be accepted but will not be
processed until after the Auction Processing Period and order
instructions for existing orders \140\ would be processed as follows:
---------------------------------------------------------------------------
\140\ As noted in proposed Rule 952NYP(e), the Exchange will not
accept order instructions related to quotes during the Auction
Processing Period and therefore proposed paragraphs (e)(1) and
(e)(2) to this proposed Rule only refers to orders and does not
include reference to quotes.
---------------------------------------------------------------------------
An order instruction that arrives during the Auction
Processing Period would not be processed until after the Auction
Processing Period if it relates to an order that was received before
the Auction Processing Period. Any subsequent order instructions
relating to such order would be rejected when a prior order instruction
is pending (proposed Rule 952NYP(e)(1), which is identical to Arca
Options Rule 6.64P-O(e)(1)).
An order instruction that arrives during the Auction
Processing Period would be processed on arrival if it relates to an
order that was received during the Auction Processing Period (proposed
Rule 952NYP(e)(2), which is identical to Arca Options Rule 6.64P-
O(e)(2)).
Transition to Continuous Trading. Proposed Rule 952NYP(f) is
identical to Arca Options Rule 6.64P-O(f) and would describe the
transition to continuous trading. After the Auction Processing Period
concludes, i.e., once the Auction concludes either with or without a
trade, the Exchange transitions to continuous trading. During this
transition, the way in which
[[Page 45763]]
orders, quotes, and order instructions are processed would differ
depending on when such messages arrived at the Exchange. As with Arca
Options, proposed Rule 952NYP(f) would describe how the Exchange would
transition to continuous trading after the Auction Processing Period
concludes. The Exchange believes that the proposed rule provides
granularity regarding how orders and quotes would be processed in
connection with the transition to continuous trading for options
trading and is also consistent with the rules of other options
exchanges.\141\ As proposed, the transition to continuous trading would
proceed as follows.
---------------------------------------------------------------------------
\141\ See, e.g., Cboe Rule 5.31(f) (describing Cboe's process
for orders and quotes not executed in its opening process).
---------------------------------------------------------------------------
Proposed Rule 952NYP(f)(1) is identical to Arca Options Rule 6.64P-
O(f)(1) and would provide that orders that are no longer eligible to
trade would be cancelled. For options trading, the only orders that
would no longer be eligible to trade after the Auction Processing
Period concludes would be Auction-Only Orders and such orders would
cancel at the end of the Auction Processing Period.
Proposed Rule 952NYP(f)(2) is identical to Arca Options Rule 6.64P-
O(f)(2) and would provide that, during the transition to continuous
trading, the Exchange will reject new quotes and, if the Exchange
receives order instructions for existing quotes, the Exchange will
cancel any same-side quotes sent from the same order/quote entry port
of that Market Maker (for the same reasons as described above in
connection with proposed Rule 952NYP(e), and order instructions would
be processed as follows:
An order instruction that relates to an order that was
received before the Auction Processing Period or that has already
transitioned to continuous trading and that arrives during either the
transition to continuous trading or the Auction Processing Period would
be processed in time sequence with the processing of orders and quotes
as specified in paragraphs (f)(3)(A) or (B) of this Rule. In addition,
any subsequent order instructions relating to such order would be
rejected when a prior order instruction is pending (proposed Rule
952NYP(f)(2)(A)), which is identical to Arca Options Rule 6.64P-
O(f)(2)(A)). This proposed rule text provides transparency regarding
how order instructions that arrived during the Auction Processing
Period would be processed if they relate to orders that were received
before the Auction Processing Period.\142\
---------------------------------------------------------------------------
\142\ See id. (unexecuted orders and quotes will be entered into
the Cboe book in time sequence).
---------------------------------------------------------------------------
An order instruction that arrives during the transition to
continuous trading would be processed on arrival if it relates to an
order that was entered during either the Auction Processing Period or
the transition to continuous trading and such order has not yet
transitioned to continuous trading (proposed Rule 952NYP(f)(2)(B),
which is identical to Arca Options Rule 6.64P-O(f)(2)(B)).
Proposed Rule 952NYP(f)(3) is identical to Arca Options Rule 6.64P-
O(f)(3) and would set forth how orders and quotes would be processed
during the transition to continuous trading following an Auction. The
proposed process for transitioning to continuous trading is consistent
with current functionality (with differences described below) relating
to draining the queue of unexecuted orders and quotes following the
current Auction Process. The proposed rule text provides more
granularity regarding this process than is set forth in the current
Rule. Specifically, the Exchange proposes that it would process
Auction-eligible orders and quotes that were received before the
Auction Processing Period and orders ranked under the proposed category
of ``Priority 3--Non-Display Orders'' (which interest was not eligible
to participate in an Auction) received before a trading halt as follows
(proposed Rule 925NYP(f)(3)(A), which is identical to Arca Options Rule
6.64P-O(f)(3)(A)):
Proposed Rule 952NYP(f)(3)(A)(i) is identical to Arca
Options Rule 6.64P-O(f)(3)(A)(i) and would provide that Limit Orders
and quotes would be subject to the Limit Order Price Protection,
Arbitrage Check, and Intrinsic Value Check, as applicable. This
proposed rule differs from current functionality, whereby risk checks
are applied before an Auction. This proposed rule text is consistent
with the proposed rule changes, described above, regarding when the
Limit Order Price Check, Arbitrage Check, and Intrinsic Value Check
(per proposed Rules 900.3NYP(a)(3) and 928.1NYP, respectively) would be
applied to orders and quotes that were received during a pre-open state
and is based on Arca Options Rule 6.64P-O(f)(3)(A)(i). The Exchange
proposes to apply these checks to orders and quotes before they become
eligible for trading or routing during continuous trading.
Proposed Rule 952NYP(f)(3)(A)(ii) is identical to Arca
Options Rule 6.64P-O(f)(3)(A)(ii) and would provide that Limit Orders
and Market Orders would be assigned a Trading Collar. This proposed
rule is based on Arca Options Rule 6.64P-O(f)(3)(A)(ii) and is
consistent with the proposed changes to Trading Collars on Pillar,
described above (per Rule 900.3NYP(a)(4)), that an order received
during a pre-open state would be assigned a Trading Collar after an
Auction concludes, or that an order would be reassigned a Trading
Collar after a halt.
Proposed Rule 952NYP(f)(3)(A)(iii) is identical to Arca
Options Rule 6.64P-O(f)(3)(A)(iii) and would provide that orders
eligible to route that are marketable against Away Market Protected
Quotations would route based on the ranking of such orders as set forth
in Rule 964NY(c). This proposed rule is consistent with current
functionality and uses Pillar terminology based on Arca Options Rule
6.64P-O(f)(3)(A)(iii).\143\ As with current functionality, routable
orders would be routed to Away Markets to avoid either trading through
or locking or crossing an Away Market Protected Quotation.
---------------------------------------------------------------------------
\143\ See supra note 61 (citing definitions of ``Protected
Bid,'' ``Protected Offer,'' and ``Quotation'' set forth in Rules
990NY(15) and (16) and of ``Away Market'' as set forth in Rule
900.2NY).
---------------------------------------------------------------------------
Proposed Rule 952NYP(f)(3)(A)(iv) is identical to Arca
Options Rule 6.64P-O(f)(3)(A)(iv) and would provide that after routing
eligible orders, orders and quotes not eligible to route that are
marketable against Away Market Protected Quotations would cancel. This
functionality and proposed rule are based on Arca Options Rule 6.64P-
O(f)(3)(A)(iv). By cancelling non-routable orders and quotes marketable
against Away Market Protected Quotations, the Exchange would avoid
locking or crossing such Away Market Protected Quotations.
Proposed Rule 952NYP(f)(3)(A)(v) is identical to Arca
Options Rule 6.64P-O(f)(3)(A)(v) and would provide that once there are
no more unexecuted orders marketable against Away Market Protected
Quotations, orders and quotes that are marketable against other orders
and quotes in the Consolidated Book would trade or be repriced. This
proposed rule is based on Arca Options Rule 6.64P-O(f)(3)(A)(v). The
Exchange further notes that the Exchange could transition to continuous
trading without the Auction resulting in a trade, but that a trade(s)
may occur during the transition to continuous trading, which trade(s)
would be published to OPRA before the Exchange publishes a quote
[[Page 45764]]
to OPRA.\144\ The Exchange would not consider a trade that occurs
during the transition to continuous trading to be an Auction that
results in a trade.\145\
---------------------------------------------------------------------------
\144\ For example, the Exchange may determine that, as described
in proposed Rule 952NYP(d)(4)(A), if there is a Calculated NBBO that
meets the requirements specified in that Rule, it can conduct an
Auction without a trade and transition to continuous trading
pursuant to proposed Rule 952NYP(f). In such case, there would not
be an Auction that results in a trade, but a trade(s) could occur
among orders and quotes that trade during the transition to
continuous trading.
\145\ OPRA does not distinguish between a trade that results
from an opening auction and a trade that occurs during the
transition to continuous trading. By contrast, the Exchange's
proprietary data feed would distinguish a trade that resulted from
an Auction from a trade that occurred during the transition to
continuous trading.
---------------------------------------------------------------------------
Proposed Rule 952NYP(f)(3)(A)(vi) is identical to Arca
Options Rule 6.64P-O(f)(3)(A)(i) and would provide that Market Orders
received during a pre-open state would be subject to the validation
specified in proposed Rule 900.3NYP(a)(1)(C). The Exchange notes that
because such Market Orders would already have been received by the
Exchange, if such orders fail one of those validations, they would be
cancelled instead of rejected. This rule text would add transparency
and granularity to Exchange rules.
Proposed Rule 952NYP(f)(3)(A)(vii) is identical to Arca
Options Rule 6.64P-O(f)(3)(A)(vii) and would provide that the display
quantity of Reserve Orders would be replenished. This proposed rule is
based on current functionality and provides granularity in Exchange
rules.
Proposed Rule 952NYP(f)(3)(A)(viii) is identical to Arca
Options Rule 6.64P-O(f)(3)(A)(viii) and would describe the last step in
this process regarding Auction-eligible interest received before the
Auction Processing Period. Specifically, the Exchange would send a
quote to OPRA and proprietary data feeds representing the highest-
priced bid and lowest-priced offer of any remaining, unexecuted
Auction-eligible orders and quotes that were received before the
Auction Processing Period. This proposed rule is consistent with
current options functionality. The Exchange notes that this quote sent
to OPRA would be different than the Rotational Quote sent at the
beginning of the Auction Process because it could be comprised of both
orders and quotes. At a high level, this represents current
functionality because after a series opens, the Exchange disseminates
its best bid and offer of its quotes and orders to OPRA.
Proposed Rule 952NYP(f)(3)(B) is identical to Arca Options Rule
6.64P-O(f)(3)(B) and would provide that next, orders ranked under the
proposed category of ``Priority 3--Non-Display Orders'' that were
received during a pre-open state would be assigned a new working time,
in time sequence relative to one another based on original entry time,
and would be subject to the Limit Order Price Check, Arbitrage Check,
and Intrinsic Value Check, as applicable, and if not cancelled, would
be traded or repriced. Even though orders ranked Priority 3--Non-
Display Orders would not be eligible to trade in an Auction (other than
the reserve interest of Reserve Orders), the Exchange proposes to
accept such orders during a pre-open state. These orders would
transition to continuous trading after any unexecuted Auction-eligible
interest transitions to continuous trading, as described above in
proposed Rules 952NYP(f)(3)(A)(i)-(viii), which as stated above are
identical to Arca Options Rules 6.64P-O(f)(3)(A)(i)-(viii). The
Exchange believes that waiting to process non-displayed orders in this
sequence would ensure that there is an NBBO against which such orders
could be priced, as described in proposed Rule 900.3NYP(d) (regarding
Orders with a Conditional or Undisplayed Price and/or Size) above.
Proposed Rule 952NYP(f)(3)(C) is identical to Arca Options Rule
6.64P-O(f)(3)(B) and would provide that next, orders and quotes that
were received during the Auction Processing Period would be assigned a
new working time in time sequence relative to one another, based on
original entry time and would be subject to the Limit Order Price
Protection, Pre-Trade Risk Controls, Arbitrage Check, Intrinsic Value
Check, and validations specified in proposed Rule 900.3NYP(a)(1)(A), as
applicable to certain Market Orders, and if not cancelled would be
processed consistent with the terms of the order. This proposed rule
text is designed to reflect that orders received during the Auction
Processing Period would not be subjected to these price/risk
validations until after the Exchange has transitioned to continuous
trading, and that if such interest fails these validations, those
orders would be cancelled instead of rejected.
Proposed Rule 952NYP(f)(3)(D) is identical to Arca Options Rule
6.64P-O(f)(3)(D) and would further provide that when transitioning to
continuous trading:
The display price and working price of orders and quotes
would be adjusted based on the ABBO, as provided for in proposed Rule
900.3NYP (proposed Rule 952NYP(f)(3)(D)(i)), which is the same as Arca
Options Rule 6.64P-O(f)(3)(D)(i), except that it does not include
reference to contra-side interest in the Consolidated Book in relation
to adjustments to price because, unlike Arca Options, the Exchange does
not offer ALO Orders, which non-routable order types are priced based
solely on local interest in the Consolidated Book. The Exchange
believes this difference is immaterial because the omitted text relates
to functionality that applies to an order type (i.e., ALO Orders) that
the Exchange does not propose to offer on Pillar and therefore has no
bearing on the proposed functionality.
The display price and working price of a Day ISO would be
adjusted in the same manner as a Non-Routable Limit Order until the Day
ISO is either traded in full or displayed at its limit price, as
provided in proposed Rule 952NYP(f)(3)(D)(ii), which is the same as
Arca Options Rule 6.64P-O(f)(3)(D)(ii), except that it does not include
reference to Day ISO ALO Orders because the Exchange does not propose
to offer this order type on Pillar. The Exchange believes this
difference is immaterial because the omitted text relates to an order
type (i.e., DAY ISO ALO Orders) that the Exchange does not propose to
offer on Pillar and therefore has no bearing on the proposed
functionality.
Proposed Rule 952NYP(g) is identical to Arca Options Rule 6.64P-
O(g) and would describe order processing during a trading halt. The
proposed rule is designed to provide granularity in Exchange rules
about how new and existing orders, quotes, and order instructions would
be processed during a trading halt. As proposed, the Exchange would
process new and existing orders and quotes in a series during a trading
halt as follows:
Cancel any unexecuted quantity of orders for which the
500-millisecond Trading Collar timer has started and all resting Market
Maker quotes (proposed Rule 952NYP(g)(1), which is identical to Arca
Options Rule 6.64P-O(g)(1)). As is the case on Arca Options, the
Exchange proposes to cancel resting Market Maker quotes when a trading
halt is triggered, which represents current functionality, and as noted
below, would accept new Market Maker quotes during a trading halt,
which would be the basis for the Rotational Quote that would be
published for a Trading Halt Auction. In addition, and identical to
functionality on Arca Options, the Exchange also proposes to cancel any
unexecuted quantity of orders for which the 500-millisecond Trading
Collar has started because such timer would have ended during a trading
halt, and therefore such
[[Page 45765]]
orders were subject to cancellation already.
Re-price all other resting orders on the Consolidated Book
to their limit price (proposed Rule 952NYP(g)(2)), which is identical
to Arca Options Rule 6.64P-O(g)(2), except that it does not include
reference to ALO Orders or Day ISO ALO Orders, which (as described
herein) will not be offered on Pillar. The Exchange believes this
difference is immaterial because the omitted text refers to order
types/modifiers that the Exchange does not propose to offer on Pillar
and therefore has no bearing on the proposed functionality. This
proposed repricing of certain resting orders would be new functionality
for options trading on the Exchange; currently, during a halt, resting
orders do not reprice to their limit price. The proposed repricing of a
Non-Routable Limit Order to its limit price during a trading halt would
not be counted toward the (limited) number of times such order may be
repriced, and any subsequent repricing of such order during the
transition to continuous trading would be permitted as the additional
(uncounted) repricing event as provided for in proposed Rule
900.3NYP(e)(1)(B). As described above, and also identical to handling
of resting orders on Arca Options, once resting, a Non-Routable Limit
Order that was repriced on arrival is eligible to be repriced only one
additional time. This proposed rule, which mirrors Arca Options,
provides transparency that the repricing of such orders to their limit
price during a trading halt would not count towards that ``one''
additional repricing, but that any subsequent repricing after the
Auction concludes would count.
Accept and process all cancellations (proposed Rule
952NYP(g)(3), which is identical to Arca Options Rule 6.64P-O(g)(3)).
This proposed rule is consistent with current functionality.
Reject incoming Limit Orders designated IOC or FOK
(proposed Rule 952NYP(g)(4), which is identical to Arca Options Rule
6.64P-O(g)(4)). This proposed rule is consistent with current
functionality.
Accept all other incoming order and quote messages and
instructions until the Auction Processing Period for the Trading Halt
Auction ends, at which point, paragraph (e) of proposed Rule 952NYP
would govern the entry of incoming orders, quotes, and order
instructions (proposed Rule 952NYP(g)(5), which is identical to Arca
Options Rule 6.64P-O(g)(5)).
Disseminate a zero bid and zero offer quote to OPRA and
proprietary data feeds (proposed Rule 952NYP(g)(6), which is identical
to Arca Options Rule 6.64P-O(g)(6)) and is designed to promote clarity
and transparency in Exchange rules that when a trading halt begins, the
Exchange will ``zero'' out the Exchange's BBO.
Finally, proposed Rule 952NYP(h) is identical to Arca Options Rule
6.64P-O(h) and would provide that whenever, in the judgment of the
Exchange, the interests of a fair and orderly market so require, the
Exchange may adjust the timing of or suspend the Auctions set forth in
this Rule with prior notice to ATP Holders.
In connection with proposed Rule 952NYP, the Exchange proposes to
add the following preamble to Rule 952NY: ``This Rule is not applicable
to trading on Pillar.'' This proposed preamble is designed to promote
clarity and transparency in Exchange rules that Rule 952NY would not be
applicable to trading on Pillar.
* * * * *
As discussed above, because of the technology changes associated
with the migration to the Pillar trading platform, notwithstanding the
timing of the effectiveness 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 System will continue to be available
pending the full migration to Pillar.
Implementation
As noted immediately above, the Exchange will not implement the
``P'' rules proposed herein until all other Pillar-related rule filings
(i.e., proposed rules with a ``P'' modifier) are approved or operative,
as applicable, and the Exchange announces the migration of underlying
symbols to Pillar by Trader Update.
2. Statutory Basis
The proposed rule change is consistent with Section 6(b) of the
Securities Exchange Act of 1934 (the ``Act''),\146\ in general, and
furthers the objectives of Section 6(b)(5),\147\ 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 the proposed rules to support Pillar would remove
impediments to and perfect the mechanism of a free and open market and
a national market system because the proposed rules would promote
transparency in Exchange rules by using consistent terminology
governing trading on both the Exchange's cash equity and options
trading platforms, thereby ensuring that members, regulators, and the
public can more easily navigate the Exchange's rulebook and better
understand how options trading is conducted on the Exchange.
---------------------------------------------------------------------------
\146\ 15 U.S.C. 78f(b).
\147\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
Generally, the Exchange believes that adding new rules with the
modifier ``P'' to denote those rules that would be operative for the
Pillar trading platform would remove impediments to and perfect the
mechanism of a free and open market and a national market system by
providing transparency of which rules would govern trading once a
symbol has been migrated to the Pillar platform. The Exchange similarly
believes that adding a preamble to those current rules that would not
be applicable to trading on Pillar would remove impediments to and
perfect the mechanism of a free and open market and a national market
system because it would promote transparency regarding which rules
would govern trading on the Exchange during and after the transition to
Pillar.
In addition, the Exchange believes that incorporating Pillar
functionality currently available on Arca Options 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 with its affiliated options market.
Accordingly, with the transition to Pillar, the Exchange will be able
to offer additional features to its ATP Holders that are currently
available on Arca Options. For similar reasons, the Exchange believes
that using the same Pillar terminology for the proposed new rules as
used on Arca Options 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 trading rules across the
affiliated options exchanges. The Exchange believes this proposed
harmonization of functionality and rules across the affiliated options
exchanges would foster greater
[[Page 45766]]
uniformity and less burdensome and more efficient regulatory
compliance.
Given that the proposed rules for trading options on Pillar are
identical to the Pillar trading rules on Arca Options, unless otherwise
specified herein, the Exchange believes that the proposed rules changes
are not novel and do not raise issues not previously considered by the
Commission.
Orders and Modifiers
The Exchange believes that proposed new Rule 900.3NYP, which is
identical to Arca Options Rule 6.62P-O unless otherwise specified
herein, would remove impediments to and perfect the mechanism of a free
and open market and a national market system because it would use
existing Pillar terminology based on Arca Options rules to describe the
order types and modifiers that would be available on the Exchange's
options Pillar trading system. As noted above, the Exchange proposes to
offer order types and modifiers that are either based on existing order
types available on the Exchange System as described in Rule 900.3NY, or
orders and modifiers currently available for options trading on Pillar
on Arca Options. The Exchange believes that structuring proposed Rule
900.3NYP to mirror the structure of Arca Options Rule 6.62P-O would
remove impediments to and perfect the mechanism of a free and open
market and a national market system because it would promote
transparency and consistency between the Exchange's rulebook and the
rules of its affiliated options exchange.
In addition to the terminology changes to describe the order types
and modifiers that are currently available on the Exchange, the
Exchange further believes that the order types and modifiers proposed
for options trading on Pillar that either differ from order types and
modifiers available on the Exchange System or that would be new would
remove impediments to and perfect the mechanism of a free and open
market and national market system because:
Market Orders on Pillar would function similarly to how
Market Orders function under current rules, including being subject to
Trading Collars. However, the proposed functionality is identical to
Pillar functionality on Arca Options and would expand the circumstances
under which Market Orders may be rejected (or cancelled), which
expansion is designed to ensure that Market Orders do not execute
either when there is no prevailing market in a series, which can occur
if there is no NBO, no NBB and an NBO is higher than $0.50, or an
absence of contra-side Market Maker quotations or the contra-side ABBO.
In addition, the proposed functionality would provide that if the
displayed prices are too wide to assure a fair and orderly execution of
a Market Order, such Market Order would be rejected. The proposed
``wide-spread'' check for Market Orders is identical to the check
offered per Arca Options Rule 6.62P-O, is similar to price protections
offered on other options exchanges, and is designed to prevent Market
Orders from trading at a price that could be considered a Catastrophic
Error.\148\ The Exchange believes that the proposed rule describing
Market Orders would promote transparency by providing notice of when a
Market Order would be subject to such validations.
---------------------------------------------------------------------------
\148\ See supra note 21 (citing Cboe's Market Order NBBO Width
Protection, which similarly looks to the midpoint of the NBBO in
applying this protection).
---------------------------------------------------------------------------
The Exchange is not proposing any new or different
behavior for Limit Orders than is currently available on the Exchange,
other than the application of Limit Order Price Protection and Trading
Collars, which features would differ on Pillar but would be identical
to Pillar functionality on Arca Options. The Exchange believes using
Pillar terminology to describe Limit Orders would promote consistency
and clarity in Exchange rules and align them with the rules of its
affiliated options exchange.
The proposed Limit Order Price Protection functionality,
which is identical to functionality on Arca Options Rule 6.62P-O, is
based in part on the existing ``Limit Order Filter'' for orders and
price protection filters for quotes because an order or quote would be
rejected if it is priced a specified percentage away from the contra-
side NBB or NBO. The Exchange believes that using the same mechanism
for both orders and quotes would simplify the operation of the Exchange
and achieve similar results as the current rules, which is to reject an
order or quote that is priced too far away from the prevailing market.
The Exchange believes that re-applying Limit Order Price Protection
after an Auction concludes would ensure that Limit Orders and quotes
continue to be priced consistent with the prevailing market, and that
using an Auction Price (if available, and if not available, Auction
Collars, and if not available, the NBBO) to assess Limit Orders and
quotes after an Auction concludes would ensure that the Exchange would
be applying the most recent price in a series in assessing whether such
orders or quotes should be cancelled. The Exchange further believes
that the proposed Specified Thresholds for determining whether to
reject a Limit Order or quote would remove impediments to and perfect
the mechanism of a free and open market and a national market system
because they are designed to be tailored to the applicable Reference
Price, and thus more granular than the current thresholds.
The proposed Trading Collar functionality, which is identical to
Arca Options Rule 6.62P-O, is based in part on how trading collars
currently function on the Exchange because the proposed functionality
would create a ceiling or floor price at which an order could be traded
or routed. The Exchange believes that the proposed differences for
Trading Collars on Pillar (which are based on Trading Collar
functionality on Arca Options), including applying the same Trading
Collar logic to both Limit Orders and Market Orders, applying them once
per trading day (unless there is a trading halt), tailoring the
specified thresholds to be within the current parameters for
determining whether a trade would be an Obvious Error or Catastrophic
Error, and canceling orders that have been displayed at their Trading
Collar for 500 milliseconds, would remove impediments to and perfect
the mechanism of a free and open market and a national market system
because they are designed to provide a deterministic price protection
mechanism for orders. In addition, the proposed Pillar Trading Collar
functionality is designed to simplify the process by applying a static
ceiling price (for buy orders) or floor price (for sell orders) at
which such order could be traded or routed that would be applicable to
the order until it is traded or cancelled. The Exchange believes that
the proposal to explicitly add reference to Cross Orders being excluded
from Trading Collars would add granularity to the proposed rule
functionality. The Exchange believes that the proposed functionality
would provide greater determinism to an ATP Holder of the Trading
Collar that would be applicable to its orders and when such orders may
be cancelled if it reaches its Trading Collar.
The Exchange is not proposing any new or different Time-
in-Force modifiers than are currently available for options trading on
the Exchange. The Exchange believes using Pillar terminology identical
to terms used on Arca Options Rule 6.62P-O(b) to describe the time-in-
force modifiers would promote consistency and clarity in Exchange
rules.
Auction-Only Orders, and specifically, the proposed MOO
and
[[Page 45767]]
LOO Orders, would operate no differently than how ``Opening-Only
Orders'' currently function on the Exchange System. However, rather
than refer to Opening-Only Orders, the Exchange proposes to use Pillar
terminology that mirrors terms used on Arca Options Rule 6.62P-O(c)
terminology. The Exchange further believes that offering its IO Order
type for Auctions on the options trading platform--both for Core Open
Auctions and Trading Halt Auctions--would provide ATP Holders with new,
optional functionality to offset an Imbalance in an Auction. The
proposed availability of the IO Order would be consistent with the IO
Order as offered on Arca Options for Pillar options trading. The
Exchange believes this proposed functionality would afford ATP Holders
with greater flexibility for all Auctions on Pillar.
The Exchange would continue to offer AON Orders, Stop
Orders, and Stop Limit Orders, which are currently available on the
Exchange System. In addition, on Pillar, the Exchange would offer
Reserve Orders that would function identical to how this order type
functions on Arca Options. The proposal that the reserve interest of a
Reserve Order could never have a working price that is more aggressive
than the working price of the display quantity of the Reserve Order
would remove impediments to and perfect the mechanism of a free and
open market and a national market system because it is designed to
ensure that the reserve interest of a Reserve Order to buy (sell) would
never trade at a price higher (lower) than the working price of the
display quantity of the Reserve Order. The proposed changes to AON
Orders would provide greater execution opportunities for such orders by
allowing them to be integrated in the Consolidated Book and once
resting, trade with incoming orders and quotes. The changes are also
based on how orders with an MTS Modifier, which are also conditional
orders, function on Arca Options. The Exchange believes it is
appropriate to opt not to support Market Orders designated as AON on
Pillar because such functionality was not used often on the Exchange
System, indicating a lack of market participant interest in this
functionality. The proposed differences for Stop Orders and Stop Limit
Orders are designed to promote transparency by providing clarity of
circumstances when either order may be rejected on arrival (in the case
of Stop Limit Orders) or elected and make clear that, once elected,
such orders are subject to the price protection and risk checks
applicable to Market Orders and Limit Orders, respectively.
The Exchange believes that the proposed orders (and
quotes) with instructions not to route (i.e., Non-Routable Limit Orders
and ISOs) would streamline the offerings available for options trading
on the Exchange by making the functionality the same for both orders
and quotes and consolidating the description of non-routable orders and
quotes in proposed Rule 900.3NYP(e), thereby adding clarity and
transparency. The Exchange believes that using Pillar terminology,
including order type names (for orders and quotes), and identical
functionality as is used on Arca Options would promote clarity and
consistency across the Exchange's options trading platform and its
affiliated options trading platform.
The Exchange believes that the proposed Non-Routable Limit Order is
not novel because, in addition to being identical to Non-Routable Limit
Orders currently available on Arca Options, the order type is based on
how the PNP, RPNP, and MMRP orders and quotes currently function on the
Exchange System, including the continued availability of the option to
designate a non-routable order either to cancel or reprice if it is
marketable against an ABBO.\149\ As such, the Exchange believes that
the proposed non-routable order/quote types would continue to provide
ATP Holders with the core functionality associated with existing non-
routable order/quote types, including that the proposed rules would
provide for the ability to either reprice or cancel such orders/quotes.
The Exchange believes that providing additional options to cancel a
resting Non-Routable Limit Order rather than reprice an additional time
would provide an additional choice to market participants. The Exchange
also believes that not offering this second cancellation designation to
Market Makers would assist Market Makers in maintaining quotes in their
assigned series by reducing the potential to interfere with a Market
Maker's ability to maintain their continuous quoting obligations.
Finally, the proposed IOC ISO Order is not novel for options trading on
the Exchange because both the proposed Pillar terminology and
functionality would be identical to terms and IOC ISO functionality
currently available on Arca Options rules, which would promote
transparency. The proposed Day ISO functionality would be identical to
how such order type functions on Arca Options. In addition, the
proposed Day ISO functionality is consistent with existing Rule
992NY(b)(3), which currently provides an exception to locking or
crossing an Away Market Protected Quotation if the ATP Holder
simultaneously routed an ISO to execute against the full displayed size
of any locked or crossed Protected Bid or Protected Offer. The Exchange
notes that this exception is not necessary for IOC ISOs because such
orders would never be displayed at a price that would lock or cross a
Protected Quotation; they cancel if they cannot trade. Accordingly,
this existing exception in the Exchange's rules contemplates an ISO
that would be displayed, which would mean it would need a time-in-force
modifier of ``Day.'' In addition, Day ISOs are available for options
trading on other options exchanges, and therefore are not novel.\150\
---------------------------------------------------------------------------
\149\ As discussed supra, the proposed Non-Routable Limit Order
functionality is also consistent with the treatment of Market Maker
quotes not designated as MMRP (i.e., such quotes cancel if locking
or crosses the NBBO). See supra note 51.
\150\ See supra note 64 (citing to availability of Day ISO
orders on Nasdaq and Cboe).
---------------------------------------------------------------------------
The Exchange believes that the proposed additional detail
defining Complex Orders to define the ``legs'' and ``components'' of
such orders would promote transparency in Exchange rules and is also
identical to how that order type is described on Arca Options.
On Pillar, the only electronically-entered crossing orders
would be QCC Orders, which is consistent with current functionality and
identical to functionality on Arca Options. The Exchange believes that
the proposed differences to how QCC Orders would function, including
using Pillar terminology and consolidating rule text relating to QCC
Orders in proposed Rule 900.3NYP, would promote transparency and
clarity in Exchange rules. The proposed description of Complex QCC
Orders is designed to distinguish such orders from single-leg QCC
Orders and to promote clarity and transparency in Exchange rules
regarding the price requirements for a Complex QCC Order. Further,
Complex QCC Orders are available for trading on Arca Options, per Arca
Options Rule 6.62P-O, and on other options exchanges, and therefore are
not novel.\151\
---------------------------------------------------------------------------
\151\ See supra note 67 (citing Complex QCC Order type, as
offered on MIAX and Cboe).
---------------------------------------------------------------------------
The Exchange believes that moving the descriptions of
orders available only in open outcry from Rule 900.3NY to proposed Rule
900.3NYP(h) (which mirrors the placement of analogous text on Arca
Options) would ensure that
[[Page 45768]]
these order types remain in the rulebook after the transition to Pillar
is complete. On Pillar, a CTB Order would trade at its limit price
provided there is contra-side displayed Customer interest at that
price. The CTB Order would also trade with displayed non-Customer
interest that is priced better than the CTB Order's limit price. In
addition to being similar to Arca Options Rule 6.62P-O(h)(1), the
Exchange believes that codifying CTB Order functionality, and thus
automating priority would make it easier for Floor Brokers to comply
with their obligation to satisfy better-priced interest on the
Consolidated Book. In addition, the Exchange believes that this
proposed change would increase execution opportunities and achieve the
goal of a CTB Order, which is to clear priority on the Consolidated
Book at the time of the TO Approval. The Exchange also believes that
codifying this order type and the associated regulatory obligations
would add clarity and transparency in Exchange rules.
The proposed Proactive if Locked/Crossed Modifier, STP
Modifier, and MTS Modifier are not novel and are identical to modifiers
of the same name available on Arca Options. The Exchange believes that
offering these existing modifiers for options trading on Pillar would
provide ATP Holders with additional, optional functionality that is not
novel and is based on existing Arca Options rules. Further, such
proposed optional functionality would afford ATP Holders with greater
flexibility in specifying how their trading interest should be handled.
For example, the proposed MTS Modifier works similarly to the existing
(and proposed) AON functionality but provides the ATP Holder with the
alternative to designate a portion smaller than the full quantity as
the minimum trade size. The Exchange further believes that extending
the availability of STP Modifiers to all orders and quotes, and not
just those of Market Makers, would provide additional protections for
ATP Holders and facilitate their compliance and risk management by
assisting them in avoiding unintentional wash-sale trading.
Market Maker Quotations
The Exchange believes that proposed Rule 925.1NYP, which is
identical to Arca Options Rule 6.37AP-O unless otherwise specified
herein, would remove impediments to and perfect the mechanism of a free
and open market and a national market system because it is based on
current Rule 925.1NY, with such changes as necessary to clarify
functionality and to use Pillar terminology consistent with Arca
Options. The Exchange believes that the proposed detail (consistent
with current functionality) to make clear that same-side quotations
sent by a Market Maker over the same order/quote entry port would be
replaced would clarify the Exchange's handling of multiple Market Maker
quotations should a Market Maker's quotations queue during a period of
excessive message traffic, thereby adding clarity and transparency to
Exchange rules.\152\ No system, including Pillar, has unlimited
capacity. The Exchange therefore believes that displaying only the most
recent Market Maker quote when it is in receipt of multiple same-side
quotations in the same series from such Market Maker, would protect
investors and the public interest by ensuring accurate representation
of that Market Maker's quoting interest. The Exchange believes that
consolidating into one rule functionality for orders and quotes, such
that Non-Routable Limit Orders may be designated as quotes per proposed
Rule 925.1NYP, would obviate the need to separately describe the same
functionality in two rules and therefore streamline the Exchange's
rules and promote transparency and consistency. As noted above, the
Exchange believes that the quoting functionality available in the
proposed Non-Routable Limit Order would continue to provide Market
Makers with the core functionality associated with existing quote
types, including that the proposed rules would provide for the ability
to either reprice or cancel such quotes.
---------------------------------------------------------------------------
\152\ See supra note 83 (citing NYSE American Options Fee
Schedule, Port Fees, and the ability for Market Makers to pay for
upwards of forty order/quote entry ports per month).
---------------------------------------------------------------------------
Pre-Trade and Activity-Based Risk Controls
The Exchange believes that the proposed Rule 928NYP, which is
identical to Arca Options Rule 6.40P-O unless otherwise specified
herein, setting forth pre-trade and activity-based risk controls, would
remove impediments to and perfect the mechanism of a free and open
market and a national market system and promote just and equitable
principles of trade because the proposed functionality would
incorporate existing activity-based risk controls, without any
substantive differences, and augment them with additional pre-trade
risk controls and related functionality that are based on the pre-trade
risk controls currently available on Arca Options. The Exchange
believes that the proposed differences from current functionality are
designed to provide greater flexibility to ATP Holders in how to set
risk controls for both orders and quotes. The Exchange does not believe
it is unfairly discriminatory to have all orders on the Exchange pass
through the risk checks, even for ATP Holders that opt not to use the
Exchange's pre-trade risk controls. As described above, the proposed
pre-trade risk checks are a functional enhancement that the Exchange
proposes to apply uniformly to all orders and quotes on the Exchange;
by applying them uniformly, the Exchange would avoid producing
incentives for all firms to opt not to use the risk controls for fear
of suffering a competitive disadvantage. Additionally, any latency
imposed by the proposed pre-trade risk controls is de minimis and would
not have a material impact on the order flow of ATP Holders that choose
to employ non-exchange providers to provide them with risk control
solutions. The Exchange expects that the potential latency added by the
proposed pre-trade risk controls would be significantly less than one
microsecond.
The Exchange believes that using Pillar terminology based on Arca
Options rules, including using the term ``Entering Firm'' to mean ATP
Holders, including Market Makers, would promote transparency in
Exchange rules. In addition, the proposed Single-Order Risk Controls
would provide Entering Firms with additional risk protection mechanisms
on an individual order or quote basis. Moreover, the Exchange believes
that aggregating a Market Maker's quotes and orders for purposes of
calculating activity-based risk controls (which is identical to
handling on Arca Options) would better reflect the aggregate risk that
a Market Maker has with respect to its quotes and orders. The Exchange
further believes that the proposed Automated Breach Actions would
provide Entering Firms with additional flexibility in how they could
set their risk mechanisms and the automated responses if a risk
mechanism is breached. The proposed Kill Switch Action functionality
would also provide ATP Holders with greater flexibility to provide bulk
instructions to the Exchange with respect to cancelling existing orders
and quotes and blocking new orders and quotes. Further, as noted
herein, providing ``Kill Switch Action'' functionality in Exchange
rules is consistent with the rules of other options exchanges.\153\
---------------------------------------------------------------------------
\153\ See supra note 99 (citing optional ``Kill Switch''
functionality available on Cboe).
---------------------------------------------------------------------------
[[Page 45769]]
Price Reasonability Checks--Orders and Quotes
The Exchange believes that the proposed Rule 928.1NYP, which is
identical to Arca Options Rule 6.41P-O unless otherwise specified
herein, setting forth Price Reasonability Checks would remove
impediments to and perfect the mechanism of a free and open market and
a national market system because they are based on existing
functionality, with differences designed to use Pillar terminology
based on Arca Options rules and to promote consistency and transparency
in Exchange rules. Specifically, on Pillar, the Exchange proposes to
apply the same types of Price Reasonability Checks to both orders and
quotes, and therefore proposes to describe those checks in a single
rule--proposed Rule 928.1NYP. Like on Arca Options, the proposed rule
would add an Intrinsic Value Check for quotes under Pillar (in addition
to orders) and this check would enhance existing price protection
features for quotes and provide Market Makers greater control and
flexibility over setting risk tolerance and exposure for their quotes.
The proposed rule would also provide specificity regarding when the
Price Reasonability Checks would be applied to an order or quote, which
would promote transparency and clarity in Exchange rules. The Exchange
further believes that applying the Checks based on a broader range of
underlying transactions--both round lots and odd lots--would enhance
the efficacy of the Checks as this proposed functionality would provide
a better representation of the trade prices in occurring in the
underlying market.
Auction Process
With the proposed Auction Process, the Exchange endeavors to
attract the highest quality quote for each series at the open to
attract order flow for the auction. While the Exchange does not require
Market Makers assigned to a series to quote before a series can be
opened (or reopened)--which is consistent with the current rule--the
Exchange believes that providing time for such Market Makers to do so
would promote a fair and orderly market by providing both better and
more consistent prices on executions to ATP Holders in an Auction and
facilitate a fair and orderly transition to continuous trading.
The Exchange believes that proposed Rule 952NYP, which mirrors Arca
Options Rule 6.64P-O unless otherwise specified herein, would remove
impediments to and perfect the mechanism of a free and open market and
a national market system because the proposed rule maintains the
fundamentals of an auction process that is tailored for options trading
and enhances the process by incorporating Pillar auction functionality
that is currently available on Arca Options. For example, the Exchange
proposes to augment the imbalance information that would be
disseminated in advance of an Auction to include the same fields
available on Arca Options. The Exchange believes that the proposed
additional Auction Imbalance Information would promote transparency to
market participants in advance of an Auction. The Exchange also
proposes to transition to continuous trading following an Auction in
the same manner as Arca Options, including how the Exchange would
process orders and quotes that are received during an Auction
Processing Period and how unexecuted quotes and orders would be
transitioned to continuous trading, which the Exchange believes would
promote consistency across affiliated options trading platforms. The
proposed rule describing how orders and quotes that are received during
the Auction Processing Period would be handled would add granularity
and transparency to Exchange rules.
The Exchange further believes that the proposed Auction Process
would remove impediments to and perfect the mechanism of a free and
open market and a national market system because it would maintain the
core functionality of the Exchange's current auction process. With
regard to Auction Ranking and Allocation, the Exchange proposes to
treat Limit Orders, quotes, LOO Orders, MOO Orders, and IO Orders in
the same manner as per Arca Options Rule 6.64P-O(b), which would
promote consistency across the Exchange's options trading platforms.
However, the proposed Rule would differ to address how eligible orders
and quotes would trade per the Pillar priority and allocation model
established in Rule 964NYP. As proposed, orders and quotes priced
better than the Auction Price (i.e., the price at which an Auction will
be conducted) would trade based on ranking and orders and quotes priced
at (or equal to) the Auction Price would trade per Rule 964NYP(j),
except that the Exchange would not apply any participation guarantee
during the Auction Process. This proposed Rule would remove impediments
to and perfect the mechanism of a free and open market and a national
market system because it would align with the ranking and allocation
set forth in Rule 964NYP, which would add clarity, transparency, and
internal consistency to Exchange rules. As noted here, the proposed
auction ranking and allocation is consistent with how the Exchange
ranks and allocates interest in the opening auction for Complex Orders
and is also consistent with the handling of opening interest on other
exchanges.\154\
---------------------------------------------------------------------------
\154\ See supra notes 128 (regarding Rule 980NYP) and 131
(regarding Cboe's opening process).
---------------------------------------------------------------------------
As relates to the exclusion of the participation entitlements (per
Rule 964NYP(j)(4)) from the auction allocation, the Exchange believes
this proposed change would promote equitable principles of trade and
would remove impediments to and perfect the mechanism of a free and
open market and a national market system because this exclusion (which
is consistent with current functionality) would add clarity and
transparency to Exchange rules.
The Exchange also proposes to maintain the core functionality of
the Auction Process as relates to the requirement that the Exchange
would not conduct an Auction if the bid-ask differential is not within
an acceptable range. As proposed, the Auction Process on Pillar would
begin with the proposed Rotational Quote, which would provide notice
not only of when the process would begin, but also whether Market
Makers on the Exchange have quoted in a series. Similar to the current
rule, the Exchange would require a ``Calculated NBBO,'' which is
calculated using information consistent with the information the
Exchange receives from OPRA before the Exchange opens a series, to meet
specified requirements, including that it not be crossed, not have a
zero offer, and that it not exceed a maximum differential that is
determined by the Exchange on a class by class basis and announced by
Trader Update, i.e., be a ``Legal Width Quote'' before a series can be
opened with a trade.\155\ Allowing the Exchange the flexibility to
determine the maximum differential for the Calculated NBBO for a Legal
Width Quote is consistent with functionality and accompanying
discretion available on Arca Options and other options exchanges and
allows the Exchange to consider the different market models and
characteristics of different classes, as well as modify amounts in
response to then-current
[[Page 45770]]
market conditions.\156\ In addition, the proposed discretion to modify
acceptable bid-ask differential is also consistent with discretion
Exchange has today on the Exchange System.\157\ In addition, the
Exchange believes that the proposed Auction Trigger, which would begin
the Auction Process, is consistent with the current trigger for
starting an auction. The Exchange believes that the proposed difference
to allow the trade on the Primary Market to be odd-lot sized (in
addition to having a quote from the Primary Market, which means that
the underlying security would be open on the Primary Market), would
allow for options series overlying low-volume securities to open
automatically and reduce the need to manually trigger an Auction in a
series.
---------------------------------------------------------------------------
\155\ As noted herein, the concept of a Calculated NBBO is also
consistent with similar concepts utilized on other options
exchanges. See, e.g., Cboe Rule 5.31(a) (regarding use of
``Composite Market'' concept).
\156\ See supra note 121 (regarding the concept of a ``Maximum
Composite Width,'' per Cboe Rule 5.31(a)).
\157\ See supra note 118 (regarding discretion afforded to the
Exchange per Rule 925NY(c)).
---------------------------------------------------------------------------
As with the current rule, on Pillar, Market Makers are not
obligated to quote in their assigned series for an Auction. However,
the Exchange believes that providing Market Maker(s) assigned to a
series the opportunity to quote within the bid-ask differential before
opening a series for trading would promote fair and orderly Auctions
and facilitate a fair and orderly transition to continuous trading. In
particular, rather than layer additional quoting requirements on the
Market Making community, the Exchange believes it would be more
beneficial to all market participants to employ alternative methods to
help ensure an orderly transition to continuous trading. As such, the
Exchange believes that the proposed so-called ``waterfall'' approach to
opening, which mirrors Arca Options Rule 6.64P-O, would offer a number
of checks that are intended to provide adequate opportunity for a
greater number of Market Makers to provide their liquidity interest and
help ensure increased liquidity at a level commensurate with which the
market is accustomed during continuous trading on the Exchange. In
short, although the Exchange does not require a Market Maker assigned
to a series to quote on the Exchange in order to open or reopen a
series for trading, the Exchange believes that providing Market Makers
assigned to a series the opportunity to do so would promote a fair and
orderly Auction process and facilitate a fair and orderly transition to
continuous trading.\158\
---------------------------------------------------------------------------
\158\ As noted, infra, although the Exchange does not require
that Market Makers assigned to a series quote at the open, once a
series is opened for trading, Market Makers are nonetheless required
to continuously fulfill their obligations to engage in a course of
dealings reasonably calculated to contribute to the maintenance of a
fair and orderly market.
---------------------------------------------------------------------------
Accordingly, the Exchange proposes a difference on Pillar,
consistent with functionality on Arca Options, to provide time for
Market Maker(s) assigned to a series to enter quotes within the
specified bid-ask differentials before a series could be opened or
reopened for trading. The proposed Opening MMQ Timer(s) would be
announced by Trader Update. The proposed rule provides transparency of
how many Market Makers assigned to a series would be required to quote
in a series and when the Exchange would conduct an Auction in a series
based on a Legal Width Quote. As noted above, the proposed Auction
Process is designed to attract the highest quality quote for each
series at the open to attract order flow to the Auction. As such, the
Exchange believes it is reasonable to require more than one Opening MMQ
Timer to run when there are at least two Market Makers because it
allows the Exchange time to attract the best quote from these market
participants, which in turn should attract order flow to the Exchange
at the open (i.e., the Exchange can leverage the highest bid and lowest
offer from the various Marker Makers that submit quotes). The Exchange
believes that if a Legal Width Quote is not obtained in the first
Opening MMQ Timer, it is to the benefit of all market participants to
begin a second Opening MMQ Timer to allow the bid-ask differential to
tighten before a series is opened. However, if there is a Legal Width
Quote based on the ABBO and the required number of quotes with non-zero
offers have been submitted by Market Makers, the Exchange would open or
reopen that series for trading. The Exchange believes that the proposed
waterfall approach (i.e., setting minimum time periods for a Market
Maker assigned to a series to quote within the specified bid-ask
differential before opening a series, unless there is a Legal Width
Quote) would appropriately balance the benefits of increasing the
opportunities for Market Makers assigned to a series to enter
quotations within the specified bid-ask differential, with a timely
series opening or reopening when there is a Legal Width Quote.
The Exchange believes its proposed process for opening option
series that have two or more assigned Market Makers would promote just
and equitable principles of trade and remove impediments to and perfect
the mechanism of a free and open market and a national market system
and protect investors because it would continue to provide Market
Makers assigned to such series the opportunity to submit a quote while
potentially promoting a more timely opening once at least two quotes
(even if from a single Market Maker) have been submitted and would add
clarity and transparency to Exchange rules. The Exchange believes the
proposed rule would provide more flexibility in terms of how market
depth in the affected series is achieved (i.e., based on quotes from a
single Market Maker as opposed to two) and may result in a more timely
and efficient opening process. Further, the proposed change may
increase the availability of Legal Width Quotes in more series.
Improving the validity of the opening price benefits all market
participants and benefits the reputation of the Exchange as being a
venue that provides accurate price discovery. To the extent that this
proposed rule results in an option series opening sooner, which, in
turn would increase the times during which investors may conduct
trading in these options, this proposed rule would benefit investors
and the investing public. In addition, the Exchange believes that
expanding the opportunities for Market Makers to enter the market would
result in deeper liquidity--which market participants have come to
expect in options with multiple assigned Market Makers, and a more
stable trading environment.
The proposed rule would also provide transparency of when the
Exchange would open or reopen a series for trading when the Calculated
NBBO is wider than the Legal Width Quote for the series. The Exchange
believes that the proposed process is designed to provide additional
opportunities for a series to open or reopen not currently available on
the Exchange System, while at the same time preserving the existing
requirement that a series would not open on a trade if there is no
Legal Width Quote. The proposed functionality to provide additional
opportunities to open or reopen a series when the market is wider than
the specified bid-ask differentials is consistent with functionality on
Arca Options, and the Exchange believes that this proposed rule would
allow for more automated Auctions on the Exchange for series that may
already be opened on another exchange.\159\ The Exchange also believes
that the proposed rule to permit the Exchange to conduct an Auction on
a wide Calculated NBBO once it has cancelled certain trading interest
would promote just and equitable principles of
[[Page 45771]]
trade and remove impediments to and perfect the mechanism of a free and
open market and a national market system and protect investors. In
particular, the Exchange believes that the proposed change would
improve the speed and efficiency of the Exchange's opening process
without impairing price discovery, which should result in better and
more consistent prices on Auction executions. The proposed cancellation
of Market Orders, MOO Orders, and Limit Orders to buy (sell) priced
equal to or higher (lower) than the Indicative Match Price, would allow
the Exchange to proceed with a timely opening of each series while
preventing extreme executions for series opened based on a wide
Calculated NBBO. The proposal to cancel Limit Orders to buy (sell)
priced equal to or higher (lower) than the Indicative Match Price when
the Calculated NBBO is wider than the Legal Width Quote would similarly
allow the Exchange to help ensure that potentially executable Limit
Orders would be cancelled rather than execute at potentially extreme
prices before the Exchange transitions to continuous trading (in a wide
market). As such, the Exchange believes that providing for the
cancellation of potentially executable interest (Market Orders, MOOs
and Limit Orders alike) would protect investors as it would continue to
limit the risk of execution of orders at extreme prices.
---------------------------------------------------------------------------
\159\ See, e.g., Cboe Rule 5.31.
---------------------------------------------------------------------------
Finally, the proposed rule describing how existing and new orders
would be processed during a trading halt is designed to provide
additional granularity in Exchange rules. Certain of the proposed
functionality is based on current processes. The Exchange believes that
the proposed differences in order/quote handling would remove
impediments to and perfect the mechanism of a free and open market
because they align with the proposed differences in behavior for
specified orders and quotes on Pillar. For example, the Exchange
believes that repricing resting non-routable orders and quotes during a
trading halt to their limit price would be consistent with how such
orders would be processed in an Auction if they arrived during a pre-
open state. In addition, the Exchange believes that canceling orders
that are subject to the Trading Collar 500 millisecond timer would be
consistent with the intent of such functionality, which is to cancel
such collared orders after a specified time period.
Conforming Changes to Rules 925NY, 953.1NY, and 994NY
The Exchange believes that the proposed conforming non-substantive
changes to Rules 925NY (Obligations of Market Makers), 953.1NY (Limit-
Up and Limit-Down During Extraordinary Market Volatility), and 994NY
(Broadcast Order Liquidity Delivery Mechanism) to add cross-references
to certain of the new Pillar rules, including Rule 964NYP and those
proposed in this filing 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.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act. The Exchange operates in a
competitive market and regularly competes with other options exchanges
for order flow. The Exchange believes that the transition to Pillar
would promote competition among options exchanges by offering a low-
latency, deterministic trading platform. The proposed rule changes
would support that inter-market competition by allowing the Exchange to
offer additional functionality to its ATP Holders that is currently
available on Arca Options, 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 to support the transition to Pillar. As discussed in
detail above, unless otherwise specified herein, the Exchange is not
proposing to change its core functionality relating to order types and
modifiers, risk controls, Market Maker quotations, or auctions. Rather,
the Exchange believes that the proposed rule changes would promote
consistent functionality, rules, and use of terminology for options
trading on Pillar across the Exchange and its affiliated options
trading platform, Arca Options. The Exchange believes this uniformity
would make the Exchange's rules easier to navigate in connection with
the transition to Pillar.
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. In particular, the proposed waterfall
approach utilized during the Auction Process, which mirrors Arca
Options, would not result in an undue burden on intra-market
competition because it would apply equally to all similarly-situated
Market Makers regarding their assigned series. Market Makers are
encouraged but not required to quote in their assigned series at the
open, thus they are not subject to additional obligations. The Exchange
believes that encouraging, rather than requiring, participation of such
Market Makers at the open, may increase the availability of Legal Width
Quotes in more series, thereby allowing more series to open. Improving
the validity of the opening price benefits all market participants and
benefits the reputation of the Exchange as being a venue that provides
accurate price discovery. With respect to inter-market competition, the
Exchange notes that most options markets do not require Market Makers
to quote during the opening.\160\
---------------------------------------------------------------------------
\160\ See, e.g., Cboe and its affiliated exchanges.
---------------------------------------------------------------------------
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were solicited or received with respect to the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The Exchange has filed the proposed rule change pursuant to Section
19(b)(3)(A)(iii) of the Act \161\ and Rule 19b-4(f)(6) thereunder.\162\
Because the proposed rule change does not: (i) significantly affect the
protection of investors or the public interest; (ii) impose any
significant burden on competition; and (iii) become operative prior to
30 days from the date on which it was filed, or such shorter time as
the Commission may designate, if consistent with the protection of
investors and the public interest, the proposed rule change has become
effective pursuant to Section 19(b)(3)(A) of the Act and Rule 19b-
4(f)(6)(iii) thereunder.
---------------------------------------------------------------------------
\161\ 15 U.S.C. 78s(b)(3)(A)(iii).
\162\ 17 CFR 240.19b-4(f)(6).
---------------------------------------------------------------------------
At any time within 60 days of the filing of such proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act. If the Commission
takes such action, the
[[Page 45772]]
Commission shall institute proceedings under Section 19(b)(2)(B) \163\
of the Act to determine whether the proposed rule change should be
approved or disapproved.
---------------------------------------------------------------------------
\163\ 15 U.S.C. 78s(b)(2)(B).
---------------------------------------------------------------------------
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-2023-34 on the subject line.
Paper Comments
Send paper comments in triplicate to: Secretary,
Securities and Exchange Commission, 100 F Street NE, Washington, DC
20549-1090.
All submissions should refer to file number SR-NYSEAMER-2023-34. This
file number should be included on the subject line if email is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (https://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for website viewing and
printing in the Commission's Public Reference Room, 100 F Street NE,
Washington, DC 20549 on official business days between the hours of 10
a.m. and 3 p.m. Copies of the filing also will be available for
inspection and copying at the principal office of the Exchange. Do not
include personal identifiable information in submissions; you should
submit only information that you wish to make available publicly. We
may redact in part or withhold entirely from publication submitted
material that is obscene or subject to copyright protection. All
submissions should refer to file number SR-NYSEAMER-2023-34 and should
be submitted on or before August 7, 2023.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\164\
---------------------------------------------------------------------------
\164\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-14912 Filed 7-14-23; 8:45 am]
BILLING CODE 8011-01-P
