Self-Regulatory Organizations; NYSE American LLC; Notice of Filing and Immediate Effectiveness of Proposed Change for New Rule 971.1NYP, 47536-47551 [2023-15575]

Download as PDF 47536 Federal Register / Vol. 88, No. 140 / Monday, July 24, 2023 / Notices 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– NASDAQ–2023–020 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. lotter on DSK11XQN23PROD with NOTICES1 All submissions should refer to File Number SR–NASDAQ–2023–020. This file number should be included on the subject line if email is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission’s internet website (https://www.sec.gov/ rules/sro.shtml). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for website viewing and printing in the Commission’s Public Reference Room, 100 F Street NE, Washington, DC 20549, on official business days between the hours of 10 a.m. and 3 p.m. Copies of such filing also will be available for inspection and copying at the principal office of 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–NASDAQ–2023–020 and should be submitted on or before August 14, 2023. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.23 Sherry R. Haywood, Assistant Secretary. SECURITIES AND EXCHANGE COMMISSION [Release No. 34–97938; File No. SR– NYSEAMER–2023–35] Self-Regulatory Organizations; NYSE American LLC; Notice of Filing and Immediate Effectiveness of Proposed Change for New Rule 971.1NYP July 18, 2023. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’),1 and Rule 19b–4 thereunder,2 notice is hereby given that on July 5, 2023, NYSE American LLC (‘‘NYSE American’’ or the ‘‘Exchange’’) filed with the Securities and Exchange Commission (the ‘‘Commission’’) the proposed rule change as described in Items I, II, and III below, which Items have been prepared by the selfregulatory organization. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to new Rule 971.1NYP regarding its Customer Best Execution (‘‘CUBE’’) Auction to reflect the implementation of the Exchange’s Pillar trading technology on its options market and to modify Rule 971.1NY. 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. [FR Doc. 2023–15578 Filed 7–21–23; 8:45 am] BILLING CODE 8011–01–P 1 15 23 17 CFR 200.30–3(a)(12). VerDate Sep<11>2014 16:56 Jul 21, 2023 2 17 Jkt 259001 PO 00000 U.S.C. 78s(b)(1). CFR 240.19b–4. Frm 00064 Fmt 4703 Sfmt 4703 A. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose Background The Exchange plans to transition its options trading platform to its Pillar technology platform. The Exchange’s affiliated options exchange, NYSE Arca, Inc. (‘‘NYSE Arca’’ or ‘‘Arca Options’’) is currently operating on Pillar, as are the Exchange’s cash equity markets and those of its national securities exchange affiliates’ cash equity markets.3 For this transition, the Exchange proposes to use the same Pillar technology already in operation on Arca Options.4 In doing so, the Exchange will be able to offer not only common specifications for connecting to both of its equity and options markets, but also common trading functions across the Exchange and its affiliated options exchange, NYSE Arca Options. 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, 2023.5 As was the case for Arca Options when it transitioned to Pillar, the Exchange will announce by Trader Update when underlying symbols will be transitioning to the Pillar trading platform. With this transition, certain rules would continue to be applicable to options symbols trading on the current trading platform but would not be applicable to options symbols that have transitioned to trading on Pillar. In this regard, the Exchange recently adopted new rules to reflect the priority, ranking, and allocation of single-leg interest on Pillar, including Rule 964NYP (‘‘Pillar Rule 964NYP’’) 6 and 3 Together with NYSE American LLC, the Exchange’s national securities exchange affiliates’ cash equity markets include: the New York Stock Exchange LLC, NYSE Arca, Inc., NYSE National, Inc., and NYSE Chicago, Inc. 4 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’’). 5 See Trader Update, January 30, 2023 (announcing Pillar Migration Launch date of October 23, 2023, for the Exchange), available here: https://www.nyse.com/trader-update/ history#110000530919. The Exchange would not begin to migrate underlying symbols to the Pillar platform until all Pillar-related rule filings (i.e., with a ‘‘P’’ modifier) are either approved or operative, as applicable. 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 the American Pillar E:\FR\FM\24JYN1.SGM 24JYN1 Federal Register / Vol. 88, No. 140 / Monday, July 24, 2023 / Notices lotter on DSK11XQN23PROD with NOTICES1 has adopted a new rule regarding the trading of Complex Orders on Pillar.7 In addition, the Exchange has submitted a filing to adopt new rules for the operation of order types, Market Maker quotations, opening auctions, and risk controls on the Pillar platform.8 On Pillar, and as discussed in detail herein, the Exchange will continue to conduct CUBE Auctions consistent with current functionality. However, proposed Rule 971.1NYP (the ‘‘Rule’’) regarding its CUBE Auction (the ‘‘CUBE Auction’’; ‘‘CUBE’’; or the ‘‘Auction’’) would incorporate the Exchange’s priority and allocation scheme per Pillar Rule 964NYP, which includes Pillar concepts and terminology, and would also include enhancements to CUBE that will be available on the Pillar trading platform. The proposed enhancements would align the operation of the CUBE Auction with similar price-improvement mechanisms already available on other options exchanges.9 As such, this proposal is competitive insofar as the proposed Pillar-related enhancements to CUBE are currently available on other options exchanges. The Exchange believes the proposed Rule for CUBE Auctions on Pillar would continue to encourage ATP Holders to compete vigorously to provide the opportunity for price improvement for CUBE Orders of all sizes in a competitive auction process, which may lead to enhanced liquidity and tighter markets.10 Priority Rules on an immediately effective basis, which rules utilize Pillar concepts and incorporate the Exchange’s current Customer priority and pro rata allocation model) (the ‘‘American Pillar Priority Filing’’). The American Pillar Priority Rules (like proposed Rule 971.1NYP) will not be implemented until all other Pillar-related rule filings are either effective or approved, as applicable. See id. 7 See 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)). 8 See SR–NYSEAmer–2023–34 (proposing, on an immediately effective basis, 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)). 9 See, e.g., Cboe Exchange, Inc. (‘‘Cboe’’) Rule 5.37 (describing Automated Improvement Mechanism (‘‘AIM’’), which is an electronic price improvement auction for paired orders); Cboe EDGX Exchange, Inc. (‘‘Cboe EDGX’’) Rule 21.19 (same); Nasdaq ISE, LLC (‘‘Nasdaq ISE’’), Options 3, Section 13 (describing Price Improvement Mechanism for Crossing Transactions, which is an electronic price improvement auction for paired orders). 10 An ATP Holder is a natural person, sole proprietorship, partnership, corporation, limited liability company or other organization, in good standing, that has been issued an ATP. See Rule 900.2NY. An ATP is an American Trading Permit issued by the Exchange for effecting approved VerDate Sep<11>2014 16:56 Jul 21, 2023 Jkt 259001 Proposed Use of ‘‘P’’ Modifier As proposed, and consistent with the American Pillar Priority Filing, the proposed Rule would have the same number as the current CUBE rule, but with the modifier ‘‘P’’ appended to the rule number.11 As such, except Rule 971.1NY (Single-Leg Electronic Cross Transactions) would continue to apply to CUBE Auctions in symbols traded on the Exchange’s current system.12 Proposed Rule 971.1NYP, however, would govern CUBE Auctions for symbols that have migrated to the Pillar trading platform.13 To make clear this distinction, the Exchange proposes to add a preamble to current Rule 971.1NY (Single-Leg Electronic Cross Transactions) specifying that it would not be applicable to trading on Pillar, i.e., once the migration to Pillar is complete, the current CUBE rule will not apply to CUBE Auctions.14 As with the Pillar Priority Rules, the Exchange will not implement proposed Rule 971.1NYP until all other Pillarrelated 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. Overview of the CUBE Auctions Rule 971.1NY describes the CUBE Auction, which is an electronic crossing mechanism for single-leg orders with a price improvement auction on the Exchange.15 The CUBE Auction is designed to provide price improvement for ‘‘CUBE Orders’’ (described below) of any size. To commence an Auction, an ATP Holder (‘‘Initiating Participant’’) may securities transactions on the Exchange’s Trading Facilities. See id. 11 See American Pillar Priority Filing (adopting, among other rules, Pillar Rule 964NYP, which will replace and supersede current Rule 964NY when the Exchange migrates to Pillar and describing that any Exchange rule with a ‘‘P’’ modifier will be applicable to options trading in symbols that have migrated to Pillar). 12 The Exchange notes that it proposes one clarifying change to current Rule 971.1NY (regarding rejection of certain CUBE Orders submitted near the end of the trading day). See supra note 61. 13 The Exchange believes that using the ‘‘P’’ modifier to demarcate rules that apply solely to trading on the Pillar platform adds clarity, transparency, and internal consistency to Exchange rules. See id. See also Arca Pillar Approval Order. 14 See proposed Rule 971.1NYP (with new preamble specifying that it would not be applicable to trading on Pillar). Following the completed migration to Pillar, the Exchange will file a rule proposal to delete rules that are no longer operative because they apply only to trading on the Exchange’s current system (including current Rule 971.1NY). 15 See generally Rule 971.1NY (Single-Leg Electronic Cross Transactions). PO 00000 Frm 00065 Fmt 4703 Sfmt 4703 47537 electronically submit for execution a limit order it represents as agent on behalf of a public customer, broker dealer, or any other entity (‘‘CUBE Order’’).16 The Initiating Participant must agree to guarantee the execution of the CUBE Order by submitting a contraside order representing principal interest or interest it has solicited to trade with the CUBE Order (the ‘‘Contra Order’’) at a specified stop price or by utilizing auto-match or auto-match limit.17 Subject to specified exceptions, a CUBE Order to buy (sell) may execute at prices equal to or between the ‘‘initiating price’’ as the upper (lower) bound and the NBB (NBO) as the lower (upper) bound of permissible executions.18 The current CUBE rule provides that the range of permissible executions depends on whether a CUBE Order is for fewer than 50 contracts 19 or for 50 or more contracts.20 Further, to initiate an Auction, a CUBE Order must meet requirements related to its minimum size, price, and time of submission and acceptance of a CUBE Order is also dependent upon market conditions when submitted.21 When the Exchange receives a valid CUBE Order for auction processing, a Request for Responses (‘‘RFR’’) detailing the series, the side of the market, the size of the CUBE Order, and the initiating price of the CUBE Order is sent to all ATP Holders that subscribe to receive RFR messages.22 RFR Responses marked as GTX Orders may be submitted to trade with a CUBE Order, provided that such orders specify their price, size and side of the market.23 Only one Auction in a given series may be conducted at a time.24 The Response Time Interval for a CUBE Auction is a random period of time within parameters designated by the Exchange, which time period shall be no less than 100 milliseconds and no more than 1 second, unless the Auction 16 See Rule 971.1NY(a). Rule 971.1NY(c)(1)(A)–(C). 18 See Rule 971.1NY(b), (b)(1). 19 See Rule 971.1NY(b)(1)(B) (providing that if a CUBE Order to buy (sell) is for fewer than 50 contracts, the initiating price shall be the lower (higher) of the CUBE Order’s limit price, the NBO (NBB), or the BO minus one cent (BB plus one cent) and the lower (upper) bound of executions shall be the higher (lower) of the NBB (NBO) or the BB plus one cent (BO minus one cent)). 20 See Rule 971.1NY(b)(1)(A) (providing that if a CUBE Order to buy (sell) is for 50 contracts or more and there is Customer interest in the Consolidated Book at the BB (BO), the lower (upper) bound of executions is the higher (lower) of the BB plus one cent (BO minus one cent) or the NBB (NBO)). 21 See Rule 971.1NY(b)(2)–(10). 22 See Rule 971.1NY(c)(2)(A). 23 See Rule 971.1NY(c)(2)(C)(i). 24 See Rule 971.1NY(c). 17 See E:\FR\FM\24JYN1.SGM 24JYN1 47538 Federal Register / Vol. 88, No. 140 / Monday, July 24, 2023 / Notices is concluded early.25 A CUBE Auction may end early if, during the Auction, the Exchange receives interest that would otherwise disrupt the priority of interest in the Consolidated Book.26 At the conclusion of the Auction, including if the Auction ends early, the Exchange evaluates the interest received during the auction and allocates the CUBE Order (in whole or in part) with price improving interest, and/or, absent sufficient improving interest, with the Contra Order.27 The Contra Order may be entitled to a participation guarantee of up to 40% (or 50% if there is only one RFR Response) depending on the CUBE Order contracts remaining after executing with price improving interest.28 CUBE Order allocations are applied in accordance with the Exchange’s Customer priority scheme and size pro rata allocation algorithm.29 Summary of Proposed Enhancements to CUBE The Exchange is not proposing fundamentally different functionality for CUBE Auctions on Pillar. Instead, the Exchange proposes discrete enhancements to the CUBE Auction that are designed to both improve the operation of the CUBE and as noted herein to bring CUBE functionality in alignment with price-improving mechanisms available on other marketplaces. Specifically, and as described in detail below, the Exchange proposes to enhance the CUBE Auction on Pillar as follows: • Uniform Pricing Standard. Adopt one uniform range of permissible executions for CUBE Orders by applying the current pricing requirements set forth in Rule 971.1NY(b)(1)(A) to CUBE Orders of any size. The Exchange, however, would continue to require price improvement to CUBE Orders for fewer than 50 contracts that are submitted when the market is one cent wide ($0.01). As proposed, the Exchange would also continue to reject (as it does today) smaller-sized CUBE Orders in penny-wide markets if there is same-side (as CUBE Order) displayed Customer interest in the Consolidated Book at the NBBO.30 25 See lotter on DSK11XQN23PROD with NOTICES1 Rule 971.1NY(c)(2)(B). 26 See Rule 971.1NY(c)(4)(A)–(F) (providing the scenarios that would result in the early end of a CUBE Auction). 27 See generally Rule 971.1NY(c)(5). 28 See Rules 971.1NY(c)(5)(B)(i)(b), (ii)(b), (iii)(b) (specifically regarding guaranteed participation of the Contra Order). 29 See, e.g., Rules 971.1NY(c)(5)(B)(i)(b), (ii)(b), (iii)(b) (citing the size pro rata algorithm set forth in Rule 964NY(b)(3)). 30 See proposed Rule 971.1NYP(b)(5). See also Securities Exchange Act Release No. 79830 (January 18, 2017), 82 FR 8465, at 8466 (January 25, 2017) • Response Time Interval. Modify the Response Time Interval for a CUBE Auction to be for a set duration as opposed to the random duration that currently applies to Auctions. • GTX Order Handling. Update GTX Order functionality to reflect handling on Pillar, including how such orders will be prioritized per Pillar Rule 964NYP(e), that such orders may include a specific CUBE ‘‘AuctionID’’, and that such order will cancel (rather than continue to trade) after executing with the CUBE Order to the extent possible. • Single Early End Scenario. Reduce the number of ‘‘early conclusion events’’ based on trading interest that arrives during the Auction to the single scenario set forth in current Rule 971.1NY(c)(4)(D) and described herein.31 This proposed change does not impact nor alter the (existing and proposed) requirement that a CUBE Auction end early if there is a trading halt in the affected series, which early termination reason is distinct from ending an Auction early based on incoming options trading interest.32 • Surrender Quantity. Enable Contra Orders that guarantee CUBE Orders with a stop price the option of requesting to receive a lesser participation guarantee than the standard 40% (i.e., the Surrender Quantity). • Concurrent Auctions. Permit multiple CUBE Auctions in the same series to occur at the same time and specify how such Auctions are processed and, to correspond with this functionality change, add ‘‘AuctionID’’ functionality to allow auction responses (i.e., GTX Orders) to specify the CUBE Order with which it would like to trade. • CUBE Order Allocation. Update Auction functionality to reflect the allocation of CUBE Orders against RFR Responses in alignment with Pillar Rule 964NYP (Order Ranking, Display, and Allocation). In addition to the foregoing enhancements, the proposed Rule includes descriptions of existing CUBE functionality that will persist on Pillar. However, the Exchange proposes to streamline, clarify, or relocate certain of these descriptions (as indicated herein) VerDate Sep<11>2014 16:56 Jul 21, 2023 Jkt 259001 (SR–NYSEMKT–2016–12) (order approving proposal to make permanent the aspects of the CUBE Auction that were subject to a pilot, provided the Exchange continued to guarantee price improvement to CUBE Orders for fewer than 50 contracts in a penny-wide NBBO market) (order approving CUBE pilot on permanent basis for smaller-sized orders) (‘‘SEC Approval of CUBE Pilot’’). 31 Rule 971.1NY(c)(4)(A)–(F) sets forth the current early end scenarios. 32 See proposed Rule 971.1NYP(c)(2). See also Rule 971.1NY(c)(3). PO 00000 Frm 00066 Fmt 4703 Sfmt 4703 to make the proposed Rule more succinct and easier to understand. The Exchange also proposes to replace all instances of ‘‘shall’’ with ‘‘will,’’ which is a stylistic preference that has no substantive impact on the proposed Auction functionality.33 Proposed Rule 971.1NYP: CUBE Auctions on Pillar As discussed herein, the Exchange is not proposing to change the core functionality of CUBE Auctions. Thus, unless otherwise stated herein, CUBE Auctions on Pillar will function in a manner identical with current CUBE functionality per current Rule 971.1NY. Initiating and Pricing of CUBE Auctions The proposed Rule would begin by describing the general requirements for initiating a CUBE Auction, which requirements mirror current functionality unless otherwise specified. Proposed Rule 971.1NYP(a) and (a)(1) describe functionality identical to Rule 971.1NY(a). • Proposed Rule 971.1NYP(a) is identical to Rule 971.1NY(a) insofar as it would provide that a ‘‘CUBE Order’’ is a Limit Order submitted electronically by an ATP Holder (the ‘‘Initiating Participant’’) into the CUBE Auction, which CUBE Order the Initiating Participant represents as agent on behalf of a public customer, broker dealer, or any other entity. The last sentence of proposed Rule 971.1NYP(a) is identical to Rule 971.1NY(b)(8) and would provide that the minimum size requirement for a CUBE Order is one contract.34 • Proposed Rule 971.1NYP(a)(1) is identical to Rule 971.1NY(a) insofar as it would provide that a the Initiating Participant would guarantee the execution of the CUBE Order by submitting a contra-side order (‘‘Contra Order’’) representing principal interest or non-Customer interest it has solicited to trade solely with the CUBE Order at a specified price (‘‘stop price’’) or by utilizing auto-match or auto-match limit features (as described in proposed paragraph (b)(1) of the Rule), which interest would not be displayed.35 33 Compare Rules 971.1NY(a) and (b) (which use ‘‘shall’’) with proposed Rules 971.1NYP(a)(1) and (2), respectively (which use ‘‘will’’). 34 The Exchange has relocated this text to the beginning of the Rule (as opposed to where this provision resides (in current Rule 971.1NY(b)(8)) because the Exchange believes that the minimum size of a CUBE Order is fundamental and thus is logically included at the outset of the Rule. 35 The Exchange notes that the internal crossreference in the proposed Rule has been updated and expanded to include descriptions of each of the stop price, auto-match, and auto-match limit price, which difference from the current CUBE rule is not material because it does not impact functionality. E:\FR\FM\24JYN1.SGM 24JYN1 Federal Register / Vol. 88, No. 140 / Monday, July 24, 2023 / Notices lotter on DSK11XQN23PROD with NOTICES1 Æ Proposed Rule 971.1NYP(a)(1)(A) is identical to Rule 971.1NY(b)(7) and would provide that CUBE Orders may be entered in one cent ($0.01) increments regardless of the MPV of the series involved and that Contra Orders likewise may be priced in one cent increments when specifying the stop price or the auto-match limit price as described in proposed paragraphs (b)(1)(A) and (b)(1)(C) of this Rule (discussed below).36 Proposed Rule 971.1NYP(a)(2) describes functionality identical to Rule 971.1NY(b). • Proposed Rule 971.1NYP(a)(2) is identical to Rule 971.1NY(b) insofar as it would provide that for purposes of determining whether a CUBE Order is eligible to initiate an Auction, references to the NBBO or Exchange BBO refer to the quoted market at the time the Auction is initiated and that the time at which the CUBE Auction is initiated is considered the time of the CUBE Order execution and that orders executed in the Auction qualify as exceptions to Trade-Through Liability, pursuant to Rule 991NY(b)(5) and (9). However, unlike the current rule, the proposed Rule would use shorthand to refer to the NBBO and Exchange BBO, which terms are defined in Rule 900.2NY.37 Consistent with current functionality, a CUBE Auction on Pillar would begin with an ‘‘initiating price’’ and, at the conclusion of the Auction, the CUBE Order would be eligible to execute at multiple prices within a permissible ‘‘range of executions.’’ 38 On Pillar, however, the Exchange proposes to adopt a uniform pricing standard for all CUBE Orders rather than have two separate standards based on the size of 36 The Exchange notes that the internal crossreference in the proposed Rule has been updated and expanded to include descriptions of each of the stop price, auto-match, and auto-match limit price, which difference from the current CUBE rule is not material because it does not impact functionality. The Exchange has relocated this text to the beginning of the Rule (as opposed to where this provision resides (in current Rule 971.1NY(b)(7)) because the Exchange believes that the permissible MPV for CUBE Orders and certain Contra Orders is fundamental and thus is logically included at the outset of the Rule. 37 Compare proposed Rule 971.1NYP(a)(2) (referring to the ‘‘NBBO’’ and ‘‘Exchange BBO’’) with Rules 971.1NY(b) (providing that ‘‘[f]or purposes of determining whether a CUBE Order is eligible to initiate an Auction, references to the National Best Bid or Offer (‘NBBO’) or Exchange Best Bid or Offer (‘‘BBO’’) refer to the quoted market at the time the Auction is initiated’’); 971.1NY(a) (referring to ‘‘the National Best Offer (‘NBO’) (National Best Bid (‘NBB’)’’). 38 See, e.g., Rule 971.1NY(a) (providing, in relevant part, that the ‘‘Auction begins with an ‘initiating price’,’’ and that, ‘‘[a]t the conclusion of the Auction, the CUBE Order may execute at multiple prices within a permissible range . . . .’’). VerDate Sep<11>2014 16:56 Jul 21, 2023 Jkt 259001 a CUBE Order.39 As proposed, the Exchange would streamline CUBE functionality by applying the pricing parameter set forth in Rule 971.1NY(b)(1)(A) to establish the initiating price and ‘‘permissible range of executions’’ for a CUBE Order, but would eliminate the CUBE Order’s size requirement.40 • Proposed Rule 971.1NYP(a)(3) would provide that—subject to proposed Rule 971.1NYP(b)(5) (as described below), the initiating price for any-sized CUBE Order to buy (sell) would be the lower (higher) of the CUBE Order’s limit price or the NBO (NBB), which parameters are identical to the current initiating price requirements for CUBE Orders of 50 or more contracts per Rule 971.1NY(a).41 • Proposed Rule 971.1NYP(a)(4) would provide that the range of permissible executions for any-sized CUBE Order would be as set forth below and would note that this range of permissible executions may be adjusted based on certain updates to the Exchange BBO during an Auction per proposed Rule 971.1NYP(a)(4)(A) (described below). The ‘‘range of permissible executions’’ of a CUBE Order to buy (sell) includes prices equal to or between the initiating price as the upper (lower) bound and the NBB (NBO) as the lower (upper) bound, provided that if there is Customer interest in the Consolidated Book at the Exchange BB (BO), the lower (upper) bound of executions will be the higher (lower) of the BB plus one cent (BO minus one cent) or the NBB (NBO).42 39 See Rules 971.1NY(b)(1)(A) and (B) (providing pricing requirements for a CUBE Order for 50 contracts or more and for a CUBE Order for fewer than 50 contracts, respectively). 40 The Exchange notes that current Rule 971.1NY(b)(1)(B), which will not apply to CUBE Auctions on Pillar, requires that a CUBE Order for fewer than 50 contracts must be priced at least one cent ($0.01) better than any displayed interest on the Exchange’s Consolidated Book. As discussed, supra, the Exchange would continue to protect displayed Customer interest at the BBO for smallersized CUBE Orders. See proposed Rules 971.1NYP(a)(3) (carving out the exception to the initiating price parameters for CUBE Orders submitted in a penny-wide market) and (b)(5) (describing the handling of CUBE Orders submitted in a penny-wide market). 41 Compare proposed Rule 971.1NYP(a)(3) with Rule 971.1NY(a) (providing that, for CUBE Orders for 50 or more contracts, the ‘‘initiating price’’ for a CUBE Order to buy (sell) will be the lower (higher) of the CUBE Order’s limit price or the NBO (NBB), except as provided in (proposed) paragraph (b)(5) of this Rule). 42 Compare proposed Rule 971.1NYP(a)(4) with Rule 971.1NY(b)(1) and (b)(1)(A) (providing that a CUBE Order to buy (sell) for 50 contracts or more may execute at prices equal to or between the initiating price as the upper (lower) bound and the NBB (NBO) as the lower (upper) bound, provided PO 00000 Frm 00067 Fmt 4703 Sfmt 4703 47539 Æ Proposed Rule 971.1NYP(a)(4)(A) would provide that the Exchange would adjust the range of permissible executions of a CUBE Order to buy (sell) in accordance with updates to the Exchange BB (BO) during the Auction, provided that such Exchange BB (BO) updates do not cross the upper (lower) bound of permissible executions.43 This proposed feature is consistent with current functionality but differs in that the proposed Rule states definitively when updates to the BBO during an Auction would impact the range of executions (rather than refer to BBO updates that might result in the early end of an Auction).44 The Exchange believes this distinction is immaterial as it has no impact on functionality. In fact, the Exchange believes this proposed change would remove superfluous (potentially confusing) language and, as such, would add clarity and transparency to Exchange rules making them easier to navigate and understand. Æ Proposed Rule 971.1NYP(a)(4)(B) is identical to current Rule 971.1NY(b)(3) and would require that CUBE Orders, once accepted, would never execute outside the range of permissible executions, and would never trade through their own limit price; further, the proposed Rule would provide that unrelated quotes and orders that participate in the Auction will never trade through their own limit price.45 In the current rule, the foregoing provision is included with circumstances under which CUBE Orders are rejected. Because this proposed text relates to the range of permissible executions for accepted CUBE Orders (i.e., not rejected), the Exchange believes the proposed placement of this provision would add clarity to the proposed Rule and would make it easier to navigate and understand. Other than the location of the proposed text, proposed Rule that if there is Customer interest in the Consolidated Book at the BB (BO), the lower (upper) bound of executions is the higher (lower) of the BB plus one cent (BO minus one cent) or the NBB (NBO)). 43 See proposed Rule 971.1NYP(a)(4)(A). 44 See Rule 971.1NY(b)(1)(C) (providing that ‘‘[i]f the BBO on the same side as the CUBE Order updates during the Auction, the range of permissible executions will adjust in accordance with the updated BBO, unless the incoming sameside interest that would update the BBO would cause the Auction to conclude early pursuant to paragraph (c)(4)(D) of this Rule.’’). 45 See proposed Rule 971.1NYP(a)(4)(B). See Rule 971.1NY(b)(3) (‘‘CUBE Orders, once accepted, will never execute outside the range of permissible executions and will never trade through their own limit price. Unrelated quotes and orders that participate in the Auction will never trade through their own limit price.’’). E:\FR\FM\24JYN1.SGM 24JYN1 47540 Federal Register / Vol. 88, No. 140 / Monday, July 24, 2023 / Notices lotter on DSK11XQN23PROD with NOTICES1 971.1NYP(a)(4)(B) is identical to current Rule 971.1NY(b)(3). The Exchange notes that, on Pillar, current Rule 971.1NY(b)(1)(D), which provides that if there is a Marketable Order to sell (buy) that is being collared, the displayed price of the collared order minus (plus) one Trading Collar shall be considered the BO (BB) when determining the range of permissible executions,’’ would no longer apply.46 The Exchange is modifying how it handles Market Orders on Pillar as well as the operation of the Trading Collar. As a result, neither current Rule 967NY (Price Protection—Orders) nor the Trading Collar functionality described therein will apply on Pillar and will instead be replaced by a modified Trading Collar.47 Although all CUBE Orders would be subject to the above-described single pricing parameter, the Exchange would continue to require price improvement for CUBE Orders for fewer than 50 contracts in tight (i.e., penny-wide) markets.48 • Proposed Rule 971.1NYP(b)(5) would provide that CUBE Orders for fewer than 50 contracts would be rejected when the NBBO is one cent ($0.01) wide, unless the Initiating Participant guarantees the execution of the CUBE Order to buy (sell) at a price that is equal to the NBO minus one cent (NBB plus one cent) and there is no displayed Customer interest in the Consolidated Book at the NBB (NBO).49 The proposed change is identical to current Rule 971.1NY(b)(6)(A) insofar as it would require price improvement for CUBE Orders of fewer than 50 contracts 46 See Rule 971.1NY(b)(1)(D) (providing that ‘‘[i]f there is a Marketable Order to sell (buy) that has been displayed pursuant to Rule 967NY(a)(4)(A), the displayed price of the collared order minus (plus) one Trading Collar shall be considered the BO (BB) when determining the range of permissible executions’’). 47 The Exchange has submitted a separate rule filing to adopt Trading Collar functionality for trading on Pillar, which functionality is described in proposed Rule 900.3NYP(a)(4) (the ‘‘Pillar Trading Collar Filing’’). See NYSEAmer–2023–11P. The functionality described in the Pillar Trading Collar Filing is identical to the functionality described in Arca Options Rule 6.62P–O(a)(4). 48 The Exchange notes that current Rule 971.1NY(b)(1)(B), which will not apply to CUBE Auctions on Pillar, requires that CUBE Order is for fewer than 50 contracts must be priced at least one cent ($0.01) better than any displayed interest on the Exchange’s Consolidated Book. As discussed herein, the Exchange would continue to protect displayed Customer interest at the BBO for smallersized CUBE Orders in penny-wide markets. See proposed Rule 971.1NYP(b)(5). 49 See Rule 971.1NY(b)(6)(B) (providing, in relevant part, that CUBE Orders for fewer than 50 contracts will be rejected, among other reasons, when the NBBO is $0.01 wide, unless the Initiating Participant guarantees the execution of the CUBE Order to buy (sell) at a price that is equal to the NBO minus one cent (NBB plus one cent)). VerDate Sep<11>2014 16:56 Jul 21, 2023 Jkt 259001 when the NBBO has a bid/offer spread of one cent ($0.01). However, unlike the current rule, rather than reject CUBE Orders for fewer than 50 contracts when the BBO has a bid/offer spread of one cent ($0.01),50 the Exchange would only reject such orders when the Exchange is setting the NBBO (i.e., BBO = NBBO) and there is same-side (CUBE side) displayed Customer interest on the NBBO. The Exchange proposes to reject such smaller-sized CUBE Orders to avoid non-Customer interest trading ahead of displayed Customer interest.51 This proposed change is substantially the same as current Rule 971.1NY(b)(6)(B), except that rather than reject all smaller-sized CUBE Orders when the BBO is one cent ($0.01) wide, the Exchange would only reject such orders to protect displayed Customer interest.52 This proposed functionality is not new and is consistent with the Exchange’s current handling for such smaller-sized CUBE Orders in penny-wide NBBO markets as well as with the handling of smallersized paired agency orders on other options exchanges.53 CUBE Eligibility Requirements On Pillar, the Exchange would continue to allow all options traded on the Exchange to be eligible to participate in a CUBE Auction.54 Further, as proposed, the Exchange would continue to reject CUBE Orders (together with Contra Orders) under the following circumstances, each of which are identical to the reasons for rejection of 50 See Rule 971.1NY(b)(6)(A) (providing, in relevant part, that CUBE Orders for fewer than 50 contracts will be rejected when the BBO is $0.01 wide). 51 See proposed Rule 971.1NYP(b)(5). 52 See proposed Rule 971.1NYP(b)(5) (‘‘CUBE Orders for fewer than 50 contracts will be rejected when the NBBO is one cent ($0.01) wide, unless the Initiating Participant guarantees the execution of the CUBE Order to buy (sell) at a price that is equal to the NBO minus one cent (NBB plus one cent) and there is no Customer interest in the Consolidated Book at the NBB (NBO)).’’. 53 See, e.g., Cboe Rule 5.37(b)(1)(A) (providing that, when the NBBO width is one penny ($0.01), and the agency order is for less than 50 contracts, the stop price must be ‘‘at least one minimum increment better than the then-current NBO (NBB) or the Agency Order’s limit price (if the order is a limit order), whichever is better’’; Cboe EDGX Rule 21.19 (b)(1)(A) (same); Nasdaq ISE, Options 3 Section 13(b)(1) (providing that, when the NBBO width is one penny ($0.01), and the agency order is for less than 50 contracts, ‘‘the Crossing Transaction must be entered at one minimum price improvement increment better than the NBBO on the opposite side of the market from the Agency Order and better than the limit order or quote on the Nasdaq ISE order book on the same side of the Agency Order). 54 See proposed Rule 971.1NYP(b) (CUBE Auction Eligibility Requirements), which is identical to the first sentence of current Rule 971.1NY(b). PO 00000 Frm 00068 Fmt 4703 Sfmt 4703 such orders per current Rule 971.1NY(b)(2), (b)(4), and (b)(10), respectively, as described below.55 • Proposed Rule 971.1NYP(b)(2) is identical to Rule 971.1NY(b)(2) and would provide that CUBE Orders to buy (sell) with a limit price below (above) the lower (upper) bound of executions specified in proposed Rule 971.1NYP(a)(4) (described above) would not be eligible to initiate an Auction and would be rejected, along with the Contra Order.56 • Proposed Rule 971.1NYP(b)(3) is identical to Rule 971.1NY(b)(4) and would provide that CUBE Orders submitted before the opening of trading would not be eligible to initiate an Auction and would be rejected, along with the Contra Order. • Proposed Rule 971.1NYP(b)(7) is identical to Rule 971.1NY(b)(10) and would provide that CUBE Orders submitted during a trading halt are not eligible to initiate an Auction and would be rejected, along with the Contra Order. In addition, the proposed Rule would continue to reject CUBE Orders (together with Contra Orders) under the following circumstances, which differ slightly the from the current rule as follows.57 • Proposed Rule 971.1NYP(b)(4) would reject CUBE Orders submitted when there is insufficient time in the trading session to conduct an Auction. However, whereas the current rule provides that CUBE Orders are rejected if submitted during ‘‘the final second of the trading session,’’ the proposed Rule would provide that CUBE Orders would be rejected if submitted ‘‘when there is insufficient time for an Auction to run the full duration of the Response Time Interval.’’ 58 The Exchange believes that the proposed change would better account for the fact that a CUBE Auction may last for as little as 100 milliseconds—well below the permitted maximum of one second as stated in the 55 See infra regarding for discussion of the proposed Rules 971.1NYP(a), (a)(1)(A) and (a)(4)(B) as compared to their identical counterparts in current Rules 971.1NY(b)(3), (b)(7), and (b)(8) which proposed provisions have been relocated to earlier in the Rule. 56 The Exchange notes that the proposed Rule differs from the current rule in that it includes an updated cross-reference to the permissible range of executions, which difference is immaterial because it does not impact functionality. See proposed Rule 971.1NYP(b)(2). 57 See infra for discussion of proposed Rule 971.1NYP(b)(5) as compared with current Rule 971.1NY(b)(6) (regarding requiring price improvement for CUBE Orders for fewer than 50 contracts under certain circumstances in a pennywide market). 58 Compare proposed Rule 971.1NYP(b)(4) with Rule 971.1NY(b)(5). E:\FR\FM\24JYN1.SGM 24JYN1 Federal Register / Vol. 88, No. 140 / Monday, July 24, 2023 / Notices lotter on DSK11XQN23PROD with NOTICES1 current rule.59 The Exchange also proposes to remove the superfluous reference to ‘‘in the affected series,’’ which would streamline the proposed Rule text.60 The Exchange proposes to make the same change to current Rule 971.1NY(b)(5).61 The Exchange believes that this proposed change (to the current rule and proposed Rule) would add clarity, transparency, and internal consistency to Exchange rules regarding when CUBE Orders may be rejected— particularly to market participants submitting CUBE Orders late in the trading day.62 • Proposed Rule 971.1NYP(b)(6) would provide that the Exchange would reject CUBE Orders submitted when the NBBO is crossed.63 • However, unlike the current rule, the Exchange would no longer reject CUBE Orders when the NBBO is locked.64 The Exchange believes this more permissive standard, which is the same on other options exchanges, would allow more CUBE Auctions to occur on Pillar, thus increasing trading opportunities.65 Finally, on Pillar, the Exchange proposes to allow CUBE Orders in the same series as orders exposed pursuant to Rule 994NY (Broadcast Order 59 See, e.g., Rule 971.1NY(c)(2)(B) (providing in relevant part, that ‘‘[t]he minimum/maximum parameters for the Response Time Interval will be no less than 100 milliseconds and no more than one (1) second.’’). See also proposed Rule 971.1NYP(c)(1)(B) (which provides identical parameters), as discussed supra. 60 See proposed Rule 971.1NY(b)(4). The Exchange notes that this proposed change is applicable to all CUBE Auctions—whether conducted on Pillar or not. Compare proposed Rule 971.1NYP(b)(4) (‘‘CUBE Orders submitted when there is insufficient time for an Auction to run the full duration of the Response Time Interval are not eligible to initiate an Auction and shall be rejected, along with the Contra Order’’) with current Rule 971.1NY(b)(5) (‘‘CUBE Orders submitted during the final second of the trading session in the affected series are not eligible to initiate an Auction and shall be rejected, along with the Contra Order.’’). 61 See proposed Rule 971.1NY(b)(5). 62 See supra for discussion of proposed Rule 971.1NYP(b)(5) as compared with current Rule 971.1NY(b)(6) (regarding requiring price improvement for CUBE Orders for fewer than 50 contracts under certain circumstances in a pennywide market). 63 See proposed Rule 971.1NYP(b)(6). 64 Compare proposed Rule 971.1NYP(b)(6) (‘‘[i]f CUBE Order is submitted when the NBBO is crossed, it will be rejected’’) with Rule 971.1NY(b)(9) (‘‘[i]f the NBBO is locked or crossed when a CUBE Order is submitted, it will be rejected.’’). The Exchange notes that proposed Rule reorganizes this proposed provision to more clearly convey the concept that, on Pillar, CUBE Orders submitted when the NBBO is crossed would be rejected. 65 See, e.g., Cboe Rule 5.37(a)(7) (providing that, ‘‘[t]he Initiating TPH may not submit an Agency Order [to Cboe’s AIM] if the NBBO is crossed’’); Cboe EDGX Rule 21.19(a)(7) (providing that, ‘‘[a]n Initiating Member may not submit an Agency Order [to Cboe EDGX’s AIM] if the NBBO is crossed’’). VerDate Sep<11>2014 16:56 Jul 21, 2023 Jkt 259001 Liquidity Delivery Mechanism) (or ‘‘BOLD’’) to occur simultaneously. This would be new on Pillar as current functionality limitations dictate that CUBE Orders in the same series as orders exposed by BOLD are rejected.66 As such, the proposed Rule would not include information contained in current Commentary .04 to Rule 971.1NY. The Exchange believes this proposed enhancement to CUBE Auction functionality—that the Pillar platform will accommodate both such orders in the same series at the same time—would allow more CUBE Orders to be accepted, which improved opportunities for price improvement benefits all market participants.67 On Pillar, the Exchange proposes to continue to allow Initiating Participants to guarantee the CUBE Order with a specified stop price or by utilizing auto match or auto-match limit.68 Proposed Rule 971.1NYP(b)(1)(A), like current Rule 971.1NY(c)(1)(A), would describe the requirements for a ‘‘stop price,’’ which are identical to current Rule 971.1NY(c)(1)(A), except as noted below. • Proposed Rule 971.1NYP(b)(1)(A) would describe the ‘‘stop price,’’ except that unlike the current rule but consistent with current functionality, the proposed Rule would explicitly state that the stop price is ‘‘the price at which the Initiating Participant guarantees the CUBE Order’’, which stop price ‘‘must be executable against the initiating price of the Auction.’’ 69 The Exchange believes that specifying that the stop price must be ‘‘executable’’ against the initiating price is a more succinct way of stating the (current rule) requirement that such stop price must be ‘‘equal to or below (above) the initiating price of the Auction’’ for a CUBE Order to buy (sell).70 The Exchange believes that this proposed distinction is immaterial because the functional requirement set 66 See Rule 971.1NY, Commentary .04 (providing that ‘‘[a] CUBE Order will be rejected if it is in the same series as an order exposed pursuant to Rule 994NY (Broadcast Order Liquidity Delivery Mechanism).’’). 67 Consistent with the proposed functionality, the Exchange would no longer end a CUBE Auction early upon receipt of an order exposed in the BOLD mechanism that is in the same series as the CUBE Order per Rule 971.1NY(c)(4)(F). See discussion, infra, regarding proposed Rule 971.1NYP(c)(3) (Early Conclusion of Auction). 68 See proposed Rule 971.1NYP(b)(1), which is identical to the first sentence of Rule 971.1NY(c)(1). 69 See proposed Rule 971.1NYP(b)(1)(A). The proposed description would align with the description of a stop price for a Complex CUBE Auction. See, e.g., Rule 971.2NY(b)(1)(A) (describing the stop price as ‘‘the price at which the Initiating Participant guarantees the Complex CUBE Order’’, which stop price ‘‘must be executable against the initiating price of the Auction’’). 70 See Rule 971.1NY(c)(1)(A). PO 00000 Frm 00069 Fmt 4703 Sfmt 4703 47541 forth in the proposed Rule is the same the current requirement albeit stated differently. • Proposed Rule 971.1NYP(b)(1)(A) would also provide that (identical to current Rule 971.1NY(c)(1)(A)): Æ The stop price for a CUBE Order to buy (sell) that is below (above) the lower (upper) bound of the range of permissible executions would be repriced to the lower (upper) bound; and Æ If the stop price specified for a CUBE Order to buy (sell) is above (below) the initiating price, such stop price would render such CUBE Order ineligible to initiate an Auction and both the CUBE Order and the Contra Order would be rejected. Proposed Rule 971.1NYP(b)(1)(B) is identical to Rule 971.1NY(c)(1)(B) and would provide that when an Initiating Participant utilizes ‘‘auto match’’ for a CUBE Order to buy (sell) the Contra Order would automatically match the price and size of all RFR Responses that are lower (higher) than the initiating price and within the range of permissible executions. Proposed Rule 971.1NYP(b)(1)(C), like current Rule 971.1NY(c)(1)(C), would describe the requirements for an ‘‘automatch limit price,’’ which are identical to current Rule 971.1NY(c)(1)(C), except as noted below. • Proposed Rule 971.1NYP(b)(1)(C) would describe the ‘‘auto-match limit price,’’ except that unlike the current rule but consistent with current functionality, the proposed Rule would explicitly state that the auto-match limit price is ‘‘the best price at which the Initiating Participant is willing to trade with the CUBE Order,’’ which automatch limit price ‘‘must be executable against the initiating price of the Auction.’’ 71 • Proposed Rule 971.1NYP(b)(1)(C), like the current rule, would provide: Æ That the Contra Order for a CUBE Order to buy (sell) would automatically match the price and size of all RFR Responses that are priced lower (higher) than the initiating price down (up) to the auto-match limit price; 72 and 71 See proposed Rule 971.1NYP(b)(1)(C). The proposed description would align with the description of an auto-match limit price for a Complex CUBE Auction. See, e.g., Rule 971.2NY(b)(1)(B) (describing the auto-match limit price as the most aggressive price (i.e., best price) at which the Initiating Participant guarantees is willing to trade with the CUBE Order, which automatch limit price ‘‘must be executable against the initiating price of the Auction.’’). 72 The Exchange notes that the proposed Rule explains the same concept but uses slightly different wording than is used in the current rule. See Rule 971.1NY(c)(1)(C) (‘‘For a CUBE Order to E:\FR\FM\24JYN1.SGM Continued 24JYN1 47542 Federal Register / Vol. 88, No. 140 / Monday, July 24, 2023 / Notices Æ That an auto-match limit price specified for a CUBE Order to buy (sell) that is below (above) the lower (upper) bound of the range of permissible executions would be repriced to the lower (upper) bound. • Further, the last sentence of proposed Rule 971.1NYP(b)(1)(C) is new and would provide that an auto-match limit price specified for a CUBE Order to buy (sell) that is above (below) the initiating price would not be eligible to initiate an Auction and both the CUBE Order and the Contra Order would be rejected. The Exchange notes that this proposed functionality (to reject the CUBE) based on the auto-match limit price would align with how the Exchange currently rejects and proposes to reject a CUBE based on the stop price—per Rule 971.1NY(c)(1)(A)) and proposed Rule 971.1NYP(b)(1)(A)), respectively. As such, the Exchange believes that this proposed change would add clarity, transparency, and internal consistency to Exchange rules. lotter on DSK11XQN23PROD with NOTICES1 CUBE Auction Process: Request for Responses and Response Time Interval On Pillar, the Exchange proposes to utilize the same process for announcing a CUBE Auction and soliciting trading interest to potentially interact with the CUBE Order. • Proposed Rule 971.1NYP(c) is identical to the latter portion of the first sentence of Rule 971.1NY(c) and would provide that once an Auction has commenced, the CUBE Order (as well as the Contra Order) may not be cancelled or modified. • Proposed Rule 971.1NYP(c)(1)(A) is identical to Rule 971.1NY(c)(2)(A) and would provide that upon receipt of a CUBE Order, the Exchange would send a ‘‘Request for Responses’’ or ‘‘RFR’’ to all ATP Holders who subscribe to receive RFR messages, which RFR would identify the series, the side and size of the CUBE Order, as well as the initiating price. On Pillar, however, the RFR would also include an AuctionID that would identify each CUBE Auction, which would be a new feature.73 The Exchange notes that other options exchanges likewise include an AuctionID on the request for response to the price improvement auction and this proposed change is therefore not new or novel.74 buy (sell), the Initiating Participant may specify an ‘‘auto-match limit price’’ that is equal to or below (above) the initiating price of the Auction, and the Contra Order may trade with the CUBE Order at prices that are lower (higher) than the initiating price down (up) to the auto-match limit price.’’). 73 See proposed Rule 971.1NYP(c)(1)(A). 74 See, e.g., Cboe Rule 5.37(c)(2) (providing that each ‘‘AIM Auction Notification Message’’ will include an ‘‘AuctionID’’). VerDate Sep<11>2014 16:56 Jul 21, 2023 Jkt 259001 • Proposed Rule 971.1NYP(c)(1)(B) is identical to Rule 971.1NY(c)(2)(B) insofar as it provides that the ‘‘Response Time Interval’’ would refer to the time period during which responses to the RFR may be entered, which period would be no less than 100 milliseconds and no more than one (1) second. Currently, the RTI lasts for ‘‘a random period of time within parameters determined by the Exchange and announced by Trader Update.’’ 75 Rather than a random period of time, the Exchange proposes that on Pillar, the Response Time Interval would instead be a set duration of time.76 This proposed functionality of a fixed duration for a price improvement auction is identical to functionality available on other options exchanges.77 Proposed Rule 971.1NYP(c)(1)(C) is identical to Rule 971.1NY(c)(2)(C) insofar as it would provide that any ATP Holder may respond to the RFR, provided such response is properly marked specifying the price, size and side of the market (‘‘RFR Response’’).78 The proposed Rule would also provide that, consistent with current functionality (although not explicitly stated), any RFR Response to a CUBE Order to buy (sell) priced below (above) the lower (upper) bound of executions would be repriced to the lower (upper) bound of executions and is eligible to trade in the Auction at such price.79 On Pillar, the Exchange would continue to accept GTX Orders as RFR Responses and would continue to impose the following identical requirements for such orders to be eligible to trade in the CUBE Auction. • Proposed Rule 971.1NYP(c)(1)(C)(i), like the current rule, would provide that ATP Holders may respond to RFRs with GTX Orders, which are non-routable orders that have a time-in-force contingency for the Response Time Interval and which orders must specify price, size and side of the market.80 • Proposed Rule 971.1NYP(c)(1)(C)(i)(a), like the current rule, would provide that GTX Orders would not be displayed on the Consolidated Book and would not be disseminated to any participants.81 • Proposed Rule 971.1NYP(c)(1)(C)(i)(b), like the current rule, would provide that the minimum price increment for GTX Orders would be one cent ($0.01), regardless of the MPV for the series involved in the Auction.82 • Proposed Rule 971.1NYP(c)(1)(C)(i)(d), like the current rule, would provide that GTX Orders may be cancelled or modified.83 • Proposed Rule 971.1NYP(c)(1)(C)(i)(f), like the current rule, would provide that GTX Orders priced below (above) the lower (upper) bound of executions for a CUBE Order to buy (sell) would be repriced to the lower (upper) bound of permissible executions per proposed Rule 971.1NYP(a)(4) (described above).84 In addition to continuing the foregoing requirements for GTX Orders, the Exchange proposes to modify or clarify the operation of GTX Orders on Pillar as follows.85 • The Exchange proposes new functionality on Pillar that would permit senders of GTX Orders the option to include an AuctionID to signify the CUBE Order with which 75 See Rule 971.1NY(c)(2)(B). See Trader Update, January 27, 2022 (announcing that, beginning February 28, 2022, the randomized timer would have a minimum of 100 milliseconds and a maximum of 105 milliseconds), available at, https:// www.nyse.com/trader-update/ history#110000409951. 76 See Rule 971.1NYP(c)(1)(B). 77 See, e.g., Nasdaq ISE, Options 3 Section 13(c)(1) (providing that, Nasdaq ISE will designate via an Options Trader Alert an ‘‘Exposure Period’’ of no less than 100 milliseconds and no more than 1 second). See also Cboe Rule 5.37(c)(3) (providing that the ‘‘AIM Auction period’’ is a period of time determined by the Exchange, which may be no less than 100 milliseconds and no more than 3 seconds). 78 The Exchange notes that the proposed Rule includes the non-substantive change to add ‘‘the’’ before the word ‘‘price,’’ which would add clarity and transparency to Exchange rules. 79 See proposed Rule 971.1NYP(c)(1)(C). The proposed Rule would align the Exchange’s treatment of RFR Responses to Complex CUBE Orders. See, e.g., Rule 971.2NY(c)(1)(C) (providing, in relevant part, that any RFR Response that that crosses the same-side CUBE BBO will be eligible to trade in the Complex CUBE Auction at a price that locks the same-side CUBE BBO). 80 Compare proposed Rule 971.1NYP(c)(1)(C)(i) with Rule 971.1NY(c)(2)(C)(i). 81 Compare proposed Rule 971.1NYP(c)(1)(C)(i)(a) with Rule 971.1NY(c)(2)(C)(i)(a). 82 Compare proposed Rule 971.1NYP(c)(1)(C)(i)(b) with Rule 971.1NY(c)(2)(C)(i)(b). 83 Compare proposed Rule 971.1NYP(c)(1)(C)(i)(d) with Rule 971.1NY(c)(2)(C)(i)(d). 84 Compare proposed Rule 971.1NYP(c)(1)(C)(i)(f) with Rule 971.1NY(c)(2)(C)(i)(f). The Exchange notes that the proposed Rule differs from the current rule in that it includes an updated crossreference to the permissible range of executions, which difference is immaterial because it does not impact functionality 85 The Exchange does not propose to specify in the proposed Rule that ‘‘GTX Orders with a size greater than the size of the CUBE Order will be capped at the size of the CUBE Order,’’ as set forth in current Rule 971.1NY(c)(2)(C)(i)(c). Instead, consistent with Pillar Rule 964NYP and as discussed below, the only non-Customer GTX Orders would be capped for purposes of pro rata allocation, whereas Customer GTX Orders would trade with the CUBE Order based on time. See proposed Rule 971.1NYP(c)(4)(B), as discussed infra. RFR Responses: GTX Orders PO 00000 Frm 00070 Fmt 4703 Sfmt 4703 E:\FR\FM\24JYN1.SGM 24JYN1 Federal Register / Vol. 88, No. 140 / Monday, July 24, 2023 / Notices lotter on DSK11XQN23PROD with NOTICES1 such GTX Order would like to trade.86 The Exchange believes that this proposed functionality, which is also available on other options exchanges, would allow market participants to have more control over their trading interest and may result in improved competition for price improvement in each Auction.87 • The Exchange proposes to describe how GTX Orders will be treated on Pillar consistent with new Pillar Rule 964NYP (described in detail below).88 In short, on Pillar, options trading interest is prioritized and allocated in one of three categories: Priority 1—Market Orders; Priority 2—Display Orders; and Priority 3—Non-Display Orders.89 The proposed Rule would provide that, although such orders are not disseminated or displayed (as described above), for purposes of trading and allocation with the CUBE Order, GTX Orders would be ranked and prioritized as Priority 2—Display Orders per Pillar Rule 964NYP(e).90 The Exchange believes that this proposed change would add clarity, transparency and internal consistency to Exchange rules and would make clear to market participants responding to CUBE Auctions with GTX Orders how such interest will be prioritized on Pillar. • The Exchange also proposes to modify the operation of GTX Orders on Pillar by restricting the interest with which such orders may trade. Currently, the second sentence of Rule 971.1NY(c)(2)(C)(i)(a) provides that a GTX Order that is not fully executed as provided for in current Rule 971.1NY(c)(4) and (c)(5)—which 86 See proposed Rule 971.1NYP(c)(1)(C)(i) (providing in relevant part that ‘‘GTX Orders may include an AuctionID to respond to a specific CUBE Auction.’’). Should the GTX Order include an apparently erroneous AuctionID (e.g., a GTX Order to buy includes an AuctionID for a CUBE Order to buy), the Exchange would reject such GTX Order even if there are other CUBE Auctions (e.g., on the contra-side with a different AuctionID) with which that GTX Order could have traded. 87 See, e.g., Cboe Rule 5.37(c)(5) (providing that the ‘‘AIM Auction Responses’’ may include, among other things, ‘‘the AuctionID’’). 88 See discussion of Pillar Rule 964NYP, infra. See also American Pillar Priority Filing (describing the Pillar Priority Rules, which govern priority and allocation rule for options trading on Pillar). 89 See Pillar Rule 964NYP(e) (providing 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’’ and that ‘‘[i]f, 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.’’). 90 See proposed Rule 971.1NY(c)(1)(C)(i)(a) (‘‘GTX Orders will not be displayed or disseminated to any participants. For purposes of trading and allocation with the CUBE Order, GTX Orders will be ranked and prioritized with same-priced Limit Orders as Priority 2—Display Orders, per [Pillar] Rule 964NYP(e).’’). VerDate Sep<11>2014 16:56 Jul 21, 2023 Jkt 259001 paragraphs permit GTX Orders to execute with other interest available at the conclusion of the Auction once such orders have executed with the CUBE Order to the extent possible—before cancelling.91 On Pillar, the Exchange proposes that GTX Orders, which are submitted for the purpose of participating in a CUBE Auction, would execute solely with the CUBE Order to the extent possible and then cancel.92 On Pillar, and contrary to existing functionality, a GTX Order would not execute with any non-CUBE Order Auction interest before cancelling. • The Exchange also proposes to modify the circumstances under which a GTX Orders would be rejected. Currently, Rule 971.1NY(c)(2)(C)(i)(e) provides that GTX Orders on the same side as the CUBE Order would be rejected. On Pillar, the Exchange proposes that GTX Orders would be rejected if such GTX Order is priced higher (lower) than the initiating price of a CUBE Order to buy (sell) or if such GTX Order is submitted when there is no contra-side CUBE Auction being conducted.93 Because, as discussed infra, on Pillar, the Exchange would allow more than one Auction in a given series to occur at once—which simultaneous Auctions could be on both sides of the market, the Exchange does not propose to reject GTX Orders submitted on the same side of a CUBE Order (as it does today) but would instead expand this rejection reason to any time there is no contra-side CUBE Auction occurring when the GTX Order is submitted.94 The Exchange believes this proposed change would provide increased opportunities to solicit priceimproving auction interest. RFR Responses: Unrelated Quotes and Orders Consistent with current functionality, the Exchange proposes to treat as RFR Responses certain quotes or orders that are eligible to trade in a CUBE Auction, which treatment is identical to current Rule 971.1NY(c)(2)(C)(ii)(a)–(c). • Proposed Rule 971.1NYP(c)(1)(C)(ii) would provide that the Exchange will 91 See also Rule 971.1NY(c)(3), (c)(4), and (c)(5) (providing that GTX Orders may be eligible to trade with Auction interest (other than the CUBE Order) before cancelling). 92 See proposed Rule 971.1NYP(c)(1)(C)(i)(c). 93 See proposed Rule 971.1NYP(c)(1)(C)(i)(e). 94 See id. See also Rule 971.1NY(c)(2)(C)(i)(e) (‘‘GTX Orders on the same side of the market as the CUBE Order shall be rejected.’’). The Exchange notes that it will reject a GTX Order that includes an AuctionID for a CUBE Order that is on the same side of the market as such GTX Order even if there are contra-side CUBE Auctions (with a different AuctionID) with which that GTX Order could have traded. PO 00000 Frm 00071 Fmt 4703 Sfmt 4703 47543 treat as RFR Responses quotes and orders that are on the opposite side of the market in the same series as the CUBE Order that are not marked GTX, that are received during the Response Time Interval or resting in the Consolidated Book when the Auction commences, and that are eligible to participate within the range of permissible executions specified for the Auction pursuant to proposed paragraph (a)(4) of this Rule.95 • Proposed Rule 971.1NYP(c)(1)(C)(ii)(a) would provide that quotes and orders received during the Response Time Interval that are not marketable against the NBBO and are not marked GTX would be posted to the Consolidated Book.96 The Exchange proposes to qualify this provision by noting that an order that included instructions to cancel (i.e., an IOC), for example, would be processed accordingly and would not post to the Consolidated Book.97 The Exchange believes that this proposed clarification would add clarity, transparency, and internal consistency to Exchange rules. • Proposed Rule 971.1NYP(c)(1)(C)(ii)(b) would provide that quotes and orders received during the Response Time Interval that are on the same side as the CUBE Order to buy (sell) and are priced higher (lower) than the initiating price that would post to the Consolidated Book will result in an early conclusion of the Auction pursuant to proposed paragraph (c)(3) of this Rule as discussed below.98 • Proposed Rule 971.1NYP(c)(1)(C)(ii)(c) would provide that quotes and orders that are not marked GTX must be priced in the MPV for the series in the Auction and any such quotes or non-GTX orders submitted with a one cent MPV when the series has either $0.05 or $0.10 MPV would be rejected as invalid.99 95 Compare proposed Rule 971.1NYP(c)(1)(C)(ii) with Rule 971.1NYP(c)(2)(C)(ii). The Exchange notes that the proposed Rule differs from the current rule in that it includes an updated crossreference to the permissible range of executions, which difference is immaterial because it does not impact functionality. 96 Compare proposed Rule 971.1NYP(c)(1)(C)(ii)(a) with Rule 971.1NYP(c)(2)(C)(ii)(a). 97 See Rule 971.1NYP(c)(2)(C)(ii)(a). 98 Compare proposed Rule 971.1NYP(c)(1)(C)(ii)(b) with Rule 971.1NY(c)(2)(C)(ii)(b). The Exchange notes that the proposed Rule differs from the current rule in that it includes an updated cross-reference to the permissible range of executions, which difference is immaterial because it does not impact functionality. 99 Compare proposed Rule 971.1NYP(c)(1)(C)(ii)(c) with Rule 971.1NYP(c)(2)(C)(ii)(c). The Exchange notes that the proposed Rule differs from the current rule in that it includes reference to ‘‘five cents’’ and ‘‘ten E:\FR\FM\24JYN1.SGM Continued 24JYN1 lotter on DSK11XQN23PROD with NOTICES1 47544 Federal Register / Vol. 88, No. 140 / Monday, July 24, 2023 / Notices Concurrent CUBE Auctions 100 The Exchange proposes to enhance functionality on Pillar by allowing more than one CUBE Auction in the same series to run concurrently.101 The Exchange proposes that if there are multiple CUBE Auctions in a series that are running concurrently, such Auctions would conclude sequentially, based on the time each CUBE Auction was initiated, unless an Auction concludes early, per proposed paragraph (c)(3) of this Rule (discussed below).102 As further proposed, at the time each CUBE Auction concludes, the CUBE Order would be allocated against all eligible RFR Responses available at the time of conclusion.103 In the event there are multiple Auctions underway that are each terminated early, such Auctions would be processed sequentially based on the time each CUBE Auction was initiated.104 The Exchange believes that this proposed functionality would allow more CUBE Auctions in the same series to be conducted, thereby increasing opportunities for price improvement on the Exchange to the benefit of all market participants. In addition, as discussed below, the proposal to add concurrent auctions would also prevent the early end of a CUBE Auction in progress when the Exchange receives a new CUBE Order in the same series.105 By eliminating this early end scenario, the Exchange would increase the likelihood that an Auction may run for the full Response Time Interval thus affording more time and opportunity for the arrival of priceimproving interest to the benefit of investors. The Exchange notes that allowing more than one price improvement auction at a time in the same series for paired agency orders of 50 or more contracts is not new or novel and is current functionality on other options exchanges.106 The proposal to allow simultaneous Auctions in the same series for CUBE Orders of fewer than 50 contracts would benefit investors because it would afford smaller-sized CUBE Orders increased opportunity to solicit price-improving auction interest—including because receipt of a new CUBE Order would no longer cause the Auction in progress to end early.107 The Exchange further believes that this proposed change would provide additional benefits to Customers, as smaller-sized CUBE Orders tend to represent retail interest, and could improve the Customer experience on the Exchange by increased trading opportunities in the CUBE Auction. As discussed above, the Exchange would continue to protect smaller-sized CUBE Orders in pennywide markets by requiring the maximum available price improvement for such orders (i.e., one cent) and rejecting such orders in penny-wide markets when price improvement is not possible. These protections would remain when the proposed concurrent Auctions are occurring.108 Thus, the Exchange believes this proposed change should allow the Exchange to better compete for auction-related order flow that may lead to an increase in Exchange volume, while continuing to ensure that displayed Customer interest on the Consolidated Book is protected, to the benefit of all market participants. The Exchange believes that the Pillar trading platform has sufficient capacity to process a large volume of concurrent Auctions for CUBE Orders of any size, cents’’ immediately before each numerical indication of the applicable MPV, which modification the Exchange believes is immaterial as it would not alter functionality but would instead add clarity, transparency, and internal consistency to Exchange rules. 100 The Exchange notes that the proposal to allow multiple single-leg CUBE Auctions to run concurrently on Pillar is distinct from the current (and proposed) functionality that permits a singleleg Auction in an option series to run concurrent with a Complex CUBE Auction in the same series. See Commentary .01 to Rule 971.1NY and proposed Commentary .01 to Rule 971.1NYP (discussed below). 101 See proposed Rule 971.1NYP(c). See Rule 971.1NY(c) (providing that ‘‘[o]nly one Auction may be conducted at a time in any given series.’’). 102 As discussed infra, a CUBE Auction may conclude early (i.e., before the end of the Response Time Interval) because of certain trading interest that arrives during the Auction or in the event of a trading halt in the underlying security while the Auction is in progress. See proposed Rule 971.1NYP(c)(2). 103 See proposed Rule 971.1NYP(c)(2). 104 See id. 105 See Rule 971.1NY(c)(4)(A). 106 See, e.g., Cboe Rule 5.37(c)(1) (providing that multiple price-improvement auctions in the same series for agency orders of 50 contracts or more can run concurrently and will be processed sequentially, including if all such auctions are ended early and providing that if only one such auction ends early it will be allocated when it ends); EDGX Rule 21.19(c)(1) (same). The Exchange does not propose to limit the concurrent auction functionality to CUBE Orders of 50 or more and would allow concurrent auctions for CUBE Orders of any size (i.e., including for CUBE Orders for fewer than 50 contracts). The Exchange believes this extension of this concurrent auction functionality to smaller-sized CUBE Orders is noncontroversial because it should not raise any issues that differ from those previously considered when other options exchanges adopted this functionality for larger-sized agency orders submitted to price improvement auctions. 107 See, e.g., proposed Rule 971.1NYP(c)(3) (setting forth the sole early end scenario on Pillar). 108 See, e.g., proposed Rule 971.1NYP(b)(5). See also SEC Approval of CUBE Pilot (focusing solely on guaranteeing price improvement to CUBE Orders for fewer than 50 contracts and making no mention of restriction on concurrent auctions for such smaller-sized CUBE Orders). VerDate Sep<11>2014 16:56 Jul 21, 2023 Jkt 259001 PO 00000 Frm 00072 Fmt 4703 Sfmt 4703 including for CUBE Orders of fewer than 50 contracts. Conclusion of Auction As is the case today, on Pillar, a CUBE Auction would conclude at the end of the Response Time Interval, unless there is a trading halt in the affected series or if the CUBE Auction ends pursuant to proposed paragraph (c)(3) of this Rule (discussed below).109 As further proposed, at the conclusion of the Auction, including if there is a trading halt in the affected series, the CUBE Order would execute pursuant to proposed paragraph (c)(4) of this Rule (discussed below).110 The Exchange also proposes that, after the conclusion of the Auction, the residual RFR Responses (excluding GTX Orders) would be processed in accordance with Pillar Rule 964NYP (Order Ranking, Display, and Allocation).111 This proposed rule is consistent with current CUBE functionality, except that current Rule 964NY would no longer govern priority and allocation of any portion of RFR Responses (not marked GTX) that remain after any execution with the CUBE Order.112 Early Conclusion of Auction On Pillar, the Exchange proposes to reduce the number of scenarios that would cause a CUBE to end early (i.e., before the end of the Response Time Interval) based on trading interest that arrives during the Auction. Currently, there are six scenarios that would cause an Auction to end early.113 On Pillar, the Exchange proposes that only one such ‘‘early end’’ scenario would apply. As proposed, and consistent with Rule 971.1NY (c)(4)(D), a CUBE Auction would conclude early if, during the Auction, the Exchange receives an unrelated non-marketable order or quote on the same-side of the market as the CUBE Order to buy (sell) that would adjust the lower (upper) bound of the range of permissible executions to be higher (lower) than the initiating 109 See proposed Rule 971.1NYP(c)(2), which is identical to current Rule 971.1NYP(c)(3), except for the updated cross-reference to the early conclusion section of the proposed Rule. 110 See proposed Rule 971.1NYP(c)(2), which is identical to current Rule 971.1NYP(c)(3), except for the updated cross-reference to the order allocation section of the proposed Rule. 111 See proposed Rule 971.1NYP(c)(2). 112 See Rule 971.1NY(c)(5)(C) (‘‘After the CUBE Order has been executed, any remaining RFR Responses not marked GTX will be processed in accordance with Rule 964NY Order Display and Priority.’’). 113 See Rule 971.1NY(c)(4)(A)-(F). See proposed Rule 971.1NYP(c)(3) (which early end scenario is the same as set forth in current Rule 971.1NY(c)(4)(D), as discussed infra). E:\FR\FM\24JYN1.SGM 24JYN1 Federal Register / Vol. 88, No. 140 / Monday, July 24, 2023 / Notices lotter on DSK11XQN23PROD with NOTICES1 price.’’ 114 In addition to being consistent with current functionality, this early end scenario is consistent with functionality available on other options exchanges.115 On Pillar, unlike per the current rule, the following scenarios would not cause the early end of a CUBE Auction. • First, because the Exchange proposes to allow concurrent auctions (as previously discussed), the Exchange would no longer end a CUBE Auction early based on the arrival of a new CUBE Order.116 • Second, because the Exchange proposes to allow CUBE Auctions in the same series as orders exposed in the BOLD mechanism (as discussed, supra), there is no reason to end an Auction early based on the arrival of such exposed order.117 • In addition, the Exchange would not end an Auction early based upon interest that arrives during the Auction (on either side of the market) that is marketable against the RFR Responses, the NBBO or BBO (if not routable).118 The Exchange believes that such interest should trade against interest in the Consolidated Book to the extent possible and, if any size of the incoming interest remains at the conclusion of the Auction, such contra-side interest may be eligible to trade with the CUBE Order. This proposed handling is consistent with functionality available on other options exchanges.119 • The Exchange likewise will no longer end a CUBE Auction based on the arrival of AON Orders because the Exchange believes that AON Orders 114 See proposed Rule 971.1NYP(c)(3). The Exchange notes that this early end scenario covers instances in which the entire size of the incoming interest is non-marketable on arrival as well as instances where a portion of the incoming interest is marketable, and trades on arrival, but the untraded balance is non-marketable. In both instances, the non-marketable interest would post to the Consolidated Book thereby adjusting the range of permissible executions. 115 See, e.g., Rule 971.1NY (c)(4)(D), Nasdaq ISE, Options 3 Section 13(c)(5)(i) (providing that an auction would end early ‘‘any time the Exchange best bid or offer improves beyond the price of the Crossing Transaction on the same side of the market as the Agency Order’’). 116 See Rule 971.1NY(c)(4)(A). See proposed Rule 971.1NYP(c) (providing for concurrent CUBE Auctions at the same time in the same series). 117 See Rule 971.1NY(c)(4)(F). As discussed, supra, on Pillar, the Exchange would no longer reject (as it does today) a CUBE Order in the same series as an order exposed by the BOLD Mechanism. 118 See Rule 971.1NY(c)(4)(B)–(C). 119 See, e.g., Cboe 5.37(d)(2) and Nasdaq ISE, Options 3 Section 13(d)(4) (likewise providing that market or marketable interest on the opposite-side of the agency order would not cause the early end of an auction, would execute with interest outside of the auction and, if size remained, potentially could receive an allocation against auction interest). VerDate Sep<11>2014 16:56 Jul 21, 2023 Jkt 259001 should trade against interest in the Consolidated Book to the extent possible and, if the AON Order is still on the Consolidated Book at the conclusion of the Auction, such contraside AON Order may be eligible to trade with the CUBE Order.120 The Exchange believes that, on Pillar, allowing an Auction to continue uninterrupted in the above-referenced circumstances would result in fewer CUBE Auctions ending early and, as such, would provide more opportunities for price improvement to the benefit of all market participants. CUBE Order Allocation on Pillar The Exchange proposes to modify how a CUBE Order is allocated at the end of the Auction to conform with new Pillar Rule 964NYP (described below). Current Rule 971.1NY(c)(5) describes CUBE Order allocation. Specifically, at the conclusion of the Auction, any RFR Responses (including GTX Orders) 121 that are larger than the CUBE Order will be capped at the CUBE Order size for purposes of size pro rata allocation of the CUBE Order per Rule 964NY(b)(3)’’ 122 and that, at each price level, displayed Customer orders have first priority to trade with the CUBE Order per pursuant to Rule 964NY(c)(2)(A).123 Further, Rule 971.1NY(c)(5)(B) provides that, after executing against displayed Customer orders at a price, the CUBE Order will be allocated among the RFR Responses and the Contra Order, which allocation may vary depending on whether the Contra Order guaranteed the CUBE Order using a single-stop price, automatch, or auto-match limit.124 As noted above, CUBE Orders currently trade in accordance with Rule 964NY—the Exchange’s pre-Pillar priority and allocation rule. Specifically, on the Exchange, at a price, displayed interest is ranked ahead of non-displayed interest with priority afforded to Customer interest over displayed non-Customer interest; following all displayed interest at a Rule 971.1NY(c)(4)(E). Rule 971.1NY(c)(2)(C)(i)(c) (‘‘GTX Orders with a size greater than the size of the CUBE Order will be capped at the size of the CUBE Order.’’). On, Pillar, however, only non-Customer GTX Orders would be capped at the CUBE Order size for purposes of size pro rata allocation whereas Customer GTX Orders would trade with the CUBE Order based on time. See, e.g., proposed Rules 971.1NYP(c)(4)(B), as discussed, infra. 122 Rule 964NY(b)(3) describes the Exchange’s pro rata allocation formula, which same formula is described in Pillar Rule 964NYP(i). 123 Rule 964NY(c)(2)(A) provides an ‘‘inbound order will first be matched against all available displayed Customer interest in the Consolidated Book.’’ 124 See Rule 971.1NY(c)(5)(B)(i)–(iii). PO 00000 120 See 121 See Frm 00073 Fmt 4703 Sfmt 4703 47545 price, followed by same-priced nondisplayed interest, which interest is ranked solely in time priority with no preference given to non-displayed Customer interest.125 On Pillar, orders and quotes will be ranked, prioritized, and executed based on new Pillar Rule 964NYP, which aligns with the Exchange’s current ranking and priority scheme. Pillar Rule 964NYP(e) 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’’ and that ‘‘[i]f, 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.’’ 126 The three categories are: Priority 1—Market Order, Priority 2— Display Orders and Priority 3—NonDisplay Orders (the ‘‘Pillar Priority categories’’).127 Thus, on Pillar, Customer orders in each priority category will have first priority to trade ahead of same-priced non-Customer interest in that priority category until all interest in that Pillar Priority category is exhausted—and, if there is more than one Customer in that category at the same price, the Customer first in time has priority.128 Furthermore, as is the case today, the Exchange would allocate same-priced, non-Customer interest that is displayed in the Consolidated Book on a size pro rata basis.129 Finally, on Pillar (and unlike current pre-Pillar Rule 964NY), at a price, non-displayed Customer orders will trade in time priority before same-priced nondisplayed, non-Customer interest, which also trades in time.130 The Exchange proposes that CUBE Auctions on Pillar would follow the priority, ranking, and allocation model set forth in the above-described Pillar Rule 964NYP. As proposed, Rule 971.1NYP(c)(4) would provide that, at each price, CUBE Orders would be 125 See Rule 964NY(b), (c). See also American Pillar Priority Filing (describing priority and allocation per Rule 964NYP). 126 See Pillar Rule 964NYP(e) (Priority Categories). 127 See Pillar Rule 964NYP(e)(1)–(3) (setting forth Pillar Priority Categories). 128 See Pillar Rule 964NYP(e), (j). For example, same-priced interest ranked Priority 1—Market Orders will afford Customer orders at a price first priority, followed by same-priced non-Customer interest. Customer interest ranked Priority 2 and Priority 3 are likewise afforded first priority at a price. 129 See Pillar Rule 964NYP(i) (Size Pro Rata Allocation) (setting forth Pillar pro rata allocation formula). The Exchange notes that the Pillar pro rata allocation formula is identical to that set forth in current Rule 964NY(b)(3) (Size Pro Rata Allocation). 130 See Pillar Rule 964NYP(j)(6)–(7). E:\FR\FM\24JYN1.SGM 24JYN1 47546 Federal Register / Vol. 88, No. 140 / Monday, July 24, 2023 / Notices allocated consistent with Pillar Rule 964NYP as follows. • First priority to execute with the CUBE Order is given to Customer RFR Responses, followed by same-priced non-Customer RFR Responses ranked Priority 1—Market Orders (each, ‘‘Priority 1 Interest’’); • Next priority to execute with the CUBE Order is given to Customer RFR Responses ranked Priority 2—Display Orders (‘‘Priority 2 Customer Interest’’), followed by same-priced non-Customer RFR Responses ranked Priority 2— Display Orders; and • Third priority to execute with the CUBE Order is afforded to Customer RFR Responses followed by same-priced non-Customer RFR Responses ranked Priority 3—Non-Display.131 The Exchange believes the proposal to align CUBE Order allocation with Pillar Rule 964NYP(j) would add clarity, transparency, and internal consistency to Exchange rules. By following Pillar Rule 964NYP(j), the Exchange notes that, at a price, non-Customer Priority 1 interest would execute ahead of samepriced Customer Priority 2 Interest.132 In addition, as discussed further below, before the Contra Order will receive its guaranteed allocation, the CUBE Order would first trade, at a price, with all Priority 1 Interest and with Priority 2 Customer Interest to ensure the priority of Customer interest is consistent with the Exchange’s Customer priority model. Proposed Rule 971.1NYP(c)(4)(B) (Allocation) would provide that RFR Responses would be allocated based on time or per pro rata allocation. Specifically, RFR Responses of Customers ranked Priority 1 and 2, as well as all RFR Responses ranked Priority 3, would trade with the CUBE Order based on time per Pillar Rule 964NYP(j).133 And, RFR Responses of lotter on DSK11XQN23PROD with NOTICES1 131 See Rule 971.1NYP(c)(4)(A) (Customer Priority). 132 As discussed in the American Pillar Priority Filing, non-Customer interest ranked Priority 1 would consist of Market Orders that are ranked and displayed at the Trading Collar price, which orders would be cancelled if held more than 500 milliseconds without trading, per proposed Rule 900.3NYP(a)(4)(D). See American Pillar Priority Filing. See also the Pillar Trading Collar Filing (NYSEAmer–2023–11P). The proposed Trading Collar functionality would operate in the same manner as per Arca Options Rule 6.62P–O(a)(4)(D) (Application of the Trading Collar, which provides that ‘‘[i]f 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 price, the order will be added to the Consolidated Book at the Trading Collar for 500 milliseconds and if not traded within that period, will be cancelled’’ even if repriced or routed and, if routed, any returned portion will likewise be cancelled). See id. 133 See proposed Rule 971.1NYP(c)(4)(B)(i) (Time). VerDate Sep<11>2014 16:56 Jul 21, 2023 Jkt 259001 non-Customers ranked Priority 1 and Priority 2 would be capped at the CUBE Order size for purposes of size pro rata allocation per Pillar Rule 964NYP(i).134 The Exchange notes that this proposed functionality is consistent with current Auction functionality, except that on Pillar, Customer RFR Responses would be allocated based on time (and no longer on a size pro rata basis), which handling would align the allocation of CUBE Orders with the Exchange’s Customer priority model.135 Proposed Rule 971.1NYP(c)(4)(C) (Surrender Quantity) would be new functionality and would provide that an Initiating Participant that guarantees a CUBE Order with a stop price (per proposed Rule 971.1NYP(b)(1)(A)) 136 has the option of designating a ‘‘Surrender Quantity’’ and receiving some percentage less than the 40% participation guarantee. As proposed, if the Initiating Participant elects a Surrender Quantity, and there is sufficient contra-side interest equal to or better than the stop price to satisfy the CUBE Order, the CUBE Order executes against the Contra Order up to the amount of its Surrender Quantity.137 Absent sufficient size of contra-side interest equal to or better than the stop price, the Contra Order would trade with the balance of the CUBE Order at the stop price regardless of its Surrender Quantity, which functionality is consistent with current Contra Order behavior.138 Finally, as proposed, Surrender Quantity information is not disseminated to other market participants and may not be modified after it is submitted. The Exchange notes that the concept of ‘‘Surrender Quantity’’ is available on other options exchanges and is therefore not new or novel.139 The Exchange believes that 134 See proposed Rule 971.1NYP(c)(4)(B)(ii) (Size Pro Rata). The size pro rata formula set forth in Pillar Rule 964NYP(i) is identical to the size pro rata formula set forth in Rule 964NY(b)(3). See American Pillar Priority Filing. 135 See, e.g., Pillar Rule 964NYP(j). Because the proposed Rule details at the outset of the order allocation section how both Customer and nonCustomer RFR Responses would be processed (i.e., in time or on a pro rata allocation basis), the Exchange believes it is not necessary to repeat this (now superfluous) information throughout proposed Rule 971.1NYP(c)(4) (Allocation of CUBE Orders). See, e.g., Rules 971.1NY(c)(5)(C), (c)(5)(B)(i)(b), (c)(5)(B)(ii)(b), and (c)(5)(B)(iii)(b) (repeating in each rule provision how RFR Responses would be allocated). 136 See proposed Rule 971.1NYP(b)(1)(A) (describing single stop price). 137 See proposed Rule 971.1NYP(c)(4)(C). 138 See Rule 971.1NY(c)(5)(B)(i) (allocation to Contra Order that guaranteed a CUBE Order by single stop price). 139 See, e.g., NASDAQ BX, Inc., Options 3, Section 13 (ii)(A)(1) (providing that an initiating participant utilizing a single stop price may opt to PO 00000 Frm 00074 Fmt 4703 Sfmt 4703 providing Initiating Participants the option to designate a Surrender Quantity in CUBE Auctions on Pillar would enhance functionality by affording flexibility and discretion to the Contra Order while providing additional opportunities for RFR Responses to interact with the CUBE Order. In addition, the proposed enhancement to add the option of electing a Surrender Quantity would be a competitive change and would make the Exchange a more attractive venue to send (auction-related) order flow. Proposed Rule 971.1NYP(c)(4)(D) (RFR Responses and Contra Order Allocation) would provide that, at a price, RFR Responses are allocated in accordance with proposed paragraphs (c)(4)(A) (Customer Priority) and (c)(4)(B) (Time or Size Pro Rata Allocation) and that any allocation to the Contra Order would depend upon the method by which the CUBE Order was guaranteed.140 • Stop Price.141 Consistent with current functionality, a CUBE Order to buy (sell), that is guaranteed by a stop price would execute first with RFR Responses priced below (above) the stop price, beginning with the lowest (highest) price within the range of permissible executions.142 Æ Next, any remaining contracts of the CUBE Order would execute at the stop price, first with all Priority 1 Interest, followed by Priority 2 Customer Interest, which as noted above is consistent with new Pillar Rule 964NYP(j).143 Æ Then, at the stop price, the Contra Order would receive an allocation of the greater of 40% of the original CUBE Order size or one contract (or the greater of 50% of the original CUBE Order size ‘‘surrender’’ a percentage of its 40% guaranteed participation, ranging from 0% to 39%); Nasdaq ISE (providing that the initiating participant may be entitled to its 40% participation guarantee ‘‘or such lower percentage requested by the Member’’); Cboe Rule 5.37(e)(5) (allowing initiating participants that guarantee a paired order with a single-price submission, to elect to have ‘‘last priority’’ to trade against the agency order and will only trade with the agency order after such order has traded with all other contra-side interest at prices equal to or better than the guaranteed stop price; and further providing that ‘‘last priority’’ information is not available to other market participants and, once submitted, may not be modified); Cboe EDGX Rule 21.19(e)(5) (same). 140 Consistent with proposed Rule 971.1NYP(c)(1)(C)(i)(c), and in contrast to current Rule 971.1NY(c)(5)(B)(i)–(iii), the proposed CUBE Order allocation section would not reference GTX Orders, as such orders would execute solely with the CUBE Order or cancel. 141 See proposed Rule 971.1NYP(b)(1)(A) (describing stop price requirements). 142 See proposed Rule 971.1NYP(c)(4)(D)(i)(a). See also Rule 971.1NY(c)(5)(B)(i)(a). 143 See proposed Rule 971.1NYP(c)(4)(D)(i)(b). See also Rule 971.1NY(c)(5)(B)(i)(b). E:\FR\FM\24JYN1.SGM 24JYN1 Federal Register / Vol. 88, No. 140 / Monday, July 24, 2023 / Notices or one contract if there is only one RFR Response), or the Surrender Quantity, if one has been specified. Then, any remaining CUBE Order contracts would be allocated first among remaining RFR Responses at the stop price. If all RFR Responses are filled, any remaining CUBE Order contracts would be allocated to the Contra Order. This proposed handling is consistent with current functionality except that it includes reference to the new option of designating a ‘‘Surrender Quantity.’’ 144 Æ Finally, if there are no RFR Responses, the CUBE Order would execute against the Contra Order at the stop price.145 • Auto-Match.146 Consistent with current functionality, if a CUBE Order to buy (sell) is guaranteed by auto-match, the Contra Order would be allocated contracts equal to the aggregate size of all other RFR Responses at each price level starting with the lowest (highest) price at which an execution against an RFR Response occurs within the range of permissible executions, until a price point is reached where the balance of the CUBE Order can be fully executed. (the ‘‘clean-up price’’).147 Also consistent with current functionality, if the Contra Order meets its allocation guarantee at a price below (above) the clean-up price, it would cease matching RFR Responses.148 Æ As proposed, at the clean-up price, any remaining contracts of the CUBE Order would execute against all Priority 1 Interest, followed by Priority 2 Customer Interest, which as noted above is consistent with proposed new Pillar Rule 964NYP(j).149 Æ Next, consistent with current functionality, the Contra Order would receive additional contracts required to achieve an allocation equal to the greater of 40% of the original CUBE 144 See id. proposed Rule 971.1NYP(c)(4)(D)(i)(c). See also Rule 971.1NY(c)(5)(B)(i)(c) (providing that ‘‘[i]f there are no RFR Responses, the CUBE Order shall execute against the Contra Order at the higher (lower) of the stop price or the lower (upper) bound of the range of permissible executions’’). Unlike the current rule, the proposed Rule would not include language regarding the CUBE Order executing at a price other than the stop price because the proposed (and current) Rule provides that a stop price for a CUBE order to buy (sell) will be repriced to the lower (upper) bound of permissible executions if such stop price is below (above) the lower (upper) bound of the range of permissible executions. See proposed Rule 971.1NY(b)(1)(A); Rule 971.1NY(c)(1)(A). 146 See proposed Rule 971.1NYP(b)(1)(B) (describing auto-match feature). 147 See proposed Rule 971.1NYP(c)(4)(D)(ii)(a). See also Rule 971.1NY(c)(5)(B)(ii)(a). 148 See proposed Rule 971.1NYP(c)(4)(D)(ii)(a). See also Rule 971.1NY(c)(5)(B)(ii)(b). 149 See proposed Rule 971.1NYP(c)(4)(D)(ii)(b). See also Rule 971.1NY(c)(5)(B)(ii)(b). lotter on DSK11XQN23PROD with NOTICES1 145 See VerDate Sep<11>2014 16:56 Jul 21, 2023 Jkt 259001 Order size or one contract (or the greater of 50% of the original CUBE Order size or one contract if there is only one RFR Response); if there are other RFR Responses at the clean-up price, the remaining CUBE Order contracts would be allocated first among RFR Responses; and once all RFR Responses are filled at the clean-up price, any remaining CUBE Order contracts would be allocated to the Contra Order at the initiating price.150 Æ Finally, if there are no RFR Responses, the CUBE Order would execute against the Contra Order at the initiating price, which is identical to current functionality.151 • Auto-Match Limit.152 Consistent with current functionality, a CUBE Order to buy (sell), that is guaranteed by auto-match limit would execute first with RFR Responses at each price level priced below (above) the auto-match limit price within the range of permissible executions, beginning with the lowest (highest) price.153 Æ Next, consistent with current functionality, the CUBE Order would be allocated to RFR Responses at a price equal to the price of the Contra Order’s auto-match limit price, and if volume remains, to prices higher (lower) than the auto-match limit price; at each price level equal to or higher (lower) than the auto-match limit price, the Contra Order would be allocated contracts equal to the aggregate size of all other RFR Responses; and, if the Contra Order meets its allocation guarantee at a price below (above) the clean-up price, it would cease matching RFR Responses.154 Æ As proposed, at the clean-up price, any remaining contracts of the CUBE Order will execute against all Priority 1 Interest, followed by Priority 2 Customer Interest, which as noted above is consistent with proposed new Rule 964NYP(j).155 Æ Next, and consistent with current functionality, the Contra Order would receive additional contracts required to achieve an allocation of the greater of 40% of the original CUBE Order size or one contract (or the greater of 50% of the original CUBE Order size or one contract if there is only one RFR id. proposed Rule 971.1NYP(c)(4)(D)(ii)(c). See also Rule 971.1NY(c)(5)(B)(ii)(c). 152 See proposed Rule 971.1NYP(b)(1)(C) (describing auto-match limit price requirements). 153 See proposed Rule 971.1NYP(c)(4)(D)(iii)(a). See also Rule 971.1NY(c)(5)(B)(iii)(a). 154 See proposed Rule 971.1NYP(c)(4)(D)(iii)(b). See also Rule 971.1NY(c)(5)(B)(iii)(b). 155 See proposed Rule 971.1NYP(c)(4)(D)(iii)(c). See also Rule 971.1NY(c)(5)(B)(iii)(b). 1 See id. PO 00000 150 See 151 See Frm 00075 Fmt 4703 Sfmt 4703 47547 Response); if there are other RFR Responses at the clean-up price the remaining CUBE Order contracts would be allocated first to RFR Responses; and any remaining CUBE Order contracts would be allocated to the Contra Order at the initiating price.156 Æ Finally, consistent with current functionality, if there are no RFR Responses, the CUBE Order would execute against the Contra Order at the initiating price.157 Commentary to Proposed Rule 971.1NYP for CUBE Auctions on Pillar The Exchange proposes to adopt Commentaries .01 through .04 to the proposed Rule, which are identical to current Commentaries .01 through .03 and .05 to Rule 971.1NY, respectively, as discussed below (each a ‘‘proposed Commentary’’ or a ‘‘current Commentary’’).158 Proposed Commentary .01 is identical to current Commentary .01 and would describe ‘‘Concurrent Single-Leg and Complex CUBE Auctions involving the same option series.’’ As proposed, and identical to current functionality, the Exchange would allow the simultaneous conduct of a (single-leg) CUBE Auction for a given series at the same time as a Complex CUBE Auction for a Complex Order that includes the same option series.159 Also, identical to current functionality, to the extent there are concurrent CUBE Auctions for a specific option series, each CUBE Auction will be processed sequentially based on the time each CUBE Auction commenced.160 Finally, identical to current functionality, at the time each CUBE Auction concludes, including when it concludes early, it will be 156 See proposed Rule 971.1NYP(c)(4)(D)(iii)(c). See also Rule 971.1NY(c)(5)(B)(iii)(b). 157 See proposed Rule 971.1NYP(c)(4)(D)(iii)(d). See also Rule 971.1NY(c)(5)(B)(iii)(c). The proposed Rule would not specify that ‘‘[a] single RFR Response will not be allocated a number of contracts that is greater than its size,’’ as set forth in Rule 971.1NY(c)(5)(D), because such handling is consistent with standard processing and its inclusion in the proposed Rule would be unnecessary and may lead to potential confusion. 158 As discussed, infra, the proposed Rule does not include the functionality set forth in current Commentary .04 to Rule 971.1NY because, on Pillar, the Exchange would allow both a CUBE Order and an order exposed via the BOLD mechanism in same series to occur simultaneously. 159 See proposed Rule 971.1NYP, Commentary .01. See also Rule 971.2NYP, Commentary .01 (same). The Exchange plans to submit a separate rule filing to adopt proposed Rule 971.2NYP (Complex Electronic Cross Transactions), which proposed rule would include the proposed (and current) Commentary .01. As noted, supra, current (and proposed) Commentary .01 describes functionality that is distinct from the proposal to allow multiple single-leg CUBE Auctions to run concurrently on Pillar. 160 See id. E:\FR\FM\24JYN1.SGM 24JYN1 47548 Federal Register / Vol. 88, No. 140 / Monday, July 24, 2023 / Notices lotter on DSK11XQN23PROD with NOTICES1 processed pursuant to Rule 971.1NYP(c)(4) or Rule 971.2NYP(c)(4) as applicable.161 Proposed Commentary .02(a)–(d) is identical to current Commentary .02(a)– (d) and would provide that the following conduct will be considered conduct inconsistent with just and equitable principles of trade: • An ATP Holder entering RFR Responses to a CUBE Auction for which the ATP Holder is the Initiating Participant; • Engaging in a pattern and practice of trading or quoting activity for the purpose of causing a CUBE Auction to conclude before the end of the Response Time Interval; • An Initiating Participant that breaks up an agency order into separate CUBE Orders for the purpose of gaining a higher allocation percentage than the Initiating Participant would have otherwise received in accordance with the allocation procedures contained in paragraph (c)(4) of this Rule; 162 and • Engaging in a pattern and practice of sending multiple RFR Responses at the same price that in the aggregate exceed the size of the CUBE Order. Proposed Commentary .03 is identical to current Commentary .03 and would provide that CUBE executions would always be reported to OPRA as ‘‘stopped’’ trades. Proposed Commentary .04 describes functionality for AON CUBE Orders that is identical to current Commentary .05 and would provide that, except as provided in proposed Commentary .04, an AON CUBE auction will be subject to the provisions of proposed Rule 971.1NYP.163 • Proposed Commentary .04 (like current Commentary .05) would provide that a CUBE Order of at least 500 contracts can be designated as AON (an 161 See id. The Exchange notes that the internal cross-reference in the proposed Commentary has been updated to reflect the allocation section in the proposed Rule (i.e., change reference to paragraph (c)(5) of current Rule 971.1NY to paragraph (c)(4) of the proposed Rule), which change is not material because it does not impact functionality. As noted above, the Exchange plans to submit a separate rule filing to adopt Complex CUBE Auctions on Pillar, which current Rule 971.2NY and soon-to-be proposed Rule 971.2NYP, will set forth order allocation in proposed paragraph (c)(4). 162 The Exchange notes that the internal crossreference in the proposed Commentary has been updated to reflect the allocation section in the proposed Rule (i.e., change reference to paragraph (c)(5) of current Rule 971.1NY to paragraph (c)(4) of the proposed Rule), which change is not material because it does not impact functionality. 163 The Exchange proposes the non-substantive change to re-number this provision (from current Commentary .05 to proposed Commentary .04) and also proposes to re-locate to the beginning of the proposed Rule text that appears at the bottom of the current rule. VerDate Sep<11>2014 16:56 Jul 21, 2023 Jkt 259001 ‘‘AON CUBE Order’’) and unlike nonAON CUBE Orders, such AON CUBE Orders may only be guaranteed by a specified stop price. Æ Proposed Commentary .04 would differ from current Commentary .05 to make clear that the (new) option for certain Initiating Participants to designate a Surrender Quantity would not be available for Contra Orders to an AON CUBE Order. This proposed text is not included in current Commentary .05 because the option to designate a Surrender Quantity is not available today and is an enhanced feature that would only be available for certain nonAON CUBE Auctions on Pillar.164 Proposed Commentary .04(a)–(d), is identical to current Commentary .05(a)– (d) and would provide the following. • An AON CUBE Order to buy (sell) will execute in full with the Contra Order at the single stop price even if there is non-Customer interest priced higher (lower) than the stop price that, either on its own or when aggregated with other non-Customer RFR Responses at the stop price or better, is insufficient to satisfy the full quantity of the AON CUBE Order; • The Contra Order will not receive any allocation and will be cancelled if (i) RFR Responses to sell (buy) at prices lower (higher) than the stop price can satisfy the full quantity of the AON CUBE Order or (ii) there is Customer interest to sell (buy) at the stop price or better that on its own, or when aggregated with RFR Responses to sell (buy) at the stop price or prices lower (higher) than the stop price, can satisfy the full quantity of the AON CUBE Order. In either such case, the RFR Responses will be allocated as provided for in paragraphs (c)(4)(A) and (c)(4)(B) of this Rule, as applicable; 165 • The AON CUBE Order and Contra Order will both be cancelled if there is Customer interest to sell (buy) at the stop price or better and such interest, either on its own or when aggregated with RFR Responses to sell (buy) at the stop price or at prices lower (higher) than the stop price, is insufficient to 164 See proposed Rule 971.1NYP, Commentary .04 (providing, in relevant part that ‘‘a Contra Order that guarantees an AON CUBE Order is not eligible to designate a Surrender Quantity of its guaranteed participation.’’). See, e.g., proposed Rule 971.1NYP(c)(4)(C) (describing the proposed option of designating a Surrender Quantity for non-AON CUBE Orders that are guaranteed by a stop price). 165 The Exchange notes that the internal crossreference in the proposed Commentary has been updated to reflect the allocation section in the proposed Rule (i.e., change reference to paragraph (c)(5) of current Rule 971.1NY to paragraph (c)(4) of the proposed Rule, which difference from the current CUBE rule is not material because it does not impact functionality. PO 00000 Frm 00076 Fmt 4703 Sfmt 4703 satisfy the full quantity of the AON CUBE Order; and • Prior to entering an agency order on behalf of a Customer into the CUBE Auction as an AON CUBE Order, Initiating Participants must deliver to the Customer a written notification informing the Customer that such order may be executed using the CUBE Auction. Such written notification must disclose the terms and conditions contained in this Commentary .04 and must be in a form approved by the Exchange.166 * * * * * 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 will continue to be available pending the full migration to Pillar. Implementation As noted immediately above, the Exchange will not implement proposed Rule 971.1NYP until all other Pillarrelated 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 For the reasons set forth above, the Exchange believes the proposed rule change is consistent with Section 6(b) of the Act in general, and furthers the objectives of Section 6(b)(5) of the Act, in that it is designed to promote just and equitable principles of trade,remove impediments to and perfect the mechanisms of a free and open market and a national market system and, in general, to protect investors and the public interest. First, to the extent that the proposed Rule contains provisions that are identical (or substantively identical) to current Rule 971.1NY, the Exchange believes the Rule would remove impediments to and perfect the mechanisms of a free and open market and a national market system and would protect investors and the public interest because the proposed Rule includes 166 See proposed Rule 971.1NYP, Commentary .04. E:\FR\FM\24JYN1.SGM 24JYN1 Federal Register / Vol. 88, No. 140 / Monday, July 24, 2023 / Notices lotter on DSK11XQN23PROD with NOTICES1 streamlined, and in some cases reorganized, descriptions of alreadyapproved (pre-Pillar) Auction functionality in a manner that adds clarity, transparency, and internal consistency to Exchange rules.167 Next, to the extent that the proposed Rule includes enhancements to the CUBE, the Exchange believes that the proposed Rule change would remove impediments to and perfect the mechanisms of a free and open market and a national market system and would protect investors and the public interest because the proposed enhancements to Auctions on Pillar would continue to encourage ATP Holders to compete vigorously to provide the opportunity for price improvement for CUBE Orders of all sizes in a competitive auction process, which may lead to enhanced liquidity and tighter markets. In particular, the proposed rule change to adopt a single pricing parameter for CUBE Orders of any size (except when the NBBO width is one penny) would remove impediments to and perfect the mechanisms of a free and open market and a national market system and would protect investors and the public interest because it would streamline and simplify current CUBE Auction functionality making it easier for market participants to navigate and comprehend.168 In addition, the Exchange’s rules regarding CUBE Auctions would continue to require price improvement for CUBE Orders for fewer than 50 contracts submitted in a penny-wide market and rejecting such orders when the Exchange is setting the NBBO (i.e., BBO = NBBO) and there is displayed Customer interest at the BBO. The proposed pricing requirements providing whether a CUBE Auction is initiated (including when the NBBO is one cent wide or when the NBBO is crossed) are consistent with the Exchange’s current requirements and with the requirements of other options exchanges that offer price improvement mechanisms.169 The Exchange believes that the proposal to reject CUBE Orders that are submitted when there is not enough time for a CUBE Auction to run the full 167 See, e.g., proposed Rules 971.1NYP(b)(1)(A)– (C) (describing stop price, auto match, and automatch limit price); (b)(2), (3), (6), (7), and (9) (regarding eligibility of CUBE Orders submitted to the Auction); (c)(1) (regarding RFRs and RFR Responses) and (c)(2) (regarding conclusion of CUBE Auction). 168 See, e.g., proposed Rules 971.1NYP(a)(3), (a)(4) and (a)(1)(A). 169 See, e.g., Rule 971.1NY(b)(1)(A), proposed Rule 971.1NY(b)(5)–(b)(6), & note 54, supra (regarding pricing requirements utilized on Cboe, Cboe EDGX, and Nasdaq ISE to initiate an analogous price improvement auctions). VerDate Sep<11>2014 16:56 Jul 21, 2023 Jkt 259001 duration of the Response Time Interval would remove impediments to and perfect the mechanisms of a free and open market and a national market system and would protect investors and the public interest because it would make clear that CUBE Orders that cannot be exposed to solicit priceimproving interest for the full Response Time Interval would not be accepted by the Exchange. Moreover, the proposal to modify the Response Time Interval to be a set duration as opposed to a random duration would be a competitive change and would align the Exchange’s rules with other options exchanges that include this feature.170 The Exchange believes that the proposal to accept CUBE Orders in the same series as orders being exposed in the BOLD mechanism would remove impediments to and perfect the mechanisms of a free and open market and a national market system and would protect investors and the public interest because it would allow more CUBE Orders to be accepted, which would in turn promote increased opportunities for price improvement. This proposed change is not currently available (because of system limitations) but would be available on Pillar to the benefit of all market participants because of increased trading opportunities through the BOLD mechanism as well as through the acceptance of more CUBE Orders (submitted when certain orders are being exposed via BOLD). The proposed rule changes to enhance the Auction process on Pillar by allowing concurrent auctions, adding the associated ‘‘AuctionID’’ feature, and permitting Initiating Participants to designate a Surrender Quantity would remove impediments to and perfect the mechanisms of a free and open market and a national market system for several reasons. First, the proposed changes would not only allow more CUBE Auctions to occur on the Exchange but would also allow more targeted participation in CUBE Auctions with the new AuctionID feature available for GTX Orders. Market participants that respond to CUBE Auctions with GTX Orders would be able to direct their trading interest to a specific Auction (which functionality is also offered on other options exchanges) thus increasing determinism.171 That said, the AuctionID functionality would be optional and a GTX Order sent without an AuctionID would respond to the PO 00000 170 See, 171 See, e.g., notes 61, 76–77, supra. e.g., notes 74 & 87, supra. Frm 00077 Fmt 4703 Sfmt 4703 47549 Auction that began closest in time to the submission of the GTX Order. The proposal to permit concurrent auctions in the same series for CUBE Orders of 50 or more contracts would benefit investors because it would allow more CUBE Auctions to run the full duration of the Response Time Interval, thus affording more time and opportunity for the arrival of priceimproving interest. Moreover, permitting concurrent auctions for larger-sized agency orders (analogous to CUBE Orders of 50 or more contracts), which is not new or novel functionality and has been in place on other options exchanges for several years, would be a competitive change.172 The proposal to permit concurrent auctions in the same series for CUBE Orders of fewer than 50 contracts would remove impediments to and perfect the mechanisms of a free and open market because it would extend concurrent auction functionality to smaller-sized CUBE Orders. The Exchange also believes this proposed change is noncontroversial because it should not raise any issues that differ from those previously considered when other options exchanges adopted this functionality for larger-sized agency orders submitted to price improvement auctions. The proposal would benefit investors because it would afford smaller-sized CUBE Orders increased opportunity to solicit price-improving auction interest—including because receipt of a new CUBE Order would no longer cause the Auction in progress to end early. The Exchange further believes that this proposed change would provide additional benefits to Customers, as smaller-sized CUBE Orders tend to represent retail interest and could improve the Customer experience on the Exchange by increasing trading opportunities in the CUBE Auction. Notwithstanding the proposal to allow concurrent auctions for smaller-sized CUBE Orders, the Exchange would continue to protect Customer interest on the Consolidated Book by requiring price improvement over the BBO to initiate an Auction for smaller-sized CUBE Orders and rejecting such orders in penny-wide markets when price improvement is not possible. The Exchange believes this proposed new functionality to allow concurrent auctions for CUBE Orders of any size should promote and foster competition and provide more options contracts with the opportunity for price improvement, which should benefit all market participants. In addition, this 172 See, E:\FR\FM\24JYN1.SGM e.g., note 106, supra. 24JYN1 lotter on DSK11XQN23PROD with NOTICES1 47550 Federal Register / Vol. 88, No. 140 / Monday, July 24, 2023 / Notices proposed change may lead to an increase in Exchange volume and should allow the Exchange to better compete against other markets that permit overlapping price improvement auctions, while continuing to ensure that displayed Customer interest on the Consolidated Book is protected. The proposed enhancement to allow concurrent auctions for CUBE Orders of any size would be a competitive change and would make the Exchange a more attractive venue for auction-related order flow. As noted above, the Exchange believes that the Pillar trading platform has sufficient capacity to process a large volume of concurrent Auctions for CUBE Orders of any size, including for CUBE Orders of fewer than 50 contracts. The proposed changes to streamline early end scenarios for CUBE Auctions would remove impediments to and perfect the mechanisms of a free and open market and a national market system and would protect investors and the public interest because it would increase the opportunity for each CUBE Auction to run the full length of the (fixed duration) RTI, which should increase opportunities for price improvement. In addition, this proposed change should promote and foster competition and provide more options contracts with the opportunity for price improvement, which should benefit all market participants. The Exchange notes that the proposed functionality would simplify the operation of CUBE Auctions in a manner that is consistent with other options exchanges’ price improvement mechanisms.173 The proposal to provide the option of designating a Surrender Quantity would remove impediments to and perfect the mechanisms of a free and open market because it would afford more discretion and flexibility to the Contra Order and may result in increased CUBE Auction volume on the Exchange. Moreover, this proposed enhancement is competitive as it would allow the Exchange to compete on more equal footing with other options exchanges that offer this feature in their price improvement auctions.174 The proposed rule changes to modify the handling and operation of GTX Orders on Pillar per proposed Rule 971.1NYP(c)(1)(C)(a), (c) (i.e., that such orders will execute with the CUBE Order to the extent possible and then cancel) and to clarify that GTX Orders, although not displayed or disseminated, are ranked and prioritized with samepriced Limit Orders as Priority 2— 173 See, 174 See, e.g., note 115, supra. e.g., note 140, supra. VerDate Sep<11>2014 16:56 Jul 21, 2023 Jkt 259001 Display Orders on Pillar (consistent with proposed new Rule 964NYP) would remove impediments to and perfect the mechanisms of a free and open market and a national market system and would protect investors and the public interest because such changes would make clear to market participants responding to CUBE Auctions with GTX Orders how such interest would be prioritized and handled on Pillar, thus adding clarity, transparency, and internal consistency to Exchange rules. The proposed rule change would remove impediments to and perfect the mechanisms of a free and open market and a national market system and would protect investors and the public interest because the proposed CUBE Order allocation is consistent with current functionality, including that the Contra Order may be allocated a limited percentage of the CUBE Order ahead of certain other same-priced RFR Responses, except that the proposed rule would align with Pillar Rule 964NYP as described herein. Consistent with current functionality, the Exchange believes that the Contra Order, having guaranteed the execution of the CUBE Order, should be entitled to a certain level of participation in the Auction, assuming CUBE Order contracts remain after executing with contra-side interest prioritized ahead of the Contra Order. In addition, this alignment of CUBE Order functionality with Pillar Rule 964NYP would add clarity, transparency, and internal consistency to Exchange rules to the benefit of investors. The proposed rule change to specify that the Surrender Quantity option is not available for Contra Orders to AON CUBE Orders would remove impediments to and perfect the mechanisms of a free and open market and a national market system and would protect investors and the public interest because such rule text would not alter the functionality of AON CUBE Orders on Pillar but would instead add clarity, transparency, and internal consistency to Exchange rules. Further, the proposed rule change would promote a fair and orderly market and national market system, because, as noted herein, the proposed enhancements to CUBE Auctions on Pillar are the same as those offered on other options exchanges that have price improvement mechanisms, except as noted herein. The Exchange believes the proposed rule change is not unfairly discriminatory because the proposed handling of CUBE Auctions on Pillar would be the same for similarly-situated ATP Holders but (as is the case today) would vary for those ATP Holders PO 00000 Frm 00078 Fmt 4703 Sfmt 4703 submitting interest on behalf of Customers versus ATP Holders submitting interest on behalf of nonCustomers. As is the case today, all ATP Holders would continue to have an equal opportunity to receive the broadcast and respond with their best prices during the auction. The proposal to continue to afford Customer interest first priority within each Pillar Priority category is consistent with the Exchange’s Customer-centric trading model and would benefit investors by attracting more (Customer) order flow to the Exchange which would result in increased liquidity. In sum, the Exchange believes this proposal may lead to an increase in Exchange volume and should allow the Exchange to better compete against other options markets that already offer the enhanced functionality proposed herein. In particular, the Exchange believes that its proposal would allow the Exchange to better compete for auction order flow, while providing an opportunity for price improvement on CUBE Orders of any size. In addition, the proposed functionality should promote and foster competition and provide more options contracts with the opportunity for price improvement, which should benefit market participants 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 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, thereby potentially attracting additional order flow to the Exchange. The Exchange does not believe that the proposed rule changes would impact intra-market competition as the proposed rule changes would be applicable to all similarly-situated ATP Holders and reflects the Exchange’s existing priority model. The Exchange notes that it operates in a highly competitive market in which market participants can readily direct order flow to competing venues who offer similar functionality. The Exchange believes this proposed rule change would promote fair competition among the options exchanges and establish more uniform functionality across the various price improvement E:\FR\FM\24JYN1.SGM 24JYN1 Federal Register / Vol. 88, No. 140 / Monday, July 24, 2023 / Notices auctions offered by other options exchanges. As noted herein, several of the proposed enhancements to the Auction—i.e., concurrent auctions for larger-sized agency orders, inclusion of an AuctionID on Request for Responses and the option to include an AuctionID on GTX Orders, a fixed duration during which auction responses are submitted, and the ability to designate an optional Surrender Quantity— are currently offered on other options exchanges and the addition of these features would make the Exchange a more competitive venue for price improvement auctions. The proposed functionality may lead to an increase in Exchange volume and should allow the Exchange to better compete against other options markets that already offer similar price improvement mechanisms and for this reason the proposal does not create an undue burden on intermarket competition. By contrast, not having the proposed functionality places the Exchange at a competitive disadvantage vis-a`-vis other exchanges that offer similar price improvement mechanisms. lotter on DSK11XQN23PROD with NOTICES1 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 175 and Rule 19b–4(f)(6) thereunder.176 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 175 15 176 17 the purposes of the Act. If the Commission takes such action, the Commission shall institute proceedings under Section 19(b)(2)(B) 177 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–2023–35 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–2023–35. 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 U.S.C. 78s(b)(3)(A)(iii). CFR 240.19b–4(f)(6). VerDate Sep<11>2014 16:56 Jul 21, 2023 177 15 Jkt 259001 PO 00000 U.S.C. 78s(b)(2)(B). Frm 00079 Fmt 4703 Sfmt 4703 47551 subject to copyright protection. All submissions should refer to file number SR–NYSEAMER–2023–35 and should be submitted on or before August 14, 2023. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.178 Sherry R. Haywood, Assistant Secretary. [FR Doc. 2023–15575 Filed 7–21–23; 8:45 am] BILLING CODE 8011–01–P DEPARTMENT OF TRANSPORTATION Federal Railroad Administration [Docket No. FRA–2023–0002–N–23] Proposed Agency Information Collection Activities; Comment Request Federal Railroad Administration (FRA), Department of Transportation (DOT). ACTION: Notice of withdrawal; reissuance of information collection; request for comment. AGENCY: On July 5, 2023, FRA published a 30-day notice of information collection; request for comment in the Federal Register. FR Doc. 2023–08413. Due to technical issues as the result of which FRA did not receive two timely-filed comment letters until after the comment period closed, FRA is withdrawing the July 5, 2023, notice of information collection; request for comment and re-issuing the 30-day notice to address the two additional comments. Accordingly, this notice supersedes the July 5, 2023, notice. SUMMARY: Interested persons are invited to submit comments on or before August 23, 2023. ADDRESSES: Written comments and recommendations for the proposed information collection request (ICR) should be sent within 30 days of publication of this notice to www.reginfo.gov/public/do/PRAMain. Find the particular ICR by selecting ‘‘Currently under Review—Open for Public Comments’’ or by using the search function. FOR FURTHER INFORMATION CONTACT: Ms. Arlette Mussington, Information Collection Clearance Officer, at email: arlette.mussington@dot.gov or telephone: (571) 609–1285 or Ms. Joanne Swafford, Information Collection Clearance Officer, at email: DATES: 178 17 E:\FR\FM\24JYN1.SGM CFR 200.30–3(a)(12). 24JYN1

Agencies

SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 88, Number 140 (Monday, July 24, 2023)]
[Notices]
[Pages 47536-47551]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-15575]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-97938; File No. SR-NYSEAMER-2023-35]


Self-Regulatory Organizations; NYSE American LLC; Notice of 
Filing and Immediate Effectiveness of Proposed Change for New Rule 
971.1NYP

July 18, 2023.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on July 5, 2023, NYSE American LLC (``NYSE American'' or the 
``Exchange'') filed with the Securities and Exchange Commission (the 
``Commission'') the proposed rule change as described in Items I, II, 
and III below, which Items have been prepared by the 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\ 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 new Rule 971.1NYP regarding its Customer 
Best Execution (``CUBE'') Auction to reflect the implementation of the 
Exchange's Pillar trading technology on its options market and to 
modify Rule 971.1NY. 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 
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 
markets and those of its national securities exchange affiliates' cash 
equity markets.\3\ For this transition, the Exchange proposes to use 
the same Pillar technology already in operation on Arca Options.\4\ In 
doing so, the Exchange will be able to offer not only common 
specifications for connecting to both of its equity and options 
markets, but also common trading functions across the Exchange and its 
affiliated options exchange, NYSE Arca Options.
---------------------------------------------------------------------------

    \3\ Together with NYSE American LLC, the Exchange's national 
securities exchange affiliates' cash equity markets include: the New 
York Stock Exchange LLC, NYSE Arca, Inc., NYSE National, Inc., and 
NYSE Chicago, Inc.
    \4\ 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'').
---------------------------------------------------------------------------

    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.\5\ As was the case for Arca Options when it 
transitioned to Pillar, the Exchange will announce by Trader Update 
when underlying symbols will be transitioning to the Pillar trading 
platform. With this transition, certain rules would continue to be 
applicable to options symbols trading on the current trading platform 
but would not be applicable to options symbols that have transitioned 
to trading on Pillar.
---------------------------------------------------------------------------

    \5\ See Trader Update, January 30, 2023 (announcing Pillar 
Migration Launch date of October 23, 2023, for the Exchange), 
available here: https://www.nyse.com/trader-update/history#110000530919. The Exchange would not begin to migrate 
underlying symbols to the Pillar platform until all Pillar-related 
rule filings (i.e., with a ``P'' modifier) are either approved or 
operative, as applicable.
---------------------------------------------------------------------------

    In this regard, the Exchange recently adopted new rules to reflect 
the priority, ranking, and allocation of single-leg interest on Pillar, 
including Rule 964NYP (``Pillar Rule 964NYP'') \6\ and

[[Page 47537]]

has adopted a new rule regarding the trading of Complex Orders on 
Pillar.\7\ In addition, the Exchange has submitted a filing to adopt 
new rules for the operation of order types, Market Maker quotations, 
opening auctions, and risk controls on the Pillar platform.\8\
---------------------------------------------------------------------------

    \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 the American 
Pillar Priority Rules on an immediately effective basis, which rules 
utilize Pillar concepts and incorporate the Exchange's current 
Customer priority and pro rata allocation model) (the ``American 
Pillar Priority Filing''). The American Pillar Priority Rules (like 
proposed Rule 971.1NYP) will not be implemented until all other 
Pillar-related rule filings are either effective or approved, as 
applicable. See id.
    \7\ See 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)).
    \8\ See SR-NYSEAmer-2023-34 (proposing, on an immediately 
effective basis, 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)).
---------------------------------------------------------------------------

    On Pillar, and as discussed in detail herein, the Exchange will 
continue to conduct CUBE Auctions consistent with current 
functionality. However, proposed Rule 971.1NYP (the ``Rule'') regarding 
its CUBE Auction (the ``CUBE Auction''; ``CUBE''; or the ``Auction'') 
would incorporate the Exchange's priority and allocation scheme per 
Pillar Rule 964NYP, which includes Pillar concepts and terminology, and 
would also include enhancements to CUBE that will be available on the 
Pillar trading platform. The proposed enhancements would align the 
operation of the CUBE Auction with similar price-improvement mechanisms 
already available on other options exchanges.\9\ As such, this proposal 
is competitive insofar as the proposed Pillar-related enhancements to 
CUBE are currently available on other options exchanges.
---------------------------------------------------------------------------

    \9\ See, e.g., Cboe Exchange, Inc. (``Cboe'') Rule 5.37 
(describing Automated Improvement Mechanism (``AIM''), which is an 
electronic price improvement auction for paired orders); Cboe EDGX 
Exchange, Inc. (``Cboe EDGX'') Rule 21.19 (same); Nasdaq ISE, LLC 
(``Nasdaq ISE''), Options 3, Section 13 (describing Price 
Improvement Mechanism for Crossing Transactions, which is an 
electronic price improvement auction for paired orders).
---------------------------------------------------------------------------

    The Exchange believes the proposed Rule for CUBE Auctions on Pillar 
would continue to encourage ATP Holders to compete vigorously to 
provide the opportunity for price improvement for CUBE Orders of all 
sizes in a competitive auction process, which may lead to enhanced 
liquidity and tighter markets.\10\
---------------------------------------------------------------------------

    \10\ An ATP Holder is a natural person, sole proprietorship, 
partnership, corporation, limited liability company or other 
organization, in good standing, that has been issued an ATP. 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.
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Proposed Use of ``P'' Modifier
    As proposed, and consistent with the American Pillar Priority 
Filing, the proposed Rule would have the same number as the current 
CUBE rule, but with the modifier ``P'' appended to the rule number.\11\ 
As such, except Rule 971.1NY (Single-Leg Electronic Cross Transactions) 
would continue to apply to CUBE Auctions in symbols traded on the 
Exchange's current system.\12\
---------------------------------------------------------------------------

    \11\ See American Pillar Priority Filing (adopting, among other 
rules, Pillar Rule 964NYP, which will replace and supersede current 
Rule 964NY when the Exchange migrates to Pillar and describing that 
any Exchange rule with a ``P'' modifier will be applicable to 
options trading in symbols that have migrated to Pillar).
    \12\ The Exchange notes that it proposes one clarifying change 
to current Rule 971.1NY (regarding rejection of certain CUBE Orders 
submitted near the end of the trading day). See supra note 61.
---------------------------------------------------------------------------

    Proposed Rule 971.1NYP, however, would govern CUBE Auctions for 
symbols that have migrated to the Pillar trading platform.\13\ To make 
clear this distinction, the Exchange proposes to add a preamble to 
current Rule 971.1NY (Single-Leg Electronic Cross Transactions) 
specifying that it would not be applicable to trading on Pillar, i.e., 
once the migration to Pillar is complete, the current CUBE rule will 
not apply to CUBE Auctions.\14\
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    \13\ The Exchange believes that using the ``P'' modifier to 
demarcate rules that apply solely to trading on the Pillar platform 
adds clarity, transparency, and internal consistency to Exchange 
rules. See id. See also Arca Pillar Approval Order.
    \14\ See proposed Rule 971.1NYP (with new preamble specifying 
that it would not be applicable to trading on Pillar). Following the 
completed migration to Pillar, the Exchange will file a rule 
proposal to delete rules that are no longer operative because they 
apply only to trading on the Exchange's current system (including 
current Rule 971.1NY).
---------------------------------------------------------------------------

    As with the Pillar Priority Rules, the Exchange will not implement 
proposed Rule 971.1NYP 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.
Overview of the CUBE Auctions
    Rule 971.1NY describes the CUBE Auction, which is an electronic 
crossing mechanism for single-leg orders with a price improvement 
auction on the Exchange.\15\ The CUBE Auction is designed to provide 
price improvement for ``CUBE Orders'' (described below) of any size.
---------------------------------------------------------------------------

    \15\ See generally Rule 971.1NY (Single-Leg Electronic Cross 
Transactions).
---------------------------------------------------------------------------

    To commence an Auction, an ATP Holder (``Initiating Participant'') 
may electronically submit for execution a limit order it represents as 
agent on behalf of a public customer, broker dealer, or any other 
entity (``CUBE Order'').\16\ The Initiating Participant must agree to 
guarantee the execution of the CUBE Order by submitting a contra-side 
order representing principal interest or interest it has solicited to 
trade with the CUBE Order (the ``Contra Order'') at a specified stop 
price or by utilizing auto-match or auto-match limit.\17\
---------------------------------------------------------------------------

    \16\ See Rule 971.1NY(a).
    \17\ See Rule 971.1NY(c)(1)(A)-(C).
---------------------------------------------------------------------------

    Subject to specified exceptions, a CUBE Order to buy (sell) may 
execute at prices equal to or between the ``initiating price'' as the 
upper (lower) bound and the NBB (NBO) as the lower (upper) bound of 
permissible executions.\18\ The current CUBE rule provides that the 
range of permissible executions depends on whether a CUBE Order is for 
fewer than 50 contracts \19\ or for 50 or more contracts.\20\ Further, 
to initiate an Auction, a CUBE Order must meet requirements related to 
its minimum size, price, and time of submission and acceptance of a 
CUBE Order is also dependent upon market conditions when submitted.\21\
---------------------------------------------------------------------------

    \18\ See Rule 971.1NY(b), (b)(1).
    \19\ See Rule 971.1NY(b)(1)(B) (providing that if a CUBE Order 
to buy (sell) is for fewer than 50 contracts, the initiating price 
shall be the lower (higher) of the CUBE Order's limit price, the NBO 
(NBB), or the BO minus one cent (BB plus one cent) and the lower 
(upper) bound of executions shall be the higher (lower) of the NBB 
(NBO) or the BB plus one cent (BO minus one cent)).
    \20\ See Rule 971.1NY(b)(1)(A) (providing that if a CUBE Order 
to buy (sell) is for 50 contracts or more and there is Customer 
interest in the Consolidated Book at the BB (BO), the lower (upper) 
bound of executions is the higher (lower) of the BB plus one cent 
(BO minus one cent) or the NBB (NBO)).
    \21\ See Rule 971.1NY(b)(2)-(10).
---------------------------------------------------------------------------

    When the Exchange receives a valid CUBE Order for auction 
processing, a Request for Responses (``RFR'') detailing the series, the 
side of the market, the size of the CUBE Order, and the initiating 
price of the CUBE Order is sent to all ATP Holders that subscribe to 
receive RFR messages.\22\ RFR Responses marked as GTX Orders may be 
submitted to trade with a CUBE Order, provided that such orders specify 
their price, size and side of the market.\23\ Only one Auction in a 
given series may be conducted at a time.\24\ The Response Time Interval 
for a CUBE Auction is a random period of time within parameters 
designated by the Exchange, which time period shall be no less than 100 
milliseconds and no more than 1 second, unless the Auction

[[Page 47538]]

is concluded early.\25\ A CUBE Auction may end early if, during the 
Auction, the Exchange receives interest that would otherwise disrupt 
the priority of interest in the Consolidated Book.\26\
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    \22\ See Rule 971.1NY(c)(2)(A).
    \23\ See Rule 971.1NY(c)(2)(C)(i).
    \24\ See Rule 971.1NY(c).
    \25\ See Rule 971.1NY(c)(2)(B).
    \26\ See Rule 971.1NY(c)(4)(A)-(F) (providing the scenarios that 
would result in the early end of a CUBE Auction).
---------------------------------------------------------------------------

    At the conclusion of the Auction, including if the Auction ends 
early, the Exchange evaluates the interest received during the auction 
and allocates the CUBE Order (in whole or in part) with price improving 
interest, and/or, absent sufficient improving interest, with the Contra 
Order.\27\ The Contra Order may be entitled to a participation 
guarantee of up to 40% (or 50% if there is only one RFR Response) 
depending on the CUBE Order contracts remaining after executing with 
price improving interest.\28\ CUBE Order allocations are applied in 
accordance with the Exchange's Customer priority scheme and size pro 
rata allocation algorithm.\29\
---------------------------------------------------------------------------

    \27\ See generally Rule 971.1NY(c)(5).
    \28\ See Rules 971.1NY(c)(5)(B)(i)(b), (ii)(b), (iii)(b) 
(specifically regarding guaranteed participation of the Contra 
Order).
    \29\ See, e.g., Rules 971.1NY(c)(5)(B)(i)(b), (ii)(b), (iii)(b) 
(citing the size pro rata algorithm set forth in Rule 964NY(b)(3)).
---------------------------------------------------------------------------

Summary of Proposed Enhancements to CUBE
    The Exchange is not proposing fundamentally different functionality 
for CUBE Auctions on Pillar. Instead, the Exchange proposes discrete 
enhancements to the CUBE Auction that are designed to both improve the 
operation of the CUBE and as noted herein to bring CUBE functionality 
in alignment with price-improving mechanisms available on other 
marketplaces. Specifically, and as described in detail below, the 
Exchange proposes to enhance the CUBE Auction on Pillar as follows:
     Uniform Pricing Standard. Adopt one uniform range of 
permissible executions for CUBE Orders by applying the current pricing 
requirements set forth in Rule 971.1NY(b)(1)(A) to CUBE Orders of any 
size. The Exchange, however, would continue to require price 
improvement to CUBE Orders for fewer than 50 contracts that are 
submitted when the market is one cent wide ($0.01). As proposed, the 
Exchange would also continue to reject (as it does today) smaller-sized 
CUBE Orders in penny-wide markets if there is same-side (as CUBE Order) 
displayed Customer interest in the Consolidated Book at the NBBO.\30\
---------------------------------------------------------------------------

    \30\ See proposed Rule 971.1NYP(b)(5). See also Securities 
Exchange Act Release No. 79830 (January 18, 2017), 82 FR 8465, at 
8466 (January 25, 2017) (SR-NYSEMKT-2016-12) (order approving 
proposal to make permanent the aspects of the CUBE Auction that were 
subject to a pilot, provided the Exchange continued to guarantee 
price improvement to CUBE Orders for fewer than 50 contracts in a 
penny-wide NBBO market) (order approving CUBE pilot on permanent 
basis for smaller-sized orders) (``SEC Approval of CUBE Pilot'').
---------------------------------------------------------------------------

     Response Time Interval. Modify the Response Time Interval 
for a CUBE Auction to be for a set duration as opposed to the random 
duration that currently applies to Auctions.
     GTX Order Handling. Update GTX Order functionality to 
reflect handling on Pillar, including how such orders will be 
prioritized per Pillar Rule 964NYP(e), that such orders may include a 
specific CUBE ``AuctionID'', and that such order will cancel (rather 
than continue to trade) after executing with the CUBE Order to the 
extent possible.
     Single Early End Scenario. Reduce the number of ``early 
conclusion events'' based on trading interest that arrives during the 
Auction to the single scenario set forth in current Rule 
971.1NY(c)(4)(D) and described herein.\31\ This proposed change does 
not impact nor alter the (existing and proposed) requirement that a 
CUBE Auction end early if there is a trading halt in the affected 
series, which early termination reason is distinct from ending an 
Auction early based on incoming options trading interest.\32\
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    \31\ Rule 971.1NY(c)(4)(A)-(F) sets forth the current early end 
scenarios.
    \32\ See proposed Rule 971.1NYP(c)(2). See also Rule 
971.1NY(c)(3).
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     Surrender Quantity. Enable Contra Orders that guarantee 
CUBE Orders with a stop price the option of requesting to receive a 
lesser participation guarantee than the standard 40% (i.e., the 
Surrender Quantity).
     Concurrent Auctions. Permit multiple CUBE Auctions in the 
same series to occur at the same time and specify how such Auctions are 
processed and, to correspond with this functionality change, add 
``AuctionID'' functionality to allow auction responses (i.e., GTX 
Orders) to specify the CUBE Order with which it would like to trade.
     CUBE Order Allocation. Update Auction functionality to 
reflect the allocation of CUBE Orders against RFR Responses in 
alignment with Pillar Rule 964NYP (Order Ranking, Display, and 
Allocation).
    In addition to the foregoing enhancements, the proposed Rule 
includes descriptions of existing CUBE functionality that will persist 
on Pillar. However, the Exchange proposes to streamline, clarify, or 
relocate certain of these descriptions (as indicated herein) to make 
the proposed Rule more succinct and easier to understand. The Exchange 
also proposes to replace all instances of ``shall'' with ``will,'' 
which is a stylistic preference that has no substantive impact on the 
proposed Auction functionality.\33\
---------------------------------------------------------------------------

    \33\ Compare Rules 971.1NY(a) and (b) (which use ``shall'') with 
proposed Rules 971.1NYP(a)(1) and (2), respectively (which use 
``will'').
---------------------------------------------------------------------------

Proposed Rule 971.1NYP: CUBE Auctions on Pillar
    As discussed herein, the Exchange is not proposing to change the 
core functionality of CUBE Auctions. Thus, unless otherwise stated 
herein, CUBE Auctions on Pillar will function in a manner identical 
with current CUBE functionality per current Rule 971.1NY.
Initiating and Pricing of CUBE Auctions
    The proposed Rule would begin by describing the general 
requirements for initiating a CUBE Auction, which requirements mirror 
current functionality unless otherwise specified.
    Proposed Rule 971.1NYP(a) and (a)(1) describe functionality 
identical to Rule 971.1NY(a).
     Proposed Rule 971.1NYP(a) is identical to Rule 971.1NY(a) 
insofar as it would provide that a ``CUBE Order'' is a Limit Order 
submitted electronically by an ATP Holder (the ``Initiating 
Participant'') into the CUBE Auction, which CUBE Order the Initiating 
Participant represents as agent on behalf of a public customer, broker 
dealer, or any other entity. The last sentence of proposed Rule 
971.1NYP(a) is identical to Rule 971.1NY(b)(8) and would provide that 
the minimum size requirement for a CUBE Order is one contract.\34\
---------------------------------------------------------------------------

    \34\ The Exchange has relocated this text to the beginning of 
the Rule (as opposed to where this provision resides (in current 
Rule 971.1NY(b)(8)) because the Exchange believes that the minimum 
size of a CUBE Order is fundamental and thus is logically included 
at the outset of the Rule.
---------------------------------------------------------------------------

     Proposed Rule 971.1NYP(a)(1) is identical to Rule 
971.1NY(a) insofar as it would provide that a the Initiating 
Participant would guarantee the execution of the CUBE Order by 
submitting a contra-side order (``Contra Order'') representing 
principal interest or non-Customer interest it has solicited to trade 
solely with the CUBE Order at a specified price (``stop price'') or by 
utilizing auto-match or auto-match limit features (as described in 
proposed paragraph (b)(1) of the Rule), which interest would not be 
displayed.\35\
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    \35\ The Exchange notes that the internal cross-reference in the 
proposed Rule has been updated and expanded to include descriptions 
of each of the stop price, auto-match, and auto-match limit price, 
which difference from the current CUBE rule is not material because 
it does not impact functionality.

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[[Page 47539]]

    [cir] Proposed Rule 971.1NYP(a)(1)(A) is identical to Rule 
971.1NY(b)(7) and would provide that CUBE Orders may be entered in one 
cent ($0.01) increments regardless of the MPV of the series involved 
and that Contra Orders likewise may be priced in one cent increments 
when specifying the stop price or the auto-match limit price as 
described in proposed paragraphs (b)(1)(A) and (b)(1)(C) of this Rule 
(discussed below).\36\
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    \36\ The Exchange notes that the internal cross-reference in the 
proposed Rule has been updated and expanded to include descriptions 
of each of the stop price, auto-match, and auto-match limit price, 
which difference from the current CUBE rule is not material because 
it does not impact functionality. The Exchange has relocated this 
text to the beginning of the Rule (as opposed to where this 
provision resides (in current Rule 971.1NY(b)(7)) because the 
Exchange believes that the permissible MPV for CUBE Orders and 
certain Contra Orders is fundamental and thus is logically included 
at the outset of the Rule.
---------------------------------------------------------------------------

    Proposed Rule 971.1NYP(a)(2) describes functionality identical to 
Rule 971.1NY(b).
     Proposed Rule 971.1NYP(a)(2) is identical to Rule 
971.1NY(b) insofar as it would provide that for purposes of determining 
whether a CUBE Order is eligible to initiate an Auction, references to 
the NBBO or Exchange BBO refer to the quoted market at the time the 
Auction is initiated and that the time at which the CUBE Auction is 
initiated is considered the time of the CUBE Order execution and that 
orders executed in the Auction qualify as exceptions to Trade-Through 
Liability, pursuant to Rule 991NY(b)(5) and (9). However, unlike the 
current rule, the proposed Rule would use shorthand to refer to the 
NBBO and Exchange BBO, which terms are defined in Rule 900.2NY.\37\
---------------------------------------------------------------------------

    \37\ Compare proposed Rule 971.1NYP(a)(2) (referring to the 
``NBBO'' and ``Exchange BBO'') with Rules 971.1NY(b) (providing that 
``[f]or purposes of determining whether a CUBE Order is eligible to 
initiate an Auction, references to the National Best Bid or Offer 
(`NBBO') or Exchange Best Bid or Offer (``BBO'') refer to the quoted 
market at the time the Auction is initiated''); 971.1NY(a) 
(referring to ``the National Best Offer (`NBO') (National Best Bid 
(`NBB')'').
---------------------------------------------------------------------------

    Consistent with current functionality, a CUBE Auction on Pillar 
would begin with an ``initiating price'' and, at the conclusion of the 
Auction, the CUBE Order would be eligible to execute at multiple prices 
within a permissible ``range of executions.'' \38\ On Pillar, however, 
the Exchange proposes to adopt a uniform pricing standard for all CUBE 
Orders rather than have two separate standards based on the size of a 
CUBE Order.\39\ As proposed, the Exchange would streamline CUBE 
functionality by applying the pricing parameter set forth in Rule 
971.1NY(b)(1)(A) to establish the initiating price and ``permissible 
range of executions'' for a CUBE Order, but would eliminate the CUBE 
Order's size requirement.\40\
---------------------------------------------------------------------------

    \38\ See, e.g., Rule 971.1NY(a) (providing, in relevant part, 
that the ``Auction begins with an `initiating price','' and that, 
``[a]t the conclusion of the Auction, the CUBE Order may execute at 
multiple prices within a permissible range . . . .'').
    \39\ See Rules 971.1NY(b)(1)(A) and (B) (providing pricing 
requirements for a CUBE Order for 50 contracts or more and for a 
CUBE Order for fewer than 50 contracts, respectively).
    \40\ The Exchange notes that current Rule 971.1NY(b)(1)(B), 
which will not apply to CUBE Auctions on Pillar, requires that a 
CUBE Order for fewer than 50 contracts must be priced at least one 
cent ($0.01) better than any displayed interest on the Exchange's 
Consolidated Book. As discussed, supra, the Exchange would continue 
to protect displayed Customer interest at the BBO for smaller-sized 
CUBE Orders. See proposed Rules 971.1NYP(a)(3) (carving out the 
exception to the initiating price parameters for CUBE Orders 
submitted in a penny-wide market) and (b)(5) (describing the 
handling of CUBE Orders submitted in a penny-wide market).
---------------------------------------------------------------------------

     Proposed Rule 971.1NYP(a)(3) would provide that--subject 
to proposed Rule 971.1NYP(b)(5) (as described below), the initiating 
price for any-sized CUBE Order to buy (sell) would be the lower 
(higher) of the CUBE Order's limit price or the NBO (NBB), which 
parameters are identical to the current initiating price requirements 
for CUBE Orders of 50 or more contracts per Rule 971.1NY(a).\41\
---------------------------------------------------------------------------

    \41\ Compare proposed Rule 971.1NYP(a)(3) with Rule 971.1NY(a) 
(providing that, for CUBE Orders for 50 or more contracts, the 
``initiating price'' for a CUBE Order to buy (sell) will be the 
lower (higher) of the CUBE Order's limit price or the NBO (NBB), 
except as provided in (proposed) paragraph (b)(5) of this Rule).
---------------------------------------------------------------------------

     Proposed Rule 971.1NYP(a)(4) would provide that the range 
of permissible executions for any-sized CUBE Order would be as set 
forth below and would note that this range of permissible executions 
may be adjusted based on certain updates to the Exchange BBO during an 
Auction per proposed Rule 971.1NYP(a)(4)(A) (described below).
    The ``range of permissible executions'' of a CUBE Order to buy 
(sell) includes prices equal to or between the initiating price as the 
upper (lower) bound and the NBB (NBO) as the lower (upper) bound, 
provided that if there is Customer interest in the Consolidated Book at 
the Exchange BB (BO), the lower (upper) bound of executions will be the 
higher (lower) of the BB plus one cent (BO minus one cent) or the NBB 
(NBO).\42\
---------------------------------------------------------------------------

    \42\ Compare proposed Rule 971.1NYP(a)(4) with Rule 
971.1NY(b)(1) and (b)(1)(A) (providing that a CUBE Order to buy 
(sell) for 50 contracts or more may execute at prices equal to or 
between the initiating price as the upper (lower) bound and the NBB 
(NBO) as the lower (upper) bound, provided that if there is Customer 
interest in the Consolidated Book at the BB (BO), the lower (upper) 
bound of executions is the higher (lower) of the BB plus one cent 
(BO minus one cent) or the NBB (NBO)).
---------------------------------------------------------------------------

    [cir] Proposed Rule 971.1NYP(a)(4)(A) would provide that the 
Exchange would adjust the range of permissible executions of a CUBE 
Order to buy (sell) in accordance with updates to the Exchange BB (BO) 
during the Auction, provided that such Exchange BB (BO) updates do not 
cross the upper (lower) bound of permissible executions.\43\ This 
proposed feature is consistent with current functionality but differs 
in that the proposed Rule states definitively when updates to the BBO 
during an Auction would impact the range of executions (rather than 
refer to BBO updates that might result in the early end of an 
Auction).\44\ The Exchange believes this distinction is immaterial as 
it has no impact on functionality. In fact, the Exchange believes this 
proposed change would remove superfluous (potentially confusing) 
language and, as such, would add clarity and transparency to Exchange 
rules making them easier to navigate and understand.
---------------------------------------------------------------------------

    \43\ See proposed Rule 971.1NYP(a)(4)(A).
    \44\ See Rule 971.1NY(b)(1)(C) (providing that ``[i]f the BBO on 
the same side as the CUBE Order updates during the Auction, the 
range of permissible executions will adjust in accordance with the 
updated BBO, unless the incoming same-side interest that would 
update the BBO would cause the Auction to conclude early pursuant to 
paragraph (c)(4)(D) of this Rule.'').
---------------------------------------------------------------------------

    [cir] Proposed Rule 971.1NYP(a)(4)(B) is identical to current Rule 
971.1NY(b)(3) and would require that CUBE Orders, once accepted, would 
never execute outside the range of permissible executions, and would 
never trade through their own limit price; further, the proposed Rule 
would provide that unrelated quotes and orders that participate in the 
Auction will never trade through their own limit price.\45\ In the 
current rule, the foregoing provision is included with circumstances 
under which CUBE Orders are rejected. Because this proposed text 
relates to the range of permissible executions for accepted CUBE Orders 
(i.e., not rejected), the Exchange believes the proposed placement of 
this provision would add clarity to the proposed Rule and would make it 
easier to navigate and understand. Other than the location of the 
proposed text, proposed Rule

[[Page 47540]]

971.1NYP(a)(4)(B) is identical to current Rule 971.1NY(b)(3).
---------------------------------------------------------------------------

    \45\ See proposed Rule 971.1NYP(a)(4)(B). See Rule 971.1NY(b)(3) 
(``CUBE Orders, once accepted, will never execute outside the range 
of permissible executions and will never trade through their own 
limit price. Unrelated quotes and orders that participate in the 
Auction will never trade through their own limit price.'').
---------------------------------------------------------------------------

    The Exchange notes that, on Pillar, current Rule 971.1NY(b)(1)(D), 
which provides that if there is a Marketable Order to sell (buy) that 
is being collared, the displayed price of the collared order minus 
(plus) one Trading Collar shall be considered the BO (BB) when 
determining the range of permissible executions,'' would no longer 
apply.\46\ The Exchange is modifying how it handles Market Orders on 
Pillar as well as the operation of the Trading Collar. As a result, 
neither current Rule 967NY (Price Protection--Orders) nor the Trading 
Collar functionality described therein will apply on Pillar and will 
instead be replaced by a modified Trading Collar.\47\
---------------------------------------------------------------------------

    \46\ See Rule 971.1NY(b)(1)(D) (providing that ``[i]f there is a 
Marketable Order to sell (buy) that has been displayed pursuant to 
Rule 967NY(a)(4)(A), the displayed price of the collared order minus 
(plus) one Trading Collar shall be considered the BO (BB) when 
determining the range of permissible executions'').
    \47\ The Exchange has submitted a separate rule filing to adopt 
Trading Collar functionality for trading on Pillar, which 
functionality is described in proposed Rule 900.3NYP(a)(4) (the 
``Pillar Trading Collar Filing''). See NYSEAmer-2023-11P. The 
functionality described in the Pillar Trading Collar Filing is 
identical to the functionality described in Arca Options Rule 6.62P-
O(a)(4).
---------------------------------------------------------------------------

    Although all CUBE Orders would be subject to the above-described 
single pricing parameter, the Exchange would continue to require price 
improvement for CUBE Orders for fewer than 50 contracts in tight (i.e., 
penny-wide) markets.\48\
---------------------------------------------------------------------------

    \48\ The Exchange notes that current Rule 971.1NY(b)(1)(B), 
which will not apply to CUBE Auctions on Pillar, requires that CUBE 
Order is for fewer than 50 contracts must be priced at least one 
cent ($0.01) better than any displayed interest on the Exchange's 
Consolidated Book. As discussed herein, the Exchange would continue 
to protect displayed Customer interest at the BBO for smaller-sized 
CUBE Orders in penny-wide markets. See proposed Rule 971.1NYP(b)(5).
---------------------------------------------------------------------------

     Proposed Rule 971.1NYP(b)(5) would provide that CUBE 
Orders for fewer than 50 contracts would be rejected when the NBBO is 
one cent ($0.01) wide, unless the Initiating Participant guarantees the 
execution of the CUBE Order to buy (sell) at a price that is equal to 
the NBO minus one cent (NBB plus one cent) and there is no displayed 
Customer interest in the Consolidated Book at the NBB (NBO).\49\
---------------------------------------------------------------------------

    \49\ See Rule 971.1NY(b)(6)(B) (providing, in relevant part, 
that CUBE Orders for fewer than 50 contracts will be rejected, among 
other reasons, when the NBBO is $0.01 wide, unless the Initiating 
Participant guarantees the execution of the CUBE Order to buy (sell) 
at a price that is equal to the NBO minus one cent (NBB plus one 
cent)).
---------------------------------------------------------------------------

    The proposed change is identical to current Rule 971.1NY(b)(6)(A) 
insofar as it would require price improvement for CUBE Orders of fewer 
than 50 contracts when the NBBO has a bid/offer spread of one cent 
($0.01). However, unlike the current rule, rather than reject CUBE 
Orders for fewer than 50 contracts when the BBO has a bid/offer spread 
of one cent ($0.01),\50\ the Exchange would only reject such orders 
when the Exchange is setting the NBBO (i.e., BBO = NBBO) and there is 
same-side (CUBE side) displayed Customer interest on the NBBO. The 
Exchange proposes to reject such smaller-sized CUBE Orders to avoid 
non-Customer interest trading ahead of displayed Customer interest.\51\
---------------------------------------------------------------------------

    \50\ See Rule 971.1NY(b)(6)(A) (providing, in relevant part, 
that CUBE Orders for fewer than 50 contracts will be rejected when 
the BBO is $0.01 wide).
    \51\ See proposed Rule 971.1NYP(b)(5).
---------------------------------------------------------------------------

    This proposed change is substantially the same as current Rule 
971.1NY(b)(6)(B), except that rather than reject all smaller-sized CUBE 
Orders when the BBO is one cent ($0.01) wide, the Exchange would only 
reject such orders to protect displayed Customer interest.\52\ This 
proposed functionality is not new and is consistent with the Exchange's 
current handling for such smaller-sized CUBE Orders in penny-wide NBBO 
markets as well as with the handling of smaller-sized paired agency 
orders on other options exchanges.\53\
---------------------------------------------------------------------------

    \52\ See proposed Rule 971.1NYP(b)(5) (``CUBE Orders for fewer 
than 50 contracts will be rejected when the NBBO is one cent ($0.01) 
wide, unless the Initiating Participant guarantees the execution of 
the CUBE Order to buy (sell) at a price that is equal to the NBO 
minus one cent (NBB plus one cent) and there is no Customer interest 
in the Consolidated Book at the NBB (NBO)).''.
    \53\ See, e.g., Cboe Rule 5.37(b)(1)(A) (providing that, when 
the NBBO width is one penny ($0.01), and the agency order is for 
less than 50 contracts, the stop price must be ``at least one 
minimum increment better than the then-current NBO (NBB) or the 
Agency Order's limit price (if the order is a limit order), 
whichever is better''; Cboe EDGX Rule 21.19 (b)(1)(A) (same); Nasdaq 
ISE, Options 3 Section 13(b)(1) (providing that, when the NBBO width 
is one penny ($0.01), and the agency order is for less than 50 
contracts, ``the Crossing Transaction must be entered at one minimum 
price improvement increment better than the NBBO on the opposite 
side of the market from the Agency Order and better than the limit 
order or quote on the Nasdaq ISE order book on the same side of the 
Agency Order).
---------------------------------------------------------------------------

CUBE Eligibility Requirements
    On Pillar, the Exchange would continue to allow all options traded 
on the Exchange to be eligible to participate in a CUBE Auction.\54\ 
Further, as proposed, the Exchange would continue to reject CUBE Orders 
(together with Contra Orders) under the following circumstances, each 
of which are identical to the reasons for rejection of such orders per 
current Rule 971.1NY(b)(2), (b)(4), and (b)(10), respectively, as 
described below.\55\
---------------------------------------------------------------------------

    \54\ See proposed Rule 971.1NYP(b) (CUBE Auction Eligibility 
Requirements), which is identical to the first sentence of current 
Rule 971.1NY(b).
    \55\ See infra regarding for discussion of the proposed Rules 
971.1NYP(a), (a)(1)(A) and (a)(4)(B) as compared to their identical 
counterparts in current Rules 971.1NY(b)(3), (b)(7), and (b)(8) 
which proposed provisions have been relocated to earlier in the 
Rule.
---------------------------------------------------------------------------

     Proposed Rule 971.1NYP(b)(2) is identical to Rule 
971.1NY(b)(2) and would provide that CUBE Orders to buy (sell) with a 
limit price below (above) the lower (upper) bound of executions 
specified in proposed Rule 971.1NYP(a)(4) (described above) would not 
be eligible to initiate an Auction and would be rejected, along with 
the Contra Order.\56\
---------------------------------------------------------------------------

    \56\ The Exchange notes that the proposed Rule differs from the 
current rule in that it includes an updated cross-reference to the 
permissible range of executions, which difference is immaterial 
because it does not impact functionality. See proposed Rule 
971.1NYP(b)(2).
---------------------------------------------------------------------------

     Proposed Rule 971.1NYP(b)(3) is identical to Rule 
971.1NY(b)(4) and would provide that CUBE Orders submitted before the 
opening of trading would not be eligible to initiate an Auction and 
would be rejected, along with the Contra Order.
     Proposed Rule 971.1NYP(b)(7) is identical to Rule 
971.1NY(b)(10) and would provide that CUBE Orders submitted during a 
trading halt are not eligible to initiate an Auction and would be 
rejected, along with the Contra Order.
    In addition, the proposed Rule would continue to reject CUBE Orders 
(together with Contra Orders) under the following circumstances, which 
differ slightly the from the current rule as follows.\57\
---------------------------------------------------------------------------

    \57\ See infra for discussion of proposed Rule 971.1NYP(b)(5) as 
compared with current Rule 971.1NY(b)(6) (regarding requiring price 
improvement for CUBE Orders for fewer than 50 contracts under 
certain circumstances in a penny-wide market).
---------------------------------------------------------------------------

     Proposed Rule 971.1NYP(b)(4) would reject CUBE Orders 
submitted when there is insufficient time in the trading session to 
conduct an Auction. However, whereas the current rule provides that 
CUBE Orders are rejected if submitted during ``the final second of the 
trading session,'' the proposed Rule would provide that CUBE Orders 
would be rejected if submitted ``when there is insufficient time for an 
Auction to run the full duration of the Response Time Interval.'' \58\ 
The Exchange believes that the proposed change would better account for 
the fact that a CUBE Auction may last for as little as 100 
milliseconds--well below the permitted maximum of one second as stated 
in the

[[Page 47541]]

current rule.\59\ The Exchange also proposes to remove the superfluous 
reference to ``in the affected series,'' which would streamline the 
proposed Rule text.\60\ The Exchange proposes to make the same change 
to current Rule 971.1NY(b)(5).\61\ The Exchange believes that this 
proposed change (to the current rule and proposed Rule) would add 
clarity, transparency, and internal consistency to Exchange rules 
regarding when CUBE Orders may be rejected--particularly to market 
participants submitting CUBE Orders late in the trading day.\62\
---------------------------------------------------------------------------

    \58\ Compare proposed Rule 971.1NYP(b)(4) with Rule 
971.1NY(b)(5).
    \59\ See, e.g., Rule 971.1NY(c)(2)(B) (providing in relevant 
part, that ``[t]he minimum/maximum parameters for the Response Time 
Interval will be no less than 100 milliseconds and no more than one 
(1) second.''). See also proposed Rule 971.1NYP(c)(1)(B) (which 
provides identical parameters), as discussed supra.
    \60\ See proposed Rule 971.1NY(b)(4). The Exchange notes that 
this proposed change is applicable to all CUBE Auctions--whether 
conducted on Pillar or not. Compare proposed Rule 971.1NYP(b)(4) 
(``CUBE Orders submitted when there is insufficient time for an 
Auction to run the full duration of the Response Time Interval are 
not eligible to initiate an Auction and shall be rejected, along 
with the Contra Order'') with current Rule 971.1NY(b)(5) (``CUBE 
Orders submitted during the final second of the trading session in 
the affected series are not eligible to initiate an Auction and 
shall be rejected, along with the Contra Order.'').
    \61\ See proposed Rule 971.1NY(b)(5).
    \62\ See supra for discussion of proposed Rule 971.1NYP(b)(5) as 
compared with current Rule 971.1NY(b)(6) (regarding requiring price 
improvement for CUBE Orders for fewer than 50 contracts under 
certain circumstances in a penny-wide market).
---------------------------------------------------------------------------

     Proposed Rule 971.1NYP(b)(6) would provide that the 
Exchange would reject CUBE Orders submitted when the NBBO is 
crossed.\63\
---------------------------------------------------------------------------

    \63\ See proposed Rule 971.1NYP(b)(6).
---------------------------------------------------------------------------

     However, unlike the current rule, the Exchange would no 
longer reject CUBE Orders when the NBBO is locked.\64\ The Exchange 
believes this more permissive standard, which is the same on other 
options exchanges, would allow more CUBE Auctions to occur on Pillar, 
thus increasing trading opportunities.\65\
---------------------------------------------------------------------------

    \64\ Compare proposed Rule 971.1NYP(b)(6) (``[i]f CUBE Order is 
submitted when the NBBO is crossed, it will be rejected'') with Rule 
971.1NY(b)(9) (``[i]f the NBBO is locked or crossed when a CUBE 
Order is submitted, it will be rejected.''). The Exchange notes that 
proposed Rule reorganizes this proposed provision to more clearly 
convey the concept that, on Pillar, CUBE Orders submitted when the 
NBBO is crossed would be rejected.
    \65\ See, e.g., Cboe Rule 5.37(a)(7) (providing that, ``[t]he 
Initiating TPH may not submit an Agency Order [to Cboe's AIM] if the 
NBBO is crossed''); Cboe EDGX Rule 21.19(a)(7) (providing that, 
``[a]n Initiating Member may not submit an Agency Order [to Cboe 
EDGX's AIM] if the NBBO is crossed'').
---------------------------------------------------------------------------

    Finally, on Pillar, the Exchange proposes to allow CUBE Orders in 
the same series as orders exposed pursuant to Rule 994NY (Broadcast 
Order Liquidity Delivery Mechanism) (or ``BOLD'') to occur 
simultaneously. This would be new on Pillar as current functionality 
limitations dictate that CUBE Orders in the same series as orders 
exposed by BOLD are rejected.\66\ As such, the proposed Rule would not 
include information contained in current Commentary .04 to Rule 
971.1NY. The Exchange believes this proposed enhancement to CUBE 
Auction functionality--that the Pillar platform will accommodate both 
such orders in the same series at the same time--would allow more CUBE 
Orders to be accepted, which improved opportunities for price 
improvement benefits all market participants.\67\
---------------------------------------------------------------------------

    \66\ See Rule 971.1NY, Commentary .04 (providing that ``[a] CUBE 
Order will be rejected if it is in the same series as an order 
exposed pursuant to Rule 994NY (Broadcast Order Liquidity Delivery 
Mechanism).'').
    \67\ Consistent with the proposed functionality, the Exchange 
would no longer end a CUBE Auction early upon receipt of an order 
exposed in the BOLD mechanism that is in the same series as the CUBE 
Order per Rule 971.1NY(c)(4)(F). See discussion, infra, regarding 
proposed Rule 971.1NYP(c)(3) (Early Conclusion of Auction).
---------------------------------------------------------------------------

    On Pillar, the Exchange proposes to continue to allow Initiating 
Participants to guarantee the CUBE Order with a specified stop price or 
by utilizing auto match or auto-match limit.\68\
---------------------------------------------------------------------------

    \68\ See proposed Rule 971.1NYP(b)(1), which is identical to the 
first sentence of Rule 971.1NY(c)(1).
---------------------------------------------------------------------------

    Proposed Rule 971.1NYP(b)(1)(A), like current Rule 
971.1NY(c)(1)(A), would describe the requirements for a ``stop price,'' 
which are identical to current Rule 971.1NY(c)(1)(A), except as noted 
below.
     Proposed Rule 971.1NYP(b)(1)(A) would describe the ``stop 
price,'' except that unlike the current rule but consistent with 
current functionality, the proposed Rule would explicitly state that 
the stop price is ``the price at which the Initiating Participant 
guarantees the CUBE Order'', which stop price ``must be executable 
against the initiating price of the Auction.'' \69\ The Exchange 
believes that specifying that the stop price must be ``executable'' 
against the initiating price is a more succinct way of stating the 
(current rule) requirement that such stop price must be ``equal to or 
below (above) the initiating price of the Auction'' for a CUBE Order to 
buy (sell).\70\ The Exchange believes that this proposed distinction is 
immaterial because the functional requirement set forth in the proposed 
Rule is the same the current requirement albeit stated differently.
---------------------------------------------------------------------------

    \69\ See proposed Rule 971.1NYP(b)(1)(A). The proposed 
description would align with the description of a stop price for a 
Complex CUBE Auction. See, e.g., Rule 971.2NY(b)(1)(A) (describing 
the stop price as ``the price at which the Initiating Participant 
guarantees the Complex CUBE Order'', which stop price ``must be 
executable against the initiating price of the Auction'').
    \70\ See Rule 971.1NY(c)(1)(A).
---------------------------------------------------------------------------

     Proposed Rule 971.1NYP(b)(1)(A) would also provide that 
(identical to current Rule 971.1NY(c)(1)(A)):
    [cir] The stop price for a CUBE Order to buy (sell) that is below 
(above) the lower (upper) bound of the range of permissible executions 
would be repriced to the lower (upper) bound; and
    [cir] If the stop price specified for a CUBE Order to buy (sell) is 
above (below) the initiating price, such stop price would render such 
CUBE Order ineligible to initiate an Auction and both the CUBE Order 
and the Contra Order would be rejected.
    Proposed Rule 971.1NYP(b)(1)(B) is identical to Rule 
971.1NY(c)(1)(B) and would provide that when an Initiating Participant 
utilizes ``auto match'' for a CUBE Order to buy (sell) the Contra Order 
would automatically match the price and size of all RFR Responses that 
are lower (higher) than the initiating price and within the range of 
permissible executions.
    Proposed Rule 971.1NYP(b)(1)(C), like current Rule 
971.1NY(c)(1)(C), would describe the requirements for an ``auto-match 
limit price,'' which are identical to current Rule 971.1NY(c)(1)(C), 
except as noted below.
     Proposed Rule 971.1NYP(b)(1)(C) would describe the ``auto-
match limit price,'' except that unlike the current rule but consistent 
with current functionality, the proposed Rule would explicitly state 
that the auto-match limit price is ``the best price at which the 
Initiating Participant is willing to trade with the CUBE Order,'' which 
auto-match limit price ``must be executable against the initiating 
price of the Auction.'' \71\
---------------------------------------------------------------------------

    \71\ See proposed Rule 971.1NYP(b)(1)(C). The proposed 
description would align with the description of an auto-match limit 
price for a Complex CUBE Auction. See, e.g., Rule 971.2NY(b)(1)(B) 
(describing the auto-match limit price as the most aggressive price 
(i.e., best price) at which the Initiating Participant guarantees is 
willing to trade with the CUBE Order, which auto-match limit price 
``must be executable against the initiating price of the 
Auction.'').
---------------------------------------------------------------------------

     Proposed Rule 971.1NYP(b)(1)(C), like the current rule, 
would provide:
    [cir] That the Contra Order for a CUBE Order to buy (sell) would 
automatically match the price and size of all RFR Responses that are 
priced lower (higher) than the initiating price down (up) to the auto-
match limit price; \72\ and
---------------------------------------------------------------------------

    \72\ The Exchange notes that the proposed Rule explains the same 
concept but uses slightly different wording than is used in the 
current rule. See Rule 971.1NY(c)(1)(C) (``For a CUBE Order to buy 
(sell), the Initiating Participant may specify an ``auto-match limit 
price'' that is equal to or below (above) the initiating price of 
the Auction, and the Contra Order may trade with the CUBE Order at 
prices that are lower (higher) than the initiating price down (up) 
to the auto-match limit price.'').

---------------------------------------------------------------------------

[[Page 47542]]

    [cir] That an auto-match limit price specified for a CUBE Order to 
buy (sell) that is below (above) the lower (upper) bound of the range 
of permissible executions would be repriced to the lower (upper) bound.
     Further, the last sentence of proposed Rule 
971.1NYP(b)(1)(C) is new and would provide that an auto-match limit 
price specified for a CUBE Order to buy (sell) that is above (below) 
the initiating price would not be eligible to initiate an Auction and 
both the CUBE Order and the Contra Order would be rejected. The 
Exchange notes that this proposed functionality (to reject the CUBE) 
based on the auto-match limit price would align with how the Exchange 
currently rejects and proposes to reject a CUBE based on the stop 
price--per Rule 971.1NY(c)(1)(A)) and proposed Rule 971.1NYP(b)(1)(A)), 
respectively. As such, the Exchange believes that this proposed change 
would add clarity, transparency, and internal consistency to Exchange 
rules.
CUBE Auction Process: Request for Responses and Response Time Interval
    On Pillar, the Exchange proposes to utilize the same process for 
announcing a CUBE Auction and soliciting trading interest to 
potentially interact with the CUBE Order.
     Proposed Rule 971.1NYP(c) is identical to the latter 
portion of the first sentence of Rule 971.1NY(c) and would provide that 
once an Auction has commenced, the CUBE Order (as well as the Contra 
Order) may not be cancelled or modified.
     Proposed Rule 971.1NYP(c)(1)(A) is identical to Rule 
971.1NY(c)(2)(A) and would provide that upon receipt of a CUBE Order, 
the Exchange would send a ``Request for Responses'' or ``RFR'' to all 
ATP Holders who subscribe to receive RFR messages, which RFR would 
identify the series, the side and size of the CUBE Order, as well as 
the initiating price. On Pillar, however, the RFR would also include an 
AuctionID that would identify each CUBE Auction, which would be a new 
feature.\73\ The Exchange notes that other options exchanges likewise 
include an AuctionID on the request for response to the price 
improvement auction and this proposed change is therefore not new or 
novel.\74\
---------------------------------------------------------------------------

    \73\ See proposed Rule 971.1NYP(c)(1)(A).
    \74\ See, e.g., Cboe Rule 5.37(c)(2) (providing that each ``AIM 
Auction Notification Message'' will include an ``AuctionID'').
---------------------------------------------------------------------------

     Proposed Rule 971.1NYP(c)(1)(B) is identical to Rule 
971.1NY(c)(2)(B) insofar as it provides that the ``Response Time 
Interval'' would refer to the time period during which responses to the 
RFR may be entered, which period would be no less than 100 milliseconds 
and no more than one (1) second. Currently, the RTI lasts for ``a 
random period of time within parameters determined by the Exchange and 
announced by Trader Update.'' \75\ Rather than a random period of time, 
the Exchange proposes that on Pillar, the Response Time Interval would 
instead be a set duration of time.\76\ This proposed functionality of a 
fixed duration for a price improvement auction is identical to 
functionality available on other options exchanges.\77\
---------------------------------------------------------------------------

    \75\ See Rule 971.1NY(c)(2)(B). See Trader Update, January 27, 
2022 (announcing that, beginning February 28, 2022, the randomized 
timer would have a minimum of 100 milliseconds and a maximum of 105 
milliseconds), available at, https://www.nyse.com/trader-update/history#110000409951.
    \76\ See Rule 971.1NYP(c)(1)(B).
    \77\ See, e.g., Nasdaq ISE, Options 3 Section 13(c)(1) 
(providing that, Nasdaq ISE will designate via an Options Trader 
Alert an ``Exposure Period'' of no less than 100 milliseconds and no 
more than 1 second). See also Cboe Rule 5.37(c)(3) (providing that 
the ``AIM Auction period'' is a period of time determined by the 
Exchange, which may be no less than 100 milliseconds and no more 
than 3 seconds).
---------------------------------------------------------------------------

    Proposed Rule 971.1NYP(c)(1)(C) is identical to Rule 
971.1NY(c)(2)(C) insofar as it would provide that any ATP Holder may 
respond to the RFR, provided such response is properly marked 
specifying the price, size and side of the market (``RFR 
Response'').\78\ The proposed Rule would also provide that, consistent 
with current functionality (although not explicitly stated), any RFR 
Response to a CUBE Order to buy (sell) priced below (above) the lower 
(upper) bound of executions would be repriced to the lower (upper) 
bound of executions and is eligible to trade in the Auction at such 
price.\79\
---------------------------------------------------------------------------

    \78\ The Exchange notes that the proposed Rule includes the non-
substantive change to add ``the'' before the word ``price,'' which 
would add clarity and transparency to Exchange rules.
    \79\ See proposed Rule 971.1NYP(c)(1)(C). The proposed Rule 
would align the Exchange's treatment of RFR Responses to Complex 
CUBE Orders. See, e.g., Rule 971.2NY(c)(1)(C) (providing, in 
relevant part, that any RFR Response that that crosses the same-side 
CUBE BBO will be eligible to trade in the Complex CUBE Auction at a 
price that locks the same-side CUBE BBO).
---------------------------------------------------------------------------

RFR Responses: GTX Orders
    On Pillar, the Exchange would continue to accept GTX Orders as RFR 
Responses and would continue to impose the following identical 
requirements for such orders to be eligible to trade in the CUBE 
Auction.
     Proposed Rule 971.1NYP(c)(1)(C)(i), like the current rule, 
would provide that ATP Holders may respond to RFRs with GTX Orders, 
which are non-routable orders that have a time-in-force contingency for 
the Response Time Interval and which orders must specify price, size 
and side of the market.\80\
---------------------------------------------------------------------------

    \80\ Compare proposed Rule 971.1NYP(c)(1)(C)(i) with Rule 
971.1NY(c)(2)(C)(i).
---------------------------------------------------------------------------

     Proposed Rule 971.1NYP(c)(1)(C)(i)(a), like the current 
rule, would provide that GTX Orders would not be displayed on the 
Consolidated Book and would not be disseminated to any 
participants.\81\
---------------------------------------------------------------------------

    \81\ Compare proposed Rule 971.1NYP(c)(1)(C)(i)(a) with Rule 
971.1NY(c)(2)(C)(i)(a).
---------------------------------------------------------------------------

     Proposed Rule 971.1NYP(c)(1)(C)(i)(b), like the current 
rule, would provide that the minimum price increment for GTX Orders 
would be one cent ($0.01), regardless of the MPV for the series 
involved in the Auction.\82\
---------------------------------------------------------------------------

    \82\ Compare proposed Rule 971.1NYP(c)(1)(C)(i)(b) with Rule 
971.1NY(c)(2)(C)(i)(b).
---------------------------------------------------------------------------

     Proposed Rule 971.1NYP(c)(1)(C)(i)(d), like the current 
rule, would provide that GTX Orders may be cancelled or modified.\83\
---------------------------------------------------------------------------

    \83\ Compare proposed Rule 971.1NYP(c)(1)(C)(i)(d) with Rule 
971.1NY(c)(2)(C)(i)(d).
---------------------------------------------------------------------------

     Proposed Rule 971.1NYP(c)(1)(C)(i)(f), like the current 
rule, would provide that GTX Orders priced below (above) the lower 
(upper) bound of executions for a CUBE Order to buy (sell) would be 
repriced to the lower (upper) bound of permissible executions per 
proposed Rule 971.1NYP(a)(4) (described above).\84\
---------------------------------------------------------------------------

    \84\ Compare proposed Rule 971.1NYP(c)(1)(C)(i)(f) with Rule 
971.1NY(c)(2)(C)(i)(f). The Exchange notes that the proposed Rule 
differs from the current rule in that it includes an updated cross-
reference to the permissible range of executions, which difference 
is immaterial because it does not impact functionality
---------------------------------------------------------------------------

    In addition to continuing the foregoing requirements for GTX 
Orders, the Exchange proposes to modify or clarify the operation of GTX 
Orders on Pillar as follows.\85\
---------------------------------------------------------------------------

    \85\ The Exchange does not propose to specify in the proposed 
Rule that ``GTX Orders with a size greater than the size of the CUBE 
Order will be capped at the size of the CUBE Order,'' as set forth 
in current Rule 971.1NY(c)(2)(C)(i)(c). Instead, consistent with 
Pillar Rule 964NYP and as discussed below, the only non-Customer GTX 
Orders would be capped for purposes of pro rata allocation, whereas 
Customer GTX Orders would trade with the CUBE Order based on time. 
See proposed Rule 971.1NYP(c)(4)(B), as discussed infra.
---------------------------------------------------------------------------

     The Exchange proposes new functionality on Pillar that 
would permit senders of GTX Orders the option to include an AuctionID 
to signify the CUBE Order with which

[[Page 47543]]

such GTX Order would like to trade.\86\ The Exchange believes that this 
proposed functionality, which is also available on other options 
exchanges, would allow market participants to have more control over 
their trading interest and may result in improved competition for price 
improvement in each Auction.\87\
---------------------------------------------------------------------------

    \86\ See proposed Rule 971.1NYP(c)(1)(C)(i) (providing in 
relevant part that ``GTX Orders may include an AuctionID to respond 
to a specific CUBE Auction.''). Should the GTX Order include an 
apparently erroneous AuctionID (e.g., a GTX Order to buy includes an 
AuctionID for a CUBE Order to buy), the Exchange would reject such 
GTX Order even if there are other CUBE Auctions (e.g., on the 
contra-side with a different AuctionID) with which that GTX Order 
could have traded.
    \87\ See, e.g., Cboe Rule 5.37(c)(5) (providing that the ``AIM 
Auction Responses'' may include, among other things, ``the 
AuctionID'').
---------------------------------------------------------------------------

     The Exchange proposes to describe how GTX Orders will be 
treated on Pillar consistent with new Pillar Rule 964NYP (described in 
detail below).\88\ In short, on Pillar, options trading interest is 
prioritized and allocated in one of three categories: Priority 1--
Market Orders; Priority 2--Display Orders; and Priority 3--Non-Display 
Orders.\89\ The proposed Rule would provide that, although such orders 
are not disseminated or displayed (as described above), for purposes of 
trading and allocation with the CUBE Order, GTX Orders would be ranked 
and prioritized as Priority 2--Display Orders per Pillar Rule 
964NYP(e).\90\ The Exchange believes that this proposed change would 
add clarity, transparency and internal consistency to Exchange rules 
and would make clear to market participants responding to CUBE Auctions 
with GTX Orders how such interest will be prioritized on Pillar.
---------------------------------------------------------------------------

    \88\ See discussion of Pillar Rule 964NYP, infra. See also 
American Pillar Priority Filing (describing the Pillar Priority 
Rules, which govern priority and allocation rule for options trading 
on Pillar).
    \89\ See Pillar Rule 964NYP(e) (providing 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'' and that ``[i]f, 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.'').
    \90\ See proposed Rule 971.1NY(c)(1)(C)(i)(a) (``GTX Orders will 
not be displayed or disseminated to any participants. For purposes 
of trading and allocation with the CUBE Order, GTX Orders will be 
ranked and prioritized with same-priced Limit Orders as Priority 2--
Display Orders, per [Pillar] Rule 964NYP(e).'').
---------------------------------------------------------------------------

     The Exchange also proposes to modify the operation of GTX 
Orders on Pillar by restricting the interest with which such orders may 
trade. Currently, the second sentence of Rule 971.1NY(c)(2)(C)(i)(a) 
provides that a GTX Order that is not fully executed as provided for in 
current Rule 971.1NY(c)(4) and (c)(5)--which paragraphs permit GTX 
Orders to execute with other interest available at the conclusion of 
the Auction once such orders have executed with the CUBE Order to the 
extent possible--before cancelling.\91\ On Pillar, the Exchange 
proposes that GTX Orders, which are submitted for the purpose of 
participating in a CUBE Auction, would execute solely with the CUBE 
Order to the extent possible and then cancel.\92\ On Pillar, and 
contrary to existing functionality, a GTX Order would not execute with 
any non-CUBE Order Auction interest before cancelling.
---------------------------------------------------------------------------

    \91\ See also Rule 971.1NY(c)(3), (c)(4), and (c)(5) (providing 
that GTX Orders may be eligible to trade with Auction interest 
(other than the CUBE Order) before cancelling).
    \92\ See proposed Rule 971.1NYP(c)(1)(C)(i)(c).
---------------------------------------------------------------------------

     The Exchange also proposes to modify the circumstances 
under which a GTX Orders would be rejected. Currently, Rule 
971.1NY(c)(2)(C)(i)(e) provides that GTX Orders on the same side as the 
CUBE Order would be rejected. On Pillar, the Exchange proposes that GTX 
Orders would be rejected if such GTX Order is priced higher (lower) 
than the initiating price of a CUBE Order to buy (sell) or if such GTX 
Order is submitted when there is no contra-side CUBE Auction being 
conducted.\93\ Because, as discussed infra, on Pillar, the Exchange 
would allow more than one Auction in a given series to occur at once--
which simultaneous Auctions could be on both sides of the market, the 
Exchange does not propose to reject GTX Orders submitted on the same 
side of a CUBE Order (as it does today) but would instead expand this 
rejection reason to any time there is no contra-side CUBE Auction 
occurring when the GTX Order is submitted.\94\ The Exchange believes 
this proposed change would provide increased opportunities to solicit 
price-improving auction interest.
---------------------------------------------------------------------------

    \93\ See proposed Rule 971.1NYP(c)(1)(C)(i)(e).
    \94\ See id. See also Rule 971.1NY(c)(2)(C)(i)(e) (``GTX Orders 
on the same side of the market as the CUBE Order shall be 
rejected.''). The Exchange notes that it will reject a GTX Order 
that includes an AuctionID for a CUBE Order that is on the same side 
of the market as such GTX Order even if there are contra-side CUBE 
Auctions (with a different AuctionID) with which that GTX Order 
could have traded.
---------------------------------------------------------------------------

RFR Responses: Unrelated Quotes and Orders
    Consistent with current functionality, the Exchange proposes to 
treat as RFR Responses certain quotes or orders that are eligible to 
trade in a CUBE Auction, which treatment is identical to current Rule 
971.1NY(c)(2)(C)(ii)(a)-(c).
     Proposed Rule 971.1NYP(c)(1)(C)(ii) would provide that the 
Exchange will treat as RFR Responses quotes and orders that are on the 
opposite side of the market in the same series as the CUBE Order that 
are not marked GTX, that are received during the Response Time Interval 
or resting in the Consolidated Book when the Auction commences, and 
that are eligible to participate within the range of permissible 
executions specified for the Auction pursuant to proposed paragraph 
(a)(4) of this Rule.\95\
---------------------------------------------------------------------------

    \95\ Compare proposed Rule 971.1NYP(c)(1)(C)(ii) with Rule 
971.1NYP(c)(2)(C)(ii). The Exchange notes that the proposed Rule 
differs from the current rule in that it includes an updated cross-
reference to the permissible range of executions, which difference 
is immaterial because it does not impact functionality.
---------------------------------------------------------------------------

     Proposed Rule 971.1NYP(c)(1)(C)(ii)(a) would provide that 
quotes and orders received during the Response Time Interval that are 
not marketable against the NBBO and are not marked GTX would be posted 
to the Consolidated Book.\96\ The Exchange proposes to qualify this 
provision by noting that an order that included instructions to cancel 
(i.e., an IOC), for example, would be processed accordingly and would 
not post to the Consolidated Book.\97\ The Exchange believes that this 
proposed clarification would add clarity, transparency, and internal 
consistency to Exchange rules.
---------------------------------------------------------------------------

    \96\ Compare proposed Rule 971.1NYP(c)(1)(C)(ii)(a) with Rule 
971.1NYP(c)(2)(C)(ii)(a).
    \97\ See Rule 971.1NYP(c)(2)(C)(ii)(a).
---------------------------------------------------------------------------

     Proposed Rule 971.1NYP(c)(1)(C)(ii)(b) would provide that 
quotes and orders received during the Response Time Interval that are 
on the same side as the CUBE Order to buy (sell) and are priced higher 
(lower) than the initiating price that would post to the Consolidated 
Book will result in an early conclusion of the Auction pursuant to 
proposed paragraph (c)(3) of this Rule as discussed below.\98\
---------------------------------------------------------------------------

    \98\ Compare proposed Rule 971.1NYP(c)(1)(C)(ii)(b) with Rule 
971.1NY(c)(2)(C)(ii)(b). The Exchange notes that the proposed Rule 
differs from the current rule in that it includes an updated cross-
reference to the permissible range of executions, which difference 
is immaterial because it does not impact functionality.
---------------------------------------------------------------------------

     Proposed Rule 971.1NYP(c)(1)(C)(ii)(c) would provide that 
quotes and orders that are not marked GTX must be priced in the MPV for 
the series in the Auction and any such quotes or non-GTX orders 
submitted with a one cent MPV when the series has either $0.05 or $0.10 
MPV would be rejected as invalid.\99\
---------------------------------------------------------------------------

    \99\ Compare proposed Rule 971.1NYP(c)(1)(C)(ii)(c) with Rule 
971.1NYP(c)(2)(C)(ii)(c). The Exchange notes that the proposed Rule 
differs from the current rule in that it includes reference to 
``five cents'' and ``ten cents'' immediately before each numerical 
indication of the applicable MPV, which modification the Exchange 
believes is immaterial as it would not alter functionality but would 
instead add clarity, transparency, and internal consistency to 
Exchange rules.

---------------------------------------------------------------------------

[[Page 47544]]

Concurrent CUBE Auctions \100\
---------------------------------------------------------------------------

    \100\ The Exchange notes that the proposal to allow multiple 
single-leg CUBE Auctions to run concurrently on Pillar is distinct 
from the current (and proposed) functionality that permits a single-
leg Auction in an option series to run concurrent with a Complex 
CUBE Auction in the same series. See Commentary .01 to Rule 971.1NY 
and proposed Commentary .01 to Rule 971.1NYP (discussed below).
---------------------------------------------------------------------------

    The Exchange proposes to enhance functionality on Pillar by 
allowing more than one CUBE Auction in the same series to run 
concurrently.\101\ The Exchange proposes that if there are multiple 
CUBE Auctions in a series that are running concurrently, such Auctions 
would conclude sequentially, based on the time each CUBE Auction was 
initiated, unless an Auction concludes early, per proposed paragraph 
(c)(3) of this Rule (discussed below).\102\ As further proposed, at the 
time each CUBE Auction concludes, the CUBE Order would be allocated 
against all eligible RFR Responses available at the time of 
conclusion.\103\ In the event there are multiple Auctions underway that 
are each terminated early, such Auctions would be processed 
sequentially based on the time each CUBE Auction was initiated.\104\ 
The Exchange believes that this proposed functionality would allow more 
CUBE Auctions in the same series to be conducted, thereby increasing 
opportunities for price improvement on the Exchange to the benefit of 
all market participants.
---------------------------------------------------------------------------

    \101\ See proposed Rule 971.1NYP(c). See Rule 971.1NY(c) 
(providing that ``[o]nly one Auction may be conducted at a time in 
any given series.'').
    \102\ As discussed infra, a CUBE Auction may conclude early 
(i.e., before the end of the Response Time Interval) because of 
certain trading interest that arrives during the Auction or in the 
event of a trading halt in the underlying security while the Auction 
is in progress. See proposed Rule 971.1NYP(c)(2).
    \103\ See proposed Rule 971.1NYP(c)(2).
    \104\ See id.
---------------------------------------------------------------------------

    In addition, as discussed below, the proposal to add concurrent 
auctions would also prevent the early end of a CUBE Auction in progress 
when the Exchange receives a new CUBE Order in the same series.\105\ By 
eliminating this early end scenario, the Exchange would increase the 
likelihood that an Auction may run for the full Response Time Interval 
thus affording more time and opportunity for the arrival of price-
improving interest to the benefit of investors. The Exchange notes that 
allowing more than one price improvement auction at a time in the same 
series for paired agency orders of 50 or more contracts is not new or 
novel and is current functionality on other options exchanges.\106\
---------------------------------------------------------------------------

    \105\ See Rule 971.1NY(c)(4)(A).
    \106\ See, e.g., Cboe Rule 5.37(c)(1) (providing that multiple 
price-improvement auctions in the same series for agency orders of 
50 contracts or more can run concurrently and will be processed 
sequentially, including if all such auctions are ended early and 
providing that if only one such auction ends early it will be 
allocated when it ends); EDGX Rule 21.19(c)(1) (same). The Exchange 
does not propose to limit the concurrent auction functionality to 
CUBE Orders of 50 or more and would allow concurrent auctions for 
CUBE Orders of any size (i.e., including for CUBE Orders for fewer 
than 50 contracts). The Exchange believes this extension of this 
concurrent auction functionality to smaller-sized CUBE Orders is 
non-controversial because it should not raise any issues that differ 
from those previously considered when other options exchanges 
adopted this functionality for larger-sized agency orders submitted 
to price improvement auctions.
---------------------------------------------------------------------------

    The proposal to allow simultaneous Auctions in the same series for 
CUBE Orders of fewer than 50 contracts would benefit investors because 
it would afford smaller-sized CUBE Orders increased opportunity to 
solicit price-improving auction interest--including because receipt of 
a new CUBE Order would no longer cause the Auction in progress to end 
early.\107\ The Exchange further believes that this proposed change 
would provide additional benefits to Customers, as smaller-sized CUBE 
Orders tend to represent retail interest, and could improve the 
Customer experience on the Exchange by increased trading opportunities 
in the CUBE Auction. As discussed above, the Exchange would continue to 
protect smaller-sized CUBE Orders in penny-wide markets by requiring 
the maximum available price improvement for such orders (i.e., one 
cent) and rejecting such orders in penny-wide markets when price 
improvement is not possible. These protections would remain when the 
proposed concurrent Auctions are occurring.\108\ Thus, the Exchange 
believes this proposed change should allow the Exchange to better 
compete for auction-related order flow that may lead to an increase in 
Exchange volume, while continuing to ensure that displayed Customer 
interest on the Consolidated Book is protected, to the benefit of all 
market participants.
---------------------------------------------------------------------------

    \107\ See, e.g., proposed Rule 971.1NYP(c)(3) (setting forth the 
sole early end scenario on Pillar).
    \108\ See, e.g., proposed Rule 971.1NYP(b)(5). See also SEC 
Approval of CUBE Pilot (focusing solely on guaranteeing price 
improvement to CUBE Orders for fewer than 50 contracts and making no 
mention of restriction on concurrent auctions for such smaller-sized 
CUBE Orders).
---------------------------------------------------------------------------

    The Exchange believes that the Pillar trading platform has 
sufficient capacity to process a large volume of concurrent Auctions 
for CUBE Orders of any size, including for CUBE Orders of fewer than 50 
contracts.
Conclusion of Auction
    As is the case today, on Pillar, a CUBE Auction would conclude at 
the end of the Response Time Interval, unless there is a trading halt 
in the affected series or if the CUBE Auction ends pursuant to proposed 
paragraph (c)(3) of this Rule (discussed below).\109\ As further 
proposed, at the conclusion of the Auction, including if there is a 
trading halt in the affected series, the CUBE Order would execute 
pursuant to proposed paragraph (c)(4) of this Rule (discussed 
below).\110\ The Exchange also proposes that, after the conclusion of 
the Auction, the residual RFR Responses (excluding GTX Orders) would be 
processed in accordance with Pillar Rule 964NYP (Order Ranking, 
Display, and Allocation).\111\ This proposed rule is consistent with 
current CUBE functionality, except that current Rule 964NY would no 
longer govern priority and allocation of any portion of RFR Responses 
(not marked GTX) that remain after any execution with the CUBE 
Order.\112\
---------------------------------------------------------------------------

    \109\ See proposed Rule 971.1NYP(c)(2), which is identical to 
current Rule 971.1NYP(c)(3), except for the updated cross-reference 
to the early conclusion section of the proposed Rule.
    \110\ See proposed Rule 971.1NYP(c)(2), which is identical to 
current Rule 971.1NYP(c)(3), except for the updated cross-reference 
to the order allocation section of the proposed Rule.
    \111\ See proposed Rule 971.1NYP(c)(2).
    \112\ See Rule 971.1NY(c)(5)(C) (``After the CUBE Order has been 
executed, any remaining RFR Responses not marked GTX will be 
processed in accordance with Rule 964NY Order Display and 
Priority.'').
---------------------------------------------------------------------------

Early Conclusion of Auction
    On Pillar, the Exchange proposes to reduce the number of scenarios 
that would cause a CUBE to end early (i.e., before the end of the 
Response Time Interval) based on trading interest that arrives during 
the Auction. Currently, there are six scenarios that would cause an 
Auction to end early.\113\ On Pillar, the Exchange proposes that only 
one such ``early end'' scenario would apply. As proposed, and 
consistent with Rule 971.1NY (c)(4)(D), a CUBE Auction would conclude 
early if, during the Auction, the Exchange receives an unrelated non-
marketable order or quote on the same-side of the market as the CUBE 
Order to buy (sell) that would adjust the lower (upper) bound of the 
range of permissible executions to be higher (lower) than the 
initiating

[[Page 47545]]

price.'' \114\ In addition to being consistent with current 
functionality, this early end scenario is consistent with functionality 
available on other options exchanges.\115\
---------------------------------------------------------------------------

    \113\ See Rule 971.1NY(c)(4)(A)-(F). See proposed Rule 
971.1NYP(c)(3) (which early end scenario is the same as set forth in 
current Rule 971.1NY(c)(4)(D), as discussed infra).
    \114\ See proposed Rule 971.1NYP(c)(3). The Exchange notes that 
this early end scenario covers instances in which the entire size of 
the incoming interest is non-marketable on arrival as well as 
instances where a portion of the incoming interest is marketable, 
and trades on arrival, but the untraded balance is non-marketable. 
In both instances, the non-marketable interest would post to the 
Consolidated Book thereby adjusting the range of permissible 
executions.
    \115\ See, e.g., Rule 971.1NY (c)(4)(D), Nasdaq ISE, Options 3 
Section 13(c)(5)(i) (providing that an auction would end early ``any 
time the Exchange best bid or offer improves beyond the price of the 
Crossing Transaction on the same side of the market as the Agency 
Order'').
---------------------------------------------------------------------------

    On Pillar, unlike per the current rule, the following scenarios 
would not cause the early end of a CUBE Auction.
     First, because the Exchange proposes to allow concurrent 
auctions (as previously discussed), the Exchange would no longer end a 
CUBE Auction early based on the arrival of a new CUBE Order.\116\
---------------------------------------------------------------------------

    \116\ See Rule 971.1NY(c)(4)(A). See proposed Rule 971.1NYP(c) 
(providing for concurrent CUBE Auctions at the same time in the same 
series).
---------------------------------------------------------------------------

     Second, because the Exchange proposes to allow CUBE 
Auctions in the same series as orders exposed in the BOLD mechanism (as 
discussed, supra), there is no reason to end an Auction early based on 
the arrival of such exposed order.\117\
---------------------------------------------------------------------------

    \117\ See Rule 971.1NY(c)(4)(F). As discussed, supra, on Pillar, 
the Exchange would no longer reject (as it does today) a CUBE Order 
in the same series as an order exposed by the BOLD Mechanism.
---------------------------------------------------------------------------

     In addition, the Exchange would not end an Auction early 
based upon interest that arrives during the Auction (on either side of 
the market) that is marketable against the RFR Responses, the NBBO or 
BBO (if not routable).\118\ The Exchange believes that such interest 
should trade against interest in the Consolidated Book to the extent 
possible and, if any size of the incoming interest remains at the 
conclusion of the Auction, such contra-side interest may be eligible to 
trade with the CUBE Order. This proposed handling is consistent with 
functionality available on other options exchanges.\119\
---------------------------------------------------------------------------

    \118\ See Rule 971.1NY(c)(4)(B)-(C).
    \119\ See, e.g., Cboe 5.37(d)(2) and Nasdaq ISE, Options 3 
Section 13(d)(4) (likewise providing that market or marketable 
interest on the opposite-side of the agency order would not cause 
the early end of an auction, would execute with interest outside of 
the auction and, if size remained, potentially could receive an 
allocation against auction interest).
---------------------------------------------------------------------------

     The Exchange likewise will no longer end a CUBE Auction 
based on the arrival of AON Orders because the Exchange believes that 
AON Orders should trade against interest in the Consolidated Book to 
the extent possible and, if the AON Order is still on the Consolidated 
Book at the conclusion of the Auction, such contra-side AON Order may 
be eligible to trade with the CUBE Order.\120\
---------------------------------------------------------------------------

    \120\ See Rule 971.1NY(c)(4)(E).
---------------------------------------------------------------------------

    The Exchange believes that, on Pillar, allowing an Auction to 
continue uninterrupted in the above-referenced circumstances would 
result in fewer CUBE Auctions ending early and, as such, would provide 
more opportunities for price improvement to the benefit of all market 
participants.
CUBE Order Allocation on Pillar
    The Exchange proposes to modify how a CUBE Order is allocated at 
the end of the Auction to conform with new Pillar Rule 964NYP 
(described below).
    Current Rule 971.1NY(c)(5) describes CUBE Order allocation. 
Specifically, at the conclusion of the Auction, any RFR Responses 
(including GTX Orders) \121\ that are larger than the CUBE Order will 
be capped at the CUBE Order size for purposes of size pro rata 
allocation of the CUBE Order per Rule 964NY(b)(3)'' \122\ and that, at 
each price level, displayed Customer orders have first priority to 
trade with the CUBE Order per pursuant to Rule 964NY(c)(2)(A).\123\ 
Further, Rule 971.1NY(c)(5)(B) provides that, after executing against 
displayed Customer orders at a price, the CUBE Order will be allocated 
among the RFR Responses and the Contra Order, which allocation may vary 
depending on whether the Contra Order guaranteed the CUBE Order using a 
single-stop price, auto-match, or auto-match limit.\124\
---------------------------------------------------------------------------

    \121\ See Rule 971.1NY(c)(2)(C)(i)(c) (``GTX Orders with a size 
greater than the size of the CUBE Order will be capped at the size 
of the CUBE Order.''). On, Pillar, however, only non-Customer GTX 
Orders would be capped at the CUBE Order size for purposes of size 
pro rata allocation whereas Customer GTX Orders would trade with the 
CUBE Order based on time. See, e.g., proposed Rules 
971.1NYP(c)(4)(B), as discussed, infra.
    \122\ Rule 964NY(b)(3) describes the Exchange's pro rata 
allocation formula, which same formula is described in Pillar Rule 
964NYP(i).
    \123\ Rule 964NY(c)(2)(A) provides an ``inbound order will first 
be matched against all available displayed Customer interest in the 
Consolidated Book.''
    \124\ See Rule 971.1NY(c)(5)(B)(i)-(iii).
---------------------------------------------------------------------------

    As noted above, CUBE Orders currently trade in accordance with Rule 
964NY--the Exchange's pre-Pillar priority and allocation rule. 
Specifically, on the Exchange, at a price, displayed interest is ranked 
ahead of non-displayed interest with priority afforded to Customer 
interest over displayed non-Customer interest; following all displayed 
interest at a price, followed by same-priced non-displayed interest, 
which interest is ranked solely in time priority with no preference 
given to non-displayed Customer interest.\125\
---------------------------------------------------------------------------

    \125\ See Rule 964NY(b), (c). See also American Pillar Priority 
Filing (describing priority and allocation per Rule 964NYP).
---------------------------------------------------------------------------

    On Pillar, orders and quotes will be ranked, prioritized, and 
executed based on new Pillar Rule 964NYP, which aligns with the 
Exchange's current ranking and priority scheme. Pillar Rule 964NYP(e) 
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'' and that ``[i]f, 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.'' \126\ The 
three categories are: Priority 1--Market Order, Priority 2--Display 
Orders and Priority 3--Non-Display Orders (the ``Pillar Priority 
categories'').\127\ Thus, on Pillar, Customer orders in each priority 
category will have first priority to trade ahead of same-priced non-
Customer interest in that priority category until all interest in that 
Pillar Priority category is exhausted--and, if there is more than one 
Customer in that category at the same price, the Customer first in time 
has priority.\128\ Furthermore, as is the case today, the Exchange 
would allocate same-priced, non-Customer interest that is displayed in 
the Consolidated Book on a size pro rata basis.\129\ Finally, on Pillar 
(and unlike current pre-Pillar Rule 964NY), at a price, non-displayed 
Customer orders will trade in time priority before same-priced non-
displayed, non-Customer interest, which also trades in time.\130\
---------------------------------------------------------------------------

    \126\ See Pillar Rule 964NYP(e) (Priority Categories).
    \127\ See Pillar Rule 964NYP(e)(1)-(3) (setting forth Pillar 
Priority Categories).
    \128\ See Pillar Rule 964NYP(e), (j). For example, same-priced 
interest ranked Priority 1--Market Orders will afford Customer 
orders at a price first priority, followed by same-priced non-
Customer interest. Customer interest ranked Priority 2 and Priority 
3 are likewise afforded first priority at a price.
    \129\ See Pillar Rule 964NYP(i) (Size Pro Rata Allocation) 
(setting forth Pillar pro rata allocation formula). The Exchange 
notes that the Pillar pro rata allocation formula is identical to 
that set forth in current Rule 964NY(b)(3) (Size Pro Rata 
Allocation).
    \130\ See Pillar Rule 964NYP(j)(6)-(7).
---------------------------------------------------------------------------

    The Exchange proposes that CUBE Auctions on Pillar would follow the 
priority, ranking, and allocation model set forth in the above-
described Pillar Rule 964NYP. As proposed, Rule 971.1NYP(c)(4) would 
provide that, at each price, CUBE Orders would be

[[Page 47546]]

allocated consistent with Pillar Rule 964NYP as follows.
     First priority to execute with the CUBE Order is given to 
Customer RFR Responses, followed by same-priced non-Customer RFR 
Responses ranked Priority 1--Market Orders (each, ``Priority 1 
Interest'');
     Next priority to execute with the CUBE Order is given to 
Customer RFR Responses ranked Priority 2--Display Orders (``Priority 2 
Customer Interest''), followed by same-priced non-Customer RFR 
Responses ranked Priority 2--Display Orders; and
     Third priority to execute with the CUBE Order is afforded 
to Customer RFR Responses followed by same-priced non-Customer RFR 
Responses ranked Priority 3--Non-Display.\131\
---------------------------------------------------------------------------

    \131\ See Rule 971.1NYP(c)(4)(A) (Customer Priority).
---------------------------------------------------------------------------

    The Exchange believes the proposal to align CUBE Order allocation 
with Pillar Rule 964NYP(j) would add clarity, transparency, and 
internal consistency to Exchange rules. By following Pillar Rule 
964NYP(j), the Exchange notes that, at a price, non-Customer Priority 1 
interest would execute ahead of same-priced Customer Priority 2 
Interest.\132\ In addition, as discussed further below, before the 
Contra Order will receive its guaranteed allocation, the CUBE Order 
would first trade, at a price, with all Priority 1 Interest and with 
Priority 2 Customer Interest to ensure the priority of Customer 
interest is consistent with the Exchange's Customer priority model.
---------------------------------------------------------------------------

    \132\ As discussed in the American Pillar Priority Filing, non-
Customer interest ranked Priority 1 would consist of Market Orders 
that are ranked and displayed at the Trading Collar price, which 
orders would be cancelled if held more than 500 milliseconds without 
trading, per proposed Rule 900.3NYP(a)(4)(D). See American Pillar 
Priority Filing. See also the Pillar Trading Collar Filing 
(NYSEAmer-2023-11P). The proposed Trading Collar functionality would 
operate in the same manner as per Arca Options Rule 6.62P-O(a)(4)(D) 
(Application of the Trading Collar, which provides that ``[i]f 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 price, the order will be added to 
the Consolidated Book at the Trading Collar for 500 milliseconds and 
if not traded within that period, will be cancelled'' even if 
repriced or routed and, if routed, any returned portion will 
likewise be cancelled). See id.
---------------------------------------------------------------------------

    Proposed Rule 971.1NYP(c)(4)(B) (Allocation) would provide that RFR 
Responses would be allocated based on time or per pro rata allocation. 
Specifically, RFR Responses of Customers ranked Priority 1 and 2, as 
well as all RFR Responses ranked Priority 3, would trade with the CUBE 
Order based on time per Pillar Rule 964NYP(j).\133\ And, RFR Responses 
of non-Customers ranked Priority 1 and Priority 2 would be capped at 
the CUBE Order size for purposes of size pro rata allocation per Pillar 
Rule 964NYP(i).\134\ The Exchange notes that this proposed 
functionality is consistent with current Auction functionality, except 
that on Pillar, Customer RFR Responses would be allocated based on time 
(and no longer on a size pro rata basis), which handling would align 
the allocation of CUBE Orders with the Exchange's Customer priority 
model.\135\
---------------------------------------------------------------------------

    \133\ See proposed Rule 971.1NYP(c)(4)(B)(i) (Time).
    \134\ See proposed Rule 971.1NYP(c)(4)(B)(ii) (Size Pro Rata). 
The size pro rata formula set forth in Pillar Rule 964NYP(i) is 
identical to the size pro rata formula set forth in Rule 
964NY(b)(3). See American Pillar Priority Filing.
    \135\ See, e.g., Pillar Rule 964NYP(j). Because the proposed 
Rule details at the outset of the order allocation section how both 
Customer and non-Customer RFR Responses would be processed (i.e., in 
time or on a pro rata allocation basis), the Exchange believes it is 
not necessary to repeat this (now superfluous) information 
throughout proposed Rule 971.1NYP(c)(4) (Allocation of CUBE Orders). 
See, e.g., Rules 971.1NY(c)(5)(C), (c)(5)(B)(i)(b), 
(c)(5)(B)(ii)(b), and (c)(5)(B)(iii)(b) (repeating in each rule 
provision how RFR Responses would be allocated).
---------------------------------------------------------------------------

    Proposed Rule 971.1NYP(c)(4)(C) (Surrender Quantity) would be new 
functionality and would provide that an Initiating Participant that 
guarantees a CUBE Order with a stop price (per proposed Rule 
971.1NYP(b)(1)(A)) \136\ has the option of designating a ``Surrender 
Quantity'' and receiving some percentage less than the 40% 
participation guarantee. As proposed, if the Initiating Participant 
elects a Surrender Quantity, and there is sufficient contra-side 
interest equal to or better than the stop price to satisfy the CUBE 
Order, the CUBE Order executes against the Contra Order up to the 
amount of its Surrender Quantity.\137\ Absent sufficient size of 
contra-side interest equal to or better than the stop price, the Contra 
Order would trade with the balance of the CUBE Order at the stop price 
regardless of its Surrender Quantity, which functionality is consistent 
with current Contra Order behavior.\138\ Finally, as proposed, 
Surrender Quantity information is not disseminated to other market 
participants and may not be modified after it is submitted. The 
Exchange notes that the concept of ``Surrender Quantity'' is available 
on other options exchanges and is therefore not new or novel.\139\ The 
Exchange believes that providing Initiating Participants the option to 
designate a Surrender Quantity in CUBE Auctions on Pillar would enhance 
functionality by affording flexibility and discretion to the Contra 
Order while providing additional opportunities for RFR Responses to 
interact with the CUBE Order. In addition, the proposed enhancement to 
add the option of electing a Surrender Quantity would be a competitive 
change and would make the Exchange a more attractive venue to send 
(auction-related) order flow.
---------------------------------------------------------------------------

    \136\ See proposed Rule 971.1NYP(b)(1)(A) (describing single 
stop price).
    \137\ See proposed Rule 971.1NYP(c)(4)(C).
    \138\ See Rule 971.1NY(c)(5)(B)(i) (allocation to Contra Order 
that guaranteed a CUBE Order by single stop price).
    \139\ See, e.g., NASDAQ BX, Inc., Options 3, Section 13 
(ii)(A)(1) (providing that an initiating participant utilizing a 
single stop price may opt to ``surrender'' a percentage of its 40% 
guaranteed participation, ranging from 0% to 39%); Nasdaq ISE 
(providing that the initiating participant may be entitled to its 
40% participation guarantee ``or such lower percentage requested by 
the Member''); Cboe Rule 5.37(e)(5) (allowing initiating 
participants that guarantee a paired order with a single-price 
submission, to elect to have ``last priority'' to trade against the 
agency order and will only trade with the agency order after such 
order has traded with all other contra-side interest at prices equal 
to or better than the guaranteed stop price; and further providing 
that ``last priority'' information is not available to other market 
participants and, once submitted, may not be modified); Cboe EDGX 
Rule 21.19(e)(5) (same).
---------------------------------------------------------------------------

    Proposed Rule 971.1NYP(c)(4)(D) (RFR Responses and Contra Order 
Allocation) would provide that, at a price, RFR Responses are allocated 
in accordance with proposed paragraphs (c)(4)(A) (Customer Priority) 
and (c)(4)(B) (Time or Size Pro Rata Allocation) and that any 
allocation to the Contra Order would depend upon the method by which 
the CUBE Order was guaranteed.\140\
---------------------------------------------------------------------------

    \140\ Consistent with proposed Rule 971.1NYP(c)(1)(C)(i)(c), and 
in contrast to current Rule 971.1NY(c)(5)(B)(i)-(iii), the proposed 
CUBE Order allocation section would not reference GTX Orders, as 
such orders would execute solely with the CUBE Order or cancel.
---------------------------------------------------------------------------

     Stop Price.\141\ Consistent with current functionality, a 
CUBE Order to buy (sell), that is guaranteed by a stop price would 
execute first with RFR Responses priced below (above) the stop price, 
beginning with the lowest (highest) price within the range of 
permissible executions.\142\
---------------------------------------------------------------------------

    \141\ See proposed Rule 971.1NYP(b)(1)(A) (describing stop price 
requirements).
    \142\ See proposed Rule 971.1NYP(c)(4)(D)(i)(a). See also Rule 
971.1NY(c)(5)(B)(i)(a).
---------------------------------------------------------------------------

    [cir] Next, any remaining contracts of the CUBE Order would execute 
at the stop price, first with all Priority 1 Interest, followed by 
Priority 2 Customer Interest, which as noted above is consistent with 
new Pillar Rule 964NYP(j).\143\
---------------------------------------------------------------------------

    \143\ See proposed Rule 971.1NYP(c)(4)(D)(i)(b). See also Rule 
971.1NY(c)(5)(B)(i)(b).
---------------------------------------------------------------------------

    [cir] Then, at the stop price, the Contra Order would receive an 
allocation of the greater of 40% of the original CUBE Order size or one 
contract (or the greater of 50% of the original CUBE Order size

[[Page 47547]]

or one contract if there is only one RFR Response), or the Surrender 
Quantity, if one has been specified. Then, any remaining CUBE Order 
contracts would be allocated first among remaining RFR Responses at the 
stop price. If all RFR Responses are filled, any remaining CUBE Order 
contracts would be allocated to the Contra Order. This proposed 
handling is consistent with current functionality except that it 
includes reference to the new option of designating a ``Surrender 
Quantity.'' \144\
---------------------------------------------------------------------------

    \144\ See id.
---------------------------------------------------------------------------

    [cir] Finally, if there are no RFR Responses, the CUBE Order would 
execute against the Contra Order at the stop price.\145\
---------------------------------------------------------------------------

    \145\ See proposed Rule 971.1NYP(c)(4)(D)(i)(c). See also Rule 
971.1NY(c)(5)(B)(i)(c) (providing that ``[i]f there are no RFR 
Responses, the CUBE Order shall execute against the Contra Order at 
the higher (lower) of the stop price or the lower (upper) bound of 
the range of permissible executions''). Unlike the current rule, the 
proposed Rule would not include language regarding the CUBE Order 
executing at a price other than the stop price because the proposed 
(and current) Rule provides that a stop price for a CUBE order to 
buy (sell) will be repriced to the lower (upper) bound of 
permissible executions if such stop price is below (above) the lower 
(upper) bound of the range of permissible executions. See proposed 
Rule 971.1NY(b)(1)(A); Rule 971.1NY(c)(1)(A).
---------------------------------------------------------------------------

     Auto-Match.\146\ Consistent with current functionality, if 
a CUBE Order to buy (sell) is guaranteed by auto-match, the Contra 
Order would be allocated contracts equal to the aggregate size of all 
other RFR Responses at each price level starting with the lowest 
(highest) price at which an execution against an RFR Response occurs 
within the range of permissible executions, until a price point is 
reached where the balance of the CUBE Order can be fully executed. (the 
``clean-up price'').\147\ Also consistent with current functionality, 
if the Contra Order meets its allocation guarantee at a price below 
(above) the clean-up price, it would cease matching RFR Responses.\148\
---------------------------------------------------------------------------

    \146\ See proposed Rule 971.1NYP(b)(1)(B) (describing auto-match 
feature).
    \147\ See proposed Rule 971.1NYP(c)(4)(D)(ii)(a). See also Rule 
971.1NY(c)(5)(B)(ii)(a).
    \148\ See proposed Rule 971.1NYP(c)(4)(D)(ii)(a). See also Rule 
971.1NY(c)(5)(B)(ii)(b).
---------------------------------------------------------------------------

    [cir] As proposed, at the clean-up price, any remaining contracts 
of the CUBE Order would execute against all Priority 1 Interest, 
followed by Priority 2 Customer Interest, which as noted above is 
consistent with proposed new Pillar Rule 964NYP(j).\149\
---------------------------------------------------------------------------

    \149\ See proposed Rule 971.1NYP(c)(4)(D)(ii)(b). See also Rule 
971.1NY(c)(5)(B)(ii)(b).
---------------------------------------------------------------------------

    [cir] Next, consistent with current functionality, the Contra Order 
would receive additional contracts required to achieve an allocation 
equal to the greater of 40% of the original CUBE Order size or one 
contract (or the greater of 50% of the original CUBE Order size or one 
contract if there is only one RFR Response); if there are other RFR 
Responses at the clean-up price, the remaining CUBE Order contracts 
would be allocated first among RFR Responses; and once all RFR 
Responses are filled at the clean-up price, any remaining CUBE Order 
contracts would be allocated to the Contra Order at the initiating 
price.\150\
---------------------------------------------------------------------------

    \150\ See id.
---------------------------------------------------------------------------

    [cir] Finally, if there are no RFR Responses, the CUBE Order would 
execute against the Contra Order at the initiating price, which is 
identical to current functionality.\151\
---------------------------------------------------------------------------

    \151\ See proposed Rule 971.1NYP(c)(4)(D)(ii)(c). See also Rule 
971.1NY(c)(5)(B)(ii)(c).
---------------------------------------------------------------------------

     Auto-Match Limit.\152\ Consistent with current 
functionality, a CUBE Order to buy (sell), that is guaranteed by auto-
match limit would execute first with RFR Responses at each price level 
priced below (above) the auto-match limit price within the range of 
permissible executions, beginning with the lowest (highest) price.\153\
---------------------------------------------------------------------------

    \152\ See proposed Rule 971.1NYP(b)(1)(C) (describing auto-match 
limit price requirements).
    \153\ See proposed Rule 971.1NYP(c)(4)(D)(iii)(a). See also Rule 
971.1NY(c)(5)(B)(iii)(a).
---------------------------------------------------------------------------

    [cir] Next, consistent with current functionality, the CUBE Order 
would be allocated to RFR Responses at a price equal to the price of 
the Contra Order's auto-match limit price, and if volume remains, to 
prices higher (lower) than the auto-match limit price; at each price 
level equal to or higher (lower) than the auto-match limit price, the 
Contra Order would be allocated contracts equal to the aggregate size 
of all other RFR Responses; and, if the Contra Order meets its 
allocation guarantee at a price below (above) the clean-up price, it 
would cease matching RFR Responses.\154\
---------------------------------------------------------------------------

    \154\ See proposed Rule 971.1NYP(c)(4)(D)(iii)(b). See also Rule 
971.1NY(c)(5)(B)(iii)(b).
---------------------------------------------------------------------------

    [cir] As proposed, at the clean-up price, any remaining contracts 
of the CUBE Order will execute against all Priority 1 Interest, 
followed by Priority 2 Customer Interest, which as noted above is 
consistent with proposed new Rule 964NYP(j).\155\
---------------------------------------------------------------------------

    \155\ See proposed Rule 971.1NYP(c)(4)(D)(iii)(c). See also Rule 
971.1NY(c)(5)(B)(iii)(b).
    1 See id.
---------------------------------------------------------------------------

    [cir] Next, and consistent with current functionality, the Contra 
Order would receive additional contracts required to achieve an 
allocation of the greater of 40% of the original CUBE Order size or one 
contract (or the greater of 50% of the original CUBE Order size or one 
contract if there is only one RFR Response); if there are other RFR 
Responses at the clean-up price the remaining CUBE Order contracts 
would be allocated first to RFR Responses; and any remaining CUBE Order 
contracts would be allocated to the Contra Order at the initiating 
price.\156\
---------------------------------------------------------------------------

    \156\ See proposed Rule 971.1NYP(c)(4)(D)(iii)(c). See also Rule 
971.1NY(c)(5)(B)(iii)(b).
---------------------------------------------------------------------------

    [cir] Finally, consistent with current functionality, if there are 
no RFR Responses, the CUBE Order would execute against the Contra Order 
at the initiating price.\157\
---------------------------------------------------------------------------

    \157\ See proposed Rule 971.1NYP(c)(4)(D)(iii)(d). See also Rule 
971.1NY(c)(5)(B)(iii)(c). The proposed Rule would not specify that 
``[a] single RFR Response will not be allocated a number of 
contracts that is greater than its size,'' as set forth in Rule 
971.1NY(c)(5)(D), because such handling is consistent with standard 
processing and its inclusion in the proposed Rule would be 
unnecessary and may lead to potential confusion.
---------------------------------------------------------------------------

Commentary to Proposed Rule 971.1NYP for CUBE Auctions on Pillar
    The Exchange proposes to adopt Commentaries .01 through .04 to the 
proposed Rule, which are identical to current Commentaries .01 through 
.03 and .05 to Rule 971.1NY, respectively, as discussed below (each a 
``proposed Commentary'' or a ``current Commentary'').\158\
---------------------------------------------------------------------------

    \158\ As discussed, infra, the proposed Rule does not include 
the functionality set forth in current Commentary .04 to Rule 
971.1NY because, on Pillar, the Exchange would allow both a CUBE 
Order and an order exposed via the BOLD mechanism in same series to 
occur simultaneously.
---------------------------------------------------------------------------

    Proposed Commentary .01 is identical to current Commentary .01 and 
would describe ``Concurrent Single-Leg and Complex CUBE Auctions 
involving the same option series.'' As proposed, and identical to 
current functionality, the Exchange would allow the simultaneous 
conduct of a (single-leg) CUBE Auction for a given series at the same 
time as a Complex CUBE Auction for a Complex Order that includes the 
same option series.\159\ Also, identical to current functionality, to 
the extent there are concurrent CUBE Auctions for a specific option 
series, each CUBE Auction will be processed sequentially based on the 
time each CUBE Auction commenced.\160\ Finally, identical to current 
functionality, at the time each CUBE Auction concludes, including when 
it concludes early, it will be

[[Page 47548]]

processed pursuant to Rule 971.1NYP(c)(4) or Rule 971.2NYP(c)(4) as 
applicable.\161\
---------------------------------------------------------------------------

    \159\ See proposed Rule 971.1NYP, Commentary .01. See also Rule 
971.2NYP, Commentary .01 (same). The Exchange plans to submit a 
separate rule filing to adopt proposed Rule 971.2NYP (Complex 
Electronic Cross Transactions), which proposed rule would include 
the proposed (and current) Commentary .01. As noted, supra, current 
(and proposed) Commentary .01 describes functionality that is 
distinct from the proposal to allow multiple single-leg CUBE 
Auctions to run concurrently on Pillar.
    \160\ See id.
    \161\ See id. The Exchange notes that the internal cross-
reference in the proposed Commentary has been updated to reflect the 
allocation section in the proposed Rule (i.e., change reference to 
paragraph (c)(5) of current Rule 971.1NY to paragraph (c)(4) of the 
proposed Rule), which change is not material because it does not 
impact functionality. As noted above, the Exchange plans to submit a 
separate rule filing to adopt Complex CUBE Auctions on Pillar, which 
current Rule 971.2NY and soon-to-be proposed Rule 971.2NYP, will set 
forth order allocation in proposed paragraph (c)(4).
---------------------------------------------------------------------------

    Proposed Commentary .02(a)-(d) is identical to current Commentary 
.02(a)-(d) and would provide that the following conduct will be 
considered conduct inconsistent with just and equitable principles of 
trade:
     An ATP Holder entering RFR Responses to a CUBE Auction for 
which the ATP Holder is the Initiating Participant;
     Engaging in a pattern and practice of trading or quoting 
activity for the purpose of causing a CUBE Auction to conclude before 
the end of the Response Time Interval;
     An Initiating Participant that breaks up an agency order 
into separate CUBE Orders for the purpose of gaining a higher 
allocation percentage than the Initiating Participant would have 
otherwise received in accordance with the allocation procedures 
contained in paragraph (c)(4) of this Rule; \162\ and
---------------------------------------------------------------------------

    \162\ The Exchange notes that the internal cross-reference in 
the proposed Commentary has been updated to reflect the allocation 
section in the proposed Rule (i.e., change reference to paragraph 
(c)(5) of current Rule 971.1NY to paragraph (c)(4) of the proposed 
Rule), which change is not material because it does not impact 
functionality.
---------------------------------------------------------------------------

     Engaging in a pattern and practice of sending multiple RFR 
Responses at the same price that in the aggregate exceed the size of 
the CUBE Order.
    Proposed Commentary .03 is identical to current Commentary .03 and 
would provide that CUBE executions would always be reported to OPRA as 
``stopped'' trades.
    Proposed Commentary .04 describes functionality for AON CUBE Orders 
that is identical to current Commentary .05 and would provide that, 
except as provided in proposed Commentary .04, an AON CUBE auction will 
be subject to the provisions of proposed Rule 971.1NYP.\163\
---------------------------------------------------------------------------

    \163\ The Exchange proposes the non-substantive change to re-
number this provision (from current Commentary .05 to proposed 
Commentary .04) and also proposes to re-locate to the beginning of 
the proposed Rule text that appears at the bottom of the current 
rule.
---------------------------------------------------------------------------

     Proposed Commentary .04 (like current Commentary .05) 
would provide that a CUBE Order of at least 500 contracts can be 
designated as AON (an ``AON CUBE Order'') and unlike non-AON CUBE 
Orders, such AON CUBE Orders may only be guaranteed by a specified stop 
price.
    [cir] Proposed Commentary .04 would differ from current Commentary 
.05 to make clear that the (new) option for certain Initiating 
Participants to designate a Surrender Quantity would not be available 
for Contra Orders to an AON CUBE Order. This proposed text is not 
included in current Commentary .05 because the option to designate a 
Surrender Quantity is not available today and is an enhanced feature 
that would only be available for certain non-AON CUBE Auctions on 
Pillar.\164\
---------------------------------------------------------------------------

    \164\ See proposed Rule 971.1NYP, Commentary .04 (providing, in 
relevant part that ``a Contra Order that guarantees an AON CUBE 
Order is not eligible to designate a Surrender Quantity of its 
guaranteed participation.''). See, e.g., proposed Rule 
971.1NYP(c)(4)(C) (describing the proposed option of designating a 
Surrender Quantity for non-AON CUBE Orders that are guaranteed by a 
stop price).
---------------------------------------------------------------------------

    Proposed Commentary .04(a)-(d), is identical to current Commentary 
.05(a)-(d) and would provide the following.
     An AON CUBE Order to buy (sell) will execute in full with 
the Contra Order at the single stop price even if there is non-Customer 
interest priced higher (lower) than the stop price that, either on its 
own or when aggregated with other non-Customer RFR Responses at the 
stop price or better, is insufficient to satisfy the full quantity of 
the AON CUBE Order;
     The Contra Order will not receive any allocation and will 
be cancelled if (i) RFR Responses to sell (buy) at prices lower 
(higher) than the stop price can satisfy the full quantity of the AON 
CUBE Order or (ii) there is Customer interest to sell (buy) at the stop 
price or better that on its own, or when aggregated with RFR Responses 
to sell (buy) at the stop price or prices lower (higher) than the stop 
price, can satisfy the full quantity of the AON CUBE Order. In either 
such case, the RFR Responses will be allocated as provided for in 
paragraphs (c)(4)(A) and (c)(4)(B) of this Rule, as applicable; \165\
---------------------------------------------------------------------------

    \165\ The Exchange notes that the internal cross-reference in 
the proposed Commentary has been updated to reflect the allocation 
section in the proposed Rule (i.e., change reference to paragraph 
(c)(5) of current Rule 971.1NY to paragraph (c)(4) of the proposed 
Rule, which difference from the current CUBE rule is not material 
because it does not impact functionality.
---------------------------------------------------------------------------

     The AON CUBE Order and Contra Order will both be cancelled 
if there is Customer interest to sell (buy) at the stop price or better 
and such interest, either on its own or when aggregated with RFR 
Responses to sell (buy) at the stop price or at prices lower (higher) 
than the stop price, is insufficient to satisfy the full quantity of 
the AON CUBE Order; and
     Prior to entering an agency order on behalf of a Customer 
into the CUBE Auction as an AON CUBE Order, Initiating Participants 
must deliver to the Customer a written notification informing the 
Customer that such order may be executed using the CUBE Auction. Such 
written notification must disclose the terms and conditions contained 
in this Commentary .04 and must be in a form approved by the 
Exchange.\166\
---------------------------------------------------------------------------

    \166\ See proposed Rule 971.1NYP, Commentary .04.
---------------------------------------------------------------------------

* * * * *
    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 will continue to be available pending 
the full migration to Pillar.
Implementation
    As noted immediately above, the Exchange will not implement 
proposed Rule 971.1NYP 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
    For the reasons set forth above, the Exchange believes the proposed 
rule change is consistent with Section 6(b) of the Act in general, and 
furthers the objectives of Section 6(b)(5) of the Act, in that it is 
designed to promote just and equitable principles of trade,remove 
impediments to and perfect the mechanisms of a free and open market and 
a national market system and, in general, to protect investors and the 
public interest.
    First, to the extent that the proposed Rule contains provisions 
that are identical (or substantively identical) to current Rule 
971.1NY, the Exchange believes the Rule would remove impediments to and 
perfect the mechanisms of a free and open market and a national market 
system and would protect investors and the public interest because the 
proposed Rule includes

[[Page 47549]]

streamlined, and in some cases reorganized, descriptions of already-
approved (pre-Pillar) Auction functionality in a manner that adds 
clarity, transparency, and internal consistency to Exchange rules.\167\
---------------------------------------------------------------------------

    \167\ See, e.g., proposed Rules 971.1NYP(b)(1)(A)-(C) 
(describing stop price, auto match, and auto-match limit price); 
(b)(2), (3), (6), (7), and (9) (regarding eligibility of CUBE Orders 
submitted to the Auction); (c)(1) (regarding RFRs and RFR Responses) 
and (c)(2) (regarding conclusion of CUBE Auction).
---------------------------------------------------------------------------

    Next, to the extent that the proposed Rule includes enhancements to 
the CUBE, the Exchange believes that the proposed Rule change would 
remove impediments to and perfect the mechanisms of a free and open 
market and a national market system and would protect investors and the 
public interest because the proposed enhancements to Auctions on Pillar 
would continue to encourage ATP Holders to compete vigorously to 
provide the opportunity for price improvement for CUBE Orders of all 
sizes in a competitive auction process, which may lead to enhanced 
liquidity and tighter markets.
    In particular, the proposed rule change to adopt a single pricing 
parameter for CUBE Orders of any size (except when the NBBO width is 
one penny) would remove impediments to and perfect the mechanisms of a 
free and open market and a national market system and would protect 
investors and the public interest because it would streamline and 
simplify current CUBE Auction functionality making it easier for market 
participants to navigate and comprehend.\168\ In addition, the 
Exchange's rules regarding CUBE Auctions would continue to require 
price improvement for CUBE Orders for fewer than 50 contracts submitted 
in a penny-wide market and rejecting such orders when the Exchange is 
setting the NBBO (i.e., BBO = NBBO) and there is displayed Customer 
interest at the BBO. The proposed pricing requirements providing 
whether a CUBE Auction is initiated (including when the NBBO is one 
cent wide or when the NBBO is crossed) are consistent with the 
Exchange's current requirements and with the requirements of other 
options exchanges that offer price improvement mechanisms.\169\
---------------------------------------------------------------------------

    \168\ See, e.g., proposed Rules 971.1NYP(a)(3), (a)(4) and 
(a)(1)(A).
    \169\ See, e.g., Rule 971.1NY(b)(1)(A), proposed Rule 
971.1NY(b)(5)-(b)(6), & note 54, supra (regarding pricing 
requirements utilized on Cboe, Cboe EDGX, and Nasdaq ISE to initiate 
an analogous price improvement auctions).
---------------------------------------------------------------------------

    The Exchange believes that the proposal to reject CUBE Orders that 
are submitted when there is not enough time for a CUBE Auction to run 
the full duration of the Response Time Interval would remove 
impediments to and perfect the mechanisms of a free and open market and 
a national market system and would protect investors and the public 
interest because it would make clear that CUBE Orders that cannot be 
exposed to solicit price-improving interest for the full Response Time 
Interval would not be accepted by the Exchange. Moreover, the proposal 
to modify the Response Time Interval to be a set duration as opposed to 
a random duration would be a competitive change and would align the 
Exchange's rules with other options exchanges that include this 
feature.\170\
---------------------------------------------------------------------------

    \170\ See, e.g., notes 61, 76-77, supra.
---------------------------------------------------------------------------

    The Exchange believes that the proposal to accept CUBE Orders in 
the same series as orders being exposed in the BOLD mechanism would 
remove impediments to and perfect the mechanisms of a free and open 
market and a national market system and would protect investors and the 
public interest because it would allow more CUBE Orders to be accepted, 
which would in turn promote increased opportunities for price 
improvement. This proposed change is not currently available (because 
of system limitations) but would be available on Pillar to the benefit 
of all market participants because of increased trading opportunities 
through the BOLD mechanism as well as through the acceptance of more 
CUBE Orders (submitted when certain orders are being exposed via BOLD).
    The proposed rule changes to enhance the Auction process on Pillar 
by allowing concurrent auctions, adding the associated ``AuctionID'' 
feature, and permitting Initiating Participants to designate a 
Surrender Quantity would remove impediments to and perfect the 
mechanisms of a free and open market and a national market system for 
several reasons. First, the proposed changes would not only allow more 
CUBE Auctions to occur on the Exchange but would also allow more 
targeted participation in CUBE Auctions with the new AuctionID feature 
available for GTX Orders. Market participants that respond to CUBE 
Auctions with GTX Orders would be able to direct their trading interest 
to a specific Auction (which functionality is also offered on other 
options exchanges) thus increasing determinism.\171\ That said, the 
AuctionID functionality would be optional and a GTX Order sent without 
an AuctionID would respond to the Auction that began closest in time to 
the submission of the GTX Order.
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    \171\ See, e.g., notes 74 & 87, supra.
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    The proposal to permit concurrent auctions in the same series for 
CUBE Orders of 50 or more contracts would benefit investors because it 
would allow more CUBE Auctions to run the full duration of the Response 
Time Interval, thus affording more time and opportunity for the arrival 
of price-improving interest. Moreover, permitting concurrent auctions 
for larger-sized agency orders (analogous to CUBE Orders of 50 or more 
contracts), which is not new or novel functionality and has been in 
place on other options exchanges for several years, would be a 
competitive change.\172\
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    \172\ See, e.g., note 106, supra.
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    The proposal to permit concurrent auctions in the same series for 
CUBE Orders of fewer than 50 contracts would remove impediments to and 
perfect the mechanisms of a free and open market because it would 
extend concurrent auction functionality to smaller-sized CUBE Orders. 
The Exchange also believes this proposed change is non-controversial 
because it should not raise any issues that differ from those 
previously considered when other options exchanges adopted this 
functionality for larger-sized agency orders submitted to price 
improvement auctions. The proposal would benefit investors because it 
would afford smaller-sized CUBE Orders increased opportunity to solicit 
price-improving auction interest--including because receipt of a new 
CUBE Order would no longer cause the Auction in progress to end early. 
The Exchange further believes that this proposed change would provide 
additional benefits to Customers, as smaller-sized CUBE Orders tend to 
represent retail interest and could improve the Customer experience on 
the Exchange by increasing trading opportunities in the CUBE Auction. 
Notwithstanding the proposal to allow concurrent auctions for smaller-
sized CUBE Orders, the Exchange would continue to protect Customer 
interest on the Consolidated Book by requiring price improvement over 
the BBO to initiate an Auction for smaller-sized CUBE Orders and 
rejecting such orders in penny-wide markets when price improvement is 
not possible.
    The Exchange believes this proposed new functionality to allow 
concurrent auctions for CUBE Orders of any size should promote and 
foster competition and provide more options contracts with the 
opportunity for price improvement, which should benefit all market 
participants. In addition, this

[[Page 47550]]

proposed change may lead to an increase in Exchange volume and should 
allow the Exchange to better compete against other markets that permit 
overlapping price improvement auctions, while continuing to ensure that 
displayed Customer interest on the Consolidated Book is protected. The 
proposed enhancement to allow concurrent auctions for CUBE Orders of 
any size would be a competitive change and would make the Exchange a 
more attractive venue for auction-related order flow.
    As noted above, the Exchange believes that the Pillar trading 
platform has sufficient capacity to process a large volume of 
concurrent Auctions for CUBE Orders of any size, including for CUBE 
Orders of fewer than 50 contracts.
    The proposed changes to streamline early end scenarios for CUBE 
Auctions would remove impediments to and perfect the mechanisms of a 
free and open market and a national market system and would protect 
investors and the public interest because it would increase the 
opportunity for each CUBE Auction to run the full length of the (fixed 
duration) RTI, which should increase opportunities for price 
improvement. In addition, this proposed change should promote and 
foster competition and provide more options contracts with the 
opportunity for price improvement, which should benefit all market 
participants. The Exchange notes that the proposed functionality would 
simplify the operation of CUBE Auctions in a manner that is consistent 
with other options exchanges' price improvement mechanisms.\173\
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    \173\ See, e.g., note 115, supra.
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    The proposal to provide the option of designating a Surrender 
Quantity would remove impediments to and perfect the mechanisms of a 
free and open market because it would afford more discretion and 
flexibility to the Contra Order and may result in increased CUBE 
Auction volume on the Exchange. Moreover, this proposed enhancement is 
competitive as it would allow the Exchange to compete on more equal 
footing with other options exchanges that offer this feature in their 
price improvement auctions.\174\
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    \174\ See, e.g., note 140, supra.
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    The proposed rule changes to modify the handling and operation of 
GTX Orders on Pillar per proposed Rule 971.1NYP(c)(1)(C)(a), (c) (i.e., 
that such orders will execute with the CUBE Order to the extent 
possible and then cancel) and to clarify that GTX Orders, although not 
displayed or disseminated, are ranked and prioritized with same-priced 
Limit Orders as Priority 2--Display Orders on Pillar (consistent with 
proposed new Rule 964NYP) would remove impediments to and perfect the 
mechanisms of a free and open market and a national market system and 
would protect investors and the public interest because such changes 
would make clear to market participants responding to CUBE Auctions 
with GTX Orders how such interest would be prioritized and handled on 
Pillar, thus adding clarity, transparency, and internal consistency to 
Exchange rules.
    The proposed rule change would remove impediments to and perfect 
the mechanisms of a free and open market and a national market system 
and would protect investors and the public interest because the 
proposed CUBE Order allocation is consistent with current 
functionality, including that the Contra Order may be allocated a 
limited percentage of the CUBE Order ahead of certain other same-priced 
RFR Responses, except that the proposed rule would align with Pillar 
Rule 964NYP as described herein. Consistent with current functionality, 
the Exchange believes that the Contra Order, having guaranteed the 
execution of the CUBE Order, should be entitled to a certain level of 
participation in the Auction, assuming CUBE Order contracts remain 
after executing with contra-side interest prioritized ahead of the 
Contra Order. In addition, this alignment of CUBE Order functionality 
with Pillar Rule 964NYP would add clarity, transparency, and internal 
consistency to Exchange rules to the benefit of investors.
    The proposed rule change to specify that the Surrender Quantity 
option is not available for Contra Orders to AON CUBE Orders would 
remove impediments to and perfect the mechanisms of a free and open 
market and a national market system and would protect investors and the 
public interest because such rule text would not alter the 
functionality of AON CUBE Orders on Pillar but would instead add 
clarity, transparency, and internal consistency to Exchange rules.
    Further, the proposed rule change would promote a fair and orderly 
market and national market system, because, as noted herein, the 
proposed enhancements to CUBE Auctions on Pillar are the same as those 
offered on other options exchanges that have price improvement 
mechanisms, except as noted herein.
    The Exchange believes the proposed rule change is not unfairly 
discriminatory because the proposed handling of CUBE Auctions on Pillar 
would be the same for similarly-situated ATP Holders but (as is the 
case today) would vary for those ATP Holders submitting interest on 
behalf of Customers versus ATP Holders submitting interest on behalf of 
non-Customers. As is the case today, all ATP Holders would continue to 
have an equal opportunity to receive the broadcast and respond with 
their best prices during the auction. The proposal to continue to 
afford Customer interest first priority within each Pillar Priority 
category is consistent with the Exchange's Customer-centric trading 
model and would benefit investors by attracting more (Customer) order 
flow to the Exchange which would result in increased liquidity.
    In sum, the Exchange believes this proposal may lead to an increase 
in Exchange volume and should allow the Exchange to better compete 
against other options markets that already offer the enhanced 
functionality proposed herein. In particular, the Exchange believes 
that its proposal would allow the Exchange to better compete for 
auction order flow, while providing an opportunity for price 
improvement on CUBE Orders of any size. In addition, the proposed 
functionality should promote and foster competition and provide more 
options contracts with the opportunity for price improvement, which 
should benefit market participants

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 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, thereby potentially attracting additional order flow to the 
Exchange. The Exchange does not believe that the proposed rule changes 
would impact intra-market competition as the proposed rule changes 
would be applicable to all similarly-situated ATP Holders and reflects 
the Exchange's existing priority model.
    The Exchange notes that it operates in a highly competitive market 
in which market participants can readily direct order flow to competing 
venues who offer similar functionality. The Exchange believes this 
proposed rule change would promote fair competition among the options 
exchanges and establish more uniform functionality across the various 
price improvement

[[Page 47551]]

auctions offered by other options exchanges. As noted herein, several 
of the proposed enhancements to the Auction--i.e., concurrent auctions 
for larger-sized agency orders, inclusion of an AuctionID on Request 
for Responses and the option to include an AuctionID on GTX Orders, a 
fixed duration during which auction responses are submitted, and the 
ability to designate an optional Surrender Quantity-- are currently 
offered on other options exchanges and the addition of these features 
would make the Exchange a more competitive venue for price improvement 
auctions. The proposed functionality may lead to an increase in 
Exchange volume and should allow the Exchange to better compete against 
other options markets that already offer similar price improvement 
mechanisms and for this reason the proposal does not create an undue 
burden on intermarket competition. By contrast, not having the proposed 
functionality places the Exchange at a competitive disadvantage vis-
[agrave]-vis other exchanges that offer similar price improvement 
mechanisms.

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 \175\ and Rule 19b-4(f)(6) thereunder.\176\ 
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.
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    \175\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \176\ 17 CFR 240.19b-4(f)(6).
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    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 Commission shall institute proceedings under 
Section 19(b)(2)(B) \177\ of the Act to determine whether the proposed 
rule change should be approved or disapproved.
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    \177\ 15 U.S.C. 78s(b)(2)(B).
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IV. Solicitation of Comments

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

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-2023-35 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-2023-35. 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-2023-35 and should be submitted on or 
before August 14, 2023.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\178\
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    \178\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-15575 Filed 7-21-23; 8:45 am]
BILLING CODE 8011-01-P

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