Notice2021-25352
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Rule 6.64-O To Provide an Option for OTP Holders and OTP Firms To Instruct the Exchange To Cancel Marketable Orders If a Series Is Not Opened Within a Specified Time Period
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Published
November 22, 2021
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 86 Issue 222 (Monday, November 22, 2021)</title>
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[Federal Register Volume 86, Number 222 (Monday, November 22, 2021)]
[Notices]
[Pages 66369-66373]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2021-25352]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-93586; File No. SR-NYSEArca-2021-98]
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change To Amend Rule 6.64-
O To Provide an Option for OTP Holders and OTP Firms To Instruct the
Exchange To Cancel Marketable Orders If a Series Is Not Opened Within a
Specified Time Period
November 16, 2021.
Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby
given that on November 12, 2021, NYSE Arca, Inc. (``NYSE Arca'' or the
``Exchange'') filed with the Securities and Exchange Commission (the
``Commission'') the proposed rule change as described in Items I and II
below, which Items have been prepared by the self-regulatory
organization. The Commission is publishing this notice to solicit
comments on the proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 15 U.S.C. 78a.
\3\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to amend Rule 6.64-O (OX Opening Process) to
provide an option for OTP Holders and OTP Firms to instruct the
Exchange to cancel Marketable orders if a series is not opened within a
specified time period. The proposed rule change is available on the
Exchange's website at <a href="http://www.nyse.com">www.nyse.com</a>, at the principal office of the
Exchange, and at the Commission's Public Reference Room.
[[Page 66370]]
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the self-regulatory organization
included statements concerning the purpose of, and basis for, the
proposed rule change and discussed any comments it received on the
proposed rule change. The text of those statements may be examined at
the places specified in Item IV below. The Exchange has prepared
summaries, set forth in sections A, B, and C below, of the most
significant parts of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to amend Rule 6.64-O (OX Opening Process) to
provide an option for OTP Holders and OTP Firms to instruct the
Exchange to cancel Marketable \4\ orders if a series is not opened
within a specified time period. The Exchange notes that this proposal
is substantively identical to a recent rule change on NYSE American,
LLC.\5\
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\4\ The term ``Marketable'' is defined in Rule 6.1A-O(a)(7) to
mean, for a Limit Order, the price matches or crosses the NBBO on
the other side of the market. Market orders are always considered
marketable.
\5\ See Securities Exchange Act Release No. 92668 (August 13,
2021), 86 FR 46746 (August 19, 2021) (SR-NYSEAMER-2021-36) (Notice
of filing and immediate effectiveness of proposed rule change to
amend Rule 952NY to provide an option for ATP Holders to instruct
the Exchange to cancel marketable orders if a series is not opened
within a specified time period) (``NYSE American Filing'').
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Rule 6.64-O sets forth the Exchange's process for opening and
reopening a series for trading. Rule 6.64-O(b) provides that the
Exchange will accept market and limit orders for inclusion in the
opening auction process (``Auction Process'') until such time as the
Auction Process is initiated in that option series. As further provided
for in Rule 6.64-O(b), once the primary market for the underlying
security disseminates a quote and a trade that is at or within the
quote, the Exchange will open the related option series automatically
based on the principles and procedures set forth in paragraphs (A)-(F)
of Rule 6.64-O(b). However, as described in Rule 6.64-O(b)(D), the
Exchange will not conduct an Auction Process if the bid-ask
differential for that series is not within an acceptable range, i.e.,
is not within the bid-ask differential guidelines established in Rule
6.37-O(b)(4). Because Rule 6.64-O(b)(D) cross-references the bid-ask
differential requirement of Rule 6.37-O(b)(4), which relates to the
obligations of Market Makers in appointed classes, the Exchange will
not open a series for trading if Market Makers have not entered
quotations in a series that are within such bid-ask differentials. If a
series does not open for trading, market and limit orders entered in
advance of the Auction Process will remain in the Consolidated Book and
will not be routed, even if another exchange opens that series for
trading and such orders become Marketable against an away market NBBO.
The Exchange proposes to amend Rule 6.64-O to provide OTP Holders
and OTP Firms with an option to instruct the Exchange to cancel their
Marketable orders if an option series has not been opened within a
specified time period. As proposed, new subparagraph (d) to Rule 6.64-O
\6\ would provide that an OTP Holder or OTP Firm may instruct the
Exchange to cancel all Marketable orders in a series, including GTC
Orders, if that series has not opened within a designated time period
after the Exchange receives notification that the primary market for
the underlying security has disseminated a quote and a trade that is at
or within the quote. This proposed change is designed to provide OTP
Holders and OTP Firms that electronically enter orders before Core
Trading Hours \7\ begin in a multitude of option series with an
optional risk protection mechanism for the Exchange to automatically
cancel Marketable orders on their behalf. OTP Holders and OTP Firms
could submit requests to cancel such orders themselves, but would have
to monitor which series have been opened on the Exchange. The proposed
optional functionality would reduce operational risk for OTP Holders
and OTP Firms that sent orders in multiple series by providing them
with a bulk cancel feature that would instruct the Exchange to cancel
orders on their behalf if a series has not been opened by a specified
time. Specifically, rather than have Marketable orders remain
unexecuted on the Consolidated Book if the option series has not opened
on the Exchange within a specified time period, OTP Holders and OTP
Firms would have the option to instruct the Exchange to cancel such
orders back to the OTP Holder/OTP Firm. Once cancelled back, the OTP
Holder/OTP Firm could choose to re-enter such orders on an exchange
that has opened that series for trading.
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\6\ The Exchange proposes a non-substantive amendment to Rule
6.64-O to renumber current subparagraph (d) to that Rule as
subparagraph (e).
\7\ The term ``Core Trading Hours'' is defined in Rule 6.1A-
O(a)(3) to mean the regular trading hours for business set forth in
the rules of the primary markets underlying those option classes
listed on the Exchange.
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The Exchange further proposes to provide that the Exchange would
not cancel any Marketable orders received after the designated time
period ends, even if the series has not yet opened. The Exchange
believes that if an OTP Holder or OTP Firm sends an order in an option
series to the Exchange after Core Trading Hours begin, and more than
the designated time period after the primary market for the underlying
security has opened (i.e., the series open trigger), such OTP Holder/
OTP Firm should be aware that the Exchange has not opened that series
for trading when it sends the order to the Exchange, and therefore
intends for such order to be sent to the Exchange even though it has
not yet opened that series for trading.
Proposed Rule 6.64-O(d) would also provide that the designated time
period would be two minutes, unless determined otherwise by the
Exchange and announced to OTP Holders and OTP Firms via Trader Update,
in which case the designated time period would not be greater than five
minutes. The Exchange believes that a two-minute period would provide
time for Market Makers to update their quotes after the Exchange
receives the series open trigger so that the bid-ask differential in an
option series can be within an acceptable range and therefore the
series can open for trading on the Exchange. Specifically, the Exchange
has observed that on a typical trading day, nearly 98% of all series
are opened by 9:32 a.m. Eastern Time, and nearly 99% of all series are
opened by 9:35 a.m. Eastern Time. By waiting two minutes before
cancelling orders, the Exchange believes that the majority of series
would be opened, thereby minimizing the number of series where there
would be a bulk cancel of Marketable orders. In addition, OTP Holders
and OTP Firms that want to cancel orders less than two minutes after
the series open trigger would still be able to submit requests to
cancel individual orders. The Exchange further believes that it is
appropriate to provide the Exchange with the ability to adjust the
designated time period via Trader Update to no more than five minutes
because it would provide additional flexibility for the Exchange to
respond to the needs of OTP Holders and OTP Firms to implement the
instruction to cancel Marketable orders on a different time basis. The
Exchange believes that a cap of five minutes would be reasonable
because very few series remain
[[Page 66371]]
unopened five minutes after the series open trigger. The Exchange notes
that this is an optional instruction, and therefore no OTP Holder nor
OTP Firm is required to use this proposed new risk feature. The
Exchange further notes that Exchange flexibility in connection with
designating time periods for risk limitation measures is consistent
with current Exchange rules.\8\
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\8\ See, e.g., Commentary .03 to Rule 6.40-O (Risk Limitation
Mechanism) (providing that the Exchange will ``specify via Trader
Update any applicable time period(s) for the Risk Limitation
Mechanisms; provided, however, that the Exchange will not specify a
time period of less than 100 milliseconds, inclusive of the duration
of any trading halt occurring within that time''). The Exchange also
provides for flexibility in its rules for other risk mechanism
parameters. See, e.g., Rule 6.60-O(b) (``Unless determined otherwise
by the Exchange and announced to OTP Holders and OTP Firms via
Trader Update, the specified percentage shall be as follows: 100%
for the contra-side NBB or NBO priced at or below $1.00; and 50% for
the contra-side NBB or NBO priced above $1.00.'')
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Finally, proposed Rule 6.64-O(d) would provide that this
instruction would not be available for orders entered by Floor Brokers
via the Electronic Order Capture System.\9\ The current EOC provider
could not systemically apply the proposed optional instruction on a
firm-by firm basis and therefore it would not be available to
individual Floor Brokers. The Exchange believes that because of the
unique role of Floor Brokers on the Exchange to provide manual, high-
touch services on behalf of customers, Floor Brokers should not need
this optional feature. Specifically, unlike an off-Floor OTP Holder/OTP
Firm that may be relying on an algorithm to send orders in a multitude
of series, a Floor Broker that provides high-touch services would be
present on the Trading floor and in a position to monitor whether the
Exchange has opened a series, and if not, whether to cancel an order
that becomes Marketable.
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\9\ As defined in Rule 6.1-O(b)(39), the term ``Electronic Order
Capture System'' or ``EOC'' means the Exchange's electronic audit
trail and order tracking system that provides an accurate time-
sequenced record of all orders and transactions on the Exchange. As
further defined, the EOC includes the electronic communications
interface between EOC booth terminals and the Floor Broker Hand Held
applications and also contains an electronic order entry screen.
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The Exchange will announce via Trader Update when this proposed
optional feature will be available, which, subject to effectiveness of
this proposed rule change, the Exchange anticipates will be in the
fourth quarter of 2021.
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 \10\ in general,
and furthers the objectives of Sections 6(b)(4) and (5) of the Act,\11\
in that it is designed to promote just and equitable principles of
trade, remove impediments to and perfect the mechanism of a free and
open market and a national market system and, in general, to protect
investors and the public interest.
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\10\ 15 U.S.C. 78f(b).
\11\ 15 U.S.C. 78f(b)(4) and (5).
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The Exchange believes that the proposed rule change would remove
impediments to and perfect the mechanism of a free and open market and
a national market system because it is designed to provide OTP Holders
and OTP Firms with an optional risk protection mechanism to instruct
the Exchange to cancel Marketable orders in an option series on their
behalf if that series has not opened on the Exchange within a specified
time period. The Exchange does not open a series if Market Makers have
not quoted within the acceptable range of bid-ask differentials as
specified in Rule 6.37-O(b)(4). However, it is possible that another
exchange, with different opening process rules, could have opened that
series for trading even if the Exchange does not. If an order that an
OTP Holder or OTP Firm sent to the Exchange before Core Trading Hours
begins becomes Marketable on another exchange before the Exchange opens
that series for trading, such OTP Holder/OTP Firm could choose to
cancel the order and then send it to the other exchange. By providing
OTP Holders and OTP Firms with an option to instruct the Exchange to
cancel their Marketable orders in a series under the specified
circumstances, the Exchange would perform this monitoring function on
behalf of OTP Holders and OTP Firms, thereby reducing their operational
risk.
The Exchange believes that it would remove impediments to and
perfect the mechanism of a free and open market and a national market
system to provide that such instructions would not be applicable to
Marketable orders received after the designated time period ends
because the Exchange believes that OTP Holders and OTP Firms that send
orders to the Exchange more than a specified period after series open
trigger should be aware that the Exchange has not yet opened that
series for trading. Therefore, any orders sent after that designated
time period ends were likely purposefully directed to the Exchange even
though the Exchange has not yet opened that series for trading.
The Exchange believes that the proposed designated time period of
two minutes would remove impediments to and perfect the mechanism of a
free and open market and a national market system because it is
designed to provide time for Market Makers to update their quotes so
that the bid-ask differential in an option series is within an
acceptable range and therefore the series can open for trading on the
Exchange. The Exchange believes that the proposed two-minute period is
reasonable because on a typical trading day, approximately 98% of all
series that trade on the Exchange are open. OTP Holders and OTP Firms
that want to cancel orders less than two minutes after the series open
trigger would still be able to submit requests to cancel individual
orders. The Exchange further believes that providing the Exchange with
flexibility to change the designated time period via Trader Update,
provided that it would never be longer than five minutes, would enable
the Exchange to respond to the needs of OTP Holders and OTP Firms to
implement the instruction to cancel Marketable orders on a different
time basis. The Exchange believes that the proposed cap of five minutes
would remove impediments to and perfect the mechanism of a free and
open market and a national market system because on a typical day,
approximately 99% of all series are opened by 9:35 a.m. Eastern Time.
The Exchange further notes that this proposed risk mechanism would be
optional, and therefore OTP Holders and OTP Firms would not be required
to request that the Exchange cancel unexecuted Marketable orders on
their behalf if a series has not opened within the designated time
period. In addition, Exchange flexibility in connection with
designating time periods for risk limitation measures is consistent
with current Exchange rules.\12\
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\12\ See supra note 8.
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Finally, the Exchange believes that the proposal that the optional
instruction would not be available for orders entered by Floor Brokers
via the EOC would remove impediments to and perfect the mechanism of a
free and open market and a national market system because the current
EOC provider could not systemically apply the proposed optional
instruction on a firm-by firm basis. The instruction could therefore
not be segregated by individual Floor Brokers that each use the EOC.
The Exchange believes that because of the unique role of Floor Brokers
on the Exchange to provide manual, high-touch services on behalf of
customers, Floor Brokers should not need this optional bulk-cancel
feature. Specifically, unlike an off-Floor OTP
[[Page 66372]]
Holder/OTP Firm that may be relying on an algorithm to send orders in a
multitude of series, a Floor Broker that provides high-touch services
would be present on the Trading floor and in a position to monitor
whether the Exchange has opened a series, and if not, whether to cancel
an order that becomes Marketable.
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 does not
believe the proposed rule change would impose any burden on intermarket
competition, as the proposed rule change is designed to provide an
option for OTP Holders and OTP Firms to instruct the Exchange to cancel
Marketable orders if an option series does not open on the Exchange
within a designated time period. The Exchange believes that the
proposed rule change would promote intermarket competition because if
the Exchange cancels such orders on the instruction of an OTP Holder/
OTP Firm, such OTP Holder/OTP Firm could then choose to route such
orders to another exchange that has opened the option series for
trading.
The Exchange does not believe that the proposed rule change would
impose any burden on intramarket competition that is not necessary or
appropriate in furtherance of the purposes of the Act because the
proposed rule change provides for optional functionality. OTP Holders
and OTP Firms would not be required to use this functionality. In
addition, the Exchange believes that because of the unique role of
Floor Brokers on the Exchange to provide manual, high-touch services on
behalf of customers, Floor Brokers should not need this optional bulk-
cancel feature and it would not impose any undue burden on intramarket
competition not to provide this optional feature to Floor Brokers.
Specifically, unlike an off-Floor OTP Holder/OTP Firm that may be
relying on an algorithm to send orders in a multitude of series, a
Floor Broker that provides high-touch services would be present on the
Trading floor and in a position to monitor whether the Exchange has
opened a series, and if not, whether to cancel an order that becomes
Marketable.
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
Because the foregoing proposed rule change does not: (i)
Significantly affect the protection of investors or the public
interest; (ii) impose any significant burden on competition; and (iii)
become operative for 30 days from the date on which it was filed, or
such shorter time as the Commission may designate, it has become
effective pursuant to Section 19(b)(3)(A) of the Act \13\ and Rule 19b-
4(f)(6) thereunder.\14\
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\13\ 15 U.S.C. 78s(b)(3)(A).
\14\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii)
requires a self-regulatory organization to give the Commission
written notice of its intent to file the proposed rule change, along
with a brief description and text of the proposed rule change, at
least five business days prior to the date of filing of the proposed
rule change, or such shorter time as designated by the Commission.
The Exchange has satisfied this requirement.
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A proposed rule change filed under Rule 19b-4(f)(6) \15\ normally
does not become operative prior to 30 days after the date of the
filing. However, pursuant to Rule 19b-4(f)(6)(iii),\16\ the Commission
may designate a shorter time if such action is consistent with the
protection of investors and the public interest. The Exchange has
requested that the Commission waive the 30-day operative delay so that
the proposed rule change may become operative prior to 30 days after
the date of the filing. The Exchange states that waiver of the
operative delay would be consistent with the protection of investors
and the public interest because the proposed rule change, as described
above, would offer OTP Holders and OTP Firms an additional, and
optional, risk limitation feature to instruct the Exchange to cancel
their Marketable orders if the Exchange does not open an option series
within a designated time frame. The Exchange further states that the
technology supporting the proposed rule change will be available prior
to 30 days after the date of the filing, and the Exchange seeks to
implement the proposed rule change without delay. For these reasons,
the Commission believes that waiver of the 30-day operative delay is
consistent with the protection of investors and the public interest.
Accordingly, the Commission hereby waives the operative delay and
designates the proposed rule change operative upon filing.\17\
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\15\ 17 CFR 240.19b-4(f)(6).
\16\ 17 CFR 240.19b-4(f)(6)(iii).
\17\ For purposes only of waiving the 30-day operative delay,
the Commission also has considered the proposed rule's impact on
efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
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At any time within 60 days of the filing of the proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act. If the Commission
takes such action, the Commission shall institute proceedings to
determine whether the proposed rule 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
<bullet> Use the Commission's internet comment form (<a href="http://www.sec.gov/rules/sro.shtml">http://www.sec.gov/rules/sro.shtml</a>); or
<bullet> Send an email to <a href="/cdn-cgi/l/email-protection#7e0c0b121b531d1113131b100a0d3e0d1b1d50191108"><span class="__cf_email__" data-cfemail="4634332a236b25292b2b232832350635232568212930">[email protected]</span></a>. Please include
File Number SR-NYSEArca-2021-98 on the subject line.
Paper Comments
<bullet> Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to File Number SR-NYSEArca-2021-98. 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 (<a href="http://www.sec.gov/rules/sro.shtml">http://www.sec.gov/rules/sro.shtml</a>).
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,
[[Page 66373]]
Washington, DC 20549 on official business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the filing also will be available
for inspection and copying at the principal office of the Exchange. All
comments received will be posted without change. Persons submitting
comments are cautioned that we do not redact or edit personal
identifying information from comment submissions. You should submit
only information that you wish to make available publicly. All
submissions should refer to File Number SR-NYSEArca-2021-98, and should
be submitted on or before December 13, 2021.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\18\
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\18\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-25352 Filed 11-19-21; 8:45 am]
BILLING CODE 8011-01-P
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