Notice2022-01970
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing of Amendment No. 4 and Order Granting Accelerated Approval of a Proposed Rule Change, as Modified by Amendment No. 4, To Adopt New Rules 6.1P-O, 6.37AP-O, 6.40P-O, 6.41P-O, 6.62P-O, 6.64P-O, 6.76P-O, and 6.76AP-O and Amendments to Rules 1.1, 6.1-O, 6.1A-O, 6.37-O, 6.65A-O and 6.96-O
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
February 1, 2022
Issuing agencies
Securities and Exchange Commission
Full Text
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[Federal Register Volume 87, Number 21 (Tuesday, February 1, 2022)]
[Notices]
[Pages 5592-5653]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2022-01970]
[[Page 5591]]
Vol. 87
Tuesday,
No. 21
February 1, 2022
Part III
Securities and Exchange Commission
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Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing of
Amendment No. 4 and Order Granting Accelerated Approval of a Proposed
Rule Change, as Modified by Amendment No. 4, To Adopt New Rules 6.1P-O,
6.37AP-O, 6.40P-O, 6.41P-O, 6.62P-O, 6.64P-O, 6.76P-O, and 6.76AP-O and
Amendments to Rules 1.1, 6.1-O, 6.1A-O, 6.37-O, 6.65A-O and 6.96-O;
Notice
Federal Register / Vol. 87 , No. 21 / Tuesday, February 1, 2022 /
Notices
[[Page 5592]]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-94072; File No. SR-NYSEArca-2021-47]
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing
of Amendment No. 4 and Order Granting Accelerated Approval of a
Proposed Rule Change, as Modified by Amendment No. 4, To Adopt New
Rules 6.1P-O, 6.37AP-O, 6.40P-O, 6.41P-O, 6.62P-O, 6.64P-O, 6.76P-O,
and 6.76AP-O and Amendments to Rules 1.1, 6.1-O, 6.1A-O, 6.37-O, 6.65A-
O and 6.96-O
January 26, 2022.
I. Introduction
On June 21, 2021, NYSE Arca, Inc. (``NYSE Arca'' or the
``Exchange'') filed with the Securities and Exchange Commission
(``Commission'') pursuant to Section 19(b)(1) of the Securities
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a
proposed rule change to adopt new Rules 6.1P-O (Applicability), 6.37AP-
O (Market Maker Quotations), 6.40P-O (Pre-Trade and Activity-Based Risk
Controls), 6.41P-O (Price Reasonability Checks--Orders and Quotes),
6.62P-O (Orders and Modifiers), 6.64P-O (Auction Process), 6.76P-O
(Order Ranking and Display), and 6.76AP-O (Order Execution and Routing)
and proposed amendments to Rules 1.1 (Definitions), 6.1-O
(Applicability, Definitions and References), 6.1A-O (Definitions and
References--OX), 6.37-O (Obligations of Market Makers), 6.65A-O (Limit-
Up and Limit-Down During Extraordinary Market Volatility), and 6.96-O
(Operation of Routing Broker) to reflect the implementation of the
Exchange's Pillar trading technology on its options market. The
proposed rule change was published for comment in the Federal Register
on July 9, 2021.\3\
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release No. 92304 (June 30,
2021), 86 FR 36440 (``Notice'').
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On August 18, 2021, pursuant to Section 19(b)(2) of the Act,\4\ the
Commission designated a longer period within which to approve the
proposed rule change, disapprove the proposed rule change, or institute
proceedings to determine whether to approve or disapprove the proposed
rule change.\5\ On September 28, 2021, the Exchange filed Amendment No.
1 to the proposed rule change, which superseded the proposed rule
change as originally filed in its entirety.\6\ On September 29, 2021,
the Commission published the proposed rule change, as modified by
Amendment No. 1, for notice and comment and instituted proceedings to
determine whether to approve or disapprove the proposed rule change, as
modified by Amendment No. 1.\7\
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\4\ 15 U.S.C. 78s(b)(2).
\5\ See Securities Exchange Act Release No. 92696, 86 FR 47350
(August 24, 2021). The Commission designated October 7, 2021, as the
date by which the Commission shall approve or disapprove, or
institute proceedings to determine whether to approve or disapprove,
the proposed rule change.
\6\ Amendment No. 1 is available on the Commission's website at
<a href="https://www.sec.gov/comments/sr-nysearca-2021-47/srnysearca202147-9304467-259869.pdf">https://www.sec.gov/comments/sr-nysearca-2021-47/srnysearca202147-9304467-259869.pdf</a>.
\7\ See Securities Exchange Act Release No. 93193, 86 FR 55926
(October 7, 2021).
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On December 16, 2021, the Commission desiFgnated a longer period
within which to approve the proposed rule change or disapprove the
proposed rule change, as modified by Amendment No. 1.\8\ On December
16, 2021, the Exchange filed Amendment No. 2 to the proposed rule
change, which superseded the original filing, as amended by Amendment
No. 1, in its entirety.\9\ On January 19, 2022, the Exchange filed
Amendment No. 3 to the proposed rule change, which superseded the
original filing, as amended by Amendment No. 1 and 2, in its entirety.
On January 21, the Exchange withdrew Amendment No. 3 and filed
Amendment No. 4, which superseded the original filing, as amended by
Amendment No. 1, 2, and 3, in its entirety.\10\ The Commission has
received no comments on the proposed rule change.
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\8\ See Securities Exchange Act Release No. 93797, 86 FR 72674
(December 22, 2021).
\9\ Amendment No. 2 is available on the Commission's website at
<a href="https://www.sec.gov/comments/sr-nysearca-2021-47/srnysearca202147-20109876-264219.pdf">https://www.sec.gov/comments/sr-nysearca-2021-47/srnysearca202147-20109876-264219.pdf</a>.
\10\ Amendment No. 4 is available on the Commission's website at
<a href="https://www.sec.gov/comments/sr-nysearca-2021-47/srnysearca202147-20112491-265389.pdf">https://www.sec.gov/comments/sr-nysearca-2021-47/srnysearca202147-20112491-265389.pdf</a>. In Amendment No. 4, compared to the original
proposal, as modified by Amendment No. 1, 2, and 3, the Exchange,
among other things: provides more background information regarding
the proposed rule changes, makes clarifying changes to certain
proposed rules without any substantive differences as compared to
the original filing, and makes the following substantive changes
from the original filing: (1) Adds a definition of Away Market BBO
(ABBO) to replace the term Away Market NBBO; (2) revises the
description of a Market Marker quotation, as described in proposed
Rule 6.37A-O(a)(1); (3) revises how the Specified Threshold would be
calculated for Limit Order Price Protection in proposed Rule 6.62P-
O(a)(3)(A) to include prices equal to the Reference Price; (4)
revises how a Trading Collar would be assigned, as described in
proposed Rule 6.62P-O(4)(A) and (B), to provide that a Trading
Collar would be reassigned to an order after a trading halt, and
makes related changes to proposed Rule 6.64P-O(f)(3)(A)(ii); (5)
revises proposed Rule 6.62P-O(g) to reorganize and streamline the
proposed rule to specify that a Cross Order is a Qualified
Contingent Cross Order and to describe the order type in paragraph
(g)(1)(A) and to add proposed Complex QCC Orders; (6) revises
proposed Rule 6.62P-O(h)(1) to specify that a Clear-the-Book Order
would be entered contemporaneous with executing an order in open
outcry; (7) revises proposed Rule 6.62P-O(i)(2) to specify which
order with a Minimum Trade Size modifier would not be subject to
self-trade prevention modifiers; (8) revises proposed Rule 6.62P-O
to remove the proposed Non-Display Remove Modifier; (9) revises
proposed Rule 6.64P-O(a) to add a definition for the term ``Auction
Price'' and to modify the definition of ``Legal Quote Width''; (10)
revises proposed Rule 6.64P-O(g)(2) to provide that during a trading
halt, any unexecuted quantity of an order for which the 500-
millisecond Trading Collar timer has started would be cancelled;
(11) revises proposed Rule 6.64P-O(d)(3) and (4) to reduce the
length of the proposed Opening MMQ Timers (from one minute to 30
seconds) and reduce the time before commencing opening of a series
when there is a Calculated NBBO that is wider than the Legal Width
Quote in a series (from five minutes to 90 seconds), both of which
measures would shorten the time the Exchange would wait before
automatically opening a series in the specified circumstances; and
(12) revises proposed Rule 6.76AP-O(a)(1)(A) to provide that only
the first LMM quote in time priority would be eligible for the LMM
Guarantee.
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The Commission is publishing this notice to solicit comments on
Amendment No. 4 from interested persons, and is approving the proposed
rule change, as modified by Amendment No. 4, on an accelerated basis.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the self-regulatory organization
included statements concerning the purpose of, and basis for, the
proposed rule change and discussed any comments it received on the
proposed rule change. The text of those statements may be examined at
the places specified in Item IV below. The Exchange has prepared
summaries, set forth in sections A, B, and C below, of the most
significant parts of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule Change
1. Purpose
Background
The Exchange plans to transition its options trading platform to
its Pillar technology platform. The Exchange's and its national
securities exchange affiliates' \11\ (together with the Exchange, the
``NYSE Exchanges'') cash equity markets are currently operating on
Pillar. For this transition, the Exchange proposes to use the same
Pillar
[[Page 5593]]
technology already in operation for its cash equity market. In doing
so, the Exchange will be able to offer not only common specifications
for connecting to both of its cash equity and equity options markets,
but also common trading functions. This Amendment No. 4 supersedes and
replaces Amendment No. 2 to the original filing in its entirety.\12\
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\11\ The Exchange's national securities exchange affiliates are
the New York Stock Exchange LLC (``NYSE''), NYSE American LLC
(``NYSE American''), NYSE National, Inc. (``NYSE National''), and
NYSE Chicago, Inc. (``NYSE Chicago'').
\12\ Amendment No. 4 provides more background information
regarding the proposed rule changes, makes clarifying changes to
certain proposed rules without any substantive differences as
compared to the original filing, and makes the following substantive
changes from the original filing: (1) Added definition of Away
Market BBO (ABBO) to replace the term Away Market NBBO; (2) revises
the description of a Market Marker quotation, as described in
proposed Rule 6.37A-O(a)(1); (3) revises how the Specified Threshold
would be calculated for Limit Order Price Protection in proposed
Rule 6.62P-O(a)(3)(A) to include prices equal to the Reference
Price; (4) revises how a Trading Collar would be assigned, as
described in proposed Rule 6.62P-O(4)(A) and (B), to provide that a
Trading Collar would be reassigned to an order after a trading halt,
and makes related changes to proposed Rule 6.64P-O(f)(3)(A)(ii); (5)
revises proposed Rule 6.62P-O(g) to reorganize and streamline the
proposed rule to specify that a Cross Order is a Qualified
Contingent Cross Order and to describe the order type in paragraph
(g)(1)(A) and to add proposed Complex QCC Orders; (6) revises
proposed Rule 6.62P-O(h)(1) to specify that a Clear-the-Book Order
would be entered contemporaneous with executing an order in open
outcry; (7) revises proposed Rule 6.62P-O(i)(2) to specify which
order with a Minimum Trade Size modifier would not be subject to
self-trade prevention modifiers; (8) revises proposed Rule 6.62P-O
to remove the proposed Non-Display Remove Modifier; (9) revises
proposed Rule 6.64P-O(a) to add a definition for the term ``Auction
Price'' and to modify the definition of ``Legal Quote Width''; (10)
revises proposed Rule 6.64P-O(g)(2) to provide that during a trading
halt, any unexecuted quantity of an order for which the 500-
millisecond Trading Collar timer has started would be cancelled;
(11) revises proposed Rule 6.64P-O(d)(3) and (4) to reduce the
length of the proposed Opening MMQ Timers (from one minute to 30
seconds) and reduce the time before commencing opening of a series
when there is a Calculated NBBO that is wider than the Legal Width
Quote in a series (from five minutes to 90 seconds), both of which
measures would shorten the time the Exchange would wait before
automatically opening a series in the specified circumstances; and
(12) revises proposed Rule 6.76AP-O(a)(1)(A) to provide that only
the first LMM quote in time priority would be eligible for the LMM
Guarantee.
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The Exchange plans to roll out the new technology platform over a
period of time based on a range of underlying symbols, anticipated for
the first quarter of 2022. As was the case for the other NYSE Exchanges
that have transitioned to Pillar, the Exchange anticipates a three-week
roll-out period and will announce by Trader Update \13\ when underlying
symbols will be transitioning to the Pillar trading platform. With this
transition, certain rules would continue to be applicable to options
overlying symbols trading on the current trading platform--the OX
system,\14\ but would not be applicable to options overlying symbols
that have transitioned to trading on Pillar.
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\13\ Trader Updates are available here: <a href="https://www.nyse.com/trader-update/history">https://www.nyse.com/trader-update/history</a>. Anyone can subscribe to email updates of
Trader Updates, available here: <a href="https://www.nyse.com/subscriptions">https://www.nyse.com/subscriptions</a>.
\14\ ``OX'' refers to the Exchange's current electronic order
delivery, execution, and reporting system for designated option
issues through which orders and quotes of Users are consolidated for
execution and/or display. See Rule 6.1A-O(a)(13). ``OX Book'' refers
to the OX's electronic file of orders and quotes, which contain all
of the orders in each of the Display Order and Working Order
processes and all of the Market Makers' quotes in the Display Order
Process. See Rule 6.1A-O(a)(14). With the transition to Pillar, the
Exchange would no longer use the terms ``OX'' or ``OX Book'' and
rules using those terms would not be applicable to trading on
Pillar. Once the transition is complete, the Exchange will file a
subsequent proposed rule change to delete references to OX and OX
Book from the rulebook.
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Instead, the Exchange proposes new rules to reflect how options
would trade on the Exchange once Pillar is implemented. These proposed
rule changes will (1) use Pillar terminology that is based on Exchange
Rule 7-E Pillar terminology governing cash equity trading; (2) provide
for common functionality on both its options and cash equity markets;
and (3) introduce new functionality.
The Exchange notes that certain of the proposed new Pillar rules
concern functionality not currently available on the OX system and that
would be unique to how option contracts trade, and therefore would be
new rules with no parallel version for the Exchange's cash equity
market.
Proposed Use of ``P'' Modifier
As proposed, new rules governing options trading on Pillar would
have the same numbering as current rules that address the same
functionality, but with the modifier ``P'' appended to the rule number.
For example, Rule 6.76-O, governing Order Ranking and Display--OX,
would remain unchanged and continue to apply to any trading in symbols
on the OX system. Proposed Rule 6.76P-O would govern Order Ranking and
Display for trading in options symbols migrated to the Pillar platform.
All other current rules that have not had a version added with a ``P''
modifier will be applicable to how trading functions on both the OX
system and Pillar. Once options overlying all symbols have migrated to
the Pillar platform, the Exchange will file a separate rule proposal to
delete rules that are no longer operative because they apply only to
trading on the OX system.
To reflect how the ``P'' modifier would operate, the Exchange
proposes to add rule text immediately following the title ``Rule 6-O
Options Trading,'' and before ``Rules Principally Applicable to Trading
of Option Contracts'' that would provide that rules with a ``P''
modifier would be operative for symbols that are trading on the Pillar
trading platform. As further proposed, and consistent with the handling
of the transition to Pillar by the Exchange's cash equity platform, if
a symbol (and the option overlying such symbol) is trading on the
Pillar trading platform, a rule with the same number as a rule with a
``P'' modifier would no longer be operative for that symbol.\15\
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\15\ The Exchange used the same description when it transitioned
its cash equity platform to Pillar. See Securities Exchange Act
Release Nos. 75494 (July 20, 2015), 80 FR 44170 (July 24, 2015) (SR-
NYSEArca-2015-38) (Approval Order) and 74951 (May 13, 2015), 80 FR
28721 (May 19, 2015) (``NYSE Arca Equities Pillar Notice'').
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The Exchange believes that adding this explanation regarding the
``P'' modifier in Exchange rules would provide transparency regarding
which rules and definitions would be operative during the symbol
migration to Pillar.
Summary of Proposed Rule Changes
In this filing, the Exchange proposes the following new Pillar
rules: Rules 6.1P-O (Applicability), 6.37AP-O (Market Maker
Quotations), 6.40P-O (Pre-Trade and Activity-Based Risk Controls),
6.41P-O (Price Reasonability Checks--Orders and Quotes), 6.62P-O
(Orders and Modifiers), 6.64P-O (Auction Process), 6.76P-O (Order
Ranking and Display), and 6.76AP-O (Order Execution and Routing). The
Exchange also proposes to amend Rules 1.1 (Definitions), 6.1-O
(Applicability, Definitions and References), and 6.1A-O (Definitions
and References--OX) to reflect definitions that would be applicable for
options trading on Pillar and make conforming amendments to Rules 6.37-
O (Obligations of Market Makers), 6.65A-O (Limit-Up and Limit-Down
During Extraordinary Market Volatility), and 6.96-O (Operation of
Routing Broker). These proposed rules would set forth the foundation of
the Exchange's options trading model on Pillar and, among other things,
would use existing Pillar terminology currently in effect for the
Exchange's cash equity platform.
Because certain proposed rules have definitions and functions that
carry forward to other proposed rules, the Exchange proposes to
describe the new rules in the following order (rather than by rule
number order): Definitions, applicability, ranking and display,
execution and routing, orders and modifiers, market maker quotations,
pre-trade and activity-based risk
[[Page 5594]]
controls, price reasonability checks, and auctions.
To promote clarity and transparency, the Exchange further proposes
to add a preamble to the following current rules specifying that they
would not be applicable to trading on Pillar: Rule 6.1-O
(Applicability, Definitions and References), 6.1A-O (Definitions and
References--OX), Rule 6.37A-O (Market Maker Quotations), 6.40-O (Risk
Limitation Mechanism), 6.60-O (Price Protection--Orders), 6.61-O (Price
Protections--Quotes), 6.62-O (Certain Types of Orders Defined), 6.64-O
(OX Opening Process), 6.76-O (Order Ranking and Display--OX), 6.76A-O
(Order Execution--OX), 6.88-O (Directed Orders), and 6.90-O (Qualified
Contingent Crosses).
As discussed in greater detail below, the Exchange is not proposing
fundamentally different functionality applicable to options trading on
Pillar than on the OX system. However, with Pillar, the Exchange would
introduce new terminology, and as applicable, new or updated
functionality that would be available for options trading on the Pillar
platform.
The Exchange notes that new rules relating to electronic complex
trading on Pillar are addressed in a separate proposed rule change.\16\
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\16\ See Securities Exchange Act Release No. 92563 (August 4,
2021), 86 FR 43704 (August 10, 2021) (Notice of proposed Rule 6.91P-
O, regarding complex order trading on Pillar) (``Complex Pillar
Notice'').
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Proposed Rule Changes
Rule 1.1--Definitions
Rule 1.1 sets forth definitions that are applicable to both the
Exchange's cash equity and options markets. Rule 6.1-O(b) sets forth
definitions that are applicable to the trading of option contracts on
the Exchange. Rule 6.1A-O sets forth definitions that are applicable to
trading on the Exchange's current OX system. In connection with the
transition of options trading to Pillar, the Exchange proposes to copy
the definitions currently set forth in Rules 6.1-O(b) and 6.1A-O into
Rule 1.1, with changes as described below. This proposed rule change
would streamline the Exchange's rules by consolidating definitions that
would be applicable for trading on Pillar into Rule 1.1. Once the
transition to Pillar is complete, the Exchange will file a subsequent
proposed rule change to delete current Rules 6.1-O and 6.1A-O as
discussed further below.
In connection with adding definitions to Rule 1.1, the Exchange
proposes to delete the sub-paragraph numbering currently set forth in
Rule 1.1. The Exchange does not believe that the sub-paragraph
numbering is necessary because the definitions are organized in
alphabetical order and would continue to be organized in alphabetical
order. In addition, removing the sub-paragraph numbering would make any
future amendments to Rule 1.1 easier to process as any new definitions
would simply be added in alphabetical order.
Certain definitions in Rule 1.1 currently specify that they are
only for ``equities'' trading. With the proposed consolidation of
definitions, some of those definitions will become applicable to both
options and cash equity trading, and others will continue to be
applicable only to cash equity trading. With the proposed
consolidation, the Exchange proposes to remove existing language
limiting those definitions to ``equities'' traded on the Exchange if
the definition would be equally applicable to options trading. In
addition, to the extent that a proposed definition would continue to be
applicable only to cash equity trading, the Exchange proposes to make a
global change to update references to ``equities'' traded on the
Exchange to ``cash equity securities'' traded on the Exchange. The
Exchange believes these proposed modifications would add clarity and
consistency to Exchange rules.
The Exchange proposes the following amendments to Rule 1.1.
First, definitions set forth in Rule 6.1-O(b) would be added to
Rule 1.1 in alphabetical order with certain differences described in
greater detail below.\17\ To promote clarity, if the definition that is
being copied is not specifically about options trading, the Exchange
proposes to add an introductory clause to the definition to specify
that the term is for options traded on the Exchange. The Exchange does
not propose to copy the definition of ``Quote with Size,'' which is
currently defined in Rule 6.1-O(b)(33), to Rule 1.1 because that term
would not be used in the Pillar rules, and does not propose to copy the
definition of ``Short Term Options Series,'' because it is duplicative
of Commentary .07 to Rule 6.4-O. In addition, the Exchange is not
including the definition of ``Foreign Broker/Dealer,'' which is
currently defined in Rule 6.1-O(b)(31), in Rule 1.1, as this term is
not used anywhere else in Exchange rules.\18\ The Exchange also
proposes changes to certain definitions that are being copied from Rule
6.1-O(b) to Rule 1.1, as follows:
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\17\ Rule 6.1-O(b) has definitions for: Options Clearing
Corporation, Rules of the Options Clearing Corporation, Clearing
Member, Participating Exchange, Option Contract, Exchange Option
Transaction and Exchange Transaction, Type of Option, Call, Put,
Class of Options, Series of Options, Option Issue, Underlying Stock
or Underlying Security, Exercise Price, Aggregate Exercise Price,
Expiration Month, Expiration Date, Long Position, Short Position,
Opening Purchase Transaction, Opening Writing Transaction, Closing
Sale Transaction, Closing Purchase Transaction, Covered, Uncovered,
Outstanding, Primary Market, Options Trading, Customer, Trading
Crowd, Foreign Broker/Dealer, Exchange-Traded Fund Share, Quote with
Size, Trading Official, Non-OTP Firm or Non-OTP Holder Market Maker,
Firm, Consolidated Book, Crowd Participants, Electronic Order
Capture System, Short Term Option Series, and Quarterly Options
Series. Unless otherwise specified, the Exchange proposes to copy
the definitions from Rule 6.1-O(b) to Rule 1.1 without any
differences.
\18\ The Exchange is not proposing to delete the definitions of
``Quote with Size, ``Foreign Broker/Dealer,'' or ``Short Term
Options Series'' at this time as such terms would be deleted in the
subsequent filing to delete Rule 6.1-O.
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<bullet> The Exchange proposes to amend certain definitions that
are being copied to Rule 1.1 to use the term ``underlying security''
rather than referring separately to an ``underlying stock or Exchange-
Traded Fund Share.'' The Exchange believes that this proposed change
would not make any substantive changes because an Exchange-Traded Fund
Share is a ``security'' as that term is defined in Rule 1.1 (and is
also an NMS stock). Accordingly, the term ``underlying security,'' by
definition, would include Exchange-Traded Fund Shares. The Exchange
proposes to make this change to the following definitions that are
proposed to be added to Rule 1.1: ``Call,'' ``Class of Options,''
``Covered,'' ``Exercise Price,'' ``Primary Market,'' ``Put,'' ``Option
Issue,'' and ``Underlying Stock or Underlying Security.'' \19\
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\19\ The Exchange proposes to make a similar non-substantive
change to delete the term ``Exchange-Trade Fund Share'' in Rule
6.37-O(c).
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<bullet> The Exchange proposes to streamline the definitions of
``Closing Purchase Transaction,'' ``Closing Sale Transaction,''
``Opening Purchase Transaction,'' and ``Opening Writing Transaction''
without any substantive differences, as follows:
[cir] The term ``Closing Purchase Transaction'' is currently
defined in Rule 6.1-O(b)(23) to mean ``an option transaction in which
the purchaser's intention is to reduce or eliminate a short position in
the series of options involved in such transaction.'' The proposed Rule
1.1 definition of this term would be ``a transaction in a series in
which the purchaser intends to reduce or eliminate a short position in
such series.''
[cir] The term ``Closing Sale Transaction'' is currently defined in
Rule 6.1-O(b)(22) to mean an ``option transaction in which the seller's
[[Page 5595]]
intention is to reduce or eliminate a long position in the series of
options involved in such transaction.'' The proposed Rule 1.1
definition of this term would be ``a transaction in a series in which
the seller intends to reduce or eliminate a long position in such
series.''
[cir] The term ``Opening Purchase Transaction'' is currently
defined in Rule 6.1-O(b)(20) to mean ``an option transaction in which
the purchaser's intention is to create or increase a long position in
the series of options involved in such transaction.'' The proposed Rule
1.1 definition of this term would be ``a transaction in a series in
which the purchaser intends to create or increase a long position in
such series.''
[cir] The term ``Opening Writing Transaction'' is currently defined
in Rule 6.1-O(b)(21) to mean ``an option transaction in which the
seller's (writer's) intention is to create or increase a short position
in the series of options involved in such transaction.'' The proposed
Rule 1.1 definition of this term would be ``a transaction in a series
in which the seller (writer) intends to create or increase a short
position in such series.''
<bullet> The Exchange proposes to revise the definition of ``Crowd
Participants,'' which is currently defined in Rule 6.1-O(b)(38) to mean
``the Market Makers appointed to an option issue under Rule 6.35-O, and
any Floor Brokers actively representing orders at the best bid or offer
on the Exchange for a particular option series,'' to not include the
clause ``for a particular option series'' as unnecessary text. The
Exchange considers that the definition of ``Crowd Participants'' as
distinct from the current definition of ``Trading Crowd.''
Specifically, the term ``Trading Crowd'' refers to the physical
location of the trading post for open outcry trading, whereas the term
``Crowd Participants'' refers to the individual Market Makers and Floor
Brokers that comprise the Trading Crowd.\20\
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\20\ For example, current Rule 6.76-O(d) refers to Floor Brokers
representing orders ``in the Trading Crowd,'' i.e., the physical
location for such open outcry trading. By contrast, current Rule
6.76-O(d)(2) refers to the requirement that priority be afforded to
Crowd Participants in accordance with Rule 6.75-O(f), which refers
to the individual Market Makers or Floor Brokers that are located
within the Trading Crowd and that may be eligible for priority. As
discussed below, the Exchange proposes to maintain this distinction
in proposed Rule 6.76P-O(h).
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<bullet> The Exchange proposes to revise the definition of
``Electronic Order Capture System'' to eliminate reference to the
Commission's order Instituting Public Administrative Proceedings
Pursuant to Section 19(h)(1) of the Securities Exchange Act of 1934,
Making Findings and Imposing Remedial Sanctions, which was the initial
authority for the Exchange to specify requirements relating to the
Electronic Order Capture System. The Exchange will continue to include
requirements for the Electronic Order Capture System in its rules and
does not believe it is necessary to continue to cite to the original
authority for this requirement in Exchange rules.
<bullet> The Exchange proposes to streamline the definition of
``Expiration Date'' to eliminate now obsolete language limiting the
definition to options expiring before, on, or after February 15, 2015.
In addition, the Exchange does not propose to include the following
text in the Rule 1.1 definition of ``Expiration Date'':
``Notwithstanding the foregoing, in the case of certain long-term
options expiring on or after February 1, 2015 that the Options Clearing
Corporation has designated as grandfathered, the term ``expiration
date'' shall mean the Saturday immediately following the third Friday
of the expiration month.'' This rule text is now obsolete as the
Exchange does not have any series trading on the Exchange with such
Saturday expiration dates.
<bullet> The Exchange proposes to amend the definition of ``Options
Trading,'' which is currently defined in Rule 6.1-O(b)(28), to delete
the phrase ``issued by the Options Clearing Corporation.'' Accordingly,
the proposed Rule 1.1 definition of ``options trading'' would be as
follows: ``when not preceded by the word `Exchange,' means trading in
any option contract, whether or not approved for trading on the
Exchange.'' The Exchange believes that this proposed change is
immaterial because the Exchange trades only options that have been
issued by the Options Clearing Corporation, and therefore reference to
the OCC is redundant and unnecessary.
<bullet> The Exchange proposes to add to the definition of ``Option
Contract,'' which is currently defined in Rule 6.1-O(b)(5), that option
contracts would be included within the definition of ``security'' or
``securities'' as such terms are used in the Bylaws and Rules of the
Exchange. This proposed text is copied from the last sentence of
current Rule 6.1-O(a). As described below, proposed Rule 6.1P-O would
not include this text. The Exchange believes that adding this text to
the proposed Rule 1.1 definition of ``option contract'' would promote
clarity and transparency in Exchange rules by consolidating related
definitions in a single location.
<bullet> The Exchange proposes to streamline the definition of
``Outstanding'' without any substantive differences. Specifically, the
Exchange proposes to replace the following Rule 6.1-O(b)(26) text,
``has neither been the subject of a closing sale transaction on the
Exchange or a comparable closing transaction on another participating
Exchange nor been exercised nor reached its expiration date,'' with the
following, ``has not been the subject of a closing sale transaction,
exercised, or expired.'' The Exchange believes that the proposed
revised text has the same meaning, with more clear text.
<bullet> The Exchange proposes to modify the definition of
``Routing Agreement'' to replace references to ``NYSE Arca, L.L.C.,''
an entity that no longer exists, with the term ``the Exchange,'' which
is a defined term in Rule 1.1.
<bullet> The Exchange proposes to modify the definition of
``Trading Crowd,'' which is currently defined in Rule 6.1-O(b)(30), to
include Floor Brokers, which change is consistent with how this concept
is defined on other options exchanges.\21\
---------------------------------------------------------------------------
\21\ See, e.g., Cboe Exchange Inc. (``Cboe'') Rule 1.1 (defining
the terms ``in-crowd market participant'' and ``ICMP'' to include
``an in-crowd Market-Maker, an on-floor DPM or LMM with an
allocation in a class, or a Floor Broker or PAR Official
representing an order in the trading crowd on the trading floor'').
---------------------------------------------------------------------------
<bullet> The Exchange proposes to modify the definition of an
``Uncovered'' position, which ``in respect of a short position in an
option contract means that the short position is not covered.'' Because
a ``covered'' position is also defined in proposed Rule 1.1, the
Exchange proposes to add quotation marks around ``covered'' and,
immediately after this term, to add ``as defined above,'' to make clear
the cross-reference is to another defined term, which would add
transparency to the rule text.
Second, definitions set forth in Rule 6.1A-O(a) would be added to
Rule 1.1 in alphabetical order without any substantive differences.\22\
Because certain of these definitions are already set forth in Rule 1.1
for cash equity trading, the Exchange proposes to amend those existing
definitions to specify that they would be applicable to options
trading, and if applicable, set
[[Page 5596]]
forth differences for options trading, as described in more detail
below.
---------------------------------------------------------------------------
\22\ Rule 6.1A-O(a) has definitions for: Authorized Trader, BBO,
Complex BBO, Core Trading Hours, Customer, Professional Customer,
Lead Market Maker, Market Center, Marketable, Market Maker, Market
Maker Authorized Trader, Minimum Price Variation, NBBO, Complex
NBBO, NOW Recipient, OX, OX Book, Routing Broker, Sponsored
Participant, Sponsoring OTP Firm, Sponsorship Provisions, User,
Directed Order Market Maker, and Order Flow Provider.
---------------------------------------------------------------------------
The Exchange does not propose to add the definition of ``Directed
Order Market Maker'' to Rule 1.1 because in Pillar the Exchange would
no longer support Directed Order Market Makers. In addition, the
Exchange does not propose to add the definitions of ``Complex BBO'' or
``Complex NBBO'' to Rule 1.1, and instead has proposed to define terms
relating to complex trading in a separate proposed rule change relating
to electronic complex trading.\23\ The Exchange also does not propose
to add options-related definitions to Rule 1.1 relating to ``Sponsored
Participant,'' ``Sponsoring OTP Firm,'' and ``Sponsorship Provisions''
because there are currently not any Sponsored Participants trading
options on the Exchange, and the Exchange does not propose to
reintroduce this category of participants. As noted above, the terms
``OX'' and ``OX Book'' will not be used in Pillar rules.
---------------------------------------------------------------------------
\23\ See Complex Pillar Notice, supra note 16.
---------------------------------------------------------------------------
Finally, in addition to definitions that are being added to Rule
1.1 without any changes from the defined terms from Rule 6.1A-O(a), the
Exchange proposes the following specific changes to the definitions
that would be included in the Rule 1.1 definitions: \24\
---------------------------------------------------------------------------
\24\ The Exchange also proposes a non-substantive amendment to
the definition of ``Exchange'' to add a period at the end of the
sentence.
---------------------------------------------------------------------------
<bullet> Approved Person: The Exchange proposes a non-substantive
amendment to change the word ``a'' to ``an'' before ``OTP Firm.''
<bullet> Authorized Trader: The Exchange proposes to amend the Rule
1.1 definition of ``Authorized Trader'' to remove the limitation to
equities trading so that it is applicable to both cash equity
securities and options traded on the Exchange, and to add that it can
mean a person who may submit orders to the Exchange's Trading
Facilities on behalf of his or her OTP Holder. These proposed
amendments combine the definition of Authorized Trader currently set
forth in Rule 6.1A-O(a)(1) with the existing Rule 1.1 definition of
Authorized Trader.\25\
---------------------------------------------------------------------------
\25\ The proposed (combined) definition of ``Authorized Trader''
for cash equity and options trading would still include reference to
``Sponsored Participants,'' which remains applicable to cash equity
trading (although, as noted above, is no longer applicable to
options trading).
---------------------------------------------------------------------------
<bullet> Away Market: The Exchange proposes to amend the Rule 1.1
definition of ``Away Market'' to add how that term would be used for
options trading on the Exchange. As proposed, the new text would
provide: ``[w]ith respect to options traded on the Exchange, the term
`Away Market' means any Trading Center (1) with which the Exchange
maintains an electronic linkage, and (2) that provides instantaneous
responses to orders routed from the Exchange.'' This proposed
definition is based on the Rule 6.1A-O(a)(12) definition of ``NOW
Recipient,'' which is currently defined as ``any Market Center (1) with
which the Exchange maintains an electronic linkage, and (2) that
provides instantaneous responses to NOW Orders routed from OX. The
Exchange shall designate from time to time those Market Centers that
qualify as NOW Recipients and shall periodically publish such
information via its website.'' The Exchange proposes four non-
substantive differences for the Pillar options trading definition of
``Away Market'': (1) Use the Pillar term of ``Away Market'' instead of
the term ``NOW Recipient;'' (2) use the term ``Trading Center'' instead
of ``Market Center''; (3) refer to ``orders routed from the Exchange''
instead of ``NOW Orders routed from OX''; and (4) delete the text
relating to the Exchange designating and publishing to its website
certain Away Markets. The Exchange does not believe that this text
needs to be included in the definition of Away Market because such
markets are by definition those with which the Exchange maintains
electronic linkage (i.e., pursuant to the Options Order Protection and
Locked/Crossed Market Plan).
<bullet> ``Away Market BBO'' (``ABBO''): The Exchange proposes to
add a new definition to Rule 1.1 for the Away Market BBO or ABBO which,
with respect to options traded on the Exchange, refers to the best
bid(s) or offer(s) disseminated by Away Markets (defined immediately
below) and calculated by the Exchange based on market information the
Exchange receives from OPRA.\26\ Consistent with this proposal, the
Exchange also proposes that the term ``ABB'' would mean the best Away
Market bid and the term ``ABO'' would mean the best Away Market offer.
The Exchange notes that the proposed definition of ABBO is consistent
with how this concept is defined on other options exchanges.\27\
---------------------------------------------------------------------------
\26\ See, e.g., infra, discussion regarding proposed Rule 6.62P-
O(a)(1)(A)(iii), which would use the term ``ABBO'' when referring to
a calculation of the national best bid and best offer that does not
include the Exchange's BBO.
\27\ See, e.g., Cboe Rule 1.1. (defining the term ``ABBO'' to
means ``the best bid(s) or offer(s) disseminated by Eligible
Exchanges (as defined in [Cboe] Rule 5.65) and calculated by the
Exchange based on market information the Exchange receives from
OPRA''). The Exchange notes that Cboe's reference to Eligible
Exchanges is substantively the same as the Exchange's reference to
``Away Markets.''
---------------------------------------------------------------------------
In addition, the Exchange proposes that it would adjust its
calculation of the ABBO for options traded on the Exchange in the same
manner that the Exchange would calculate the NBBO (as described below).
Accordingly, the Exchange proposes that, unless otherwise specified,
the Exchange may adjust its calculation of the ABBO based on
information about orders it sends to Away Markets, execution reports
received from those Away Markets, and certain orders received by the
Exchange.\28\ This proposed text reflects how the Exchange currently
calculates the ABBO for options trading and uses text based on Rule
7.37-E(d)(2) to use Pillar terminology to describe current
functionality.\29\ The Exchange believes that including this detail in
the proposed definition of ABBO would promote clarity and transparency
in Exchange rules.
---------------------------------------------------------------------------
\28\ Although the Exchange has not presently identified any
circumstances under which it would use an unadjusted ABBO, it has
included the ``[u]nless otherwise specified'' text to allow for this
possibility. Should the Exchange opt to utilize an unadjusted ABBO
for purposes of a specified rule, it would file a subsequent rule
change to this effect.
\29\ See Securities Exchange Act Release No. 91564 (April 14,
2021), 86 FR 20541 (April 20, 2021) (SR-NYSEArca-2021-21) (Notice of
filing and immediate effectiveness of proposed rule change to
specify when the Exchange may adjust its calculation of the PBBO).
---------------------------------------------------------------------------
<bullet> BBO: The Exchange proposes to amend the Rule 1.1
definition of ``BBO'' to add how that term would be used for options
trading on the Exchange. As proposed, with respect to options traded on
the Exchange, BBO would mean the best displayed bid or best displayed
offer on the Exchange. This definition is based on the Rule 6.1A-
O(a)(2)(a) definition of BBO, which currently defines BBO as the ``best
bid or offer on OX.'' The Exchange believes that the proposed
difference would add granularity to be clear that non-displayed quotes
and orders would not be included in the BBO, which is consistent with
current functionality.\30\ The Exchange also proposes to use the term
``Exchange'' instead of ``OX.''
---------------------------------------------------------------------------
\30\ For determining the BBO for cash equities trading, the
Exchange considers ``the best bid or offer that is a protected
quotation on the NYSE Arca Marketplace,'' which ``protected
quotations'' are, by definition, displayed. Thus, only displayed
interest in included in the Exchange's calculation of the BBO on
both its options and cash equities markets. See proposed Rule 1.1
(defining Protected Bid, Protected Offer, Protected Quotation) and
current Rule 1.1 (ss) (defining same).
---------------------------------------------------------------------------
<bullet> Consolidated Book: The term ``Consolidated Book'' is
currently defined in Rule 6.1-O(b)(37) \31\ and the
[[Page 5597]]
term ``OX Book'' is currently defined in Rule 6.1A-O(a)(14).\32\ For
Pillar, the Exchange proposes to define the term ``Consolidated Book''
in Rule 1.1 to mean the Exchange's electronic book of orders and quotes
and state that all orders and quotes that are entered into the
Consolidated Book would be ranked and maintained in accordance with the
rules of priority, as provided for in proposed Rule 6.76P-O. This
proposed definition uses terminology similar to the existing Rule 1.1
definition of ``NYSE Arca Book,'' which would be amended to specify
that the definition would only be for cash equity securities traded on
the Exchange. The Exchange believes that the proposed definition of
``Consolidated Book'' for options trading on Pillar is not
substantively different from either the current Rule 6.1-O definition
of ``Consolidated Book'' or the current Rule 6.1A-O definition of ``OX
Book.'' Rather, the changes are designed to eliminate text that would
not be applicable on Pillar without changing the substance of the
proposed definition and would use more streamlined text to describe the
Exchange's electronic order book. For example, the Exchange is not
proposing to copy from Rule 6.1-O(b)(37) the (now antiquated) provision
that ``[t]here is no limit to the size of orders or quotes that may be
entered into the Consolidated Book'' because other options exchanges do
not specify any capacity limit to orders and quotes in their defined
terms relating to their electronic books.\33\ Further, the Exchange
believes that the proposed use of the phrase ``electronic book of
orders and quotes'' makes clear that the Consolidated Book would
include all orders and quotes, including orders from both ``Public
Customers and broker-dealers,'' and it is not necessary to separately
reference what entity may be entering orders. In addition, as noted
above, the Exchange does not propose to use the term ``Quote with
Size'' in connection with options trading on Pillar and therefore does
not propose to include reference to that term in the Pillar proposed
definition for ``Consolidated Book.'' And, as described in greater
detail below in connection with proposed Rule 6.76P-O, on Pillar, the
Exchange does not propose to use the terms ``Display Order and Working
Order Processes'' and therefore these terms would not be included in
the Rule 1.1 definition of Consolidated Book.
---------------------------------------------------------------------------
\31\ The term ``Consolidated Book'' is currently defined as
``the Exchange's electronic book of limit orders for the accounts of
Public Customers and broker-dealers, and Quotes with Size. All
orders and Quotes with Size that are entered into the Book will be
ranked and maintained in accordance with the rules of priority as
provided in Rule 6.76-O. There is no limit to the size of orders or
quotes that may be entered into the Consolidated Book.''
\32\ See supra note 14 (noting that the term ``OX Book'' is
currently defined as ``the OX's electronic file of orders and
quotes, which contains all of the orders in each of the Display
Order and Working Order Processes and all of the Market Makers'
quotes in the Display Order Process'').
\33\ See, e.g., Cboe Rule 1.1. (defining ``Book'' and ``Simple
Book'' as referring to ``the electronic book of simple orders and
quotes maintained by the System, which single book is used during
both the RTH and GTH trading sessions,'' without reference to any
size limitations); MIAX Options Exchange (``MIAX'') Rule 100
(defining ``Book'' as referring to ``the electronic book of buy and
sell orders and quotes maintained by the System,'' without reference
to any size limitations).
---------------------------------------------------------------------------
<bullet> Core Trading Hours: The Exchange proposes that the current
definition of Core Trading Hours in Rule 1.1, which is defined as ``the
hours of 9:30 a.m. Eastern Time through 4:00 p.m. (Eastern Time) or
such other hours as may be determined by the Exchange from time to
time,'' would be applicable to both cash equity securities and options
trading on the Exchange. Because options trading may extend past 4:00
p.m., the Exchange proposes to amend Rule 1.1 to provide that for
options traded on the Exchange, transactions may be effected on the
Exchange for an equity options class until close of trading of the
Primary Market for the securities underlying an options class. This
proposed text is based on current Rule 6.1A-O(a)(3).\34\
---------------------------------------------------------------------------
\34\ Rule 6.1A-O(a)(3) currently defines ``Core Trading Hours''
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; provided, however, that transactions may be
effected on the Exchange until the regular time set for the normal
close of trading in the primary markets with respect to equity
option classes and ETF option classes, and 15 minutes after the
regular time set for the normal close of trading in the primary
markets with respect to index option classes, or such other hours as
may be determined by the Exchange from time to time.'' The Exchange
does not propose to include in the Rule 1.1 definition of Core
Trading Hours for options trading the current text regarding trading
that continues 15 minutes after the regular time set for the normal
close of trading in the primary markets with respect to index
options classes, as this is already addressed in Rule 5.20-O(a)
(Trading Sessions).
---------------------------------------------------------------------------
<bullet> Customer and Professional Customer: The Exchange proposes
to amend Rule 1.1 to add the definitions of ``Customer'' and
``Professional Customer.'' The proposed definitions use the same text
as the definitions of Customer and Professional Customer set forth in
Rules 6.1A-O(a)(4) and (4A) with non-substantive differences only to
specify that these definitions would be applicable for options traded
on the Exchange, eliminate redundant headers,\35\ and re-number the
sub-paragraphs. The Exchange also proposes to include a cross-reference
to the definition of a broker or dealer as defined in Sections 3(a)(4)
and 3(a)(5) of the Exchange Act and rules thereunder, which specificity
adds clarity and transparency to the proposed definition. The Exchange
notes that the proposed definition of Customer is consistent with how
this concept is defined on other options exchanges.\36\
---------------------------------------------------------------------------
\35\ The Exchange proposes that the Rule 1.1 definition of
Professional Customer would not include the sub-header of
``Calculation of Professional Customer Orders'' as redundant of the
following text in the rule that would provide ``[e]xcept as noted
below, each order of any order type counts as one order for
Professional order counting purposes.''
\36\ See, e.g., Cboe Rule 1.1. (defining ``Public Customer'' as
referring to ``a person that is not a Broker-Dealer). Thus, the
Exchange does not propose to add to Rule 1.1 the definition of
``Customer'' that is set forth in Rule 6.1-O(b)(29) (which simply
cross-references ``paragraph (c)(6) of Rule 15c3-1 under the
Securities Exchange Act of 1934, as amended'') as unnecessary and
potentially confusing.
---------------------------------------------------------------------------
<bullet> Floor: The Exchange proposes to amend the Rule 1.1
definition of ``Floor,'' which refers to the options trading floor, to
include the synonymous defined terms ``Trading Floor'' and ``Options
Trading Floor,'' which terms are used throughout existing Exchange
rules and make one change to remove the term ``shall.'' These proposed
changes would add clarity and consistency to Exchange rules.
<bullet> Lead Market Maker: The Exchange proposes to amend the Rule
1.1 definition of ``Lead Market Maker'' to add how that term would be
used for options trading. As proposed, the new text would provide that
for options traded on the Exchange, the term ``Lead Market Maker'' or
``LMM'' would ``mean a person that has been deemed qualified by the
Exchange for the purpose of making transactions on the Exchange in
accordance with Rule 6.82-O. Each LMM must be registered with the
Exchange as a Market Maker. Any OTP Holder or OTP Firm registered as a
Market Maker with the Exchange is eligible to be qualified as an LMM.''
This proposed definition is based on the Rule 6.1A-O(a)(5) definition
of Lead Market Maker without any substantive differences. The Exchange
proposes one non-substantive difference to use the term ``person''
instead of ``individual or entity,'' because the term ``person,'' as
currently defined in Rule 1.1, is inclusive of natural persons and
entities.
<bullet> Marketable: The Exchange proposes to amend the Rule 1.1
definition of ``Marketable'' to extend it to address options traded on
the Exchange by deleting the phrase ``[w]ith respect to equities traded
on the Exchange.'' \37\ The
[[Page 5598]]
current description of the term ``Marketable,'' for purposes of Market
Orders, is the same in both Rules 1.1 and 6.1A-O(a)(7).\38\
Accordingly, the existing Rule 1.1 text relating to the term
``Marketable'' with respect to Market Orders would be applicable to
options trading without any differences. With respect to Limit Orders,
in Rule 1.1, the term ``Marketable'' currently means an order that can
be immediately executed or routed. The current Rule 6.1A-O(a)(7)
definition of the term ``Marketable'' for Limit Orders means when the
price of the order matches or crosses the NBBO on the other side of the
market. The current Rule 1.1 definition relating to Limit Orders means
substantively the same thing as the current Rule 6.1A-O(a)(7)
description for Limit Orders, and the Exchange proposes to use the
existing Rule 1.1 definition of the term ``Marketable'' for both cash
equity and options trading of Limit Orders. The Exchange also proposes
a non-substantive amendment to add a comma after the phrase, ``the term
`Marketable' means'' and before ``for a Limit Order.''
---------------------------------------------------------------------------
\37\ The term ``Marketable'' is currently defined in Rule 1.1 to
mean, ``[w]ith respect to equities traded on the Exchange, the term
`Marketable' means for a Limit Order, an order that can be
immediately executed or routed. Market Orders are always considered
marketable.''
\38\ The term ``Marketable'' is currently defined in Rule 6.1A-
O(a)(7) for options trading 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.''
---------------------------------------------------------------------------
<bullet> Market Maker: The Exchange proposes to amend the Rule 1.1
definition of ``Market Maker'' to add how that term would be used for
options trading. As proposed, the new text would provide that for
options traded on the Exchange, the term ``Market Maker'' would refer
``to an OTP Holder or OTP Firm that acts as a Market Maker pursuant to
Rule 6.32-O.'' This proposed definition is based on the Rule 6.1A-
O(a)(8) definition of Market Maker, which is defined as ``an OTP Holder
or OTP Firm that acts as a Market Maker pursuant to Rule 6.32-O.''
Accordingly, the proposed Rule 1.1 definition of the term ``Market
Maker'' for options trading would not have any differences from the
current Rule 6.1A-O definition. The Exchange also proposes to include
in the Rule 1.1 definition of Market Maker for options trading that for
purposes of Exchange rules, the term Market Maker includes Lead Market
Makers, unless the context otherwise indicates. This proposed text is
based on Rule 6.1-O(c), References, with a non-substantive difference
to use the term ``Exchange'' instead of ``NYSE Arca.'' The Exchange
believes this proposed change would streamline and clarify this
definition by consolidating definitions relating to Market Makers in a
single location.
<bullet> Market Maker Authorized Trader: The Exchange proposes to
amend the Rule 1.1 definition of ``Market Maker Authorized Trader'' to
add how that term would be used for options trading. As proposed, the
new text would provide that for options traded on the Exchange, the
term ``Market Maker Authorized Trader'' or ``MMAT'' would ``mean an
authorized trader who performs market making activities pursuant to
Rule 6-O on behalf of an OTP Firm or OTP Holder registered as a Market
Maker.'' This proposed definition is based on the Rule 6.1A-O(a)(9)
definition of Market Maker Authorized Trader without any differences.
<bullet> Market Participant Identifier (``MPID''): The Exchange
proposes to add a new definition to Rule 1.1 for ``Market Participant
Identifier (`MPID').'' This term is currently used in, but not defined
in, Rules 7.19-E and 7.31-E(i)(2) for cash equities trading. Because
this term would also be used for options trading on Pillar, the
Exchange believes that defining this term in Rule 1.1 would promote
clarity and transparency. The proposed definition would provide that
``Market Participant Identifier'' or ``MPID'' refers to the identifier
assigned to the orders and quotes of a single ETP Holder, OTP Holder,
or OTP Firm for the execution and clearing of trades on the Exchange by
that permit holder. The definition would further provide that an ETP
Holder, OTP Holder, or OTP Firm may obtain multiple MPIDs and each such
MPID may be associated with one or more sub-identifiers of that MPID.
The Exchange believes that using the term MPID on the Exchange for
options trading would promote clarity as this is an identifier commonly
used by members of exchanges and the Exchange believes that using this
term for its OTP Holders and OTP Firms would promote consistency,
particularly for those firms that are also ETP Holders on the Exchange.
<bullet> Minimum Price Variation or MPV: The Exchange proposes to
amend Rule 1.1 to add the definition of ``Minimum Price Variation'' or
``MPV'' for both cash equity securities and options that are traded on
the Exchange. The Exchange proposes that the term ``Minimum Price
Variation'' or ``MPV'' means the minimum price variations established
by the Exchange. The Exchange further proposes that the MPVs for
quoting cash equity securities traded on the Exchange are set forth in
Rule 7.6-E. The Exchange further proposes that the MPVs for quoting and
trading options traded on the Exchange are set forth in Rule 6.72-O(a).
The proposed definition as it relates to options trading is based on
the Rule 6.1A-O(a)(10) definition of MPV, which defines the term
``Minimum Price Variation'' to mean ``the variations established by the
Exchange pursuant to Rule 6.72-O(a).'' Similar to this current rule,
the proposed Rule 1.1 definition of MPV for options trading would cross
reference Rule 6.72-O(a). The Exchange proposes a difference to add
reference to ``quoting and trading options'' to distinguish how the MPV
for options would be determined from how the MPV for quoting cash
equity securities would be determined.
<bullet> NBBO: The Exchange proposes to amend the Rule 1.1
definition of ``NBBO, Best Protected Bid, Best Protected Offer,
Protected Best Bid and Offer (PBBO)'' to add how the term NBBO would be
used for options trading. The Exchange proposes that: ``[w]ith respect
to options traded on the Exchange, the term `NBBO' means the national
best bid or offer. The terms `NBB' means the national best bid and
`NBO' means the national best offer.'' This proposed definition
includes the current definition of NBBO from Rule 6.1A-O(a)(11)(a),
which defines that term as ``the national best bid or best offer.'' The
Exchange proposes to add the terms ``NBB'' and ``NBO'' as clarifying
terms for options trading.
In addition, the Exchange proposes that, unless otherwise
specified, for options trading, the Exchange may adjust its calculation
of the NBBO based on information about orders it sends to Away Markets,
execution reports received from those Away Markets, and certain orders
received by the Exchange. This proposed text reflects how the Exchange
currently calculates the NBBO for options trading and is based on how
the PBBO is calculated on the Exchange's cash equity market, as
described in Rule 7.37-E(d)(2).\39\ The Exchange proposes that it would
adjust its calculation of the NBBO for options traded on the Exchange
in the same manner that the Exchange calculates the PBBO for cash
equity securities traded on the Exchange. The Exchange believes that
adding this detail to the proposed definition of NBBO would promote
clarity and transparency in Exchange rules. The Exchange further notes
that there are limited circumstances when
[[Page 5599]]
the Exchange would not adjust its calculation of the NBBO and would
determine the NBBO for options in the same way that the Exchange
determines the NBBO for cash equity securities traded on the Exchange.
As described in detail below, the Exchange will specify in its rules
when it would not be using an adjusted NBBO for purposes of a specific
rule.
---------------------------------------------------------------------------
\39\ See Securities Exchange Act Release No. 91564 (April 14,
2021), 86 FR 20541 (April 20, 2021) (SR-NYSEArca-2021-21) (Notice of
filing and immediate effectiveness of proposed rule change to
specify when the Exchange may adjust its calculation of the PBBO).
---------------------------------------------------------------------------
<bullet> NYSE Arca Book: The Exchange proposes to amend the Rule
1.1 definition of ``NYSE Arca Book'' to specify that this term is
applicable only for cash equity securities traded on the Exchange. As
noted above, the Exchange uses the term ``Consolidated Book'' for
options traded on the Exchange and would continue to use that term on
Pillar for options trading.
<bullet> NYSE Arca Marketplace: The Exchange proposes to amend the
Rule 1.1 definition of ``NYSE Arca Marketplace'' to specify that this
term is applicable only for cash equity securities traded on the
Exchange.
<bullet> Order Flow Provider or OFP: The Exchange proposes to add
the definition of ``Order Flow Provider or OFP'' to Rule 1.1 to mean
``any OTP Holder that submits, as agent, orders to the Exchange.'' This
proposed definition is based on the Rule 6.1A-O(a)(21) definition of
``Order Flow Provider'' without any differences.
<bullet> Trading Center: The Exchange proposes to amend the Rule
1.1 definition of ``Trading Center'' to add how this term would be used
for options trading. As proposed: ``[w]ith respect to options traded on
the Exchange, for purposes of Rule 6-O, the term ``Trading Center''
means a national securities exchange that has qualified for
participation in the Options Clearing Corporation pursuant to the
provisions of the rules of the Options Clearing Corporation.'' This
proposed definition is based on the Rule 6.1A-O(a)(6) definition of
``Market Center'' with a non-substantive difference to use the term
``Trading Center'' instead of ``Market Center.''
<bullet> User: The Exchange proposes to amend the Rule 1.1
definition of ``User'' to add how this term would be used for options
trading. As proposed: ``[w]ith respect to options traded on the
Exchange, the term `User' shall mean any OTP Holder or OTP Firm who is
authorized to obtain access to the Exchange pursuant to Rule 6.2A-O.''
This proposed definition is based on the Rule 6.1A-O(a)(19) definition
of User, with one difference not to include the reference to Sponsored
Participant, which, as described above, is no longer used in connection
with options trading.
<bullet> User Agreement: The Exchange proposes a non-substantive
amendment to the Rule 1.1 definition of ``User Agreement'' to replace
the term ``NYSE Arca, L.L.C'' with the term the ``Exchange.''
In addition to proposed amendments to Rule 1.1, the Exchange
proposes to amend Rule 6.96-O to add the definition of ``Routing
Broker,'' which is currently defined in Rule 6.1A-O(a)(15) to mean
``the broker-dealer affiliate of NYSE Arca, Inc. and/or any other non-
affiliate that acts as a facility of NYSE Arca, Inc. for routing orders
entered into OX of OTP Holders, OTP Firms and OTP Firms' Sponsored
Participants to other Market Centers for execution whenever such
routing is required by NYSE Arca Rules.'' For options trading on
Pillar, the Exchange proposes to define the term in Rule 6.96-O
(Operation of a Routing Broker) to mean ``the broker-dealer affiliate
of the Exchange and/or any other non-affiliate that acts as a facility
of the Exchange for routing orders submitted to the Exchange to other
Trading Centers for execution whenever such routing is required by
Exchange Rules and federal securities laws.'' \40\ The proposed rule
text is based on the current definition in Rule 6.1A-O(a)(15), with
non-substantive differences to streamline the definition and to use
Pillar terminology. Specifically, the Exchange does not propose to
include terms that would no longer be applicable to trading on Pillar,
including reference to OX, Market Centers, and Sponsored Participants.
The Exchange notes that including the definition of ``Routing Broker''
in its rule governing the operation of the routing broker is consistent
with the Exchange's cash equity rules, which also defines the term
``Routing Broker'' in Rule 7.45-E(a) (Operation of Routing Broker).
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\40\ The Exchange also proposes non-substantive amendments to
Rule 6.96-O to refer to ``the Exchange,'' a defined term in Rule 1.1
(rather than NYSE Arca, Inc.) and to renumber current paragraphs
(a), (b), and (c), as paragraphs (b), (c), and (d).
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In connection with the proposed amendments to Rule 1.1, the
Exchange proposes to add the following preamble to Rule 6.1A-O: ``This
Rule is not applicable to trading on Pillar.'' This proposed preamble
is designed to promote clarity and transparency in Exchange rules that
Rule 6.1A-O would not be applicable to trading on Pillar.
Proposed Rule 6.1P-O: Applicability
Current Rule 6.1-O sets forth the applicability, definitions, and
references in connection with options trading. As noted above, the
definitions in Rule 6.1-O(b) and reference in Rule 6.1-O(c) to LMMs
being included in the definition of Market Maker will be copied to
proposed Rule 1.1 for purposes of trading on Pillar.
The Exchange proposes new Rule 6.1P-O to include only those
portions of Rule 6.1-O relating to applicability of Exchange Rules that
would continue to be applicable after the transition to Pillar.
Proposed Rule 6.1P-O(a) would be identical to the first two sentences
of current Rule 6.1-O(a). As noted above, the proposed definition of
``option contract'' would incorporate the final sentence of Rule 6.1-
O(a), which states that option contracts are included in the definition
of ``security'' or ``securities.'' Accordingly, the Exchange does not
propose to include this text in proposed Rule 6.1P-O(a).
Proposed Rule 6.1P-O(b) would provide that unless otherwise stated,
Exchange rules would be applicable to transactions on the Exchange in
option contracts. The proposed rule is similar to Rule 6.1-O(e) because
it addresses the applicability of other Exchange Rules.'' \41\ The
Exchange proposes differences from current Rule 6.1-O(e) to eliminate
obsolete and duplicative text and to streamline the proposed rule text
without any substantive differences. For example, the Exchange does not
believe it is necessary to identify which rules are or are not
applicable to trading of option contracts because any rule with ``-O''
appended to it is applicable to trading of option contracts. In
addition, Rule 1.1 is now applicable to trading of options contracts.
And, as discussed above, the Exchange has proposed to amend the
definition of ``option contract'' to specify that they are included in
the definition of ``security'' or ``securities.'' Finally, the
reference in Rule 6.1-O(e) to `` `specialist' means `Market Maker' ''
is duplicative of Rule 6.32-O, and therefore is not necessary to add to
proposed Rule 6.1P-O(b).
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\41\ Rule 6.1-O(e) provides: Applicability of Other Exchange
Rules. The following Rules apply to transactions on the Exchange in
option contracts issued or subject to issuance by the Options
Clearing Corporation: Rules 4.15-O-4.19-O, 5.1-O, 9.21-O-9.28-O and
11.6. The following Rules do not apply to transactions on the
Exchange in option contracts: Rule 1.1. All other Exchange rules are
applicable to transactions on the Exchange in option contracts
unless the context clearly indicates otherwise. In applying the
Rules of the Exchange to transactions on the Exchange in option
contracts, `security' or `securities' includes option contracts,
`specialist' means Market Maker on the Options Trading Floor.''
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In connection with proposed Rule 6.1P-O, the Exchange proposes to
add the following preamble to Rule 6.1-O: ``This Rule is not applicable
to trading on Pillar.'' This proposed preamble is
[[Page 5600]]
designed to promote clarity and transparency in Exchange rules that
Rule 6.1-O would not be applicable to trading on Pillar.
Proposed Rule 6.76P-O: Order Ranking and Display
Rule 6.76-O governs order ranking and display for the current
Exchange options trading system. Proposed Rule 6.76P-O would address
order ranking and display for options trading under Pillar, including
accounting for the quoting activity of options Market Makers as noted
below. With the transition to Pillar, the Exchange does not propose any
substantive differences to how orders and quotes would be ranked and
displayed on the Exchange and, unless otherwise specified in the
proposed rules, the Exchange proposes that same-priced orders and
quotes would be ranked no differently than how they are ranked in the
OX system. For example, same-priced displayed orders and quotes would
be ranked ahead of same-priced non-displayed orders and quotes, and
within each category of displayed or non-displayed interest, orders and
quotes would be ranked in time priority. However, the Exchange proposes
to eliminate the terminology relating to the ``Display Order Process''
and ``Working Order Process'' (each of which are described below) and
instead use Pillar terminology based on Rule 7.36-E, which governs
order ranking and display on the Exchange's cash equity market.\42\
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\42\ As noted herein (see supra note 14), the Exchange also
proposes to eliminate the use of the terms ``OX'' and ``OX Book,''
as these terms would not be applicable to trading on Pillar.
---------------------------------------------------------------------------
Options Market Makers enter quotes and orders and the current OX
system processes quotes and orders together with respect to ranking and
display. The Exchange proposes that it would operate the same way using
the Pillar technology. As discussed in detail below, the Exchange
believes that the proposed new rule text provides transparency with
respect to how the Exchange's price-time priority model would operate
through the use of new terminology applicable to all orders and quotes
on the Pillar trading platform. In addition, throughout proposed Rule
6.76P-O, the Exchange proposes to change the term ``shall'' to
``will,'' which is a stylistic preference that would add consistency to
Exchange rules.
Proposed Rule 6.76P-O(a) would set forth definitions for purposes
of all of Rule 6-O (Options Trading) on the Pillar trading platform,
including proposed Rule 6.76AP-O (Order Execution and Routing),
described below. The proposed definitions are based on Rule 7.36-E(a)
definitions for purposes of Rule 7-E cash equity trading, with
terminology differences, as noted above, to reference ``orders and
quotes'' throughout proposed Rule 6.76P-O. The Exchange believes that
these proposed definitions would provide transparency regarding how the
Exchange would operate its options platform on Pillar and serve as the
foundation for how orders/quotes and modifiers would be described for
options trading on Pillar, as discussed in more detail below. In
addition, the Exchange believes that even with using Pillar terminology
that is based on the Exchange's cash equity rules, unless otherwise
specified, the definitions that are described in these proposed rules
do not differ in substance from current Rule 6.76-O relating to options
trading.
<bullet> Proposed Rule 6.76P-O(a)(1) would define the term
``display price'' to mean the price at which an order or quote ranked
Priority 2--Display Orders or Market Order is displayed, which price
may be different from the limit price or working price of the order
(i.e., if it is a Non-Routable Limit Order or an ALO Order as described
below in proposed Rule 6.62P-O(e)(1), (2), respectively). This proposed
definition uses Pillar terminology based on Rule 7.36-E(a)(1). To
incorporate quotes, the Exchange proposes one difference in terminology
to refer to ``order or quote ranked Priority 2--Display Orders,''
versus referring to ``Limit Order,'' as set forth in Rule 7.36-E(a)(1).
The term ``Priority 2--Display Orders'' is described in more detail
below. The Exchange also proposes a second difference compared to the
Exchange's cash equity rules to include Market Orders as interest that
may have a display price (for example, as described below and
consistent with current functionality, a Market Order could be
displayed at its Trading Collar, which is unique to options trading and
not available on the cash equity platform).
<bullet> Proposed Rule 6.76P-O(a)(2) would define the term ``limit
price'' to mean the highest (lowest) specified price at which a Limit
Order or quote to buy (sell) is eligible to trade. The limit price is
designated by the User. As noted in the proposed definitions of display
price and working price, the limit price designated by the User may
differ from the price at which the order/quote would be displayed or
eligible to trade. This proposed definition uses Pillar terminology
based on Rule 7.36-E(a)(2), with a terminology difference to refer to
the specified price of a ``Limit Order or quote,'' versus referring to
``Limit Order,'' as set forth in Rule 7.36-E(a)(2).
<bullet> Proposed Rule 6.76P-O(a)(3) would define the term
``working price'' to mean the price at which an order or quote is
eligible to trade at any given time, which may be different from the
limit price or display price of an order. This proposed definition is
based on Rule 7.36-E(a)(3), with a terminology difference to refer to
``order or quote'' for purposes of determining ranking priority, versus
referring solely to an ``an order,'' as set forth in Rule 7.36-E(a)(3).
The Exchange believes that the term ``working price'' would provide
clarity regarding the price at which an order/quote may be executed at
any given time. Specifically, the Exchange believes that use of the
term ``working'' denotes that this is a price that is subject to
change, depending on the circumstances. The Exchange will be using this
term in connection with orders/quotes and modifiers, as described in
more detail below.
<bullet> Proposed Rule 6.76P-O(a)(4) would define the term
``working time'' to mean the effective time sequence assigned to an
order or quote for purposes of determining its priority ranking. The
Exchange proposes to use the term ``working time'' in its rules for
trading on the Pillar trading platform instead of terms such as ``time
sequence'' or ``time priority,'' which are used in rules governing
options trading on the Exchange's current system. The Exchange believes
that use of the term ``working'' denotes that this is a time assigned
to an order/quote for purposes of ranking and is subject to change,
depending on circumstances. This proposed definition is based on Rule
7.36-E(a)(4), with a terminology difference to refer to an ``order or
quote,'' versus referring solely to ``an order,'' as set forth in Rule
7.36-E(a)(4).
<bullet> Proposed Rule 6.76P-O(a)(5) would define an ``Aggressing
Order'' or ``Aggressing Quote'' to mean a buy (sell) order or quote
that is or becomes marketable against sell (buy) interest on the
Consolidated Book. The proposed terms would therefore refer to orders
or quotes that are marketable against other orders or quotes on the
Consolidated Book. These terms would be applicable to incoming orders
or quotes, orders that have returned unexecuted after routing, or
resting orders or quotes that become marketable due to one or more
events. For the most part, resting orders or quotes will have already
traded with contra-side interest against which they are marketable.
To maximize the potential for orders or quotes to trade, the
Exchange continually evaluates whether resting
[[Page 5601]]
interest may become marketable. Events that could trigger a resting
order to become marketable include updates to the working price of such
order or quote, updates to the NBBO, changes to other interest resting
on the Consolidated Book, or processing of inbound messages. To address
such circumstances, the Exchange proposes to include in proposed Rule
6.76P-O(a)(5) that a resting order or quote may become an Aggressing
Order or Aggressing Quote if its working price changes, if the NBBO is
updated, because of changes to other orders or quotes on the
Consolidated Book, or when processing inbound messages.
The proposed definition of an ``Aggressing Order'' is based on Rule
7.36-E(a)(5), with differences in the proposed rule to account for
options trading, such as including the defined term ``Aggressing
Quote''; referring to an ``order or quote'' versus ``an order'';
referring to the Consolidated Book rather than NYSE Arca Book; and
referring to the NBBO instead of the PBBO, which is not a term used in
options trading. The Exchange believes that these proposed definitions
would promote transparency in Exchange rules by providing detail
regarding circumstances when a resting order or quote may become
marketable, and thus would be an Aggressing Order or Aggressing Quote.
Under current Rule 6.76-O, bids and offers are ranked and
maintained in the Display Order Process and/or the Working Order
Process of the OX Book according to price-time priority. In the Display
Order Process, all Limit Orders (with no other conditions), quotes, and
the displayed portion of Reserve Orders (not the reserve size) are
ranked in price-time priority, displayed on an anonymous basis (except
as permitted by Rule 6.76A-O), and the best-ranked interest is
disseminated.\43\ In the Working Order Process, the reserve portion of
Reserve Orders,\44\ All-or-None Orders, Stop and Stop Limit Orders and
Stock Contingency Orders are ranked in price-time priority based on the
limit price or, in the case of Stop and Stop Limit Orders, the stop
price. As described in more detail below, proposed Rule 6.62P-O,
relating to orders and modifiers, would specify whether an order or
quote would be displayable, i.e., ranked Priority 2 Display Orders, or
non-displayable, i.e., ranked Priority 3--Non-Display Orders.
---------------------------------------------------------------------------
\43\ See Rule 6.76-O(a)(1)(A)-(B), (b) and (c). When the
displayed portion of the Reserve Order is decremented completely,
the displayed portion of the Reserve Order shall be refreshed for
the displayed amount; or the entire reserve amount, if the remaining
reserve amount is smaller than the displayed amount, from the
reserve portion and shall be submitted and ranked at the specified
limit price and the new time that the displayed portion of the order
was refreshed. See Rule 6.76-O(a)(1)(B). As discussed in more detail
below, the Exchange proposes to describe how Reserve Orders would
function in proposed Rule 6.62P-O(d)(1).
\44\ See Rule 6.76-O(a)(2)(A)-(E). After the displayed portion
of a Reserve Order is refreshed from the reserve portion, the
reserve portion remains ranked based on the original time of order
entry, while the displayed portion is sent to the Display Order
Process with a new time-stamp. See Rule 6.76-O(a)(2)(A).
---------------------------------------------------------------------------
Proposed Rule 6.76P-O(b) would govern the display of non-marketable
Limit Orders and quotes. As proposed, the Exchange would display ``all
non-marketable Limit Orders and quotes ranked Priority 2--Display
Orders unless the order or modifier instruction specifies that all or a
portion of the order is not to be displayed,'' which functionality is
the same as that set forth in the first sentence of the preamble to the
current Rule 6.76-O, stating that the Exchange displays ``all non-
marketable limit orders in the Display Order Process.'' The Exchange
proposes to use Pillar ranking terminology (described further below) to
describe the same functionality and references to the Display Order
Process would not be included.
Rule 6.76P-O(b)(1), which is substantially identical to current
Rule 6.76-O(b), would provide that except as otherwise permitted in
proposed new Rule 6.76AP-O (discussed below), all non-marketable
displayed interest would be displayed on an anonymous basis.\45\
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\45\ Rule 6.76-O(b) provides that ``[e]xcept as otherwise
permitted by Rule 6.76A-O, all bids and offers at all price levels
in the Display Order Process of the OX Book shall be displayed on an
anonymous basis.''
---------------------------------------------------------------------------
Proposed Rule 6.76P-O(b)(2) is substantially identical to the
second sentence of the preamble to current Rule 6.76-O, and mirroring
that text, would provide that the Exchange would ``disseminate current
consolidated quotations/last sale information, and such other market
information as may be made available from time to time pursuant to
agreement between the Exchange and other Trading Centers, consistent
with the Plan for Reporting of Consolidated Options Last Sale Reports
and Quotation Information.'' \46\
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\46\ The second sentence of the preamble to current Rule 6.76-O
states, ``OX also will disseminate current consolidated quotations/
last sale information, and such other market information as may be
made available from time to time pursuant to agreement between the
Exchange and other Market Centers, consistent with the Plan for
Reporting of Consolidated Options Last Sale Reports and Quotation
Information.'' The Exchange proposes a difference to use the term
``Trading Centers'' instead of ``Market Centers.''
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Finally, proposed Rule 6.76P-O(b)(3) would provide that if ``an
Away Market locks or crosses the Exchange BBO, the Exchange will not
change the display price of any Limit Orders or quotes ranked Priority
2--Display Orders and any such orders will be eligible to be displayed
as the Exchange's BBO.'' This proposed rule describes Pillar
functionality, which is the same as current functionality. The Exchange
believes that including this text in the proposed rules would promote
clarity and granularity. In addition, this proposed concept, which is
based on Rule 7.36-E(b)(4), makes clear that resting displayed interest
that did not cause a locked or crossed market condition can stand its
ground and maintain priority at the price at which it was originally
displayed. This provision uses Pillar terminology and functionality
described in Rule 7.36-E(b)(4), but does not include text from the cash
equity rule providing for the treatment of displayed Limit Orders that
are ``marketable against protected quotations on Away Market'' before
``resuming trading and publishing a quote in a UTP Security following a
Regulatory Halts,'' because the concept of trading a security on an
unlisted trading privileges basis and how a non-primary cash equity
market would resume trading after a primary listing exchanges resumes
trading following a trading halt is not applicable to options trading.
Proposed Rule 6.76P-O(c) would describe the Exchange's general
process for ranking orders and quotes, which process is the same as
that set forth in current Rule 6.76-O(a), with differences to use
Pillar ranking terminology and include additional detail related to
order/quote modifiers.\47\ As proposed, Rule 6.76P-O(c) would provide
that all non-marketable orders and quotes would be ranked and
maintained in the Consolidated Book according to price-time priority in
the following manner: (1) Price; (2) priority category; (3) time; and
(4) ranking restrictions applicable to an order/quote or modifier
condition. Accordingly, orders and quotes would be first ranked by
price. Next, at each price level, orders and quotes would be assigned a
priority category, which is similar to the Exchange's current process
to assign orders and quotes as being part of either the ``Display Order
Process'' or ``Working Order Process.'' Orders and quotes in each
priority category would be required to be exhausted before moving to
the next priority category. Within each priority
[[Page 5602]]
category, orders and quotes would be ranked by time. These general
requirements for ranking are applicable to all orders and quotes,
unless an order or quote or modifier has a specified exception to this
ranking methodology, as described in more detail below. The Exchange is
proposing this ranking description instead of using the above-described
terms of ``Display Order Process'' and ``Working Order Process'' in
Rule 6.76-O. However, substantively there would be no difference in how
the Exchange would rank orders and quotes on the Pillar trading
platform from how it ranks orders and quotes in the current option
trading system. For example, a non-displayed order would always be
ranked after a displayed order at the same price, even if the non-
displayed order has an earlier working time. In addition, this proposed
rule would use Pillar terminology based on Rule 7.36-E(c), with
terminology differences to reflect options trading, including that the
proposed rule references ``non-marketable orders and quotes,'' not
solely ``non-marketable orders,'' and references the ``Consolidated
Book,'' rather than the ``NYSE Arca Book.'' These differences between
the equity rules and the proposed rules reflect the differences between
cash equities and options trading; interest on the Exchange's options
market would be ranked (in price-time priority) as it is on the
Exchange's cash equity market.
---------------------------------------------------------------------------
\47\ Rule 6.76-O(a) states that the Exchange ranks bids and
offers ``according to price-time priority, such that within each
price level, all bids and offers shall be organized by the time of
entry''.
---------------------------------------------------------------------------
Proposed Rule 6.76P-O(d) would describe how orders and quotes would
be ranked based on price, which additional detail would provide
transparency regarding the Exchange's price-ranking process.
Specifically, as proposed, all orders and quotes would be ranked based
on the working price of an order or quote. Orders and quotes to buy
would be ranked from highest working price to lowest working price and
orders and quotes to sell would be ranked from lowest working price to
highest working price. The rule would further provide that if the
working price of an order or quote changes, the price priority of an
order or quote would change. This proposed pricing priority is current
functionality, but the new rule would add detail regarding the concept
of ``working price'' and its impact on priority and would use Pillar
terminology. In addition, this proposed rule uses Pillar terminology
from Rule 7.36-E(d), with terminology differences to reflect options
trading to reference ``orders and quotes'' as opposed to solely
``orders.''
Proposed Rule 6.76P-O(e) would describe the proposed priority
categories for ranking purposes, which added detail and terminology
would be new for options trading without any functional
differences.\48\ As proposed, at each price, all orders and quotes
would be assigned a priority category. If, at a price, there are no
orders or quotes in a priority category, the next category would have
first priority. The Exchange does not propose to include in Rule 6.76P-
O, which sets forth the general rule regarding ranking, specifics about
how one or more order or quote types may be ranked and displayed.
Instead, as described in more detail below, the Exchange will address
separately in new Rule 6.62P-O governing orders and modifiers which
priority category correlates to different order types and modifiers.
Accordingly, details regarding which proposed priority categories would
be assigned to the display and reserve portions of Reserve Orders,
which is currently addressed in Rule 6.76-O (a)(1)(B) and (a)(2)(A),
will be addressed in proposed Rule 6.62P-O and therefore would not be
included in proposed Rule 6.76P-O.\49\
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\48\ See supra notes 43 and 43 (regarding treatment of Reserve
Orders per Rule 6.76-O(a)(1)(B) and (a)(2)(A)).
\49\ See, e.g., Rule 6.76-O(a)(1) and (2) (setting forth the
price-time ranking and priority structure for bids and offers
submitted to the Exchange, including ranking of certain order types
with contingencies).
---------------------------------------------------------------------------
The proposed changes are also the same as the terms used for
priority categories for cash equity trading as set forth in Rule 7.36-
E(e)(1)-(3), with terminology differences to include options-specific
reference to ``orders and quotes'' rather than just orders as it
relates to interest ranked Priority 2 and 3. In addition, the Exchange
does not propose to include the Priority 4--Tracking Orders category,
which relates to an order type not available for options trading. The
proposed terminology changes to use priority categories rather than
refer to the ``Display Order Process'' and ``Working Order Process''
would not result in any changes in how the Exchange would rank orders
and quotes on Pillar from how it currently ranks orders and quotes on
the OX system.
The proposed priority categories would be:
<bullet> Proposed Rule 6.76P-O(e)(1) would specify ``Priority 1--
Market Orders,'' which provides that unexecuted Market Orders would
have priority over all other same-side orders with the same working
price. As described in greater detail below, a Market Order subject to
a Trading Collar would be displayed on the Consolidated Book. In such
circumstances, the displayed Market Order would have priority over all
other resting orders at that price. Under current options trading
functionality, Market Orders have priority over all other same-side
orders with the same working price. The proposed level of detail and
priority categorization would be new terminology for options trading
and the Exchange believes that the proposed rule change would add
transparency and specificity to Exchange rules without changing
functionality.
<bullet> Proposed Rule 6.76P-O(e)(2) would specify ``Priority 2--
Display Orders.'' This proposed priority category would replace the
``Display Order Process,'' which is described above. As proposed, non-
marketable Limit Orders or quotes with a displayed working price would
have second priority, which treatment of displayed orders and quotes is
consistent with current functionality. For an order or quote that has a
display price that differs from the working price of the order or
quote, the order or quote would be ranked Priority 3--Non-Display
Orders at the working price.\50\ This aspect of the proposed rule is
consistent with current functionality. For example, as described above,
currently, the display portion of a Reserve Order is subject to the
Display Order Process and the reserve portion is subject to the Working
Order Process. The proposed level of detail and priority categorization
would be new for options trading and the Exchange believes that it
would add transparency and specificity to Exchange rules. In addition,
this priority category operates the same as how Priority 2--Display
Orders function on the Exchange's cash equity market, as described in
Rule 7.36-E(e)(2), with a terminology difference for the proposed rule
to reflect options trading by including reference to quotes, which
would not be processed differently on Pillar as compared to the OX
system.
---------------------------------------------------------------------------
\50\ See, e.g., infra, discussion regarding proposed Non-
Routable Limit Order per Rule 6.62P-O(e)(1).
---------------------------------------------------------------------------
<bullet> Proposed Rule 6.76P-O(e)(3) would specify ``Priority 3--
Non-Display Orders.'' This priority category would be used in Pillar
rules instead of reference to the ``Working Order Process,'' which is
described above. As proposed, non-marketable Limit Orders or quotes for
which the working price is not displayed, including the reserve
interest of Reserve Orders, would have third priority. This proposed
rule is consistent with current functionality. The proposed level of
detail and priority categorization would be new for options trading and
the Exchange believes that it would add transparency and specificity to
Exchange rules. In addition, this priority category operates
[[Page 5603]]
the same as how Priority 3--Non-Display Orders function on the
Exchange's cash equity market, as described in Rule 7.36-E(e)(3), with
a terminology difference for the proposed rule to reflect options
trading by including reference to quotes, which would not be processed
differently on Pillar as compared to the OX system.
Proposed Rule 6.76P-O(f) would set forth that at each price level
within each priority category, orders and quotes would be ranked based
on time priority. This proposed rule is consistent with current Rule
6.76-(O)(a), which provides, in relevant part, that ``within each price
level, all bids and offers shall be organized by the time of entry.''
The proposed changes set forth below are consistent with current
functionality and would add detail not included in existing option
rules. In addition, the proposed changes use terminology based on Rule
7.36-E(f)(1) and (3), with differences to reference options terminology
of ``orders and quotes'' rather than just ``orders'' and to the
``Consolidated Book'' rather than the ``NYSE Arca Book,'' which
differences are designed to address the distinction between cash
equities and options trading without altering how such interest would
be ranked (in price-time priority) on each market.\51\
---------------------------------------------------------------------------
\51\ As discussed, infra, the Exchange proposes to rank orders
and quotes on Pillar in the same manner as it does on the OX system,
unless otherwise specified in the proposed rules (e.g., same-priced
displayed orders and quotes would be ranked ahead of same-priced
non-displayed orders and quotes, and within each category of
displayed or non-displayed interest, orders and quotes would be
ranked in time priority).
---------------------------------------------------------------------------
<bullet> Proposed Rule 6.76P-O(f)(1) would provide that an order or
quote would be assigned a working time when it is first added to the
Consolidated Book based on the time such order or quote is received by
the Exchange. This proposed process of assigning a working time to
orders is current functionality and is substantively the same as
current references to the ``time of original order entry'' found in
several places in Rule 6.76-O. This proposed rule uses Pillar
terminology that is substantially the same as in Rule 7.36-E(f)(1). To
provide transparency in Exchange rules, the Exchange further proposes
to include in proposed Rule 6.76P-O(f) how the working time would be
determined for orders that are routed, which is consistent with current
options trading functionality. As proposed:
[cir] Proposed Rule 6.76P-O(f)(1)(A) would specify that an order
that is fully routed to an Away Market on arrival, per proposed Rule
6.76AP-O(b)(1), would not be assigned a working time unless and until
any unexecuted portion of the order returns to the Consolidated Book.
The Exchange notes that this is the current process for assigning a
working time to an order (although this detail would be new to option
trading rules) and uses Pillar terminology that is substantially the
same as in Rule 7.36-E(f)(1)(A), with a terminology difference that the
proposed rule includes reference to the ``Consolidated Book'' rather
than the ``NYSE Arca Book.'' This proposed rule is also consistent with
current Rule 6.76A-O(c)(2)(C), which provides that when an order or
portion of an order has been routed away and is not executed either in
whole or in part at the other Market Center, it will be ranked and
displayed in the OX Book in accordance with the terms of the order.
[cir] Proposed Rule 6.76P-O(f)(1)(B) would specify that for an
order that, on arrival, is partially routed to an Away Market, the
portion that is not routed would be assigned a working time. If any
unexecuted portion of the order returns to the Consolidated Book and
joins any remaining resting portion of the original order, the returned
portion of the order would be assigned the same working time as the
resting portion of the order. If the resting portion of the original
order has already executed and any unexecuted portion of the order
returns to the Consolidated Book, the returned portion of the order
would be assigned a new working time. This process for assigning a
working time to partially routed orders is the same as currently used
by the Exchange (although this detail would be new to option trading
rules) and uses Pillar terminology that is substantially the same as in
Rule 7.36-E(f)(1)(B)), with a terminology difference that the proposed
rule would reference the ``Consolidated Book'' rather than the ``NYSE
Arca Book.''
<bullet> Proposed Rule 6.76P-O(f)(2) would provide that an order or
quote would be assigned a new working time if: (A) The display price of
an order or quote changes, even if the working price does not change,
or (B) the working price of an order or quote changes, unless the
working price is adjusted to be the same as the display price of an
order or quote. This proposed text would be new and is different from
how the Exchange adjusts the working time for cash equities trading
when the working price of an order is updated to be the same as the
display price.\52\ The Exchange believes that for its options market,
adjusting the working time any time the display price of an order or
quote changes, would respect the priority of orders/quotes that were
previously displayed at the price to which the display price is
changing. In addition, the Exchange believes it is appropriate to
adjust the working time of an order or quote any time its working price
changes, unless the display price does not change. This proposed order
handling in Exchange rules is consistent with the rules of other
options exchanges.\53\
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\52\ Currently, for cash equity trading, Rule 7.36-E(f)(2)
provides that, ``[a]n order is assigned a new working time any time
the working price of an order changes.'' The Exchange plans to
propose changes to this cash equity rule to align with that being
proposed for its options market at a later date.
\53\ See, e.g., Cboe BZX (``BZX'') Rule 11.9(g)(1)(B) (providing
that, for orders subject to ``display price sliding,'' BZX ``will
re-rank an order at the same price as the displayed price in the
event such order's displayed price is locked or crossed by a
Protected Quotation of an external market'' and that ``[s]uch event
will not result in a change in priority for the order at its
displayed price'').
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<bullet> Proposed Rule 6.76P-O(f)(3) would provide that an order or
quote would be assigned a new working time if the size of an order or
quote increases and that an order or quote retains its working time if
the size of the order or quote is decreased. This proposed detail about
the process for assigning (or not) a new working time when the size of
an order changes is not currently described in the Exchange's option
rules and is consistent with existing functionality for how orders (but
not quotes) are processed on the OX system and would use Pillar
terminology.\54\ This provision is substantively identical to Rule
7.36-E(f)(3), with a terminology difference to reference ``orders or
quotes'' as opposed to solely ``an order.''
---------------------------------------------------------------------------
\54\ Currently, on the Exchange's OX system, if the size of a
quote is reduced, the Exchange processes the reduced quantity as a
new quote that is assigned a new effective time sequence. By
contrast, orders reduced in size are not assigned a new working time
by the OX system. The Exchange proposes that, on Pillar, both quotes
and orders reduced in size would not receive a new working time. The
proposed provision would provide for consistent handling of orders
and quotes when the size of such interest is reduced.
---------------------------------------------------------------------------
Proposed Rule 6.76P-O(g) would specify that the Exchange would
apply ranking restrictions applicable to specified order, quote, or
modifier instructions. These order, quote, and modifier instructions
would be identified in proposed new Rule 6.62P-O, described below.
Proposed Rule 6.76P-O(g) uses Pillar terminology substantially the same
as is used in Rule 7.36-E(g), with a difference to reference quotes,
which is unique to options trading. Current Rule 6.76-O(a)(2)(C)-(E)
discusses ranking of certain order types with contingencies in the
Working Order Process. The Exchange proposes that for Pillar, ranking
details regarding
[[Page 5604]]
orders and quotes designated with contingencies would be described in
proposed Rule 6.62P-O(d) and (e). Accordingly, the Exchange does not
propose to include the detail described in Rule 6.76-O(a)(2)(C)-(E) in
proposed Rule 6.76P-O.\55\
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\55\ As discussed, supra note 51, on Pillar, the Exchange would
rank orders and quotes--including those with contingencies (i.e.,
MMALO and MMRP)-the same way it does on the OX system, unless
otherwise specified in the proposed rules. See proposed Rule 6.62P-
O(e) (for discussion of Non-Routable Limit Orders and ALO Orders,
both of which have contingencies and may be designated as quotations
under Pillar).
---------------------------------------------------------------------------
Finally, proposed Rule 6.76P-O(h) would be applicable to ``Orders
Executed Manually'' and would contain the same text as set forth in
Rule 6.76-O(d) without any substantive differences except for the non-
substantive change of capitalizing the defined term Trading Crowd (per
proposed Rule 1.1), removing the superfluous clause ``in addition,''
and updating the cross-reference to reflect the new Pillar rule.\56\
---------------------------------------------------------------------------
\56\ See proposed Rule 6.76P-O(h)(1) (removing ``in addition'')
(B) (regarding ``Trading Crowd'') and (D) (updating the cross-
reference to new subparagraph (B) in connection with the Section
11(a)(1)(G) of the Exchange Act and Rule 11a1-1(T) thereunder (``G
exemption rule'')).
---------------------------------------------------------------------------
In connection with proposed Rule 6.76P-O, the Exchange proposes to
add the following preamble to Rule 6.76-O: ``This Rule is not
applicable to trading on Pillar.'' This proposed preamble is designed
to promote clarity and transparency in Exchange rules that Rule 6.76-O
would not be applicable to trading on Pillar.
Proposed Rule 6.76AP-O: Order Execution and Routing
Current Rule 6.76A-O, titled ``Order Execution--OX,'' governs order
execution and routing at the Exchange. The Exchange proposes that Rule
6.76AP-O would set forth the order execution and routing rules for
options trading on Pillar. The Exchange proposes that the title for new
Rule 6.76AP-O would be ``Order Execution and Routing'' instead of
``Order Execution--OX'' because the Exchange does not propose to use
the term ``OX'' in connection with Pillar. The Exchange believes that
because proposed Rule 6.76AP-O, like Rule 6.76A-O, would specify the
Exchange's routing procedures, referencing to ``Routing'' in the rule's
title would provide additional transparency in Exchange rules regarding
what topics would be covered in new Rule 6.76AP-O. This proposed rule
is based on Rule 7.37-E, which describes the order execution and
routing rules for cash equity securities trading on the Pillar
platform, with differences described below to reflect differences for
options trading. In addition, throughout proposed Rule 6.76AP-O, the
Exchange proposes to use the term ``will'' instead of ``shall,'' which
is a stylistic preference that would add consistency to Exchange rules.
Proposed Rule 6.76AP-O(a) and its subparagraphs would set forth the
Exchange's order execution process and would cover the same subject as
the preamble to Rule 6.76A-O, which provides that like-priced orders
and quotes are matched for execution, provided the execution price is
equal to or better than the NBBO, unless such order has been routed to
an Away Market at the NBBO.\57\ The Exchange proposes a difference from
current Rule 6.76A-O(a)-(c) to use Pillar terminology of ``Aggressing
Order'' and ``Aggressing Quote''--rather than refer to an ``incoming
marketable bid or offer,'' because (as described above) the proposed
terms are more expansive and allow for interest to be (or become)
marketable even after arrival (i.e., not limited to ``incoming''
interest). As proposed, per Rule 6.76AP-O(a), an Aggressing Order or
Aggressing Quote would be matched for execution against contra-side
orders or quotes in the Consolidated Book according to the price-time
priority ranking of the resting interest, subject to specified
parameters.
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\57\ Rule 6.76A-O(a)-(c) sets forth a three-step process--the
Display Order Process, the Working Order Process, and Routing Away,
Steps 1-3, respectively--governing the handling of incoming
marketable bids and offers.
---------------------------------------------------------------------------
The Exchange does not propose to include in proposed Rule 6.76AP-O
text based on current Rule 6.76A-O(a)(1), which describes ``Step 1:
Display Order Process,'' or text based on current Rule 6.76A-O(b),
which describes ``Step 2: Working Order Process,'' because by proposing
detailed text in Rule 6.76P-O(c)-(f) regarding how orders and quotes
would be ranked on the Exchange, it would be duplicative and
unnecessary to describe this process again in proposed Rule 6.76AP-O.
Instead, the Exchange believes that cross referencing the price-time
priority ranking of the resting interest, per proposed Rule 6.76P-O,
would provide transparency regarding how an Aggressing Order or
Aggressing Quote would trade with resting interest. The Exchange notes
that it made a similar stylistic change for its cash equity platform to
eliminate references to the ``Display Order Process'' and ``Working
Order Process'' in Rule 7.37-E (which was replaced by the
aforementioned priority categories) when it transitioned to Pillar.\58\
---------------------------------------------------------------------------
\58\ See NYSE Arca Equities Pillar Notice, supra note 15 at
28728-29.
---------------------------------------------------------------------------
Proposed Rule 6.76AP-O(a)(1) would set forth the LMM Guarantee,
which is substantively the same as the current LMM Guarantee, as
described in Rule 6.76A-O(a)(1)(A)-(D). Specifically, as with the
current OX system, if an LMM is quoting at the NBBO, that LMM quote
would be guaranteed to trade with 40% of the incoming bid or offer.
This LMM guarantee is currently described in Rule 6.76A-O(a)(1)(A),
which provides, in relevant part, that an LMM or Directed Order Market
Maker (``DOMM'') that is quoting at the NBBO may be entitled to an
allocation guarantee of the greater of: An amount equal to 40% of the
incoming bid or offer up to the LMM's or DOMM's disseminated quote
size; or the LMM's or DOMM's share in the order of ranking. However,
current Rule 6.76A-O(a)(1)(A)(ii) provides that if there are Customer
orders ranked ahead of the LMM (or DOMM, as applicable), or if there is
no LMM (or DOMM) quoting at the NBBO, the incoming bid or offer will be
matched against orders and quotes in the Display Process strictly in
the order of their ranking. The Exchange proposes a substantive
difference from current rules because, on Pillar, the Exchange would no
longer support DOMMs or Directed Orders. Accordingly, rule text
relating to DOMMs or Directed Orders is not included in proposed Rule
6.76AP-O and, as described below, only LMM's would be entitled to the
LMM Guarantee.\59\
---------------------------------------------------------------------------
\59\ The Exchange proposes to add a preamble to Rule 6.88-O
(Directed Orders) to provide that the Rule would not be applicable
to trading on Pillar.
---------------------------------------------------------------------------
Proposed Rule 6.76AP-O(a)(1) would describe the LMM Guarantee on
Pillar and would provide that an LMM would be entitled to an allocation
guarantee when the execution price is equal to the NBB (NBO), the LMM
has a displayed quote at the NBB (NBO), and there is no displayed
Customer interest in time priority at the NBBO in the Consolidated
Book. If the execution would meet these conditions, which are the same
as under the Exchange's current options rules, the Aggressing Order or
Aggressing Quote would be matched against the quote of the LMM for an
amount equal to 40% of the Aggressing Order or Aggressing Quote, up to
the size of the LMM's quote (the ``LMM Guarantee''). The Exchange
proposes to use the term ``Aggressing Order or Aggressing Quote''
instead of the term ``incoming bid or offer'' to provide greater
specificity that the LMM
[[Page 5605]]
Guarantee would be applied against any order or quote that becomes an
Aggressing Order or Aggressing Quote, which is consistent with current
functionality and uses Pillar terminology to describe that same
functionality. Accordingly, the LMM Guarantee would function on Pillar,
as described in current Rule 6.76A-O(a)(1), except as noted above to
exclude reference to Directed Orders or DOMMs. The Exchange proposes
non-substantive clarifying differences to specify that the execution
price must be equal to the NBBO in addition to the proposed text that
the LMM must have a displayed quote at the NBBO, which adds specificity
compared to existing rule text that such LMM must be ``quoting at the
NBBO.''
Proposed Rule 6.76AP-O(a)(1)(A) would provide that if an LMM has
more than one quote at a price, the LMM Guarantee would be applied only
to the first LMM quote in time priority, which text would add
granularity and transparency to Exchange rules. This text would be new
and reflects that on Pillar, the Exchange would permit multiple quotes
from the same LMM at the same price and that only the first quote in
time priority would be eligible for the LMM Guarantee. On the OX
system, an LMM may send only one same-side quotation using the OTP
associated with its status as LMM.\60\ Under Pillar, as described below
regarding proposed Rule 6.37AP-O (Market Maker Quotations), LMMs would
be able to send multiple same-side quotes associated with its OTP by
utilizing different order/quote entry ports (i.e., in Pillar, LMM1 can
send a bid for 1.00 in XYZ over order/quote entry port 1 and another
bid for 1.00 in XYZ over order/quote entry port 2 and the bid sent via
order/quote entry port 2 would not replace the quote sent over order/
quote entry port 1). Because an LMM using Pillar could have more than
one same-side, same-priced quote in an assigned series,\61\ proposed
Rule 6.76AP-O(a)(1)(A) is necessary to provide that only one such LMM
quote (the first in time) would be eligible for the LMM Guarantee,
consistent with current functionality.
---------------------------------------------------------------------------
\60\ While not specified in the current rules, the OX system
utilizes a unique identifier for LMMs to send quotes and each LMM
may only send LMM quotes in their assigned series using this single
unique identifier. Therefore, LMM quotes are subject to the current
Rule 6.37A(a)(1) requirement that a new same-side quote sent by that
LMM updates the previous bid or offer, if any. Unlike LMMs, on the
OX system, Market Makers not acting as an LMM may opt to utilize
multiple OTPs to send more than one same-side quote in the same
assigned series. See infra note 140.
\61\ See, e.g., infra, discussion regarding proposed Rule
6.37AP-O(a)(1).
---------------------------------------------------------------------------
Proposed Rule 6.76AP-O(a)(1)(B), which is substantively identical
to current Rule 6.76A-O(a)(1)(B), would provide that if an LMM is
entitled to an allocation (i.e., an LMM Guarantee pursuant to proposed
paragraph (a)(1)) and the Aggressing Order or Aggressing Quote had an
original size of five (5) contracts or fewer, then such order or quote
would be matched against the quote of the LMM for an amount equal to
100%, up to the size of the LMM's quote. The Exchange also proposes to
add Commentary .01 to the proposed rule (which is substantively
identical to Commentary .02 of current Rule 6.76A-O) to make clear that
on a quarterly basis, the Exchange would evaluate what percentage of
the volume executed on the Exchange comprised of orders for five (5)
contracts or fewer that was allocated to LMMs and would reduce the size
of the orders included in this provision if such percentage is over
40%.\62\
---------------------------------------------------------------------------
\62\ See proposed Rule 6.76AP-O, Commentary .01, which will not
include cross-reference that appears in the current rule Commentary
.02 to Rule 6.76A-O because the Exchange determined such cross-
reference was superfluous and opted to remove excess verbiage.
---------------------------------------------------------------------------
Proposed Rule 6.76AP-O(a)(1)(C) would specify that if the result of
applying the LMM Guarantee is a fractional allocation of contracts, the
LMM Guarantee would be rounded down to the nearest contract and if the
result of applying the LMM Guarantee results in less than one contract,
the LMM Guarantee would be equal to one contract. The Exchange believes
that including this additional detail (which is based on current
functionality) in the proposed rule would add transparency to Exchange
rules.
Finally, the Exchange proposes Rule 6.76AP-O(a)(1)(D), which would
provide that after applying any LMM Guarantee, the Aggressing Order or
Aggressing Quote would be allocated pursuant to proposed paragraph (a)
of this Rule, i.e., that such orders or quotes would be matched for
execution against contra-side interest resting in the Consolidated Book
according to price-time priority. This proposed text is substantively
identical to Rule 6.76A-O(a)(1)(C) and uses Pillar terminology, and
eliminates the now obsolete reference to DOMMs, Directed Orders, and
the Display Order Process.
Consistent with the Exchange's proposed approach to new Rule 6.76P-
O, proposed Rule 6.76AP-O would not include references to specific
order types and instead would state the Exchange's general order
execution methodology. Any exceptions to such general requirements
would be set forth in connection with specific order or modifier
definitions in proposed Rule 6.62P-O, described below.
Proposed Rule 6.76AP-O(b) would set forth the Exchange's routing
process and is intended to address the same subject as Rule 6.76A-O(c),
which is currently referred to as ``Step 3: Routing Away'' in order
processing, without any substantive differences. Under current Rule
6.76A-O(c), the Exchange will route to another Market Center any
unexecuted portion of an order that is eligible to route.\63\ Proposed
Rule 6.76AP-O(b) would provide that, absent an instruction not to
route, the Exchange would route marketable orders to Away Market(s)
after such orders are matched for execution with any contra-side
interest in the Consolidated Book in accordance with proposed paragraph
(a) of this Rule regarding Order Execution. Proposed Rule 6.76AP-O(b)
also uses the same Pillar terminology that is used in current Rule
7.37-E(b), which governs the Exchange's routing process on the
Exchange's cash equity platform, with differences to use option trading
terminology such as ``Consolidated Book.''
---------------------------------------------------------------------------
\63\ Under the current rule, each eligible order is routed ``as
limit order equal to the price and up to the size of the quote
published by the Market Center(s)'' or, if ``a marketable Reserve
Order, the Exchange may route such order serially as component
orders, such that each component corresponds to the displayed
size.'' See Rule 6.76AP-O(c)(1)(A), (B). In the proposed Pillar
rule, the Exchange proposes to use the term ``Away Market'' instead
of ``Market Center.''
---------------------------------------------------------------------------
The proposed rule would then set forth additional details regarding
routing that are consistent with current routing functionality, but are
not described in current rules:
<bullet> Proposed Rule 6.76AP-O(b)(1) would provide that an order
that cannot meet the pricing parameters of proposed Rule 6.76AP-O(a)
may be routed to Away Market(s) before being matched for execution
against contra-side interest in the Consolidated Book. The Exchange
believes that this proposed rule text, which is consistent with current
functionality, provides transparency that an order may be routed before
being matched for execution, for example, to prevent locking or
crossing or trading through the NBBO. This rule uses Pillar terminology
that is substantially the same as in Rule 7.37-E(b)(1), with a
terminology difference to reference the ``Consolidated Book'' rather
than the ``NYSE Arca Book.''
<bullet> Proposed Rule 6.76AP-O(b)(2) would provide that an order
with an instruction not to route would be
[[Page 5606]]
processed as provided for in proposed Rule 6.62P-O.\64\ As described in
greater detail below, the Exchange proposes to describe how orders and
quotes with an instruction not to route would be processed in proposed
Rule 6.62P-O(e).
---------------------------------------------------------------------------
\64\ See, e.g., infra, discussion regarding proposed Rule 6.62P-
O(e), Orders with Instructions Not to Route.
---------------------------------------------------------------------------
<bullet> Proposed Rule 6.76AP-O(b)(3) would provide that any order
or portion thereof that has been routed would not be eligible to trade
on the Consolidated Book, unless all or a portion of the order returns
unexecuted. This routing methodology is current functionality and
covers that same subject as current Rule 6.76A-O(c)(2) with no
substantive differences and is based in part on Pillar terminology used
in Rule 7.37-E(b)(6). Similar to Rule 6.76A-O(c)(2)(A), which provides
that an order routed to an Away Market is subject to the trading rules
of that market and, while so routed, has no standing relative to other
orders on the Exchange in the OX Book, the Exchange proposes that Rule
6.76AP-O(b)(3) would state that once routed, an order would not be
eligible to trade on the Consolidated Book. The Exchange does not
believe it is necessary to include the text that once routed an order
would be subject to the routing destination's trading rules, as such
detail is obvious and unnecessary. In addition, because, as discussed
above, the working time assigned to orders that are routed is being
proposed to be addressed in new Rule 6.76P-O(f)(1)(A) and (B), the
Exchange believes it would be unnecessary to restate this information
in new Rule 6.76AP-O.
<bullet> Proposed Rule 6.76AP-O(b)(4) would provide that requests
to cancel an order that has been routed in whole or part would not be
processed unless and until all or a portion of the order returns
unexecuted. This proposed rule uses Pillar terminology and operates
substantively the same as Rule 7.37-E(b)(7)(A). This rule represents
current functionality and is based on Rule 6.76A-O(c)(2)(B), except
that, unlike the current rule, the proposed rule does not state that
such orders (while still routed away) are subject to the applicable
trading rules of the market to which such order was routed.
<bullet> Finally, proposed Rule 6.76AP-O(c) would provide that
after trading with eligible contra-side interest on the Consolidated
Book and/or returning unexecuted after routing to Away Market(s), any
unexecuted non-marketable portion of an order would be ranked
consistent with new Rule 6.76P-O. This rule represents current
functionality as set forth in Rule 6.76A-O generally and paragraph
(c)(2)(C) as it pertains to orders that were routed away and then
returned unexecuted in whole or part to the Exchange without any
substantive differences. This proposed rule uses Pillar terminology and
operates substantively the same as Rule 7.37-E(c).
The Exchange believes that the specific routing methodologies for
an order type or modifier should be included with how the order type is
defined, which will be described in proposed Rule 6.62P-O. Accordingly,
the Exchange does not believe it needs to specify in proposed Rule
6.76AP-O whether an order is eligible to route, and if so, whether
there are any specific routing instructions applicable to the order and
therefore will not be carrying over such specifics that are currently
included in Rule 6.76A-O.
In connection with proposed Rule 6.76AP-O, the Exchange proposes to
add the following preamble to Rule 6.76A-O: ``This Rule is not
applicable to trading on Pillar.'' This proposed preamble is designed
to promote clarity and transparency in Exchange rules that Rule 6.76A-O
would not be applicable to trading on Pillar.
Proposed Rule 6.62P-O: Orders and Modifiers
Current Rule 6.62-O (Certain Types of Orders Defined) defines the
order types that are currently available for options trading both on
the OX system and for open outcry trading on the Exchange. The Exchange
proposes that new Rule 6.62P-O would set forth the order types and
modifiers that would be available for options trading both on Pillar
(i.e., electronic order entry) and in open outcry trading. The Exchange
proposes to specify that Rule 6.62-O would not be applicable to trading
on Pillar.
Because the Exchange proposes to use for options trading the Pillar
technology that is currently used for cash equity trading, the Exchange
has identified opportunities to offer additional order, quote, and
modifier functionality for options trading that is based on existing
functionality on cash equity trading but has not previously been
available for options trading. In addition, certain order and quote
types and modifiers that would be available for options trading on
Pillar would be based on, or similar to, order types and modifiers
available on the Exchange's cash equity market. Because there would be
similar orders and modifiers on both the Exchange's cash equity and
options markets using similar terminology, the Exchange proposes to
structure proposed Rule 6.62P-O based on Rule 7.31-E and use similar
terminology. The Exchange also proposes to title proposed Rule 6.62P-O
as ``Orders and Modifiers,'' which is the title of Rule 7.31-E.
Primary Order Types. Proposed Rule 6.62P-O(a) would specify the
Exchange's primary order types, which would be Market Orders and Limit
Orders, and is based on Rule 7.31-E(a), which sets forth the Exchange's
cash equity primary order types. Similar to Rule 7.31-E(a), proposed
Rule 6.62P-O(a) would also set forth the Exchange's proposed Limit
Order Price Protection functionality and Trading Collars.
Market Orders. Proposed Rule 6.62P-O(a)(1) would define a Market
Order as an unpriced order message to buy or sell a stated number of
option contracts at the best price obtainable, subject to the Trading
Collar assigned to the order, and would further specify that unexecuted
Market Orders may be designated Day or GTC, which represents current
functionality, and that unexecuted Market Orders would be ranked
Priority 1--Market Orders.\65\ This proposed rule text uses Pillar
terminology similar to Rule 7.31-E(a)(1) to describe Market Orders for
options trading, with differences to reflect options trading
functionality. For example, proposed Rule 6.62P-O(a)(1) would specify
the ability to designate a Market Order as GTC, which is current
options trading functionality that would continue on Pillar (but which
modifier is not available on the Exchange's cash equity platform).\66\
Similarly, the Exchange proposes to reference that trading of a Market
Order would be subject to the Trading Collar assigned to
[[Page 5607]]
the order, which is similar to the third paragraph of the current
definition of Market Order in Rule 6.62-O(a). As described in greater
detail below, the Exchange proposes changes to its Trading Collar
functionality on Pillar.
---------------------------------------------------------------------------
\65\ Market Orders are currently defined in Rule 6.62-O(a) as
follows: ``A Market Order is an order to buy or sell a stated number
of option contracts and is to be executed at the best price
obtainable when the order reaches the Exchange. Market Orders
entered before the opening of trading will be eligible for trading
during the Opening Auction Process. The system will reject a Market
Order entered during Core Trading Hours if at the time the order is
received there is not an NBB and an NBO (``collectively NBBO'') for
that series as disseminated by OPRA. If the Exchange receives a
Market Order to buy (sell) and there is an NBB (NBO) but no NBO
(NBB) as disseminated by OPRA at the time the order is received, the
order will be processed pursuant to Rule 6.60-O(a)--Trade Collar
Protection.''
\66\ The ability for a Market Order to be designated Day or GTC
is based on current Rules 6.62-O(m) (describing a ``Day Order'') and
6.62-O(n) (describing a ``Good-til-Cancelled Order'' or ``GTC
Order'') and Commentary .01 to Rule 6.62-O, which requires all
orders to be either ``day,'' ``immediate or cancel,'' or ``good `til
cancelled.'' As described in more detail below, on Pillar, the time-
in-force designation, e.g., Day or GTC, would be a modifier that can
be added to an order type and would not be described in the rules as
a separate order type. Similar to Rule 7.31-E, the Exchange would
specify which time-in-force designations are available for each
order type.
---------------------------------------------------------------------------
Proposed Rule 6.62P-O(a)(1) would further provide that for purposes
of processing Market Orders, the Exchange would not use an adjusted
NBBO.\67\ On the Exchange's cash equity market, the Exchange does not
use an adjusted NBBO when processing Market Orders. The Exchange
proposes to similarly not use an adjusted NBBO when processing Market
Orders on its options market, which would be new for options trading.
The Exchange believes that because Market Orders trade immediately on
arrival, using an unadjusted NBBO would provide a price protection
mechanism by using a more conservative view of the NBBO.
---------------------------------------------------------------------------
\67\ See discussion supra, regarding the proposed Rule 1.1
definition of ``NBBO'' and that when using an unadjusted NBBO, the
NBBO would not be adjusted based on information about orders the
Exchange sends to Away Markets, execution reports received from
those Away Markets, and certain orders received by the Exchange. The
Exchange believes that the unadjusted NBBO is a more conservative
view of the NBBO because the Exchange waits for an update from OPRA
rather than updating it based on its view of the NBBO.
---------------------------------------------------------------------------
Proposed Rule 6.62P-O(a)(1)(A) would provide that a Market Order
that arrives during continuous trading would be rejected, or that was
routed, returns unexecuted, and has no resting quantity to join would
be cancelled if it fails the validations specified in proposed Rule
6.62P-O(a)(1)(A)(i)--(iv). This proposed rule is based in part on Rule
6.62-O(a), which specifies that a Market Order will be rejected during
Core Trading Hours if, when received, there is no NBBO for the
applicable option series as disseminated by OPRA, with differences to
use Pillar terminology and to expand the circumstances when a Market
Order would be rejected beyond the absence of an NBBO. As proposed, a
Market Order would be rejected (or cancelled if routed first) if: \68\
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\68\ The Exchange will also reject a Market Order if it is
entered when the underlying NMS stock is either in a Limit State or
a Straddle State, which is current functionality. See Rule 6.65A-
O(a)(1). The Exchange proposes a non-substantive amendment to Rule
6.65A-O(a)(1) to add a cross reference to proposed Rule 6.62P-
O(a)(1). The Exchange also proposes to amend the second sentence of
Rule 6.65A-O(a)(1) to remove references to trading collars, and
instead specify that the Exchange would cancel any resting Market
Orders if the underlying NMS stock enters a Limit State or a
Straddle State and would notify OTP Holders of the reason for such
cancellation. This proposed change would describe both how Market
Orders function today on the OX system and how they would be
processed on Pillar.
---------------------------------------------------------------------------
<bullet> There is no NBO (proposed Rule 6.62P-O(a)(1)(A)(i)). This
criterion is similar to the current rule, which provides that a Market
Order will be rejected if there is no NBO. The Exchange believes that
in the absence of an NBO, Market Orders should not trade as there is no
market for the option.
<bullet> There is no NBB and the NBO is higher than $0.50 (for sell
Market Orders only). The Exchange further proposes that if there is no
NBB and the NBO is $0.50 or below, a Market Order to sell would not be
rejected and would have a working price and display price one MPV above
zero and would not be subject to a Trading Collar (proposed Rule 6.62P-
O(a)(1)(A)(ii)). The Exchange believes that if there is no NBB, but an
NBO $0.50 or below, the Exchange would be able to price that Market
Order to sell at one MPV above zero. The functionality described in
this proposed rule would be new and is designed to provide an
opportunity for an arriving sell Market Order to trade when the NBO is
below $0.50. The proposed rule would further provide that a Market
Order to sell would be cancelled if it was assigned a Trading Collar,
routed, and when it returns unexecuted, it has no resting portion to
join and there is no NBB, regardless of the price of the NBO.
Accordingly, in this scenario, if there is no NBB and there is an NBO
that is $0.50 or below, the returned, unexecuted Market Order would be
cancelled rather than displayed at one MPV above zero.
<bullet> There are no contra-side Market Maker quotes on the
Exchange or contra-side ABBO, provided that a Market Order to sell
would be accepted as provided for in proposed Rule 6.62P-O(a)(1)(A)(ii)
(proposed Rule 6.62P-O(a)(1)(A)(iii)). This functionality would be new
and is designed to prevent a Market Order from trading at prices that
may not be current for that series in the absence of Market Maker
quotations or an ABBO.
<bullet> The NBBO is not locked or crossed, and the spread is equal
to or greater than a minimum amount based on the midpoint of the NBBO
(proposed Rule 6.62P-O(a)(1)(A)(iv)). The proposed ``wide-spread''
parameter for purposes of determining whether to reject a Market Order
is similar to the wide-spread parameter applied when determining
whether a trade is a Catastrophic Error, as set forth in Rule 6.87-
O(b)(3), with two differences. First, as shown below, the lowest bucket
would be $0.00 up to and including $2.00, instead of $0.00 to $1.99,
which means the $2.00 price point would be included in this bucket. The
Exchange proposes this difference because it would simplify the
application to have the break points after whole dollar price points.
Second, the wide-spread calculation would be based off of the midpoint
of the NBBO, rather than off of the bid price, as follows:
------------------------------------------------------------------------
Spread
The midpoint of the NBBO parameter
------------------------------------------------------------------------
$0.00 to $2.00.............................................. $0.75
Above $2.00 to and including $5.00.......................... 1.25
Above $5.00 to and including $10.00......................... 1.50
Above $10.00 to and including $20.00........................ 2.50
Above $20.00 to and including $50.00........................ 3.00
Above $50.00 to and including $100.00....................... 4.50
Above $100.00............................................... 6.00
------------------------------------------------------------------------
The Exchange notes that this proposed protection for Market Orders
is a new risk control designed to protect against erroneous executions
and use of the midpoint of the NBBO as a basis for a price protection
mechanism is consistent with similar functionality on other options
markets.\69\
---------------------------------------------------------------------------
\69\ See, e.g., Cboe Rule 5.34(a)(2) (setting forth the ``Market
Order NBBO Width Protection'' wherein Cboe cancels or rejects market
orders submitted ``when the NBBO width is greater than x% of the
midpoint of the NBBO,'' subject to minimum and maximum dollar values
determined by Cboe).
---------------------------------------------------------------------------
Proposed Rule 6.62P-O(a)(1)(B) would provide that an Aggressing
Market Order to buy (sell) would trade with all orders or quotes to
sell (buy) on the Consolidated Book priced at or below (above) the
Trading Collar before routing to Away Market(s) at each price.\70\
Proposed Rule 6.62P-O(a)(1)(B) would further provide that after trading
or routing, or both, a Market Order would be displayed at the Trading
Collar, subject to proposed Rule 6.62P-O(a)(1)(C), which is consistent
with current functionality that Market Orders would be displayed at a
Trading Collar, per Rule 6.60-O(a)(5).
---------------------------------------------------------------------------
\70\ The Exchange has defined an Aggressing Order in proposed
Rule 6.76P-O(a)(5). An Aggressing Market Order is a Market Order
that is an Aggressing Order.
---------------------------------------------------------------------------
Proposed Rule 6.62P-O(a)(1)(C) would provide that a Market Order
would be cancelled before being displayed if there are no remaining
contra-side Market Maker quotes on the Exchange or contra-side ABBO.
Proposed Rule 6.62P-O(a)(1)(D) would provide that a Market Order would
be cancelled after being displayed at its Trading Collar if there
ceases to be a contra-side NBBO. These proposed cancellation events are
similar to functionality described in Rule 6.60-O(a)(4)(E), which
provides that ``[t]he Exchange will cancel a Market Order, or the
balance thereof, that has been collared pursuant to paragraph (a)(1)(A)
or (B) [of that Rule] above, if after exhausting trading opportunities
within the Collar Range, the Exchange determines there are no quotes on
the Exchange and/or no interest on another
[[Page 5608]]
market in the affected option series.'' As proposed, in Pillar, the
Exchange would cancel a Market Order in similar circumstances, with
proposed modifications that a Market Order would be cancelled only if
there are no remaining contra-side Market Maker quotes on the Exchange
or if there is no contra-side ABBO. The Exchange believes that this
proposed change from the current rule would provide that a Market Order
would be cancelled when there is no contra-side interest against which
to determine the price at which such order could trade.
Finally, proposed Rule 6.62P-O(a)(1)(E) would provide that a
resting, displayed Market Order that is locked or crossed by an Away
Market would be routed to that Away Market. Because Market Orders are
intended to trade at the best price obtainable, the Exchange proposes
to route displayed Market Orders if they are locked or crossed by an
Away Market.\71\ This proposed Rule is based on current functionality,
which is not described in current rule. Therefore, the proposed rule is
designed to promote clarity and transparency in Exchange rules.
---------------------------------------------------------------------------
\71\ As described above for proposed Rule 6.76P-O(b)(3),
displayed interest other than displayed Market Orders would stand
their ground if locked or crossed by an Away Market. The Exchange
would provide an option for Limit Orders to instead be routed, see
discussion infra, regarding proposed Rule 6.62P-O(i)(1) and the
proposed Proactive if Locked/Crossed Modifier.
---------------------------------------------------------------------------
Limit Orders. Proposed Rule 6.62P-O(a)(2) would define a Limit
Order as an order message to buy or sell a stated number of option
contracts at a specified price or better, subject to Limit Order Price
Protection and the Trading Collar assigned to the order, and that a
Limit Order may be designated Day, IOC, or GTC. In addition, unless
otherwise specified, the working price and the display price of a Limit
Order would be equal to the limit price of the order, it is eligible to
be routed, and it would be ranked under the proposed category of
``Priority 2--Display Orders.'' This proposed rule text uses Pillar
terminology that is based in part on Rule 7.31-E(a)(2). The ability for
a Limit Order to be designated IOC, Day, or GTC is based on current
Rules 6.62-O(k), (m) and (n), respectively, and therefore would differ
from the cash equity rules because (unlike on the cash equity platform)
a Limit Order could be designated GTC, but is consistent with current
options trading functionality. In addition, unlike cash equity trading,
but consistent with current options trading functionality, Limit Orders
would be subject to trading collars. As described in more detail below,
on Pillar, trading collars will differ from both current options
trading collar functionality and trading collar functionality available
on the Exchange's cash equity platform (which is available only for
Market Orders).
Proposed Rule 6.62P-O(a)(2)(A) would provide that a marketable
Limit Order to buy (sell) received by the Exchange would trade with all
orders and quotes to sell (buy) on the Consolidated Book priced at or
below (above) the NBO (NBB) before routing to the ABO (ABB) and may
route to prices higher (lower) than the NBO (NBB) only after trading
with orders and quotes to sell (buy) on the Consolidated Book at each
price point, and once no longer marketable, the Limit Order would be
ranked and displayed on the Consolidated Book. This proposed rule text
is based on Rule 6.62-O(b), which provides that a `` `marketable' limit
order is a Limit Order to buy (sell) at or above (below) the NBBO.''
The proposed rule text is more specific and uses the same Pillar
terminology used to describe Limit Orders in Rule 7.31-E(a)(2)(A) for
cash equity trading. In addition, proposed Rule 6.62P-O(a)(2)(A) would
use terminology specific to options trading (i.e., the proposed rule
refers to the Consolidated Book rather than the NYSE Arca Book as well
as to the NBBO as opposed to the PBBO).
Limit Order Price Protection. The Exchange proposes to describe its
proposed Limit Order Price Protection functionality in proposed Rule
6.62P-O(a)(3). On the OX system, the concept of ``Limit Order Price
Protection'' for orders is set forth in Rule 6.60-O(b) and is called
the ``Limit Order Filter.'' For quotes, price protection filters are
described in Rule 6.61-O. The proposed ``Limit Order Price Protection''
on Pillar would be applicable to both Limit Orders and quotes and, at a
high level, would work similarly to how the current price protection
mechanisms function on the OX system because a Limit Order or quote
would be rejected if it is priced at a specified threshold away from
the contra-side NBB or NBO.\72\ The Exchange proposes to enhance the
functionality for options trading on Pillar by using new thresholds and
reference prices (as discussed further below) that would be applicable
to both orders and quotes. The concept of a ``Reference Price'' as used
in connection with risk controls would be new for options but
consistent with Pillar terminology for the Exchange's cash equity
market as well as how this term is used on other option exchanges.\73\
Thus, this term is not new or novel.
---------------------------------------------------------------------------
\72\ Current Rule 6.60-O(b) provides that unless otherwise
determined by the Exchange, the specified threshold percentage for
orders is 100% when the contra-side NBB or NBO is priced at or below
$1.00 and 50% when the contra-side NBB or NBO is priced above $1.00.
Current Rule 6.61-O(a)(1)(A) provides that unless otherwise
determined by the Exchange, the specified threshold for Market Maker
bids is $1.00 if the contra-side NBO is priced at or below $1.00 and
for Market Maker offers no limit if the NBB is priced at or below
$1.00. Current Rule 6.61-O(a)(1)(B) provides that unless otherwise
determined by the Exchange, the specified threshold for Market Maker
bids is 50% if the contra-side NBO (NBB) is priced above $1.00.
\73\ See, e.g., Cboe Rule 5.6(c) (setting forth the ``reference
price'' applicable to orders for which Cboe delta-adjusts the
execution price after the market close). As discussed infra, the
Exchange likewise proposes to use the term Reference Price in
connection with Trading Collars (proposed Rule 6.62P-O(a)(4)) and
other risk checks (proposed Rule 6.41P-O).
---------------------------------------------------------------------------
Proposed Rule 6.62P-O(a)(3)(A) would provide that each trading day,
a Limit Order or quote to buy (sell) would be rejected or cancelled (if
resting) if it is priced at a ``Specified Threshold,'' described below,
equal to or above (below) the Reference Price, rounded down to the
nearest price within the MPV for the Series (``Limit Order Price
Protection''). In other words, a Limit Order designated GTC would be
re-evaluated for Limit Order Price Protection on each day that it is
eligible to trade and would be cancelled if the limit price is through
the Specified Threshold. In addition, the proposed rounding down is
consistent with current functionality, is standard on Pillar for price
protection mechanisms, and is based on how Limit Order Price Protection
is calculated on the Exchange's cash equity market if it is not within
the MPV for the security, as described in the last sentence of Rule
7.31-E(a)(2)(B). The proposed text would therefore promote granularity
in Exchange rules. The proposed rule would further provide that Cross
Orders and Limit-on-Open (``LOO'') Orders (described below) as well as
orders represented in open outcry (except CTB Orders), would not be
subject to Limit Order Price Protection and that Limit Order Price
Protection would not be applied to a Limit Order or quote if there is
no Reference Price, which is consistent with current functionality.
<bullet> Proposed Rule 6.62P-O(a)(3)(A)(i) would provide that a
Limit Order or quote that arrives when a series is open would be
evaluated for Limit Order Price Protection on arrival.
<bullet> Proposed Rule 6.62P-O(a)(3)(A)(ii) would provide that a
Limit Order or quote received during a pre-open state would be
evaluated for Limit Order
[[Page 5609]]
Price Protection after an Auction concludes.\74\
---------------------------------------------------------------------------
\74\ See discussion infra, regarding proposed Rule 6.64P-O(a)
and proposed definitions for the terms ``Auction,'' ``Auction
Price,'' Auction Collar,'' ``pre-open state,'' and ``Trading Halt
Auction.''
---------------------------------------------------------------------------
<bullet> Proposed Rule 6.62P-O(a)(3)(A)(iii) would provide that a
Limit Order or quote that was resting on the Consolidated Book before a
trading halt would be evaluated for Limit Order Price Protection again
after the Trading Halt Auction concludes.
The Exchange believes that these proposed rules would add clarity
and transparency to when the Exchange would evaluate a Limit Order or
quote for Limit Order Price Protection.
Proposed Rule 6.62P-O(a)(3)(B) would specify that the Reference
Price for calculating Limit Order Price Protection for an order or
quote to buy (sell) would be the NBO (NBB), provided that, immediately
following an Auction, the Reference Price would be the Auction Price,
or if none, the upper (lower) Auction Collar price, or, if none, the
NBO (NBB). The Exchange believes that adjusting the Reference Price for
Limit Order Price Protection immediately following an Auction would
ensure that the most up-to-date price would be used to assess whether
to cancel a Limit Order that was received during a pre-open state or
would be reevaluated after a Trading Halt Auction. The Exchange further
proposes that for purposes of calculating Limit Order Price Protection,
the Exchange would not use an adjusted NBBO, which use of an unadjusted
NBBO is consistent with how Limit Order Price Protection currently
functions on the Exchange's cash equity market, as described in Rule
7.31-E(a)(2)(B).\75\ The Exchange believes that using an unadjusted
NBBO for risk protection mechanisms is consistent with the goal of such
mechanisms to prevent erroneous executions by using a more conservative
view of the NBBO.
---------------------------------------------------------------------------
\75\ References to the NBBO, NBB, and NBO in Rule 7.31-E refer
to using a determination of the national best bid and offer that has
not been adjusted.
---------------------------------------------------------------------------
Proposed Rule 6.62P-O(a)(3)(C) would specify the Specified
Threshold and would provide that unless determined otherwise by the
Exchange and announced to OTP Holders and OTP Firms by Trader Update,
the Specified Threshold applicable to Limit Order Price Protection
would be:
------------------------------------------------------------------------
Specified
Reference price threshold
------------------------------------------------------------------------
$0.00 to $1.00.............................................. $0.30
$1.01 to $10.00............................................. 50%
$10.01 to $20.00............................................ 40%
$20.01 to $50.00............................................ 30%
$50.01 to $100.00........................................... 20%
$100.01 and higher.......................................... 10%
------------------------------------------------------------------------
The Exchange believes that it would provide a more reasonable and
deterministic trading outcome to use a fixed dollar amount (of $0.30)
rather than a percentage calculation when the Reference Price is $1.00
or less. The Exchange believes that the balance of the proposed
thresholds, which are percentages tied to the amount of the Reference
Price that decrease as that Price increases, are more granular than
those currently specified in Rules 6.60-O(b) (for orders) and 6.61-
O(a)(1)(A) and (B) (for quotes) and therefore determining whether to
reject a Limit Order or quote will be more tailored to the applicable
Reference Price.\76\ In addition, consistent with Rules 6.60-O(b) and
6.61-O(a)(1), the Exchange proposes that these thresholds could change,
subject to announcing the changes by Trader Update. Providing
flexibility in Exchange rules regarding how the Specified Thresholds
would be set is consistent with the rules of other options
exchanges.\77\
---------------------------------------------------------------------------
\76\ On the OX system, the thresholds for price protection on
orders and quotes (per Rules 6.60-O(b) and 6.61-O(a)(1),
respectively), depend solely on whether the contra-side NBBO (i.e.,
the reference price) is more or less than $1.00. The Exchange
believes the additional Reference Price levels--and corresponding
Specified Thresholds--would make the application of the Limit Order
Price Protection more precise to the benefit of all market
participants.
\77\ See, e.g., Cboe Rule 5.34(a)(4) (describing the ``Drill-
Through Protection'' and that Cboe ``determines the buffer amount on
a class and premium basis'' without specifying the amount of such
buffers); and the Nasdaq Stock Market LLC (``Nasdaq'') Options 3,
Section 15(a)(1)(B) (specifying that ``Order Price Protection'' can
be a configurable dollar amount not to exceed $1.00 through such
contra-side Reference BBO as specified by Nasdaq and announced via
an Options Trader Alert).
---------------------------------------------------------------------------
Trading Collar. Trading Collars on the OX system are currently
described in Rule 6.60-O(a). Under the current rules, incoming Market
Orders and marketable Limit Orders are limited in having an immediate
execution if they would trade at a price greater than one ``Trading
Collar.'' A collared order is displayed at that price and then can be
repriced to new collars as the NBBO updates. On Pillar, the Exchange
proposes Trading Collar functionality that would be new for Pillar and
is not currently available on the Exchange's cash equity platform.
Unlike current options trading collar functionality, which permits
a collared order to be repriced, as proposed, a Market Order or Limit
Order would be assigned a single Trading Collar that would be
applicable to that order until it is fully executed or cancelled
(unless the series is halted). The new proposed Trading Collar would
function as a ceiling (for buy orders) or floor (for sell orders) of
the price at which such order could be traded, displayed, or routed.
The Exchange further proposes that when an order is working at its
assigned Trading Collar, it would cancel if not executed within a
specified time period.
More specifically, proposed Rule 6.62P-O(a)(4) would provide that a
Market Order or Limit Order to buy (sell) would not trade or route to
an Away Market at a price above (below) the Trading Collar assigned to
that order. As further proposed, Auction-Only Orders, Limit Orders
designated IOC or FOK, Cross Orders, ISOs, and Market Maker quotes
would not be subject to Trading Collars, which interest is excluded
under current functionality.\78\ The proposed rule, however, would
explicitly add reference to Auction-Only Orders, Cross Orders, and ISOs
being excluded from Trading Collars, which new detail would add
granularity to the proposed rule and would also address that the
proposed Day ISOs, described below, would not be subject to Trading
Collars. In addition, Trading Collars would not be applicable during
Auctions but (as described below) would be calculated after such
Auction concludes.
---------------------------------------------------------------------------
\78\ See Rule 6.60-O(a)(3) (``Trade Collar Protection does not
apply to quotes, IOC Orders, AON Orders, FOK Orders, and NOW
Orders.'').
---------------------------------------------------------------------------
Proposed Rule 6.62P-O(a)(4)(A) would provide that a Trading Collar
assigned to an order would be calculated once per trading day and would
be updated only if the series is halted. Accordingly, an order
designated GTC would receive a new Trading Collar each day, but that
Trading Collar would not be updated intraday unless the series is
halted. Proposed Rule 6.62P-O(a)(4)(A)(i) would provide that an order
that is received during continuous trading would be assigned a Trading
Collar before being processed for either trading, repricing, or routing
and that an order that is routed on arrival and returned unexecuted
would use the Trading Collar previously assigned to it. Proposed Rule
6.62P-O(a)(4)(A)(ii) would provide that an order received during a pre-
open state would be assigned a Trading Collar after an Auction
concludes. Finally, proposed Rule 6.62P-O(a)(4)(A)(iii) would provide
that the Trading Collar for an order resting on the Consolidated Book
[[Page 5610]]
before a trading halt would be calculated again after the Trading Halt
Auction concludes. The Exchange believes that because Trading Collars
are intended as a price protection mechanism, updating the Trading
Collar after a series has reopened would allow for the Trading Collar
assigned to an order to reflect more updated pricing.
Proposed Rule 6.62P-O(a)(4)(B) would provide that the Reference
Price for calculating the Trading Collar for an order to buy (sell)
would be the NBO (NBB), which is consistent with how trading collars
are currently determined for Limit Orders, with differences to use this
Reference Price for all orders and for how the Reference Price would be
determined after an Auction.\79\ The Exchange proposes to use the
Pillar term ``Reference Price'' to describe what would be used for
Trading Collar calculations.\80\ The proposed rule would further
provide that for Auction-eligible orders to buy (sell) that were
received during a pre-open state or orders that were re-assigned a
Trading Collar after a trading halt, the Reference Price would be the
Auction Price or, if none, the upper (lower) Auction Collar price or,
if none, the NBO (NBB). For reasons similar to those described above,
the Exchange proposes to use a more conservative view of the NBBO for
purposes of risk protection mechanisms. Therefore, the Exchange
proposes that for purposes of calculating a Trading Collar, the
Exchange would not use an adjusted NBBO. Proposed Rule 6.62P-
O(a)(4)(B)(i) would further provide that a Trading Collar would not be
assigned to a Limit Order if there is no Reference Price at the time of
calculation, which is consistent with current functionality and the
proposed rule would add granularity to Exchange rules.
---------------------------------------------------------------------------
\79\ Under current rules, trading collars are calculated based
off of the contra-side NBBO. See Rule 6.60-O(a)(1)(A)(ii).
\80\ See discussion regarding Cboe Rule 5.34(a)(4) and Nasdaq
Options 3, Section 15(a)(1)(B), supra note 77.
---------------------------------------------------------------------------
Proposed Rule 6.62P-O(a)(4)(C) would describe how the Trading
Collar would be calculated and would provide that the Trading Collar
for an order to buy (sell) would be a specified amount above (below)
the Reference Price, as follows: (1) For orders with a Reference Price
of $1.00 or lower, $0.25; or (2) for orders with a Reference Price
above $1.00, the lower of $2.50 or 25%. Trading Collars under the
current rule are based on a specified dollar amount (set forth in four
tranches).\81\ The Exchange believes the proposed functionality (set
forth in two tranches) would tailor the Trading Collar calculations
with either a specified dollar amount or percentage, depending on the
Reference Price of the order, while at the same time providing that the
thresholds would be within the current parameters for determining
whether a trade is an Obvious Error or Catastrophic Error.\82\ Proposed
Rule 6.62P-O(a)(4)(C)(i) would further provide that if the calculation
of a Trading Collar would not be in the MPV for the series, it would be
rounded down to the nearest price within the applicable MPV, which is
consistent with current functionality and based on how Trading Collars
are calculated on the Exchange's cash equity market, as described in
Rule 7.31-E(a)(1)(B). Proposed Rule 6.62P-O(a)(4)(C)(ii) would further
provide that for orders to sell, if subtracting the Trading Collar from
the Reference Price would result in a negative number, the Trading
Collar for Limit Orders would be the limit price and the Trading Collar
for Market Orders would be one MPV above zero, which would provide more
granularity in Exchange rules and would ensure that there will be a
Trading Collar calculated for low-priced orders to sell.
---------------------------------------------------------------------------
\81\ Under the current rule, the Trading Collar for buy (sell)
orders is as follows: $0.25 for each option contract for which the
NBB (NBO) is less than $2.00; $0.40 where the NBB (NBO) is between
$2.00-$5.00; $0.50 where the NBB (NBO) is between $5.01-$10.00;
$0.80 where the NBB (NBO) is between $10.01 but does not exceed--
$20.00; and $1.00 when the NBB (NBO) is $20.01 or more.
\82\ See Rules 6.87-O(c)(1) (thresholds for Obvious Errors) and
6.87-O(d)(1) (thresholds for Catastrophic Errors).
---------------------------------------------------------------------------
Proposed Rule 6.62P-O(a)(4)(D) would describe how the Trading
Collar would be applied and would provide that if an order to buy
(sell) would trade or route above (below) the Trading Collar or would
have its working price repriced to a Trading Collar that is below
(above) its limit price, the order would be added to the Consolidated
Book at the Trading Collar for 500 milliseconds and if not traded
within that period, would be cancelled. In addition, once the 500-
millisecond timer begins for an order, the order would be cancelled at
the end of the timer even if it repriced or has been routed to an Away
Market during that period, in which case any portion of the order that
is returned unexecuted would be cancelled.
The Exchange believes that the proposed Trading Collar
functionality is designed to provide a similar type of order protection
as is currently available (as described in Rule 6.60-O(a)) because it
would limit the price at which a marketable order could be traded,
routed, or displayed. The Exchange believes that the proposed
differences are designed to simplify the functionality by applying a
static ceiling price (for a buy order) or floor price (for a sell
order) at which such order could be traded or routed that would be
determined at the time of entry (or after a series opens or reopens)
and would be applicable to the order until it is traded or cancelled.
The Exchange believes that the proposed functionality would provide
greater determinism to an OTP Holder or OTP Firm of the Trading Collar
that would be applicable to a Market Order or Limit Order and when such
order may be cancelled if it reaches its Trading Collar.
Time in Force Modifiers. Proposed Rule 6.62P-O(b) would set forth
the time-in-force modifiers that would be available for options trading
on Pillar and uses Pillar terminology similar to that used in Rule
7.31-E(b), with differences to offer time-in-force modifiers currently
available for options trading that are not available for cash equity
trading. The Exchange proposes to offer the same time-in-force
modifiers that are currently available for options trading on the
Exchange and use Pillar terminology to describe the functionality. As
noted above, the Exchange proposes to describe the Time in Force
Modifiers in proposed Rule 6.62P-O(b), and then specify for each order
type which Time in Force Modifiers would be available for such orders
or quotes.
Day Modifier. Proposed Rule 6.62P-O(b)(1) would provide that any
order or quote to buy or sell designated Day, if not traded, would
expire at the end of the trading day on which it was entered and that a
Day Modifier cannot be combined with any other Time in Force Modifier.
This proposed rule text uses Pillar terminology based on Rule 7.31-
E(b)(1) with one difference to reference ``quotes'' in addition to
orders. This proposed functionality would operate no differently than
how a ``Day Order,'' as described in Rule 6.62-O(m), currently
functions.
Immediate-or-Cancel (``IOC'') Modifier. Proposed Rule 6.62P-O(b)(2)
would provide that a Limit Order may be designated IOC or Routable IOC,
as described in proposed Rules 6.62P-O(b)(2)(A) and (B) and that a
Limit Order designated IOC would not be eligible to participate in any
Auctions. This proposed rule text is based on the first and third
sentences of Rule 7.31-E(b)(2) without any differences and makes
explicit current (but not defined) functionality.\83\ The Exchange
proposes
[[Page 5611]]
to use Pillar terminology based on Rule 7.31-E(b)(2) to describe this
functionality.
---------------------------------------------------------------------------
\83\ The proposed rule does not include the second sentence of
Rule 7.31-E(b)(2), which provides that the ``IOC Modifier will
override any posting or routing instructions of orders that include
the IOC Modifier,'' as this functionality is not applicable to
options because an order that is not eligible to include an IOC
Modifier would be rejected on Pillar.
---------------------------------------------------------------------------
Proposed Rule 6.62P-O(b)(2)(A) would define a ``Limit IOC Order''
as a Limit Order designated IOC that would be traded in whole or in
part on the Exchange as soon as such order is received, and the
unexecuted quantity would be cancelled and that a Limit IOC Order does
not route. This proposed rule text uses Pillar terminology based on
Rule 7.31-E(b)(2)(A) without any substantive differences. The proposed
Pillar Limit IOC Order would function the same as an ``Immediate-or-
Cancel Order (IOC Order),'' as currently described in Rule 6.62-O(k),
without any differences.
Proposed Rule 6.62P-O(b)(2)(B) would define a ``Limit Routable IOC
Order'' as a Limit Order designated Routable IOC that would be traded
in whole or in part on the Exchange as soon as such order is received,
and the unexecuted quantity routed to Away Market(s) and that any
quantity not immediately traded either on the Exchange or an Away
Market would be cancelled. This proposed rule text uses Pillar
terminology based on Rule 7.31-E(b)(2)(B) without any substantive
differences. The proposed Pillar Limit Routable IOC Order is also based
on the ``NOW Order,'' as currently described in Rule 6.62-O(o) and uses
Pillar terminology.
Fill-or-Kill (``FOK'') Modifier: Proposed Rule 6.62P-O(b)(3) would
provide that a Limit Order designated FOK would be traded in whole on
the Exchange as soon as such order is received, and if not so traded is
to be cancelled and that a Limit Order designated FOK does not route
and does not participate in any Auctions. The Exchange does not offer
the FOK Modifier on its cash equity market, and this proposed rule uses
Pillar terminology to offer the same functionality that is currently
described in Rule 6.62-O(l) as the ``Fill-or-Kill Order (FOK Order)''
without any substantive differences.
Good-`Til-Cancelled (``GTC'') Modifier. Proposed Rule 6.62P-O(b)(4)
would provide that a Limit or Market Order designated GTC remains in
force until the order is filled, cancelled, the MPV in the series
changes overnight, the option contract expires, or a corporate action
results in an adjustment to the terms of the option contract. The
Exchange does not offer the GTC Modifier on its cash equity market, and
this proposed rule uses Pillar terminology to offer the same
functionality that is currently described in Rule 6.62-O(n) as the
``Good-Till-Cancelled (GTC Order),'' with the substantive difference
that the proposed text makes clear (consistent with current
functionality) that such orders may be cancelled if the MPV changes
overnight. Otherwise, the proposed Rule describes the same
functionality that is currently described in Rule 6.62-O(n) as the
``Good-Till-Cancelled (GTC Order).''
Auction-Only Orders. Proposed Rule 6.62P-O(c) would define an
``Auction-Only Order'' as a Limit Order or Market Order that is to be
traded only in an Auction pursuant to Rule 6.64P-O,\84\ which uses
Pillar terminology based on Rule 7.31-E(c) in lieu of the current
description of an ``Opening Only Order'' set forth in Rule 6.62-O(r),
without any functional differences to how such orders trade on
Pillar.\85\ The proposed rule would further provide that an Auction-
Only Order would not be accepted when a series is opened for trading
(i.e., would be accepted only during a pre-open state, which includes a
trading halt) and any portion of an Auction-Only Order that is not
traded in a Core Open Auction or Trading Halt Auction would be
cancelled. This represents current functionality.\86\ The proposed rule
is designed to provide clarity and uses Pillar terminology from both
the last sentence of Rule 7.31-E(c)(1) and the last sentence of Rule
7.31-E(c)(2) for options trading.
---------------------------------------------------------------------------
\84\ See discussion infra, regarding proposed Rule 6.64P-O and
definitions relating to Auctions. As proposed, an ``Auction''
includes the opening or reopening of a series for trading either on
a trade or quote. See proposed Rule 6.64P-O(a)(5).
\85\ Rule 6.62-O(r) defines an ``Opening Only Order'' as ``a
Market Order or Limit Order which is to be executed in whole or in
part during the opening auction of an options series or not at all.
Any portion not so executed is to be treated as cancelled.'' Per
Rule 6.64-O(d), the Exchange utilizes the same process for orders
eligible to participate in the opening or reopening (following a
trading halt) of a series.
\86\ See Rule 6.62-O(r) (providing that any portion of an
Opening Only Order ``not so executed is to be treated as
cancelled'').
---------------------------------------------------------------------------
Proposed Rule 6.62P-O(c)(1) would define a ``Limit-on-Open Order
(`LOO Order')'' as a Limit Order that is to be traded only in an
Auction. This proposed rule uses Pillar terminology based on Rule 7.31-
E(c)(1) to describe functionality that would be no different from
current functionality, as described in Rule 6.62-O(r).
Proposed Rule 6.62P-O(c)(2) would define a ``Market-on-Open Order
(`MOO Order')'' as a Market Order that is to be traded only in an
Auction (whether a Core Open Auction or Trading Halt Auction, per
proposed Rule 6.64P-O(a)(1)(A), (B)). This proposed rule uses Pillar
terminology based on Rule 7.31-E(c)(2) to describe functionality for
options that would be no different from current functionality, as
described in Rule 6.62-O(r).
Proposed Rule 6.62P-O(c)(3) would define an ``Imbalance Offset
Order (`IO Order').'' The Exchange currently offers an IO Order for
participation in Trading Halt Auctions on its cash equity market but
does not offer this order type for options trading on the OX system.
For cash equity trading, the IO Order is a conditional order type that
is eligible to participate in a Trading Halt Auction only if it would
offset the imbalance. To provide OTP Holders and OTP Firms with greater
flexibility for options trading on Pillar, the Exchange proposes to
offer more expansive functionality than is currently available for cash
equity trading and to offer the IO Order for both Core Open Auctions
and Trading Halt Auctions.
As proposed, the IO Order would function no differently than how an
IO Order currently functions on the Exchange's cash equity market
(except that it would be eligible to trade in all Auctions).
Accordingly, proposed Rule 6.62P-O(c)(3) would define an IO Order as a
Limit Order that is to be traded only in an Auction, which is based on
Rule 7.31-E(c)(5), with a difference that for options trading, it would
also be available for Core Open Auctions.
<bullet> Proposed Rule 6.62P-O(c)(3)(A) would provide that an IO
Order would participate in an Auction only if: (1) There is an
Imbalance in the series on the opposite side of the market from the IO
Order after taking into account all other orders and quotes eligible to
trade at the Indicative Match Price; and (2) the limit price of the IO
Order to buy (sell) would be at or above (below) the Indicative Match
Price. This proposed text is based on Rule 7.31-E(c)(5)(B) except that
it includes reference to quotes, which are unique to options trading,
and does not limit the order type to Trading Halt Auctions.
<bullet> Proposed Rule 6.62P-O(c)(3)(B) would provide that the
working price of an IO Order to buy (sell) would be adjusted to be
equal to the Indicative Match Price, provided that the working price of
an IO Order would not be higher (lower) than its limit price. This
proposed text is based on Rule 7.31-E(c)(5)(C) without any differences.
Orders with a Conditional or Undisplayed Price and/or Size.
Proposed Rule 6.62P-O(d) would set forth the orders with a conditional
or undisplayed price and/or size that would be available for options
trading
[[Page 5612]]
on Pillar. On Pillar, the Exchange proposes to offer the same type of
orders that are available in the OX system and that are currently
described in Rule 6.62-O(d) as a ``Contingency Order or Working
Order,'' with changes as described below.\87\
---------------------------------------------------------------------------
\87\ As discussed, supra, regarding proposed Rule 6.76P-O(g),
the Exchange proposes to include details about ranking of orders and
quotes with contingencies in this proposed Rule 6.62P-O(d) using the
Pillar priority scheme. Also, as discussed infra, see e.g., note 44
[sic], the ranking and priority of quotes under Pillar is consistent
with handling on the OX system unless otherwise noted herein.
---------------------------------------------------------------------------
Reserve Order. Reserve Orders are currently defined in Rule 6.62-
O(d)(3). The Exchange proposes that for options traded on Pillar,
Reserve Orders would function similarly to how Reserve Orders function
on its cash equity market, as described in Rule 7.31-E(d)(1), with
differences described below. Accordingly, the Exchange proposes that
proposed Rule 6.62P-O(d)(1), which would define Reserve Orders for
options trading on Pillar, would use Pillar terminology based on Rule
7.31-E(d)(1), with differences to reflect differences in options and
cash equity trading. For example, options trading does not have a
concept of ``round lot'' or ``odd lot'' trading, and therefore the
proposed options trading version of the Rule would not include a
description of behavior that correlates to such functionality.
Proposed Rule 6.62P-O(d)(1) would define a Reserve Order as a Limit
Order with a quantity of the size displayed and with a reserve quantity
of the size (``reserve interest'') that is not displayed and that the
displayed quantity of a Reserve Order is ranked under the proposed
category of ``Priority 2--Display Orders'' and the reserve interest is
ranked under the proposed category of ``Priority 3--Non-Display
Orders.'' This proposed rule text is based on Rule 7.31-E(d)(1) without
any differences. This proposed rule text is also consistent with Rule
6.76-O(a)(1)(B) and (a)(2), with orders ranked under the proposed
category of ``Priority 2--Display Orders'' functioning the same as
orders in the current ``Display Order Process'' and orders ranked under
the proposed category of ``Priority 3--Non-Displayed Orders''
functioning the same as orders in the current ``Working Order
Process.'' Proposed Rule 6.62P-O(d)(1) would further provide that both
the display quantity and the reserve interest of an arriving marketable
Reserve Order would be eligible to trade with resting interest in the
Consolidated Book or route to Away Markets, unless designated as a Non-
Routable Limit Order, which is based on the third sentence of Rule
7.31-E(d)(1) with a non-substantive difference to add reference to Non-
Routable Limit Order.
Proposed Rule 6.62P-O(d)(1) would further provide that the working
price of the reserve interest of a resting Reserve Order to buy (sell)
would be adjusted in the same manner as a Non-Displayed Limit Order, as
provided for in paragraph (d)(2)(A) of this Rule, provided that it
would never be priced higher (lower) than the working price of the
display quantity of the Reserve Order. This proposed rule text is based
on the last sentence of Rule 7.31-E(d)(1) with one difference to
reference that the reserve interest could never have a working price
that is more aggressive than the working price of the display quantity
of the Reserve Order, which would be new functionality on Pillar for
options trading (and not currently available for cash equity trading)
designed to ensure that the reserve interest of a Reserve Order to buy
(sell) would never trade at a price higher (lower) than the working
price of the display quantity of the Reserve Order.\88\
---------------------------------------------------------------------------
\88\ For example, as described in more detail below, the
proposed Non-Routable Limit Order would be eligible to be repriced
only once after it is resting in the Consolidated Book (see proposed
Rule 6.62P-O(e)(1)). If the display quantity of a Non-Routable Limit
Order that is combined with a Reserve Order has already been
repriced and is no longer eligible to be repriced, and the ABBO
adjusts, the reserve quantity would not adjust to a price that would
be more aggressive than the working price of the display quantity of
the order. This functionality is not currently available on the
Exchange's cash equity market.
---------------------------------------------------------------------------
<bullet> Proposed Rule 6.62P-O(d)(1)(A) would provide that the
displayed portion of a Reserve Order would be replenished when the
display quantity is decremented to zero and that the replenish quantity
would be the minimum display size of the order or the remaining
quantity of the reserve interest if it is less than the minimum display
quantity. This proposed rule text is based on Rule 7.31-E(d)(1)(A) with
differences to reflect that options are not traded in ``round lots'' or
``odd lots.'' Accordingly, the Exchange would not replenish a Reserve
Order on the options trading platform until the display portion is
fully decremented, which is consistent with current functionality as
described in Rule 6.76-O(a)(1)(B).
<bullet> Proposed Rule 6.62P-O(d)(1)(B) would provide that each
time the display quantity of a Reserve Order is replenished from
reserve interest, a new working time would be assigned to the
replenished quantity, which is consistent with current Rule 6.76-
O(a)(1)(B)(ii), which provides that when refreshed, the new display
quantity will be ranked at the new time that the displayed portion of
the order was refreshed. This proposed rule text is based in part on
Rule 7.31-E(d)(1)(B) with differences to reflect that for options
traded on Pillar, there would never be more than one display quantity
of a Reserve Order, and therefore the Exchange would not have different
``child'' display quantities of a Reserve Order with different working
times, as could occur for a Reserve Order on the Exchange's cash equity
trading platform.
<bullet> Proposed Rule 6.62P-O(d)(1)(C) would provide that a
Reserve Order may be designated as a Non-Routable Limit Order and if so
designated, the reserve interest that replenishes the display quantity
would be assigned a display price and working price consistent with the
instructions for the order. This proposed rule text is based on Rule
7.31-E(d)(1)(B)(ii) without any substantive differences. The Exchange
believes that the proposed rule would promote transparency and
granularity in Exchange rules.
<bullet> Proposed Rule 6.62P-O(d)(1)(D) would provide that a
routable Reserve Order would be evaluated for routing both on arrival
and each time the display quantity is replenished, which is consistent
with Rule 6.76A-O(c)(1)(B), which provides that a Reserve Order may be
routed serially as component orders. Proposed Rule 6.62P-O(d)(1)(D)(i)
would provide that if routing is required, the Exchange would route
from reserve interest before publishing the display quantity. And
proposed Rule 6.62P-O(d)(1)(D)(ii) would provide that any quantity of a
Reserve Order that is returned unexecuted would join the working time
of the reserve interest and that if there is no reserve interest to
join, the returned quantity would be assigned a new working time. This
proposed rule text is based on Rule 7.31-E(d)(1)(D) and subparagraphs
(i) and (ii) with differences to reflect that there is no concept of
round lots or multiple child display orders for options trading. The
Exchange believes that the proposed rule would promote transparency and
granularity in Exchange rules.
<bullet> Proposed Rule 6.62P-O(d)(1)(E) would provide that a
request to reduce the size of a Reserve Order would cancel the reserve
interest before cancelling the display quantity. This proposed rule
text is based on Rule 7.31-E(d)(1)(E) with differences only to reflect
that there would not be more than one child display order for options
trading of Reserve Orders on Pillar. The Exchange believes that the
proposed rule would promote transparency and granularity in Exchange
rules.
[[Page 5613]]
<bullet> Proposed Rule 6.62P-O(d)(1)(F) would provide that a
Reserve Order may be designated Day or GTC, but it may not be
designated as an ALO Order. This proposed rule text is based in part on
Rule 7.31-E(d)(1)(C), with differences to reflect that the GTC Modifier
would be available for Reserve Orders trading on the Pillar options
trading platform (consistent with current functionality) and that
Primary Pegged Orders would not be available for options traded on
Pillar (also consistent with current functionality). The Exchange
believes that the proposed rule would promote transparency and
granularity in Exchange rules.
Non-Displayed Limit Order. The Exchange proposes to offer the Non-
Displayed Limit Order for options trading on Pillar, which would be new
for options trading and would provide OTP Holders and OTP Firms with a
non-displayed order type in lieu of non-displayed PNP Blind Orders,
which latter order type would not be available on Pillar.\89\ The
proposed order type would function similarly to the existing Non-
Displayed Limit Order as described in Rule 7.31-E(d)(2). Proposed Rule
6.62P-O(d)(2) would define a Non-Displayed Limit Order as a Limit Order
that is not displayed, does not route, and is ranked under the proposed
category of ``Priority 3--Non-Display Orders''; and that a Non-
Displayed Limit Order may be designated Day or GTC and would not
participate in any Auctions. This proposed rule text uses the same
Pillar terminology as used in Rule 7.31-E(d)(2) with differences to
reflect that the GTC Time-in-Force Modifier is available for options
trading on Pillar.
---------------------------------------------------------------------------
\89\ The Exchange notes that a Non-Displayed Limit Order would
function similarly to a PNP Blind Order that locks or crosses the
contra-side NBBO. In such case, a PNP Blind Order is not displayed,
as described in Rule 6.62-O(u) (``if the PNP Blind Order would lock
or cross the NBBO, the price and size of the order will not be
disseminated'').
---------------------------------------------------------------------------
<bullet> Proposed Rule 6.62P-O(d)(2)(A) would provide that the
working price of a Non-Displayed Limit Order would be assigned on
arrival and adjusted when resting on the Consolidated Book and that the
working price of a Non-Displayed Limit Order to buy (sell) would be the
lower (higher) of the limit price or the NBO (NBB). This proposed rule
text is based on Rule 7.31-E(d)(2)(A) with non-substantive differences
to reference the Consolidated Book instead of the NYSE Arca Book and to
streamline the rule text without any substantive differences.
All-or-None (``AON'') Order. AON Orders are currently defined in
Rule 6.62-O(d)(4). AON Orders are not available on the Exchange's cash
equity market, and for options trading on Pillar, would function
similarly to how AON Orders currently function because such orders
would only execute if they can be satisfied in their entirety. However,
unlike the OX system, where AON Orders are not integrated in the
Consolidated Book, on Pillar, the Exchange proposes that AON Orders
would be ranked in the Consolidated Book and function as conditional
orders that would trade only if their condition could be met, similar
to how orders with a Minimum Trade Size (``MTS'') Modifier function on
Pillar on the Exchange's cash equity market. In addition, on Pillar,
the Exchange would not support Market Orders designated as AON, which
would be a change from current functionality. The Exchange does not
believe it needs to continue offering AON Market Orders because such
functionality was not used often on the OX system, indicating a lack of
market participant interest in this functionality. Because of the new
functionality that would be available for AON Orders on Pillar, the
Exchange proposes to use Pillar terminology to describe this order
type.
Proposed Rule 6.62P-O(d)(3) would provide that an AON Order is a
Limit Order that is to be traded in whole on the Exchange at the same
time or not at all, which represents current functionality as described
in the first sentence of Rule 6.62-O(d)(4). Proposed Rule 6.62P-O(d)(3)
would further provide that an AON Order that does not trade on arrival
would be ranked under the proposed category of ``Priority 3--Non-
Display Orders'' and that an AON Order may be designated Day or GTC,
does not route, and would not participate in any Auctions. This
proposed rule text uses Pillar terminology to describe the proposed new
functionality that such orders would be ranked on the Consolidated
Book.
<bullet> Proposed Rule 6.62P-O(d)(3)(A) would provide that the
working price of an AON Order would be assigned on arrival and adjusted
when resting on the Consolidated Book and that the working price of an
AON Order to buy (sell) would be the lower (higher) of the limit price
or NBO (NBB). Because an AON Order is non-displayed, the Exchange
proposes that its working price should be adjusted in the same manner
as the proposed Non-Displayed Limit Order.
<bullet> Proposed Rule 6.62P-O(d)(3)(B) would provide that an
Aggressing AON Order to buy (sell) would trade with sell (buy) orders
and quotes that in the aggregate can satisfy the AON Order in its
entirety. This proposed rule text is new and promotes clarity in
Exchange rules that an Aggressing AON Order (whether on arrival or as a
resting order that becomes an Aggressing Order) would be eligible to
trade with more than one contra-side order or quote, provided that
multiple orders and quotes in the aggregate would satisfy the AON Order
in its entirety.
<bullet> Proposed Rule 6.62P-O(d)(3)(C) would provide that a
resting AON Order to buy (sell) would trade with an Aggressing Order or
Aggressing Quote to sell (buy) that individually can satisfy the whole
AON Order. This is proposed new functionality, because currently, an
AON Order can trade only against resting interest in the Consolidated
Book. The Exchange believes this proposed change would provide an AON
Order with additional execution opportunities.
<bullet> Proposed Rule 6.62P-O(d)(3)(C)(i) would provide that if an
Aggressing Order or Aggressing Quote to sell (buy) does not satisfy the
resting AON Order to buy (sell), that Aggressing Order or Aggressing
Quote would not trade with and may trade through such AON Order.
Proposed Rule 6.62P-O(d)(3)(C)(ii) would further provide that if a
resting non-displayed order to sell (buy) does not satisfy the quantity
of a same-priced resting AON Order to buy (sell), a subsequently
arriving order or quote to sell (buy) that satisfies the AON Order
would trade before such resting non-displayed order or quote to sell
(buy) at that price. Both of these proposed rules are similar to
current Rule 6.62-O(d)(4), which provides that a resting AON Order can
be ignored if its condition is not met. Similar to current
functionality, even though an AON would be ranked in the Consolidated
Book, it is still a conditional order type and therefore, by its terms,
can be skipped over for an execution. This proposed rule text is also
based on how the MTS Modifier functions on the cash equity market, as
described in Rule 7.31-E(i)(3)(E)(i) and (ii).
<bullet> Proposed Rule 6.62P-O(d)(3)(D) would provide that a
resting AON Order to buy (sell) would not be eligible to trade against
an Aggressing Order or Aggressing Quote to sell (buy): (i) At a price
equal to or above (below) any orders or quotes to sell (buy) that are
displayed at a price equal to or below (above) the working price of
such AON Order; or (ii) at a price above (below) any orders or quotes
to sell (buy) that are not displayed and that have a working price
below (above) the working price of such AON Order. This proposed rule
text is new functionality for AON Orders that is designed to
[[Page 5614]]
protect the priority of resting orders and quotes and is based on how
the MTS Modifier functions on the cash equity market, as described in
Rule 7.31-E(i)(3)(C) and its subparagraphs (i) and (ii).
<bullet> Proposed Rule 6.62P-O(d)(3)(E) would provide that if a
resting AON Order to buy (sell) becomes an Aggressing Order it would
trade as provided in paragraph (d)(3)(B) of this Rule; however, other
resting orders or quotes to buy (sell) ranked Priority 3--Non-Display
Orders that become Aggressing Orders or Aggressing Quotes at the same
time as the resting AON Order would be processed before the AON Order.
This is proposed new functionality and is designed to promote clarity
in Exchange rules that if multiple orders ranked Priority 3--Non-
Display Orders, including AON and non-AON Orders, become Aggressing
Orders or Aggressing Quotes at the same time, the AON Order would not
be eligible trade until the other orders ranked Priority 3--Non-Display
Orders have been processed, even if they have later working times. The
Exchange believes that it would be consistent with the conditional
nature of AON Orders for other same-side non-displayed orders to have a
trading opportunity before the AON Order.
Stop Order. Stop Orders are currently defined in Rule 6.62-O(d)(1).
The Exchange proposes to use Pillar terminology with more granularity
to describe Stop Orders in proposed Rule 6.62P-O(d)(4), as specified
below. Proposed Rule 6.62P-O(d)(4) would provide that a Stop Order is
an order to buy (sell) a particular option contract that becomes a
Market Order (or is ``elected'') when the Exchange BB (BO) or the most
recent consolidated last sale price reported after the order was placed
in the Consolidated Book (the ``Consolidated Last Sale'') (either, the
``trigger'') is equal to or higher (lower) than the specified ``stop''
price. The proposed functionality is consistent with existing
functionality and provides more granularity of the circumstances when a
Stop Order would be elected.\90\ Because a Stop Order becomes a Market
Order when it is elected, the Exchange proposes that when it is
elected, it would be cancelled if it does not meet the validations
specified in proposed Rule 6.62P-O(a)(1)(A) and if not cancelled, it
would be assigned a Trading Collar. This is consistent with current
functionality, which is not described in the current rule describing
Stop Orders, that once converted to a Market Order, such order is
subject to the checks applicable in the current rule for Market Orders,
i.e., cancelling such order if there is no NBBO. The proposed rule
references the checks that would be applicable to a Market Order on
Pillar and thus adds greater granularity and transparency to Exchange
rules.
---------------------------------------------------------------------------
\90\ The current rule states that a Stop Order to buy (sell)
will be triggered (i.e., elected) if ``trades at a price equal to or
greater (less) than the specified `stop' price on the Exchange or
another Market Center.'' See Rule 6.62-O(d)(1).
---------------------------------------------------------------------------
Proposed Rule 6.62P-O(d)(4)(A) would provide that a Stop Order
would be assigned a working time when it is received but would not be
ranked or displayed in the Consolidated Book until it is elected and
that once converted to a Market Order, the order would be assigned a
new working time and be ranked Priority 1--Market Orders. The original
working time assigned to a Stop Order would be used to rank multiple
Stop Orders elected at the same time. This is consistent with the
current rule, which provides that a Stop Order is not displayed and has
no standing in any Order Process in the Consolidated Book, unless or
until it is triggered. The proposed rule is designed to provide greater
granularity and clarity regarding the treatment of Stop Orders, both
when received and when elected.
Proposed Rule 6.62P-O(d)(4)(B) would specify additional events that
are designed to limit when a Stop Order may be elected so that a Market
Order does not trade during a period of pricing uncertainty:
<bullet> Proposed Rule 6.62P-O(d)(4)(B)(i) would provide that if
not elected on arrival, a Stop Order that is resting would not be
eligible to be elected based on a Consolidated Last Sale unless the
Consolidated Last Sale is equal to or in between the NBBO. This
proposed rule text provides additional transparency of when a resting
Stop Order would be eligible to be elected.
<bullet> Proposed Rule 6.62P-O(d)(4)(B)(ii) would provide that a
Stop Order would not be elected if the NBBO is crossed.
<bullet> Proposed Rule 6.62P-O(d)(4)(B)(iii) would provide that
after a Limit State or Straddle State is lifted, the trigger to elect a
Stop Order would be either the Consolidated Last Sale received after
such state was lifted or the Exchange BB (BO).\91\
---------------------------------------------------------------------------
\91\ Rule 6.65A-O(a)(2) currently provides that the Exchange
will not elect Stop Orders when the underlying NMS stock is either
in a Limit State or a Straddle State, which would continue to be
applicable on Pillar. The Exchange proposes a non-substantive
amendment to Rule 6.65A-O(a)(2) to add a cross-reference to proposed
Rule 6.62P-O(d)(4).
---------------------------------------------------------------------------
Stop Limit Order. Stop Limit Orders are currently defined in Rule
6.62-O(d)(2). The Exchange proposes to use Pillar terminology with more
granularity to describe Stop Limit Orders in proposed Rule 6.62P-
O(d)(5), as specified below.
Proposed Rule 6.62P-O(d)(5) would provide that a Stop Limit Order
is an order to buy (sell) a particular option contract that becomes a
Limit Order (or is ``elected'') when the Exchange BB (BO) or the
Consolidated Last Sale (either, the ``trigger'') is equal to or higher
(lower) than the specified ``stop'' price.\92\ The proposed
functionality is consistent with existing functionality and provides
more granularity of when a Stop Limit Order would be elected than the
current Rule 6.62-O(d)(2) definition of Stop Limit Order. As further
proposed, a Stop Limit Order to buy (sell) would be rejected if the
stop price is higher (lower) than its limit price, which rejection
would be new functionality under Pillar and would prevent the Exchange
from accepting potentially erroneously-priced orders. Because a Stop
Limit Order becomes a Limit Order when it is elected, the Exchange
proposes that when it is elected, it would be cancelled if it fails
Limit Order Price Protection or a Price Reasonability Check and if not
cancelled, it would be assigned a Trading Collar.\93\ This
functionality is consistent with current functionality, though it is
not explicitly stated in the current rule describing Stop Limit Orders.
Specifically, both in the current OX System and as proposed on Pillar,
once converted to a Limit Order, such order is subject to the checks
applicable in the current rule for Limit Orders, i.e., Limit Order
Filter on the OX System. The proposed rule references the checks that
would be applicable to a Limit Order on Pillar and thus adds greater
granularity and transparency to Exchange rules.
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\92\ The term ``Consolidated Last Sale'' is defined in proposed
Rule 6.62P-O(d)(4).
\93\ See discussion infra, regarding proposed Rule 6.41P-O and
Price Reasonability Checks.
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Proposed Rule 6.62P-O(d)(5)(A) would provide that a Stop Limit
Order would be assigned a working time when it is received but would
not be ranked or displayed in the Consolidated Book until it is elected
and that once converted to a Limit Order, the order would be assigned a
new working time and be ranked under the proposed category of
``Priority 2--Display Orders.'' This functionality is consistent with
the current rule, which provides that a Stop Limit Order is not
displayed and has no standing in any Order Process in the Consolidated
Book, unless or until it is triggered. The proposed rule is designed to
provide greater granularity and clarity.
[[Page 5615]]
Proposed Rule 6.62P-O(d)(5)(B) would specify additional events that
are designed to limit when a Stop Limit Order may be elected so that a
Limit Order would not have a possibility of trading or being added to
the Consolidated Book during a period of pricing uncertainty.
<bullet> Proposed Rule 6.62P-O(d)(5)(B)(i) would provide that if
not elected on arrival, a Stop Limit Order that is resting w
[…truncated; see source link]Indexed from Federal Register on February 1, 2022.
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