Notice2022-13040
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Rules 6.40P-O and 6.41P-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
June 17, 2022
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 87 Issue 117 (Friday, June 17, 2022)</title>
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[Federal Register Volume 87, Number 117 (Friday, June 17, 2022)]
[Notices]
[Pages 36556-36558]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2022-13040]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-95088; File No. SR-NYSEArca-2022-34]
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change To Amend Rules
6.40P-O and 6.41P-O
June 13, 2022.
Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby
given that, on June 3, 2022, NYSE Arca, Inc. (``NYSE Arca'' or the
``Exchange'') filed with the Securities and Exchange Commission (the
``Commission'') the proposed rule change as described in Items I, II,
and III below, which Items have been prepared by the self-regulatory
organization. The Commission is publishing this notice to solicit
comments on the proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 15 U.S.C. 78a.
\3\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to amend Rules 6.40P-O (Pre-Trade and
Activity-Based Risk Controls) and 6.41P-O (Price Reasonability Checks--
Orders and Quotes). The proposed rule change is available on the
Exchange's website at <a href="http://www.nyse.com">www.nyse.com</a>, at the principal office of the
Exchange, and at the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the self-regulatory organization
included statements concerning the purpose of, and basis for, the
proposed rule change and discussed any comments it received on the
proposed rule change. The text of those statements may be examined at
the places specified in Item IV below. The Exchange has prepared
summaries, set forth in sections A, B, and C below, of the most
significant parts of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to modify Rules 6.40P-O (Pre-Trade and
Activity-Based Risk Controls) and 6.41P-O (Price Reasonability Checks--
Orders and Quotes) to clarify the application of certain risk checks on
Pillar as set forth below.\4\
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\4\ Rules 6.40P-O and 6.41P-O describe certain risk checks
available for orders and Market Maker quotes on Pillar. The Exchange
notes that because it has not yet migrated to the Pillar platform,
Rules 6.40-O (Risk Limitation Mechanism), 6.60-O (Price Protection--
Orders) and 6.61-O (Price Protection--Quotes) set forth the
applicable risk checks that continue to apply to orders and Market
Maker quotes, which rules are not being modified by this filing. The
Exchange has announced July 11, 2022 as the planned migration date
for Pillar, as announced here: <a href="https://www.nyse.com/trader-update/history#110000421498">https://www.nyse.com/trader-update/history#110000421498</a>.
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First, the Exchange proposes a clarifying change to Rule 6.40P-O
regarding the reference to ``Auction-Only Orders'' as described below.
Rule 6.40P-O describes Activity-Based Risk Controls that are available
to Entering Firms.\5\ Each Entering Firm may apply one of three
activity-based risk limits to its orders and quotes in an options class
based on specified thresholds measured over the course of a specified
time period or Interval.\6\ Rule 6.40P-O(c)(2) sets forth the potential
automated breach action for the Activity-Based Risk Controls that the
Exchange may take should an Entering Firm exceed its established risk
limit. Rule 6.40P-O(d) describes how an Entering Firm's ability to
enter orders, quotes, and related instructions would be reinstated
after certain automated breach actions have been triggered.\7\ And,
Rule 6.40P-O(e) sets forth Kill Switch Action functionality that allows
an Entering Firm to expressly direct the Exchange to take certain bulk
cancel or block actions with respect to orders and quotes in the event
of a breach. The Exchange applies the aforementioned actions to the
quotes and orders submitted by an Entering
[[Page 36557]]
Firm, unless otherwise specified in the Rule. In particular, the Rule
explicitly refers to the handling of Auction-Only Orders in the event
of a breach.
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\5\ See Rule 6.40P-O(a)(1) (defining Entering Firms as all OTP
Holders and OTP Firms (including those acting as Market Makers)).
\6\ See Rule 6.40P-O(a)(3) (defining Activity-Based Risk
Controls, which controls are not applied to interest represented in
open outcry except for CTB Orders) and Rule 6.40P-O(a)(5) (defining
Interval as the configurable time period during which the Exchange
would determine if an Activity-Based Risk Control is breached).
\7\ See Rule 6.40P-O(c)(2) (applies in the reinstatement of an
Entering Firm in the event that a ``Block Only'' or ``Cancel and
Block'' Automated Breach Action is triggered).
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Rule 6.62P-O(c) sets forth the order types that qualify as
``Auction-Only Orders,'' which orders are designated to participate
solely in Auctions held during the opening (or reopening) of option
series.\8\ Subsequent to the adoption of Rule 6.40P-O, the Exchange
adopted Rule 6.91P-O, regarding complex order trading. Rule 6.91P-
O(b)(2)(C) describes ECO GTX Orders. ECO GTX Orders are utilized solely
for a Complex Order Auction or COA, which may only occur once a series
opens or reopens.\9\ As such, for the avoidance of doubt, the Exchange
proposes to specify (by definition) that ``Auction-Only Orders''
referred to throughout Rule 6.40P-O refer to the order types set forth
in Rule 6.62P-O(c) (Orders and Modifiers) and (by extension) do not
include ECO GTX Orders which the Exchange will handle like any other
unexecuted (non-Auction Only) order when an Activity-Based Risk Control
threshold is breached.\10\ The Exchange believes this proposed change
would make clear that Auction-Only Orders do not include ECO GTX Orders
and, as a result would add clarity and transparency to Exchange rules
making them easier to navigate and comprehend.
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\8\ See Rule 6.62P-O(c)(1)-(3) (defining as Auction-Only Orders:
Limit-on-Open Orders (LOO Orders), Market-on-Open Orders (MOO
Orders), and Imbalance Offset Orders (IO Orders)).
\9\ See Rule 6.91P-O(f) (providing, in relevant part, that a COA
may only be conducted when a complex strategy is open for trading).
\10\ See proposed Rule 6.40P-O(a)(6). See, e.g., Rule 6.40P-
O(c)(2)(C)(iii) (providing that for Entering Firms that opt for
``Cancel and Block'' handling upon trigger of an Activity-Based Risk
Control, ``the Exchange will cancel all unexecuted orders and quotes
in the Consolidated Book other than Auction-Only Orders and orders
designated GTC'').
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Next, the Exchange proposes a clarifying change to Rule 6.41P-O
regarding the application of the ``Price Reasonability Checks'' to
orders and quotes, which include the Arbitrage Check and the Intrinsic
Value Check, when such checks rely on last sale information.\11\ In
particular, the Arbitrage Check will reject or cancel (if resting) a
buy order or quote for call options if the price of the order or quote
``is equal to or greater than the last sale price of the underlying
security on the Primary Market, plus a specified threshold to be
determined by the Exchange and announced by Trader Update.'' \12\
Similarly, for the Intrinsic Value Check, the Exchange deems the
Intrinsic Value of a put option as being ``equal to the strike price
minus the last sale price of the underlying security on the Primary
Market'' and the Intrinsic Value of a call option as being ``equal to
the last sale price of the underlying security on the Primary Market
minus the strike price.'' \13\
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\11\ See Rule 6.41P-O(b) and (c) (describing the Arbitrage Check
and the Intrinsic Value Check, respectively).
\12\ See Rule 6.41P-O(b)(2).
\13\ See Rule 6.41P-O(c)(2)(1)-(2).
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However, certain trades such as odd-lot transactions are not
considered ``last-sale eligible,'' which means the related pricing data
is not available/reported. As such, when the Exchange does not have
access to such ``last-sale eligible'' information, it cannot perform
the Checks as intended. Therefore, the Exchange proposes to clarify the
impacted sections of the Rule to provide that the applicable Checks
would use as a reference ``the price of the last-sale eligible trade of
the underlying security on the Primary Market.'' \14\ In addition, and
consistent with the aforementioned changes, the Exchange proposes to
add a provision to Rule 6.41P-O(a)(3), regarding the circumstances
under which the Price Reasonability Checks do not apply, to include
``any options series for which there is no last-sale eligible trade in
the underlying security on the Primary Market since the opening of
trading.'' \15\ The Exchange believes these proposed changes add
clarity and transparency to Exchange rules making them easier to
navigate and comprehend.
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\14\ See proposed Rule 6.41P-O(b)(2), (c)(1)-(2).
\15\ See proposed Rule 6.41P-O(a)(3)(iv). The Exchange also
proposes to make non-substantive conforming changes to this
paragraph. See proposed Rule 6.41P-O(a)(3)(iii) (removing now-
extraneous and) and (v) (re-numbered existing provision), which
changes add clarity, transparency, and internal consistency to
Exchange rules.
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2. Statutory Basis
The proposed rule change is consistent with Section 6(b) of the
Securities Exchange Act of 1934 (the ``Act''),\16\ in general, and
furthers the objectives of Section 6(b)(5),\17\ in particular, because
it is designed to prevent fraudulent and manipulative acts and
practices, to promote just and equitable principles of trade, to foster
cooperation and coordination with persons engaged in facilitating
transactions in securities, to remove impediments to, and perfect the
mechanism of, a free and open market and a national market system and,
in general, to protect investors and the public interest.
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\16\ 15 U.S.C. 78f(b).
\17\ 15 U.S.C. 78f(b)(5).
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The Exchange believes that the proposed rule change to clarify the
``Auction-Only Orders'' covered in Rule 6.40P-O would promote just and
equitable principles of trade and remove impediments to and perfect the
mechanism of a free and open market and a national market system and
protect investors because it would add clarity and transparency to
Exchange rules making them easier to navigate and comprehend. Moreover,
the proposed change would avoid potential confusion regarding the
application of Rule 6.40P-O to ECO GTX Orders (as mentioned in Rule
6.91P-O).
The Exchange believes that the proposed rule change to clarify that
the Exchange would rely on ``the price of the last-sale eligible trade
of the underlying security on the Primary Market,'' in conducting
certain of the Price Reasonability Checks would promote just and
equitable principles of trade and remove impediments to and perfect the
mechanism of a free and open market and a national market system and
protect investors because it would add clarity and transparency to
Exchange rules making them easier to navigate and comprehend.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act. The proposed change is not
intended to address competition, but rather to clarify the Exchange's
rules regarding certain risk checks and how such checks are applied.
The proposed change would apply to all similarly-situated market
participants.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were solicited or received with respect to the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The Exchange has filed the proposed rule change pursuant to Section
19(b)(3)(A)(iii) of the Act \18\ and Rule 19b-4(f)(6) thereunder.\19\
Because the proposed rule change does not: (i) significantly affect the
protection of investors or the public interest; (ii) impose any
significant burden on
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competition; and (iii) become operative prior to 30 days from the date
on which it was filed, or such shorter time as the Commission may
designate, if consistent with the protection of investors and the
public interest, the proposed rule change has become effective pursuant
to Section 19(b)(3)(A)(iii) of the Act \20\ and subparagraph (f)(6) of
Rule 19b-4 thereunder.\21\
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\18\ 15 U.S.C. 78s(b)(3)(A)(iii).
\19\ 17 CFR 240.19b-4(f)(6).
\20\ 15 U.S.C. 78s(b)(3)(A)(iii).
\21\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii)
requires a self-regulatory organization to give the Commission
written notice of its intent to file the proposed rule change, along
with a brief description and text of the proposed rule change, at
least five business days prior to the date of filing of the proposed
rule change, or such shorter time as designated by the Commission.
The Exchange has satisfied this requirement.
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At any time within 60 days of the filing of such proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act. If the Commission
takes such action, the Commission shall institute proceedings under
Section 19(b)(2)(B) \22\ of the Act to determine whether the proposed
rule change should be approved or disapproved.
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\22\ 15 U.S.C. 78s(b)(2)(B).
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IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
<bullet> Use the Commission's internet comment form (<a href="http://www.sec.gov/rules/sro.shtml">http://www.sec.gov/rules/sro.shtml</a>); or
<bullet> Send an email to <a href="/cdn-cgi/l/email-protection#a6d4d3cac38bc5c9cbcbc3c8d2d5e6d5c3c588c1c9d0"><span class="__cf_email__" data-cfemail="2f5d5a434a024c4042424a415b5c6f5c4a4c01484059">[email protected]</span></a>. Please include
File Number SR-NYSEArca-2022-34 on the subject line.
Paper Comments
<bullet> Send paper comments in triplicate to: Secretary,
Securities and Exchange Commission, 100 F Street NE, Washington, DC
20549-1090.
All submissions should refer to File Number SR-NYSEArca-2022-34. This
file number should be included on the subject line if email is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (<a href="http://www.sec.gov/rules/sro.shtml">http://www.sec.gov/rules/sro.shtml</a>).
Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed rule change that are filed with
the Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for website viewing and printing in
the Commission's Public Reference Room, 100 F Street NE, Washington, DC
20549 on official business days between the hours of 10:00 a.m. and
3:00 p.m. Copies of the filing also will be available for inspection
and copying at the principal office of the Exchange. All comments
received will be posted without change. Persons submitting comments are
cautioned that we do not redact or edit personal identifying
information from comment submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-NYSEArca-2022-34 and should be submitted
on or before July 8, 2022.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\23\
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\23\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022-13040 Filed 6-16-22; 8:45 am]
BILLING CODE 8011-01-P
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