Notice2022-17830
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Rule 6.64P-O
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Published
August 19, 2022
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 87 Issue 160 (Friday, August 19, 2022)</title>
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[Federal Register Volume 87, Number 160 (Friday, August 19, 2022)]
[Notices]
[Pages 51181-51184]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2022-17830]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-95501; File No. SR-NYSEARCA-2022-52]
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change To Amend Rule
6.64P-O
August 15, 2022.
Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of
1934 (``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby given
that, on August 9, 2022, NYSE Arca, Inc. (``NYSE Arca'' or
``Exchange'') filed with the Securities and Exchange Commission
(``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 Rule 6.64P-O (Auction Process). 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 Rule 6.64P-O (Auction Process)
regarding the handling of certain Market Maker quotations and order
instructions related thereto as set forth below.
Overview
On July 11, 2022, the Exchange began migrating symbols from its
existing trading platform to the Pillar trading platform,\4\ As of July
28, 2022, all symbols have been migrated to the Pillar platform.\5\
Since migrating to Pillar, the Exchange has encountered unexpected
processing of certain Market Maker quotations and related (subsequent)
``order instructions'' to update such quotations during the abbreviated
time period of the Auction Processing Period and transition to
continuous trading (i.e., generally measured in fractions of a second)
when the Exchange conducts its opening (or reopening) Auction and
transitions a series from pre-open state to continuous trading.\6\ The
Exchange believes that, as a result of this unexpected processing
during this very brief period, Market Makers may be unable to determine
their potential exposure (and thus be at risk for unexpected
executions). To prevent this risk to Market Makers, the Exchange
updated the treatment of this quoting interest during these discrete
periods, which was announced by a Trader Update (the ``Trader
Update'').\7\
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\4\ The Exchange announced the July 11th launch date, as well as
the schedule for symbol migration in five tranches, via Trader
Update, available here: <a href="https://www.nyse.com/trader-update/history#110000436694">https://www.nyse.com/trader-update/history#110000436694</a>.
\5\ The Exchange announced the migration of the fifth and final
tranche of symbols to the Pillar trading platform, via Trader
Update, available here: <a href="https://www.nyse.com/trader-update/history#110000440092">https://www.nyse.com/trader-update/history#110000440092</a>.
\6\ Because the opening and reopening process is identical, the
Exchange will refer to both processes, collectively, as the
``opening.''
\7\ The Exchange announced via Trader Update that, effective
July 29, 2022, ``[d]uring Auction Processing Period or during the
transition to continuous trading, any new quotes will be rejected
and, if the Exchange receives order instructions for an existing
quote, the Exchange will cancel any same-side quotes sent from the
same order/quote entry port of that Market Maker,'' available here:
<a href="https://www.nyse.com/trader-update/history#110000441036">https://www.nyse.com/trader-update/history#110000441036</a>. The
aforementioned change was made in the interest of maintaining a fair
and orderly market consistent with Rule 6.64P-O(d)(5). See id.
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[[Page 51182]]
The Exchange proposes to modify Rule 6.64P-O to codify the updated
treatment of this quoting interest (as announced in the Trader Update)
to ensure efficient and consistent handling of Market Maker quotations
(and related order instructions).\8\ The Exchange believes the proposed
rule change would provide more certainty as to the handling of certain
quoting interest during the brief Auction Processing Period and
transition to continuous trading.
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\8\ For the avoidance of doubt, this proposal does not modify
the Exchange's handling or processing of orders (or order
instructions related thereto) pursuant to Rule 6.64P-O.
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Current Rule
Rule 6.64P-O (the ``Rule'') covers the entire Auction Process for
opening option series, which Process begins when the Exchange receives
an Auction Trigger for a series and ends when the Auction is
conducted.\9\ The Auction Processing Period is the time during which
the Auction is being processed and concludes when the Exchange
transitions to continuous trading.\10\ Paragraphs (e) and (f) to the
Rule describe how the Exchange handles interest during this brief
period (as described below), which is typically measured in fractions
of a second.
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\9\ See Rule 6.64P-O(a)(5). An Auction Trigger refers to
information disseminated by the Primary Market in the underlying
security that triggers the Auction Process for a series to begin.
See also Rule 6.64P-O(a)(7).
\10\ See Rule 6.64P-O(a)(6). See also Rule 6.64P-O(a)(12) (A)
and (B), respectively (defining pre-open state, including that for a
Core Open Auction and a Trading Halt Auction, the pre-open state
ends when the Auction Processing Period begins).
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Rule 6.64P-O(e) describes the Exchange's handling of interest that
arrives during the Auction Processing Period, i.e., new quote and order
messages, as well as ``order instructions,'' such as requests to
cancel, cancel/replace, or otherwise modify, an existing order or
quote. By Rule, the Exchange will accept new order and quote messages
during the Auction Processing Period, but such messages will not be
processed until after this Period.\11\ In addition, an order
instruction that arrives during the Auction Processing Period will not
be processed until after this Period if the order instruction relates
to an order or quote that was received before the Auction Processing
Period; further, any subsequent order instructions relating to such
order will be rejected.\12\ As noted above, the Auction Processing
Period concludes when the Auction is conducted and the Exchange
transitions to continuous trading.
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\11\ See Rule 6.64P-O(e).
\12\ See Rule 6.64P-O(e)(1). Rule 6.64P-O(e)(2), which is not
being modified by this rule change, provides that ``[a]n order
instruction that arrives during the Auction Processing Period will
be processed on arrival if it relates to an order that was received
during the Auction Processing Period.''
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Under the current Rule 6.64P-O(f), regarding the transition to
continuous trading, the Exchange processes order instructions related
to each order and quote, in time sequence (per paragraphs (f)(3)(A) or
(B) of this Rule), if such order instruction relates to an order or
quote that was received before the Auction Processing Period; or
relates to a series that has already transitioned to continuous trading
and the order instruction arrives during either the transition to
continuous trading or the Auction Processing Period (per paragraph
(e)(1)).\13\ And, any subsequent order instructions relating to such
order or quote is rejected.\14\ Finally, Rule 6.64P-O(f)(2)(B) provides
that an order instruction that arrives during the transition to
continuous trading will be processed on arrival if it relates to an
order or quote that was entered during either the Auction Processing
Period or the transition to continuous trading and such order or quote
has not yet transitioned to continuous trading.\15\
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\13\ See Rule 6.64P-O(f)(2)(A).
\14\ See Rule 6.64P-O(f)(2)(A).
\15\ See Rule 6.64P-O(f)(2)(B).
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Proposed Rule Change
As noted above, since the migration to Pillar, the Exchange has
encountered unexpected processing of certain Market Maker quotations
and related (subsequent) ``order instructions'' to update such
quotations during the Auction Processing Period and as the Exchange
transitions to continuous trading. To address this issue, the Exchange
proposes to modify its handling of such quoting interest during these
discrete time periods as set forth in paragraphs (e) (Order Processing
during an Auction Processing Period) and (f) (Transition to Continuous
Trading) of Rule 6.64P-O.
First, the Exchange proposes to revise Rule 6.64P-O(e) to specify
that ``[d]uring the Auction Processing Period, the Exchange will reject
new quotes and, if the Exchange receives order instructions for
existing quotes, the Exchange will cancel any same-side quotes sent
from the same order/quote entry port of that Market Maker.'' \16\ The
Exchange believes that this proposed change in the treatment of this
interest would allow for more deterministic handling of order
instructions for quotes. In addition, by cancelling any same-side
quotes of that Market Maker, the Exchange would eliminate potentially
unexpected exposure (or executions) for that Market Maker.
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\16\ See proposed Rule 6.64P-O(e).
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Next, the Exchange proposes to reorganize the text of Rule 6.64P-
O(e) to make clear that ``[d]uring the Auction Processing Period, new
orders will be accepted but will not be processed until after the
Auction Processing Period and order instructions for existing orders
will be processed as follows:'' \17\ Consistent with the foregoing, the
Exchange proposes to modify Rule 6.64P-O(e)(1) to remove reference to
quotes (as this handling is covered in proposed paragraph (e) to the
Rule), and to clarify the rule text (consistent with current
functionality) that subsequent order instructions related to an
existing order would be rejected ``when a prior order instruction is
pending.'' \18\
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\17\ See proposed Rule 6.64P-O(e). The Exchange notes that the
textual change proposed is substantively identical to the first
sentence to Rule 6.64P-O(e), except that the proposed sentence omits
reference to quotes and clarifies that the order instructions relate
to ``existing orders.'' See id.
\18\ See proposed Rule 6.64P-O(e)(1).
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Further, and consistent with the foregoing, the Exchange proposes
to modify Rule 6.64P-O(f)(2) to specify that during the transition to
continuous trading, ``the Exchange will reject new quotes and, if the
Exchange receives order instructions for existing quotes, the Exchange
will cancel any same-side quotes sent from the same order/quote entry
port of that Market Maker.'' \19\ As noted above, the Exchange believes
that this proposed treatment would allow for more deterministic
handling of order instructions for quotes. Further, by cancelling any
same-side quotes of that Market Maker, the Exchange would eliminate
potentially unexpected exposure (or executions) for that Market Maker.
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\19\ See proposed Rule 6.64P-O(f)(2).
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In addition, proposed Rule 6.64P-O(f)(2)(A) and (B) would remove
reference to quotes (as this handling is covered in proposed paragraph
(f)(2) of the Rule), and proposed Rule 6.64P-O(f)(2)(A) would clarify
the rule text (consistent with current functionality) that subsequent
order instructions related to an existing order would be rejected
``when a prior order instruction is pending.'' \20\ The Exchange also
proposes to remove as superfluous the unnecessary reference in
paragraph (f)(2)(A) of the Rule to ``under paragraph
[[Page 51183]]
(e)(1),''which immediately follows ``the Auction Processing Period.''
\21\ Finally, in paragraph (f)(3)(C) of the Rule, which specifies the
treatment of quotes that were received during the Auction Processing
Period, the Exchange proposes to remove such references to quotes as
unnecessary to conform with the foregoing proposed changes (i.e., which
state that any such quotes would be rejected).\22\ The Exchange
believes these proposed non-substantive changes would add clarity,
transparency and internal consistency to Exchange rules.
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\20\ See proposed Rule 6.64P-O(f)(2)(A) and (B).
\21\ See Rule 6.64P-O(f)(2)(B). The Exchange does not believe
the extraneous reference paragraph (e)(1) of the Rule adds substance
to this provision and is therefore distracting and potentially
confusing to market participants.
\22\ See proposed Rule 6.64P-O(f)(3)(C). See also proposed Rule
6.64P-O(e).
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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''),\23\ in general, and
furthers the objectives of Section 6(b)(5),\24\ 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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\23\ 15 U.S.C. 78f(b).
\24\ 15 U.S.C. 78f(b)(5).
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Overall, the Exchange believes the proposed change would promote a
fair and orderly market because it would address, in a timely manner,
the unexpected issue regarding the processing of certain Market Maker
quotations and (subsequent) order instructions to update such
quotations, which issue came to light as the Exchange began migrating
symbols to Pillar for options trading.\25\ The Exchange believes the
proposed rule change would promote just and equitable principles of
trade because the proposal would provide Market Makers greater
determinism and certainty about how quotes (and order instructions
related thereto) are handled during the abbreviated period that the
Exchange conducts the opening Auction and transitions to continuous
trading. Further, the proposed rule change would allow for the
efficient and consistent handling of such quotes and would reduce the
potential unexpected exposure (or executions) for Market Makers, which
would 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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\25\ See supra note 7, Trader Update.
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Finally, the Exchange believes that the proposed clarifying
changes, including non-substantive conforming changes, would promote
transparency and internal consistency within Exchange rules making them
easier to comprehend and navigate.\26\
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\26\ See, e.g., supra notes 17, 18, 20-23.
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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
designed to be competitive but is instead designed to address an
unexpected issue regarding the processing of Market Maker quotations
(and subsequent order instructions related thereto) that arose in
connection with the Exchange's migration to its Pillar trading
platform. The Exchange does not believe that the proposed rule change
would impose any burden on intramarket competition that is not
necessary or appropriate in furtherance of the Act because the proposed
change would apply equally to all similarly-situated Market Makers.
Rather, the Exchange believes that by adding certainty to a Market
Maker's exposure for quoting interest received during the Auction
Processing Period and transition to continuous trading, the proposed
change may incent Market Makers to more readily participate in the
opening process, which may in turn improve liquidity and price
discovery to the benefit of all market participants.
The Exchange does not believe that the proposed rule change would
impose any burden on intermarket competition that is not necessary or
appropriate in furtherance of the purposes of the Act because it is
designed to efficiently handle certain Market Maker quotations and
certain order instructions related thereto and to promote the opening
(or reopening) of option series on the Exchange in a fair and orderly
manner.
Additionally, the clarifying changes, including non-substantive
conforming changes proposed by the Exchange provide additional clarity
and detail in the Exchange's rules and are not changes made for any
competitive purpose.
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 \27\ and Rule 19b-4(f)(6) thereunder.\28\
Because the proposed rule change does not: (i) significantly affect the
protection of investors or the public interest; (ii) impose any
significant burden on competition; and (iii) become operative prior to
30 days from the date on which it was filed, or such shorter time as
the Commission may designate, if consistent with the protection of
investors and the public interest, the proposed rule change has become
effective pursuant to Section 19(b)(3)(A) of the Act and Rule 19b-
4(f)(6)(iii) thereunder.
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\27\ 15 U.S.C. 78s(b)(3)(A)(iii).
\28\ 17 CFR 240.19b-4(f)(6).
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A proposed rule change filed under Rule 19b-4(f)(6) \29\ normally
does not become operative prior to 30 days after the date of the
filing. However, pursuant to Rule 19b4(f)(6)(iii),\30\ the Commission
may designate a shorter time if such action is consistent with the
protection of investors and the public interest. The Exchange has asked
the Commission to waive the 30-day operative delay so that the proposal
may become operative immediately upon filing. The proposed rule change
would address an unexpected issue regarding the processing of certain
Market Maker quotations and subsequent order instructions to update
such quotations, which issue the Exchange states came to light as the
Exchange began migrating symbols to Pillar for options trading. The
Exchange represents that implementing the proposed rule change without
delay would address that unexpected issue by aligning the Exchange's
rule with the technology change deployed as of July 29, 2022 regarding
how new quote messages and order instructions related to such
quotations would be processed once the Auction Processing Period for an
option series commences. Moreover, the Exchange represents that
implementing this change without delay would allow the Rule to reflect
the more deterministic handling and processing
[[Page 51184]]
of quotes (and subsequent instructions related thereto), which would,
in turn, eliminate potentially unexpected exposure (or executions) for
Market Makers. For these reasons, and based on the representations of
the Exchange, the Commission believes that waiver of the 30-day
operative delay for this proposal is consistent with the protection of
investors and the public interest. Accordingly, the Commission hereby
waives the 30-day operative delay and designates the proposal operative
upon filing.\31\
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\29\ 17 CFR 240.19b-4(f)(6).
\30\ 17 CFR 240.19b-4(f)(6)(iii).
\31\ For purposes only of waiving the 30-day operative delay,
the Commission has considered the proposed rule change's impact on
efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
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At any time within 60 days of the filing of 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) \32\ of the Act to determine whether the proposed
rule change should be approved or disapproved.
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\32\ 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#483a3d242d652b2725252d263c3b083b2d2b662f273e"><span class="__cf_email__" data-cfemail="bdcfc8d1d890ded2d0d0d8d3c9cefdced8de93dad2cb">[email protected]</span></a>. Please include
File Number SR-NYSEARCA-2022-52 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-2022-52. 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-2022-52 and should be submitted
on or before September 9, 2022.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\33\
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\33\ 17 CFR 200.30-3(a)(12).
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2022-17830 Filed 8-18-22; 8:45 am]
BILLING CODE 8011-01-P
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