Notice2023-16717
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Modify Rule 6.40P-O
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Published
August 7, 2023
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 88 Issue 150 (Monday, August 7, 2023)</title>
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[Federal Register Volume 88, Number 150 (Monday, August 7, 2023)]
[Notices]
[Pages 52231-52233]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2023-16717]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-98038; File No. SR-NYSEARCA-2023-49]
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change To Modify Rule
6.40P-O
August 1, 2023.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on July 27, 2023, NYSE Arca, Inc. (``NYSE Arca'' or the ``Exchange'')
filed with the Securities and Exchange Commission (``Commission'') the
proposed rule change as described in Items I and II below, which Items
have been prepared by the self-regulatory organization. The Commission
is publishing this notice to solicit comments on the proposed rule
change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 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 modify Rule 6.40P-O (Pre-Trade and
Activity-Based Risk Controls) to allow certain order types to be
excluded from the Activity-Based Risk Controls.
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 6.40P-O (Pre-Trade and
Activity-Based Risk Controls) to allow certain order types to be
excluded from the Activity-Based Risk Controls. Specifically, the
Exchange proposes to allow OTP Holders and OTP Firms (collectively,
``OTPs'') \3\ the ability to exclude orders marked as GTX \4\ from
counting towards the limits established by the Activity-Based Risk
Controls and to exclude GTX orders from cancellation when an Activity-
Based Risk Limit is breached.\5\
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\3\ An Options Trading Permit or ``OTP'' is issued by the
Exchange for effecting approved securities transactions on the
Exchange. See Rule 1.1. An ``OTP Holder'' is a natural person, in
good standing, who has been issued an OTP and an ``OTP Firm'' is a
sole proprietorship, partnership, corporation, limited liability
company or other organization in good standing that holds an OTP or
upon whom an individual OTP Holder has conferred trading privileges
on the Exchange. See id. The Exchange notes that an OTP may be
acting as a Market Maker, which market participant is subject to
heightened requirements. See, e.g., Rule 6.37AP-O(b), (c).
\4\ See supra note 16 (for description of orders marked as GTX).
\5\ See proposed Rules 6.40P-O(c)(2)(B) and (c)(2)(C)(iii).
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The Exchange offers OTPs the option of utilizing Activity-Based
Risk Controls to assist OTPs in managing risk related to submitting
orders during periods of increased and significant trading activity.\6\
OTPs acting as Market Makers must apply one of the Activity-Based Risk
Controls to all of its orders and quotes, whereas an OTP not acting as
a Market Maker may, but is not required to, apply one of the Activity-
Based Risk Controls to its orders.\7\ To determine when an Activity-
Based Risk Control has been breached, the Exchange will maintain a
Trade Counter that will be incremented every time an order (or quote)
trades, including any leg of a Complex Order, and will aggregate the
number of contracts traded during each such execution.\8\ When
designating one of the three Activity-Based Risk Controls, an OTP must
indicate the action that it would like the Exchange to take if an
Activity-Based Risk Limit is exceeded.\9\ Currently, the Exchange
affords OTPs the ability to exclude certain orders from being
considered by a Trade Counter.\10\ The order types that an OTP may opt
to exclude are orders designated as IOC or FOK, which order types are
designed to cancel if not executed on arrival.\11\ In addition, the
Exchange exempts certain orders from being cancelled or blocked--
specifically Auction-Only orders (submitted solely for the purpose of
being executed in an opening auction) and GTC Orders, which by their
terms are meant to eventually execute unless specifically cancelled by
the order-sender.\12\
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\6\ See Rule 6.40P-O(a)(3)(A)-(C) (describing the three
potential Activity-Based Risk Controls: Transaction-Based Risk
Limit; Volume-Based Risk Limit; and Percentage-Based Risk Limit).
\7\ See Rule 6.40P-O(c)(2)(A).
\8\ See Rule 6.40P-O(c)(2)(B).
\9\ See Rule 6.40P-O(c)(2)(C) (describing the potential
automated breach actions of Notification Only, Block Only, and
Cancel and Block).
\10\ See Rule 6.40P-O(c)(2)(B).
\11\ See id. See also Rule 6.62P-O(b)(2) (IOC) and (3) (FOK).
\12\ See Rule 6.40P-O(c)(2)(C)(iii).
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The Exchange proposes to modify Rule 6.40P-O(c)(2)(B) to add GTX to
the order types that may be excluded by Trade Counters in tracking
Activity-Based Risk Controls.\13\ In addition, for OTPs that select the
automated breach action of ``Cancel and Block,'' the Exchange proposes
to modify Rule 6.40P-O(c)(2)(C)(iii) to provide OTPs the option of
instructing the Exchange not to cancel unexecuted GTX orders in the
event of a breach.\14\
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\13\ See proposed Rule 6.40P-O(c)(2)(B) (providing, in relevant
part, that an OTP ``may opt to exclude any orders designated IOC,
FOK, or GTX from being considered by a Trade Counter.'')
\14\ See proposed Rule 6.40P-O(c)(2)(C)(iii) (providing, in
relevant part, that an OTP ``may opt to exclude orders designated as
GTX from being cancelled.'').
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An order marked GTX, such as an ECO GTX Order, will cancel after
executing to the extent possible with a COA Order in a Complex Order
Auction.\15\ As such, GTX orders are never ranked (as resting interest)
in the Consolidated Book. Because GTX orders are submitted for the sole
purposes of executing in a COA or cancelling, the Exchange believes
providing OTPs the option of exempting these orders from the Activity-
Based Risk Controls would enable these OTPs to exclude GTX orders from
being counted and avoid potentially triggering their risk settings
(prematurely), resulting in the cancellation of open orders. Likewise,
the Exchange believes that allowing OTPs to instruct the Exchange not
to cancel any unexecuted GTX orders if their risk setting is breached
would likewise afford such OTPs additional flexibility. This proposed
handling of GTX orders is consistent with how the Exchange currently
handles GTX orders per (pre-Pillar) Commentary .01 to Rule 6.40-O (Risk
Limitation Mechanism).\16\
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\15\ On the Exchange, an OTP may designate an Electronic Complex
Order (or ECO) as GTX. See Rule 6.91P-O(b)(2). An ``ECO GTX Order''
is an order sent in response to a Complex Order Auction (or COA) and
such order is not displayed, must be entered during the Response
Time Interval of a COA, must be on the opposite side of the COA
Order, and must specify the price, size, and side of the market. Any
remaining size of an ECO GTX Order that does not trade with the COA
Order will be cancelled at the end of the COA. See Rule 6.91P-
O(b)(2)(C).
\16\ See Rule 6.40-O, Commentary .01 (providing, in relevant
part, that upon the triggering of an established risk limit, the
Exchange would cancel all open orders and quotes in the affected
series but would exclude from such cancellation any ``orders entered
in response to an electronic auction that are valid only for the
duration of the auction (`GTX')'').
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The Exchange believes that providing OTPs this additional
flexibility may encourage more OTPs to utilize the risk settings, which
benefits all market participants. The Exchange also believes that the
proposed change would result in risk settings that may be better
calibrated to suit the needs of certain OTPs (i.e., those that
routinely utilize GTX orders) and should encourage OTPs to direct
additional order flow and liquidity to the Exchange.
* * * * *
Implementation
The Exchange will announce by Trader Update the implementation date
of the proposed rule change, which implementation will be no later than
90 days after the effectiveness of this rule change.
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Securities Exchange Act of 1934 (the ``Act''),\17\ in
general, and furthers the objectives of Section 6(b)(5) of the Act,\18\
in particular, in that 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 regulating, clearing, settling, processing
information with respect to, and 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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\17\ 15 U.S.C. 78f(b).
\18\ 15 U.S.C. 78f(b)(5).
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The Exchange believes that the proposed rule change removes
impediments to and perfects the mechanism of a free and open market by
providing OTPs greater control and flexibility over setting their risk
tolerance, which may enhance the efficacy of the risk settings. Orders
marked GTX, including ECO GTX Orders, will cancel after executing to
the extent possible with a COA Order as part of a Complex Order
Auction. As such, GTX orders are never ranked (as resting interest) in
the Consolidated Book. The Exchange believes that certain market
participants utilize GTX orders to access liquidity on the Exchange.
Thus, the proposed change is designed to accommodate participants that
utilize GTX orders in this manner by enabling them to exclude GTX
orders from being counted and avoid potentially triggering their risk
settings (prematurely), resulting in the cancellation of open orders.
In addition, allowing OTPs the option to exclude unexecuted GTX orders
from being cancelled in the event of a breach would allow OTPs to
utilize this order type without fear of such orders being cancelled
before having the opportunity to trade in a Complex Order Auction. As
noted herein, this proposed handling of GTX orders (i.e., excluding
such orders from cancellation upon triggering of a risk setting) is
consistent with how the Exchange currently handles GTX orders per (pre-
Pillar) Commentary .01 to Rule 6.40-O (Risk Limitation Mechanism).
The Exchange believes that providing OTPs this additional
flexibility may encourage more OTPs to utilize the risk settings, which
benefits all market participants. Further, the proposed change would
promote just and equitable principles of trade because it would result
in risk settings that may be better calibrated to suit the needs of
certain OTPs (i.e., those that routinely utilize GTX orders) and should
encourage OTPs to direct additional order flow and liquidity to the
Exchange. To the extent additional order flow is submitted to the
Exchange as a result of the proposed change, all market participants
stand to benefit from increased trading. The Exchange notes that an OTP
has the option of utilizing risk settings for all orders submitted to
the Exchange and, as proposed, would have the additional option of
excluding from these risk settings any GTX orders in a given options
class submitted to the Exchange.
This proposed change, which was specifically requested by some
OTPs, would foster cooperation and coordination with persons engaged in
regulating, clearing, settling, and processing information with respect
to, and facilitating transactions in, securities as it will be
available to all OTPs and may encourage more OTPs to utilize this
enhanced functionality to the benefit of all market participants.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act. The Exchange is proposing a
market enhancement that would provide OTPs with greater control and
flexibility over setting their risk tolerance and, potentially, more
protection over risk exposure. The proposal is structured to offer the
same enhancement to all OTPs and would not impose a competitive burden
on any participant. The Exchange does not believe that the proposed
enhancement to the existing Activity-Based Risk Controls would impose a
burden on competing options exchanges. Rather, the availability of
these controls may foster more competition. Specifically, the Exchange
notes that it operates in a highly competitive market in which market
participants can readily favor competing venues. When an exchange
offers enhanced functionality that distinguishes it from the
competition and participants find it useful, it has been the Exchange's
experience that competing exchanges will move to adopt similar
functionality. Thus, the Exchange believes that this type of
competition amongst exchanges is beneficial to the marketplace as a
whole as it can result in enhanced processes, functionality, and
technologies.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were solicited or received with respect to the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule change does not: (i)
significantly affect the protection of investors or the public
interest; (ii) impose any significant burden on competition; and (iii)
become operative for 30 days from the date on which it was filed, or
such shorter time as the Commission may designate, it has become
effective pursuant to Section 19(b)(3)(A)(iii) of the Act \19\ and Rule
19b-4(f)(6) thereunder.\20\
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\19\ 15 U.S.C. 78s(b)(3)(A)(iii).
\20\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)
requires the Exchange to give the Commission written notice of its
intent to file the proposed rule change, along with a brief
description and text of the proposed rule change, at least five
business days prior to the date of filing of the proposed rule
change, or such shorter time as designated by the Commission. The
Exchange has satisfied this requirement.
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A proposed rule change filed under Rule 19b-4(f)(6) \21\ normally
does not become operative prior to 30 days after the date of the
filing. However, pursuant to Rule 19b-(f)(6)(iii),\22\ 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
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Commission believes that waiver of the 30-day operative delay is
consistent with the protection of investors and the public interest
because the proposed optional functionality may offer OTPs additional
control and flexibility in utilizing the Exchange's Activity-Based
Controls and therefore may encourage more OTPs to utilize these risk
settings for their orders. Further, the Exchange represents that the
proposed handling of GTX orders is consistent with how the Exchange
currently handles GTX orders pursuant to Commentary .01 to Rule 6.40-O
(Risk Limitation Mechanism).\23\ Accordingly, the Commission hereby
waives the 30-day operative delay and designates the proposal operative
upon filing.\24\
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\21\ 17 CFR 240.19b-4(f)(6).
\22\ 17 CFR 240.19b-4(f)(6)(iii).
\23\ See supra note 16 and accompanying text.
\24\ For purposes only of waiving the 30-day operative delay,
the Commission has considered the proposed rule's impact on
efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
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At any time within 60 days of the filing of 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) \25\ of the Act to determine whether the proposed
rule change should be approved or disapproved.
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\25\ 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="https://www.sec.gov/rules/sro.shtml">https://www.sec.gov/rules/sro.shtml</a>); or
<bullet> Send an email to <a href="/cdn-cgi/l/email-protection#7d0f081118501e1210101813090e3d0e181e531a120b"><span class="__cf_email__" data-cfemail="a4d6d1c8c189c7cbc9c9c1cad0d7e4d7c1c78ac3cbd2">[email protected]</span></a>. Please include
file number SR-NYSEARCA-2023-49 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-2023-49. 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="https://www.sec.gov/rules/sro.shtml">https://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
a.m. and 3 p.m. Copies of the filing also will be available for
inspection and copying at the principal office of the Exchange. Do not
include personal identifiable information in submissions; you should
submit only information that you wish to make available publicly. We
may redact in part or withhold entirely from publication submitted
material that is obscene or subject to copyright protection. All
submissions should refer to file number SR-NYSEARCA-2023-49 and should
be submitted on or before August 28, 2023.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\26\
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\26\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-16717 Filed 8-4-23; 8:45 am]
BILLING CODE 8011-01-P
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