Notice2023-19357
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Modify Rule 6.62P-O(g)(1)
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Published
September 8, 2023
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 88 Issue 173 (Friday, September 8, 2023)</title>
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[Federal Register Volume 88, Number 173 (Friday, September 8, 2023)]
[Notices]
[Pages 62115-62118]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2023-19357]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-98279; File No. SR-NYSEARCA-2023-57]
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change To Modify Rule
6.62P-O(g)(1)
September 1, 2023.
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 18, 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, 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 modify Rule 6.62P-O(g)(1) regarding
Complex Qualified Contingent Cross Orders. 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.
[[Page 62116]]
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 6.62P-O(g)(1) regarding
Complex Qualified Contingent Cross (``QCC'') Orders to allow Complex
QCC Orders in non-standard ratios (as defined below) to be processed
electronically.
Rule 6.62P-O(f) provides that a Complex Order is any order
involving the simultaneous purchase and/or sale of two or more option
series in the same underlying security (the ``legs'' or ``components''
of the Complex Order), for the same account, in a ratio that is equal
to or greater than one-to-three (.333) and less than or equal to three-
to-one (3.00) (referred to herein as the ``standard ratio'' or
``standard ratio requirement'').The Exchange currently permits certain
Complex Orders with ratios greater than three-to-one or less than one-
to-three (``non-standard ratios'') for execution on the Exchange's
trading floor.\4\ This proposed change is competitive as at least one
other options exchange permits Complex QCC Orders in non-standard
ratios to be processed electronically.\5\ As such, the Exchange
proposes to add new Rule 6.62P-O(g)(1)(G) to specify that Complex QCC
Orders may be processed electronically in non-standard ratios.\6\
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\4\ See, e.g., Rule 6.62P-O(h)(6)(B) (regarding Stock/Complex
Orders, which are a subset of Complex Orders (per Rule 6.62P-O(f)),
that are only available for trading in Open Outcry and are not
subject to the standard ratio requirement).
\5\ In June 2022, Cboe Exchange, Inc. (``Cboe'') began
supporting the electronic processing of certain stock-option orders
in non-standard ratios, including Complex QCC Orders. See Cboe
Exchange Alert, ``Schedule Update--Cboe Options Introduces New Net,
Leg Price Increments and Enhanced Electronic, Open Outcry Handling
for Complex Orders with Non-Conforming Ratios, Reference ID:
C2022060301 available online at <a href="https://cdn.cboe.com/resources/release_notes/2022/Schedule-Update-Cboe-Options-Introduces-New-Net-Leg-Price-Increments-and-Enhanced-Electronic-Open-Outcry-Handling-for-Complex-Orders-with-Non-Conforming-Ratios.pdf">https://cdn.cboe.com/resources/release_notes/2022/Schedule-Update-Cboe-Options-Introduces-New-Net-Leg-Price-Increments-and-Enhanced-Electronic-Open-Outcry-Handling-for-Complex-Orders-with-Non-Conforming-Ratios.pdf</a> (providing, in
relevant part, that beginning June 12, 2022, ``automated handling
via COA, COB, AIM, and QCC will be available for applicable non-
conforming orders, except in SPX/SPXW). See also Securities Exchange
Act Release Nos. 94204 (February 9, 2022), 87 FR 8625 (February 15,
2022) (SR-CBOE-2021-046) (order approving Cboe's proposal, as
amended, to permit complex orders with ratios less than one-to-three
and greater than three-to-one to be eligible for electronic
processing and to trade in penny increments); 95006 (May 31, 2022),
87 FR 34334 (June 6, 2022) (SR-CBOE-2022-024) (allowing Cboe to
retain discretion to determine on class-by-class basis eligibility
for electronic processing of complex orders with ratios less than
one-to-three and greater than three-to-one (i.e., ratios other than
the standard ratio requirement). The current proposal is limited to
allowing Complex QCC Orders regardless of ratio to be traded
electronically. If the Exchange opts to allow other (non-QCC)
Complex Orders in any ratio to be traded electronically, the
Exchange will submit a separate rule filing.
\6\ See proposed Rule 6.62P-O(g)(1)(G) (``Complex QCC Orders are
eligible for electronic processing regardless of the ratio in the
component legs.''). The Exchange notes that other options exchanges
offer Complex QCC Orders, however, the rules of these options
exchanges are silent as to whether they permit Complex QCC Orders in
non-standard ratios to be processed electronically. See, e.g.,
Nasdaq ISE, LLC (``ISE'') Options 3, Section 12(d) (describing
Complex Qualified Cross Orders).
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Rule 6.62P-O(g)(1) provides that a QCC Order must be comprised of
an originating order to buy or sell at least 1,000 contracts that is
identified as being part of a qualified contingent trade coupled with a
contra-side order or orders totaling an equal number of contracts.\7\ A
Complex QCC Order is a QCC Order that has more than one option leg and
each option leg must have at least 1,000 contracts.\8\ Like QCC Orders,
each Complex QCC Order must be a part of a ``qualified contingent
trade'' (``QCT''), which is a transaction consisting of two or more
component orders, one of which must be a stock leg.\9\ The Exchange
notes that there may be instances when an order sender must submit a
Complex QCC in a non-standard ratio to meet the QCT criteria (e.g., to
be fully hedged).\10\
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\7\ See Rule 6.62P-O(g)(1)(B) for the definition of a Qualified
Contingent Trade.
\8\ See Rule 6.62P-O(g)(1) (defining Complex QCC Orders). See
also Rule 6.62P-O(g)(1)(D) regarding pricing requirements for
Complex QCCs. This proposal does not alter the pricing requirements
for Complex QCC Orders and such requirements apply regardless of
whether a Complex QCC Order has a standard (or non-standard) ratio.
\9\ See Rule 6.62P-O(g)(1)(B)(i). See generally Rule 6.62P-
O(g)(1)(B) (setting forth criteria for a Qualified Contingent
Trade).
\10\ See Rule 6.62P-O(g)(1)(B)(vi) (providing that the QCT
transaction must be ``fully hedged (without regard to any prior
existing position) as a result of other components of the contingent
trade.'').
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The proposed rule change would have no impact on the pricing of
Complex QCCs because the same (existing) pricing requirements apply to
all Complex QCC Orders that are electronically processed by the
Exchange. Specifically, no option leg of a Complex QCC Order will trade
at a price worse than the Exchange BBO \11\ and a Complex QCC Order
will be rejected based on its price if:
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\11\ See Rule 6.62P-O(g)(1)(D) (providing that ``no option leg
[of a Complex QCC Order] will trade at a price worse than the
Exchange BBO'').
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<bullet> ``any option leg cannot execute in compliance with
paragraph (g)(1)(C) of this Rule'', i.e., cannot meet the pricing
requirements for single-leg QCC Orders''; \12\
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\12\ See Rule 6.62P-O(g)(1)(D)(i). See also Rule 6.62P-
O(g)(1)(C) (Execution of QCC Orders) (``A QCC Order with one option
leg will be rejected if received when the NBBO is crossed or if it
will trade at a price that (i) is at the same price as a displayed
Customer order on the Consolidated Book and (ii) is not at or
between the NBB'' and requiring that ``[a] QCC Order with one option
leg will never trade at a price worse than the Exchange BBO.'').
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<bullet> ``the best-priced Complex Order(s) on the Exchange
contain(s) displayed Customer interest and the Complex QCC Order price
does not improve such displayed Customer interest by 0.01;'' \13\ or
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\13\ See Rule 6.62P-O(g)(1)(D)(ii). The Exchange proposes to
amend current Rule 6.62P-O(g)(1)(D)(ii) to clarify that the Complex
QCC Order must price improve any displayed Customer interest by ``at
least'' one penny ($0.01), which would make the Rule more accurate.
See proposed Rule 6.62P-O(g)(1)(D)(ii).
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<bullet> ``the price of the QCC Order is worse than the best-priced
Complex Orders in the Consolidated Book.'' \14\
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\14\ See Rule 6.62P-O(g)(1)(D)(iii). The Exchange proposes to
amend current Rule 6.62P-O(g)(1)(D)(iii) to clarify that this
provision refers to the price of the ``Complex'' QCC Order, which
would make the Rule more accurate. See proposed Rule 6.62P-
O(g)(1)(D)(iii). The Exchange would continue to reject Complex QCC
Orders (regardless of ratio) if ``the prices of the best-priced
Complex Orders in the Consolidated Book are crossed''; or ``for any
option leg there is no NBO.'' See Rule 6.62P-O(g)(1)(D)(iii), (iv),
respectively.
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Thus, under this proposal, the Exchange would ensure that every
component leg of a Complex QCC Order (regardless of ratio) would trade
at a price that is equal to or better than the Exchange BBO and better
than displayed Customer interest on the Exchange in the same manner as
it does today. In other words, the proposed rule change continues to
protect interest in the leg markets as well as displayed Customer
interest on 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''),\15\ in
general, and furthers the objectives of Section 6(b)(5) of the Act,\16\
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
[[Page 62117]]
system and, in general, to protect investors and the public interest.
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\15\ 15 U.S.C. 78f(b).
\16\ 15 U.S.C. 78f(b)(5).
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In particular, the proposed rule change will remove impediments to
and perfect the mechanism of a free and open market and a national
market system because it will enable the Exchange to compete on equal
footing with other exchanges that permit trading of Complex QCCs with
non-standard ratios.\17\ The proposed rule change would continue to
protect investors and the public interest because the (approved)
pricing requirements for Complex QCC Orders would continue to apply to
Complex QCC Orders with non-standard ratios. As such, the proposal
would ensure that the Complex QCC Order is priced equal to or better
than the best-priced Complex Order(s) and, if there is displayed
Customer interest on such order(s), that the execution price of the
Complex QCC Order improves the price of the displayed Customer interest
and improves the price of displayed Customer interest on each component
leg of the Complex QCC Order.
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\17\ See supra note 5.
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In addition, the proposed change would promote just and equitable
principles of trade, remove impediments to and perfect the mechanism of
a free and open market and a national market system, and, in general to
protect investors and the public interest because it would provide
another venue for electronically executing Complex QCC Orders with non-
standard ratios. The proposed change would also increase opportunities
for execution of Complex QCC Orders with non-standard ratios, which
benefits all investors. The Exchange also believes that the proposed
rule change would not permit unfair discrimination among market
participants, as all market participants may opt to trade Complex QCC
Orders with non-standard ratios.
The Exchange believes that the proposed clarifying changes would
ensure accuracy of the proposed rule, which benefits all investors.\18\
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\18\ See supra notes 13-14.
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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 Exchange does not
believe that its proposed rule change will impose any burden on intra-
market competition as it would apply equally to all market participants
that opt to submit Complex QCC Orders with non-standard ratios for
electronic processing, which orders the Exchange will process in a
uniform manner.
The Exchange does not believe that its proposed rule change will
impose any burden on inter-market competition that is not necessary or
appropriate in furtherance of the purposes of the Act, rather the
Exchange believes that its proposal will promote inter-market
competition. As noted here, the proposed change is competitive as
another options exchange currently permits Complex QCC Orders with non-
standard ratios to be traded electronically. The Exchange's proposal
will enhance inter-market competition by providing an additional venue
where investors may electronically execute Complex QCC Orders with non-
standard ratios, giving investors greater flexibility and a choice of
where to send their orders. Market participants may find it more
convenient to access one exchange over another or may choose to
concentrate volume at a particular exchange to maximize the impact of
volume-based incentive programs or may prefer the trade execution
services of one exchange over another.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were solicited or received with respect to the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule change does not: (i)
significantly affect the protection of investors or the public
interest; (ii) impose any significant burden on competition; and (iii)
become operative for 30 days from the date on which it was filed, or
such shorter time as the Commission may designate, it has become
effective pursuant to Section 19(b)(3)(A) of the Act \19\ and Rule 19b-
4(f)(6) thereunder.\20\ At any time within 60 days of the filing of the
proposed rule change, the Commission summarily may temporarily suspend
such rule change if it appears to the Commission that such action is
necessary or appropriate in the public interest, for the protection of
investors, or otherwise in furtherance of the purposes of the Act. If
the Commission takes such action, the Commission shall institute
proceedings to determine whether the proposed rule change should be
approved or disapproved.
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\19\ 15 U.S.C. 78s(b)(3)(A).
\20\ 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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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#5c2e293039713f3331313932282f1c2f393f723b332a"><span class="__cf_email__" data-cfemail="94e6e1f8f1b9f7fbf9f9f1fae0e7d4e7f1f7baf3fbe2">[email protected]</span></a>. Please include
file number SR-NYSEARCA-2023-57 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-2023-57. 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
[[Page 62118]]
SR-NYSEARCA-2023-57 and should be submitted on or before September 29,
2023.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\21\
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\21\ 17 CFR 200.30-3(a)(12), (59).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-19357 Filed 9-7-23; 8:45 am]
BILLING CODE 8011-01-P
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