Notice2024-18072
Self-Regulatory Organizations; NYSE American LLC; Notice of Filing and Immediate Effectiveness of Proposed Change To Modify Rule 971.2NYP To Clarify the Definition of CUBE BBO
Primary source
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Published
August 14, 2024
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 89 Issue 157 (Wednesday, August 14, 2024)</title>
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[Federal Register Volume 89, Number 157 (Wednesday, August 14, 2024)]
[Notices]
[Pages 66150-66152]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2024-18072]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-100674; File No. SR-NYSEAMER-2024-46]
Self-Regulatory Organizations; NYSE American LLC; Notice of
Filing and Immediate Effectiveness of Proposed Change To Modify Rule
971.2NYP To Clarify the Definition of CUBE BBO
August 8, 2024.
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 July 24, 2024, NYSE American LLC (``NYSE American'' or
``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\ 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 971.2NYP to clarify the
definition of CUBE BBO. 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 971.2NYP to clarify the
definition of CUBE BBO.
In October 2023, the Exchange completed its transition to its
Pillar trading technology platform (``Pillar'').\4\ In May 2024, the
Exchange adopted Rule 971.2NYP (the ``Rule''), which describes the
operation of its Complex Customer Best Execution (``CUBE'') Auction on
Pillar (``Auction'').\5\ On June 10, 2024, the Exchange deployed the
Complex CUBE Auction functionality.\6\ The Exchange proposes to amend
the Rule to clarify the definition of CUBE BBO, which would add
transparency and alleviate potential investor confusion.
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\4\ See Trader Update, NYSE American Options: NYSE Pillar Final
Migration Tranche, dated October 30, 2023, available here: <a href="https://www.nyse.com/trader-update/history#110000748137">https://www.nyse.com/trader-update/history#110000748137</a> (announcing the last
phase of the Pillar migration).
\5\ See Securities Exchange Act Release No. 100033 (April 25,
2024) 89 FR 35270 (May 1, 2024) (SR-NYSEAMER-2024-24) (immediately
effectiveness filing to adopt Rule 971.2NYP regarding the Complex
CUBE Auction on Pillar). See generally Rule 971.2NYP (Complex
Electronic Cross Transactions).
\6\ See Trader Update, NYSE American Options: Complex CUBE
Available June 10, 2024, dated May 13, 2024, available here: <a href="https://www.nyse.com/trader-update/history#110000748137">https://www.nyse.com/trader-update/history#110000748137</a> <a href="https://www.nyse.com/trader-update/history#110001076051">https://www.nyse.com/trader-update/history#110001076051</a> (announcing
implementation of Complex CUBE Auctions on Pillar effective June 10,
2024).
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The Complex CUBE Auction is a paired auction, with a price
improvement mechanism, for Electronic Complex Orders. The Rule sets
forth the definitions applicable to the Auction as well as the
requirements for initiating an Auction. In particular, the Rule
specifies that, to initiate an Auction, ``the net price of a Complex
CUBE Order to buy (sell) must be equal to or higher (lower) than the
CUBE BB (BO).'' \7\
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\7\ See Rule 971.2NYP(a)(2) (Initiation of Auction).
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Per the Rule, the CUBE BBO refers to the CUBE BB and the CUBE BO
and the CUBE BBO is comprised of higher of the Complex BBO \8\ or DBBO
\9\ as follows.
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\8\ See Rule 971.2NYP(a)(1)(A)(i) (defining Complex BBO as ``the
best-priced complex order(s) in the same complex strategy to buy
(sell)'' and providing that ``[t]he Complex BB cannot exceed the DBO
and the Complex BO cannot exceed the DBB'').
\9\ See Rule 971.2NYP(a)(1)(A)(ii) (specifying that the DBBO has
the meaning set forth in Rule 980NYP(a)(5). Rule 980NYP described
Complex Order Trading on the Exchange.
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The CUBE BB for a Complex CUBE Order to buy is comprised of the
higher of: the Complex BB or the Complex BB plus one cent ($0.01) if
there is a Customer Complex Order on the Complex BB; or the DBB or the
DBB plus one cent ($0.01) if there is displayed Customer interest on
the Exchange BBO and the DBB is calculated using the Exchange BBO. The
CUBE BO for a Complex CUBE Order to sell is comprised of the lower of:
the
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Complex BO or the Complex BO minus one cent ($0.01) if there is a
Customer Complex Order on the Complex BO; or the DBO or the DBO minus
one cent ($0.01) if there is displayed Customer interest on the
Exchange BBO and the DBO is calculated using the Exchange BBO.\10\
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\10\ See Rule 971.2NYP(a)(1)(A)(i)-(ii).
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Thus, to initiate an Auction, a Complex CUBE Order must be priced
at least equal to the best priced interest on the Exchange, unless the
best-priced interest represents Customer interest, in which case such
interest must be price improved. In instances where the DBB (DBO)
represents the best-priced interest on the Exchange, the rule text
specifies that the DBO (DBB) must be improved by one cent ($0.01) ``if
there is displayed Customer interest on the Exchange BBO'' and the DBB
(DBO) ``is calculated using the Exchange BBO.'' \11\
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\11\ See id.
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The Exchange believes that, while accurate, the Rule could be more
transparent regarding what interest on the DBBO (i.e., side of market)
must be price improved when there is Customer interest at the DBBO and
the CUBE BBO is based on the DBBO. Thus, as proposed, the modified Rule
would specify that the DBB (DBO) must be price improved when there is
displayed Customer interest on the Exchange BBO and the DBB (DBO) is
calculated using the price of that displayed Customer interest.\12\ The
proposed modification also would help clarify the circumstance under
which price improvement is not required, e.g., the CUBE BB (when based
on the DBB) is not impacted when both component legs of a Complex Order
are buying and, for one of the component legs, there is displayed
Customer interest at the Exchange BO.
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\12\ See proposed Rule 971.2NYP(a)(1)(A)(i)-(ii).
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Example
Trading interest on the Exchange when Complex CUBE Order is submitted
MM1 Leg A: 10 x 10 @0.85 x 1.05
Firm1 Leg A to sell 4 @1.00 (Limit Order)
MM1 Leg B: 10 x 40 @0.10 x 0.30
Cust1 Leg B: buy <a href="/cdn-cgi/l/email-protection#87b3c7b7a9b6b7"><span class="__cf_email__" data-cfemail="8ebacebea0bfbe">[email protected]</span></a> (Limit Order)
cCUBE to buy {5A-7B{time} 40 @4.32 x cContra to sell {5A-7B{time}
@4.10
--The complex strategy to Auction is buy 5 LegA and sell 7 LegB
--The Complex Contra Order specifies an automatch limit price
DBBO for {5A-7B{time} : 2.15 x 4.30
DBB = 4.25 - 2.10 = 2.15
Calculation: Sum of (best bid of each buy leg * leg ratio) (0.85 x
5) - Sum of (best offer of each sell leg * leg ratio) (0.30 x 7)
4.25 - 2.10 = 2.15
DBO = 5.00 - 0.70 = 4.30
Calculation: Sum of (best offer of each buy leg * leg ratio)
(1.00 x 5) - Sum of (best bid of each sell leg * leg ratio) (0.10 x
7)
CUBE BBO: 2.15 x 4.29
For purposes of the CUBE BBO, the DBO (calculated at 4.30) must be
improved by one cent (down to 4.29) because the DBO contains Customer
interest on the leg market (i.e., LegB bid @0.10)
To initiate the Auction, the price of the cCUBE @4.32 is adjusted
to @4.29 (to be on the CUBE BBO).
RFR announcing the Auction @4.29 is disseminated.
During Auction, only one RFR Response is received:
Firm2 Complex GTX Order to sell {5A-7B{time} 5 @4.10
The allocation of the cCUBE Order at the conclusion of Auction, is
as follows:
Trades 5 with Firm2 @4.10; then
Trades 5 with cContra @4.10;
Trades 30 (i.e., the balance) with cContra @4.29
As shown in this example, because there is displayed Customer
interest at the Exchange BB, which is used to calculate the DBO for the
strategy (i.e., a Customer order to buy LegB @0.10), the CUBE BO must
price improve such interest by one cent. Also illustrated is the fact
that, to initiate the Auction, the price of the Complex CUBE Order must
be priced (back) to comply with the CUBE BBO requirements. This
existing (and clarified) Auction functionality is designed to ensure
that displayed Customer interest (in this case on the leg markets) is
not disadvantaged by the Auction.
The Exchange believes this proposed rule change would add clarity
and transparency to Exchange rules making them easier to navigate and
comprehend to the benefit of investors.
2. Statutory Basis
For the reasons set forth above, the Exchange believes the proposed
rule change is consistent with Section 6(b) of the Act in general, and
furthers the objectives of Section 6(b)(5) of the Act, in that it is
designed to promote just and equitable principles of trade,remove
impediments to and perfect the mechanisms of a free and open market and
a national market system and, in general, to protect investors and the
public interest.
The Exchange believes that the proposed rule change would remove
impediments to and perfect the mechanisms of a free and open market and
a national market system and would protect investors and the public
interest because it would elucidate what interest on the DBBO (i.e.,
side of market) must be price improved when there is Customer interest
at the DBBO, and thus improve the accuracy and comprehensibility of the
Rule.
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 rule is not
designed to impact competition but is instead designed to improve the
clarity (and thus enhance the accuracy) of the Rule by making more
explicit the pricing requirements to initiate a Complex CUBE Auction.
The Exchange does not believe that the proposed rule changes would
impact intra-market competition as the proposed rule changes would be
applicable to all similarly-situated ATP Holders that trade on the
Exchange. To the extent that this improved clarity encourages ATP
Holders to utilize the Auction, all market participants stand to
benefit from additional liquidity being directed to the Exchange.
The Exchange notes that it operates in a highly competitive market
in which market participants can readily direct order flow to competing
venues who offer similar functionality. To the extent that the proposed
clarification leads to an increase in Exchange volume, this increase
should allow the Exchange to better compete against other options
markets that already offer similar price improvement mechanisms and for
this reason the proposal does not create an undue burden on intermarket
competition.
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 after the date of the filing, or such
shorter time as the Commission may designate if consistent with the
protection of investors and the
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public interest, it has become effective pursuant to Section
19(b)(3)(A)(iii) of the Act \13\ and Rule 19b-4(f)(6) \14\ thereunder.
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\13\ 15 U.S.C. 78s(b)(3)(A)(iii).
\14\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)
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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A proposed rule change filed under Rule 19b-4(f)(6) \15\ normally
does not become operative prior to 30 days after the date of the
filing. However, pursuant to Rule 19b-4(f)(6)(iii),\16\ 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 proposed
rule change may become operative upon filing. The Commission believes
that waiver of the 30-day operative delay is consistent with the
protection of investors and the public interest because it would
clarify the definition of the CUBE BBO and the circumstances under
which price improvement over displayed Customer interest is required,
thus improving the accuracy and comprehensibility of the Rule, without
undue delay. For these reasons, and because the proposal does not raise
any new or novel issues, the Commission hereby waives the 30-day
operative delay and designates the proposal operative upon filing.\17\
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\15\ 17 CFR 240.19b-4(f)(6).
\16\ 17 CFR 240.19b-4(f)(6)(iii).
\17\ For purposes only of waiving the 30-day operative delay,
the Commission has also 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 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.
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#90e2e5fcf5bdf3fffdfdf5fee4e3d0e3f5f3bef7ffe6"><span class="__cf_email__" data-cfemail="83f1f6efe6aee0eceeeee6edf7f0c3f0e6e0ade4ecf5">[email protected]</span></a>. Please include
file number SR-NYSEAMER-2024-46 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-NYSEAMER-2024-46. 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-NYSEAMER-2024-46 and should
be submitted on or before September 4, 2024.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\18\
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\18\ 17 CFR 200.30-3(a)(12), (59).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-18072 Filed 8-13-24; 8:45 am]
BILLING CODE 8011-01-P
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