[Federal Register Volume 81, Number 232 (Friday, December 2, 2016)]
[Notices]
[Pages 87094-87102]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-28927]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-79404; File No. SR-NYSEArca-2016-149]


Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
of a Proposed Rule Change Amending Rule 6.91NY

November 28, 2016.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on November 14, 2016, NYSE Arca, Inc. (``Exchange'' or ``NYSE 
Arca'') 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 Exchange. 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 amend Rule 6.91NY (Electronic Complex 
Order Trading) to clarify the priority of Electronic Complex Orders and 
to modify aspects of its Complex Order Auction Process. The proposed 
rule change is available on the Exchange's Web site at www.nyse.com, 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 Exchange 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 these 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 aspects of such 
statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to amend Rule 6.91 to clarify the priority of 
Electronic Complex Orders (``ECO'') \3\ and to modify aspects of its 
Complex Order Auction (``COA'') Process.
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    \3\ Per Rule 6.91, ``an `Electronic Complex Order' means any 
Complex Order as defined in Rule 6.62(e) that is entered into the 
NYSE Arca System.'' Rule 6.62(e) defines Complex Order as ``any 
order involving the simultaneous purchase and/or sale of two or more 
different option series in the same underlying security, 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) and for 
the purpose of executing a particular investment strategy.''
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    Rule 6.91 sets forth how the Exchange conducts trading of ECOs in 
its Complex Matching Engine (``CME''). The Exchange proposes to 
streamline the rule text governing the execution of ECOs during Core 
Trading Hours \4\ to provide specificity and transparency regarding 
such order processing, without modifying the substance of such 
processing. The Exchange also proposes to amend the rules governing how 
ECOs that are eligible for a COA Process are executed and allocated to 
clarify the description of current functionality and to provide 
additional detail regarding order processing. The Exchange also 
proposes additional amendments to Rule 6.91 to clarify and add 
transparency to the COA Process, as described below.
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    \4\ Core Trading Hours are the regular trading hours for 
business set forth in the rules of the primary markets underlying 
those option classes listed on the Exchange. See Rule 6.1A(a)(3).
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Execution of ECOs during Core Trading Hours
    The Exchange proposes to streamline its description of the priority 
of ECOs during Core Trading Hours, which the Exchange believes would 
add specificity and transparency to Exchange rules. Every ECO, upon 
entry to the System, is routed to the CME for possible execution 
against other ECOs or against individual quotes and orders residing in 
the Consolidated Book (``leg markets'').\5\ The Exchange ranks and 
allocates ECOs residing in the Consolidated Book according to price/
time priority based on the total or net debit or credit and the time of 
entry of the order.\6\ Paragraph (a)(2) to the Rule sets forth how ECOs 
are executed, including that ECOs submitted to the System may be 
executed without consideration of prices of the same complex order that 
might be available on other exchanges.\7\ The Exchange proposes to 
specify that ECOs may be executed without regard to prices of ``either 
single-legged or the same complex order strategy'' that might be 
available on other exchanges, which adds specificity and transparency 
to Exchange rules.\8\ The Exchange proposes to amend Rule 6.91(a)(2) by 
re-

[[Page 87095]]

numbering the rule text. As described in more detail below, proposed 
Rule 6.91(a)(2)(ii) would govern the execution of ECOs during Core 
Trading when marketable on arrival and proposed Rule 6.91(a)(2)(iii) 
would govern how ECOs would be ranked in the Consolidated Book and 
execute as resting interest on the Consolidated Book.
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    \5\ See proposed Rule 6.91(a) (the Exchange proposes to define 
``leg markets'' in reference to individual quotes and orders in the 
Consolidated Book as used throughout the rule text). The Exchange 
also proposes to define ``System'' as a shorthand reference to the 
term ``NYSE Arca System'' and replace uses of the term ``NYSE Arca 
System'' with the term ``System'' throughout the rule text. See, 
e.g., proposed Rule 6.91(preamble) and paragraph (a).
    \6\ See Rule 6.91(a)(1).
    \7\ See Rule 6.91(a)(2). The Rule also provides that ``[n]o leg 
of a [ECO] will be executed at a price outside the NYSE Arca best 
bid/offer for that leg.'' See id.
    \8\ Rule 6.91(a)(2)(i) governs the execution of ECOs at the 
Open. The Exchange proposes a non-substantive amendment to add the 
term ``Electronic'' so that the rule text would read, ``Execution of 
Electronic Complex orders at the Open.''
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    Rule 6.91(a)(2)(ii) governs executions of ECOs during Core Trading. 
Paragraph (A) to Rule 6.91(a)(2)(ii) currently provides that the CME 
will accept an incoming marketable ECO and will automatically execute 
the ECO giving first priority to ECOs in the Consolidated Book, 
``provided, however, that if individual orders or quotes residing in 
the Consolidated Book can execute the incoming [ECO] in full (or in a 
permissible ratio) at the same total or net debit or credit as an [ECO] 
in the Consolidated Book, the individual orders or quotes will have 
priority.'' \9\ In other words, the rule currently provides that, at 
the same price, the leg markets have priority over same-priced resting 
ECOs. Paragraph (B) to Rule 6.91(a)(2)(ii) provides that if an ECO in 
the CME is not marketable against another ECO ``it will automatically 
execute against individual orders or quotes residing in the 
Consolidated Book, provided the [ECO] can be executed in full (or in a 
permissible ratio).'' \10\ In other words, if there are no better-
priced ECOs in the Consolidated Book, an incoming ECO would trade with 
the resting leg markets. Further, the current rule provides that leg 
markets that execute against an ECO, per Rule 6.91(a)(2)(ii)(A) or (B), 
are allocated pursuant to Rule 6.76A.\11\
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    \9\ See Rule 6.91(a)(2)(ii)(A).
    \10\ See id.
    \11\ See Rule 6.91(a)(2)(ii)(A) and (B).
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    The Exchange proposes to revise and streamline the rule text 
governing execution of ECOs during Core Trading Hours in a manner that 
the Exchange believes would promote transparency regarding the 
processing of ECOs. The proposed rule text is not intended to change 
how the Exchange currently processes ECOs during Core Trading, which is 
described in the current rule, but rather to specify the order 
processing in a more concise and logical manner. Thus, the Exchange 
proposes to delete the current rule text in paragraphs (a)(2)(ii)(A) 
and (B) to the Rule and replace it with revised text in proposed 
paragraph (a)(2)(ii).
    Proposed Rule 6.91(a)(2)(ii) (i.e., ``Core Trading Order 
Allocation'') would provide that the CME would accept incoming 
marketable ECO and automatically execute it against the best-priced 
contra-side interest resting in the Consolidated Book.\12\ This 
proposed rule text makes clear that an incoming marketable ECO would 
trade against the best-priced contra-side interest resting in the 
Consolidated Book, which is consistent with the Exchange's price-time 
priority model. For example, if the best-price contra-side interest is 
an ECO resting on the Consolidated Book, the incoming ECO would trade 
with such ECO on arrival. However, if the best-price contra-side 
interest that can execute with the incoming ECO in full (or in a 
permissible ratio) is in the leg markets, the incoming ECO would trade 
with individual quotes and orders in the leg markets.
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    \12\ See proposed Rule 6.91(a)(2)(ii).
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    The proposed rule text would further specify that if, at a price, 
the leg markets can execute against an incoming ECO in full (or in a 
permissible ratio), the leg markets would have first priority at that 
price to trade with the incoming ECO--to be followed by resting ECOs--
in price/time pursuant to Rule 6.76A.\13\ This proposed text, 
therefore, describes how an incoming marketable ECO would be allocated 
if resting ECOs and leg markets in the Consolidated Book are at the 
same price, i.e., the priority of same-priced interest in the 
Consolidated Book.
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    \13\ See id.
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    To distinguish the treatment of incoming marketable ECOs (that are 
immediately executed) from ECOs that are not marketable (and thus 
routed to the Consolidated Book) during Core Trading Hours, the 
Exchange proposes to renumber current Rule 6.91(a)(2)(ii)(C) and (D), 
as proposed Rule 6.91(a)(2)(iii)(A) and (B), under the new heading 
``Electronic Complex Orders in the Consolidated Book.'' The Exchange 
also proposes to add language to Rule 6.91(a)(2)(iii)(A) to specify 
that an ECO, or portion of an ECO, that is not executed on arrival 
would be ranked in the Consolidated Book and that any new orders and 
quotes entered into the Consolidated Book that can execute against an 
ECO would be executed against such new orders or quotes ``according to 
paragraph (a)(2)(ii) above.'' \14\ The Exchange believes that the 
proposed additional heading and re-numbering of the rule text provides 
clarity regarding the treatment of non-marketable--as opposed to 
marketable--ECOs, which makes the rule text easier to navigate, without 
altering the functionality described in rule.
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    \14\ The current rule text cross-references ``(ii) above'' but 
in light of the proposed addition of subsection (a)(2)(iii), the 
Exchange proposes to instead cross-reference ``paragraph 
(a)(2)(ii),'' which would add clarity to the proposed rule. 
Consistent with the proposed change to define ``leg markets'' in 
Rule 6.91(a), the Exchange proposes to replace ``bids and offers in 
the leg markets'' with ``leg markets'' in proposed Rule 
6.91(a)(2)(iii)(A).
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Proposed Modifications to COA Process
    The Exchange proposes to modify its description of the COA Process 
and the execution of COA-eligible orders, which the Exchange believes 
would provide additional specificity and transparency to Exchange 
rules.\15\ Because of the number of modifications that the Exchange 
proposes to current paragraph (c), the Exchange proposes to delete 
paragraph (c) of the Rule in its entirety and replace it with new Rule 
6.91(c), which the Exchange believes more clearly, accurately and 
logically describes the COA Process. Proposed Rules 6.91(c)(1)-(7) 
would describe the COA Process.
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    \15\ To the extent that the proposed streamlined rule text 
mirrors existing language, the Exchange cites the relevant section 
of both the proposed and existing rule.
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Execution of COA-Eligible Orders, Initiation of COAs and RFR Responses
    Proposed Rule 6.91(c) would provide that, upon entry into the 
System, ECOs may be immediately executed, in full (or in a permissible 
ratio), or may be subject to a COA as described in the Rule. This rule 
text is based on current Rule 6.91(c), which provides that COA-eligible 
orders, upon entry into the System, ``may be subject to an automated 
request for responses (``RFR'') auction.'' \16\ As discussed below, the 
current rule text is silent as to the factors involved in whether and 
when an incoming COA-eligible order may trigger a COA, which would be 
addressed in proposed Rules 6.91(c)(2) and (c)(3).
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    \16\ The Exchange describes the concept of the Request for 
Response or ``RFR'' in connection with a COA in new paragraph (c)(3) 
to Rule 6.91.
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    Proposed Rule 6.91(c)(1) would define the term ``COA-eligible 
order'' to mean an ECO that is entered in a class designated by the 
Exchange and is:
    (i) Designated by the OTP Holder as COA-eligible; and
    (ii) received during Core Trading Hours.\17\
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    \17\ See proposed Rule 6.91(c)(1).
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    The proposed definition is based, in part, on the current Rule, 
which provides that whether an order is COA-eligible ``would be 
determined by the Exchange on a class-by-class basis'' \18\ and that 
the OTP Holder must provide

[[Page 87096]]

direction that an auction be initiated.\19\ In addition, the Exchange 
believes that explicitly stating that an ECO would be COA-eligible only 
if submitted during Core Trading Hours would add clarity and 
transparency. The Exchange proposes to eliminate from the current 
definition (set forth in Rule 6.91(c)(1)) features of ECOs that are not 
determinative of COA eligibility on the Exchange, such as the ``size, 
number of series, and complex order origin types (i.e., Customers, 
broker-dealers that are not Market-Makers or specialists on an options 
exchange, and/or Market-Makers or specialists on an options 
exchange).'' The Exchange is also not including language from current 
Rule 6.91(c)(1) that provides that ECOs ``processed through the COA 
Process may be executed without consideration to prices of the same 
complex orders that might be available on other exchanges,'' as this 
requirement is already set forth in paragraph (a)(2) of the Rule. 
Finally, the Exchange proposes to remove consideration of an ECO's 
``marketability (defined as a number of ticks away from the current 
market)'' as a requirement for COA-eligibility and to instead include 
this requirement in proposed paragraph (c)(3) regarding whether a COA-
eligible order would actually trigger (as opposed to be eligible to 
trigger) a COA, as discussed below.
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    \18\ See Rule 6.91(c)(1).
    \19\ See Rule 6.91(c)(2) (requiring that an OTP Holder mark an 
ECO for auction in order for a COA to be conducted).
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    Proposed Rule 6.91(c)(2) would add new rule text describing the 
``Immediate Execution of COA-eligible orders.'' The proposed text would 
clearly state that, upon entry of a COA-eligible order into the System, 
it would trade immediately, in full (or in a permissible ratio), with 
any ECOs resting in the Consolidated Book that are priced better than 
the contra-side Complex BBO, pursuant to proposed Rule 
6.91(a)(2)(ii).\20\ In such case, the arriving COA-eligible order would 
trade in a manner consistent with proposed Rule 6.91(a)(2)(ii) (i.e., 
``Core Trading Order Allocation'') and seek an immediate execution with 
the best-priced contra-side interest. The proposed paragraph would 
further specify that any portion of the COA-eligible order that does 
not execute immediately upon entry may start a COA, subject to the 
conditions set forth in proposed paragraph (c)(3).
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    \20\ See Rule 6.1A(2)(b) (defining Complex BBO as ``the BBO for 
a given complex order strategy as derived from the best bid on OX 
and best offer on OX for each individual component series of a 
Complex Order'').
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    The Exchange believes that the proposed rule text promotes 
transparency regarding when, under current functionality, a COA-
eligible order would receive an immediate execution (i.e., when it can 
receive price improvement from resting ECOs) versus being subject to a 
COA. The Exchange believes that the immediate price improvement 
opportunity for an incoming COA-eligible order from resting ECOs in the 
Consolidated Book obviates the need to start a COA, which is why 
incoming orders first trade against price-improving interest in the 
Consolidated Book before initiating a COA.
    Proposed Rule 6.91(c)(3) would specify the conditions required for 
the ``Initiation of a COA'' and, if those conditions are met, sets 
forth how a COA would be initiated. As proposed, and consistent with 
current functionality, for any portion of a COA-eligible order not 
executed immediately under proposed Rule 6.91(c)(2), the Exchange would 
initiate a COA based on the limit price of the COA-eligible order in 
relation to a number of factors.
     First, as set forth in proposed Rule 6.91(c)(3)(i), the 
limit price of the COA-eligible order to buy (sell) would have to be 
higher (lower) than the best-priced, same-side interest in both the leg 
markets and any ECOs resting in the Consolidated Book. In other words, 
the limit price of the COA-eligible order would have to improve the 
current same-side market.
     Second, as set forth in proposed Rule 6.91(c)(3)(ii), the 
COA-eligible order would have to be marketable, which, based on current 
Rule 6.91(c)(1), is defined as a number of ticks away from the current, 
contra-side market.
     Finally, as set forth in proposed Rule 6.91(c)(3)(iii), to 
initiate a COA, the limit price of the COA-eligible order to buy (sell) 
would have to be executable at a price at or within the NYSE Arca best 
bid/offer for each leg of the order, which is based on current Rule 
6.91(a)(2) regarding the execution of ECOs in general.
    Proposed Rule 6.91(c)(3) further provides that the Exchange would 
initiate a COA by sending a Request for Response (``RFR'') message to 
all OTP Holders that subscribe to RFR messages.\21\ This requirement is 
based on the first sentence of current Rule 6.91(c)(2). Proposed Rule 
6.91(c)(3) would further provide that RFR messages would identify the 
component series, the size and side of the market of the order and any 
contingencies, which is based on the second sentence of current Rule 
6.91(c)(2) without any changes. In addition, proposed Rule 6.91(c)(3) 
would include new rule text to specify that only one COA may be 
conducted at a time in any given complex order strategy, which is not 
explicitly stated in the current rule.\22\ Finally, proposed Rule 
6.91(c)(3) would specify that, at the time the COA is initiated, the 
Exchange would record the Complex BBO (the ``initial Complex BBO'') for 
purposes of determining whether the COA should end early pursuant to 
proposed paragraph (c)(6) of this Rule (discussed below). This is new 
rule text that is consistent with current functionality that ensures 
the COA respects the leg markets as well as principles of price/time 
priority.\23\
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    \21\ See proposed Rule 6.91(c)(3).
    \22\ The Exchange believes this can be inferred from the text 
describing the impact of COA-eligible orders that arrive during a 
COA in progress. See, e.g., Rule 6.91(c)(8). Proposed Rule 
6.91(c)(6), described below, provides specificity of when a COA may 
terminate early and when a subsequent COA may be initiated.
    \23\ See proposed Rule 6.91(a)(2)(ii) (leg markets have priority 
at a price).
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    Proposed Rule 6.91(c)(4) would define the term Response Time 
Interval (``RTI'') as the period of time during which responses to the 
RFR may be entered. As further proposed, the Exchange would determine 
the length of the RTI; provided, however, that the duration would not 
be less than 500 milliseconds and would not exceed one (1) second. This 
rule text is based on current Rule 6.91(c)(3) insofar as it defines the 
RTI and the duration of the RTI, with the non-substantive modification 
to replace reference to ``shall'' with reference to ``will.'' Proposed 
Rule 6.91(c)(4) would also include new rule text providing that, at the 
end of the RTI, the COA-eligible order would be allocated pursuant to 
proposed Rule 6.91(c)(7), which describes the allocation of COA-
eligible orders (hereinafter ``COA Order Allocation'') (described 
below). This proposed new rule text is based in part on current Rule 
6.91(c)(5), which provides that at the expiration of the RTI, COA-
eligible orders may be executed, in whole or in part, pursuant to Rule 
6.91(c)(6) (Execution of COA-eligible orders). The proposed rule text 
refers instead to Rule 6.91(c)(7), which incorporates the order 
allocation concepts currently set forth in Rule 6.91(c)(6). The 
proposed change is intended to add clarity and transparency to the COA 
Process.
    Proposed Rule 6.91(c)(5) would provide that any OTP Holder may 
submit responses to the RFR message (``RFR Responses'') during the RTI. 
This rule text is based on the first sentence of current Rule 
6.91(c)(4) without any changes. Proposed Rule 6.91(c)(5)(A)-

[[Page 87097]]

(C) would provide additional specificity regarding RFR Responses.
     Proposed Rule 6.91(c)(5)(A) would provide that RFR 
Responses are ECOs that have a time-in-force contingency for the 
duration of the COA (i.e., are designated as ``GTX''), must specify the 
price, size, and side of the market, and may be submitted in $0.01 
increments. This rule text is based in part on the first sentence of 
Rule 6.91(c)(4), which provides that RFR Responses may be submitted in 
$.01 increments. Proposed Rule 6.91(c)(5)(A) is also based in part on 
the second to last sentence of current Rule 6.91(c)(7), which provides 
that RFR Responses expire at the end of the RTI, which is the same in 
substance as saying that an RFR Response has a time-in-force condition 
of GTX for the COA. The Exchange believes its proposed rule text is 
more accurate because it states that RFR Responses are valid for the 
duration of the COA, as opposed to the RTI, the latter being the period 
during which COA interest (including RFR Responses and incoming ECOs) 
is received and the former being the overall COA Process that allocates 
COA-eligible orders with the best-priced auction interest, including 
RFR Responses.
     Proposed Rule 6.91(c)(5)(B) would provide that RFR 
Responses must be on the opposite side of the COA-eligible order and 
any RFR Responses on the same side of the COA-eligible order would be 
rejected. This proposed rule text is based on the last sentence of 
current Rule 6.91(c)(4), which provides that RFR Responses must be on 
the opposite side of the COA-eligible order and any same-side RFR 
responses would be rejected by the Exchange, without any substantive 
changes.
     Proposed Rule 6.91(c)(5)(C) would provide that RFR 
Responses may be modified or cancelled during the RTI, would not be 
ranked or displayed in the Consolidated Book, and would expire at the 
end of the COA. The proposed text stating that RFR Responses may be 
modified or cancelled during the RTI is new rule text based in part on 
current Rule 6.91(c)(7), which provides that RFR Responses can be 
modified but may not be withdrawn at any time prior to the end of the 
RTI. The Exchange believes it is consistent with the current rule that 
states that an RFR Response may be modified to explicitly provide that 
an RFR Response may be cancelled, which is current functionality, and 
proposes to amend the rule to reflect that RFR Responses may also be 
cancelled. The proposed text stating that RFR Responses expire at the 
end of the COA make clear when RFR Responses are ``firm'' and thus 
obviate the need for current Rule 6.91(c)(7).\24\ The proposed text of 
Rule 6.91(c)(5)(C) stating that RFR Responses would not be ranked or 
displayed in the Consolidated Book is based on the last sentence of 
current Rule 6.91(c)(7) without any changes.
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    \24\ Rule 6.91(c)(7) sets forth the Firm Quote Requirements for 
COA-eligible orders.
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    The Exchange believes that the proposed Rules 6.91(c)(5)(A)-(C), 
which reorganizes information from existing rule text and add language 
to describe the requisite characteristics and behavior of an RFR 
Response, adds clarity and transparency to Exchange rules, including 
that, like all orders, an RFR Response may be modified or cancelled 
prior to the end of the RTI. The Exchange believes that specifying that 
RFR Reponses are GTX (i.e., good for the duration of the COA) and may 
trade with interest received during the COA before expiring would 
encourage participation in the COA and would maximize the number of 
contracts traded.
Impact of ECOs, COA-Eligible Orders and Updated Leg Markets on COA in 
Progress
    Proposed Rule 6.91(c)(6) would govern the impact of ECOs, COA-
eligible orders, and updates to the leg markets that arrived during an 
RTI of a COA. This proposed rule text would replace current Rule 
6.91(c)(8), as described in greater detail below. The Exchange believes 
that, because proposed Rule 6.91(c)(6) would establish what happens to 
a COA (i.e., whether it will end early) before the COA-eligible order 
is allocated, it would be more logical to describe these processes 
before the rule describes how COA-eligible orders are allocated, which 
would be set forth in proposed Rule 6.91(c)(7). To streamline the rule 
and make the rule text more logical, the Exchange proposes to add 
headings (see proposed Rule 6.91(c)(6)(A)-(C)) to make clear which type 
of incoming interest is covered.
    Proposed Rule 6.91(c)(6)(A) would describe the impact of incoming 
ECOs or COA-eligible orders on the opposite-side of the market as the 
initiating COA-eligible order. The current rule addresses the impact of 
opposite-side, incoming ECOs on a COA,\25\ but because it does not 
address opposite-side COA-eligible orders, proposed paragraph (A) of 
Rule 6.91(c)(6) would be new rule text. The Exchange notes that the 
impact of an incoming COA-eligible order mirrors that of an incoming 
ECO in the scenarios covered in proposed Rules (c)(6)(A)(i)-(iii) 
(discussed below), which adds internal consistency and specificity to 
Exchange rules.\26\
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    \25\ See Rule 6.91(c)(8)(A) (providing that ``[i]ncoming 
Electronic Complex orders received during the Response Time Interval 
that are on the opposite side of the market and marketable against 
the limit price of the initiating COA-eligible order will be ranked 
and executed in price time with RFR Responses by account type (as 
described in (6) above). Any remaining balance of either the 
initiating COA-eligible order or the incoming Electronic Complex 
order will be placed in the Consolidated Book and ranked as 
described in (a)(1) above'').
    \26\ The differential treatment of the balance of the incoming 
order, depending on whether it is an ECO or a COA-eligible order is 
covered in proposed rules Rule 6.91(c)(6)(A)(iv) and (v), 
respectively.
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     Proposed Rule 6.91(c)(6)(A)(i) would provide that incoming 
ECOs or COA-eligible orders that lock or cross the initial Complex BBO 
would cause the COA to end early. The concept of the initial Complex 
BBO as a benchmark against which incoming opposite-side interest would 
be measured is new rule text, but is consistent with current 
functionality. As noted above (see supra note 21), the initial Complex 
BBO is the BBO for a given complex order strategy as derived from the 
Best Bid (``BB'') and Best Offer (``BO'') for each individual component 
series of a Complex Order as recorded at the start of the RTI. Proposed 
Rule 6.91(c)(6)(A)(i) would further provide that if such incoming ECO 
or COA-eligible order is also executable against the limit price of the 
initiating COA-eligible order, it would be ranked with RFR Responses to 
execute with the initiating COA-eligible order. The Exchange believes 
that addressing this scenario would better enable market participants 
to understand how their ECOs, including COA-eligible orders, may be 
treated, and the proposed change therefore is designed to add clarity 
and transparency to Exchange rules.
     The proposed rule text relating to how an incoming 
opposite-side ECO or COA-eligible order would be processed is based on 
current Rule 6.91(c)(8)(A), which provides that incoming ECOs received 
during the RTI ``that are on the opposite side of the market and 
marketable against the limit price of the initiating COA-eligible order 
will be ranked and executed in price time with RFR Responses.'' \27\ 
The proposed rule text would also include opposite-side COA-eligible 
orders and would not include any reference to Customer and non-Customer 
``account type,'' which, as discussed below, is unnecessary.\28\ The 
proposed rule text also does not include reference to ``price time,'' 
as the COA-eligible order would interact with

[[Page 87098]]

the best-priced contra-side interest received during the RTI, per 
proposed paragraph (c)(7) of this Rule.\29\
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    \27\ See Rule 6.91(c)(8)(A), supra note 26.
    \28\ See proposed Rule 6.91(c)(6)(A)(i). See also discussion of 
``COA Order Allocation'' below.
    \29\ See proposed Rule 6.91(c)(7).
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     Proposed Rule 6.91(c)(6)(A)(ii) would provide that 
incoming ECOs or COA-eligible orders that are executable against the 
limit price of the initiating COA-eligible order, but do not lock or 
cross the initial Complex BBO, would not cause the COA to end early and 
would be ranked with RFR Responses to execute with the initiating COA-
eligible order. This proposed paragraph specifies that the COA would 
continue uninterrupted by such incoming orders because such interest 
does not trigger priority concerns (because the incoming order isn't 
priced better than the leg markets at the start of the COA), but is 
eligible to participate in the COA. This proposed text would be new 
rule text, which reflects current functionality that is based on the 
principles set forth in Rule 6.91(c)(8)(A).
     Proposed Rule 6.91(c)(6)(A)(iii) would provide that 
incoming ECOs or COA-eligible orders that are either not executable on 
arrival against the limit price of the initiating COA-eligible order or 
do not lock or cross the initial Complex BBO would not cause the COA to 
end early. Per this proposed paragraph, the COA would proceed 
uninterrupted as the incoming interest does not trigger priority 
concerns (i.e., does not lock or cross the initial Complex BBO) nor can 
the interest participate in the COA (i.e., because it is not executable 
against the initiating COA-eligible order). This would be new rule 
text, which reflects current functionality.
     Proposed Rule 6.91(c)(6)(A)(iv) would provide that any 
incoming ECO(s), or the balance thereof, that was not executed with the 
initiating COA-eligible order or was not executable on arrival would 
trade pursuant to proposed paragraph (a)(2)(ii) of this Rule (i.e., 
Core Trading Allocation). This proposed rule text is based on the last 
sentence of current Rule 6.91(c)(8)(A), regarding ECOs, but provides 
additional detail regarding the ability for any balance on the incoming 
ECO to trade with the best-priced, resting contra-side interest before 
(or instead of) being ranked in the Consolidated Book, which is 
consistent with the Exchange's processing of incoming ECOs.
     Proposed Rule 6.91(c)(6)(A)(v) would provide that any 
incoming COA-eligible order(s), or the balance thereof, that was not 
executed with the initiating COA-eligible order or was not executable 
on arrival would initiate subsequent COA(s) in price-time priority. 
Because the treatment of opposite-side COA-eligible orders is not 
described in the current rule, this would be new rule text. Unlike the 
treatment of incoming opposite-side ECOs--where any remaining balance 
of the ECOs would be subject to Core Trading Allocation or would be 
posted to the Consolidated Book after trading with the initiating COA-
eligible order--any balance of the incoming contra-side COA-eligible 
order that does not trade with the initiating COA-eligible order would 
initiate a new COA.
    The Exchange believes that proposed Rule 6.91(c)(6)(A)(i)-(v) would 
provide additional specificity regarding the impact of opposite-side 
ECOs or COA-eligible orders on the COA Process, which adds transparency 
to Exchange rules. Specifically, the Exchange believes that providing 
for a COA to terminate early when an incoming order locks or crosses 
the initial Complex BBO, as proposed, would allow an initiating COA-
eligible order to execute (ahead of the incoming order) against any RFR 
Responses or ECOs received during the RTI up until that point, while 
preserving the priority of the incoming order to trade with the resting 
leg markets. The Exchange believes that early conclusion of the COA 
would avoid disturbing priority in the Consolidated Book and would 
allow the Exchange to appropriately handle incoming orders. The 
proposed rule text is consistent with the processing of ECOs during 
Core Trading and ensures that the leg markets respect the COA as well 
as principles of price/time priority.\30\ Moreover, the Exchange 
believes that the proposed impact of incoming COA-eligible orders 
aligns with the treatment of incoming ECOs, which adds internal 
consistency to Exchange rules, and affords additional opportunities for 
price improvement to the initiating COA-eligible order, which may trade 
with the opposite-side order(s).
---------------------------------------------------------------------------

    \30\ See proposed Rule 6.91(a)(2)(ii) (leg markets have priority 
at a price).
---------------------------------------------------------------------------

    The Exchange proposes to process any remaining balance of such 
orders differently from any balance of the incoming ECO because an ECO 
would either execute against resting interest or be ranked with ECOs in 
the Consolidate Book, whereas any balance of an incoming COA-eligible 
order would initiate a new COA, affording that order additional 
opportunities for price improvement. The Exchange believes that this 
proposed rule text, which is consistent with current functionality, 
maximizes the execution opportunities to the incoming order(s), with 
potential price improvement, as these orders may trade with interest 
received in the (initiating) COA; and, for the incoming COA-eligible 
order, the potential for additional price improvement in a subsequent 
COA.
    Proposed Rule 6.91(c)(6)(B) would describe the impact of incoming 
ECOs or COA-eligible orders on the same side of the market as the 
initiating COA-eligible order on a COA. The current rule addresses the 
impact of same-side, incoming COA-eligible orders on a COA,\31\ but 
because it does not address same-side ECOs, this aspect of the proposed 
rule would be new. The impact of an incoming ECO mirrors that of an 
incoming COA-eligible order in the scenarios covered in proposed Rule 
(c)(6)(B)(i)-(iv) (discussed below), which adds internal consistency 
and specificity to Exchange rules.\32\
---------------------------------------------------------------------------

    \31\ See Rule 6.91(c)(8)(B)-(C) (addressing the impact of same-
side incoming COA-eligible orders on a COA).
    \32\ The Exchange notes that the differential treatment of the 
balance of the incoming order, depending on whether it is an ECO or 
a COA-eligible order is covered in proposed rules Rule 
6.91(c)(6)(B)(v) and (vi), respectively.
---------------------------------------------------------------------------

     Proposed Rule 6.91(c)(6)(B)(i) would provide that incoming 
ECOs or COA-eligible orders that are priced better than the initiating 
COA-eligible order would cause the COA to end.\33\ This proposed rule 
text is based in part on current Rule 6.91(c)(8)(D), which provides 
that better-priced incoming COA-eligible orders that arrive during the 
RTI will cause a COA to end.\34\
---------------------------------------------------------------------------

    \33\ An incoming ECO or COA-eligible order priced ``better 
than'' the COA-eligible order means it is priced higher (lower) than 
the initiating COA-eligible order to buy (sell). See proposed Rule 
6.91(c)(6)(B)(ii).
    \34\ See Rule 6.91(c)(8)(D) (providing, in part, that 
``[i]ncoming COA-eligible orders received during the Response Time 
Interval for the original COA-eligible order that are on the same 
side of the market and that are priced better than the initiating 
order will cause the auction to end'').
---------------------------------------------------------------------------

     Proposed Rule 6.91(c)(6)(B)(ii) would provide that an 
incoming ECO or COA-eligible order that is priced equal to or worse 
than the initiating COA-eligible order,\35\ and also locks or crosses 
the contra-side initial Complex BBO, would cause the COA to end early. 
The proposed rule is based in part on current Rules 6.91(c)(8)(B) and 
(C), which describe how the Exchange processes COA-eligible orders that 
are received during a COA that are on the same side of the market of 
the initiating COA and priced equal to or worse than

[[Page 87099]]

the initiating COA.\36\ However, the current rule does not specify that 
a COA would terminate early when an incoming ECO locks or crosses the 
contra-side initial Complex BBO, therefore this would be new rule text.
---------------------------------------------------------------------------

    \35\ An incoming ECO or COA-eligible order priced ``worse than'' 
the COA-eligible order means it is priced lower (higher) than the 
initiating COA-eligible order to buy (sell). See proposed Rule 
6.91(c)(6)(B)(ii).
    \36\ See Rule 6.91(c)(8)(B)-(C), supra note 32.
---------------------------------------------------------------------------

     Proposed Rule 6.91(c)(6)(B)(iii) would provide that 
incoming ECOs or COA-eligible orders that are priced equal to or worse 
than the initiating COA-eligible order,\37\ but do not lock or cross 
the contra-side Complex BBO, would not cause the COA to end early. 
Proposed Rule 6.91(c)(6)(B)(i) is based on current Rules 6.91(c)(8)(B) 
and (C), which describe how the Exchange processes COA-eligible orders 
that are received during a COA that are on the same side of the market 
of the initiating COA-eligible order and priced equal to or worse than 
the initiating COA-eligible order. However, the current rule does not 
address whether the incoming orders lock or cross the contra-side 
initial Complex BBO. The Exchange believes that this additional detail 
promotes internal consistency regarding how the COA process and how it 
intersects with the price/time priority of the initial Complex BBO.
---------------------------------------------------------------------------

    \37\ An incoming ECO or COA-eligible order priced ``worse than'' 
the COA-eligible order means it is priced lower (higher) than the 
initiating COA-eligible order to buy (sell). See proposed Rule 
6.91(c)(6)(B)(iii).
---------------------------------------------------------------------------

     The Exchange notes that current Rules 6.91(c)(8)(B) and 
(C) state that an incoming same-side COA-eligible order (priced equal 
to or worse than the initiating order) joins a COA in progress and is 
executed in price/time with the COA-eligible order, with any balance 
placed in the Consolidated Book pursuant to (a)(1).\38\ The proposed 
rule text would clarify how such incoming COA-eligible orders would be 
processed. Specifically, the Exchange proposes to clarify how such 
incoming COA-eligible orders (as well as ECOs) would be processed, 
including any remaining balance thereof, in proposed paragraphs 
(c)(6)(iv)-(vi) of the Rule, discussed below.\39\
---------------------------------------------------------------------------

    \38\ See Rule 6.91(c)(8)(B) and (C) (providing, in part, that 
``[i]ncoming COA-eligible orders received during the [RTI] for the 
original COA-eligible order that are on the same side of the market, 
that are priced [equal to or worse] than the initiating order, will 
join the COA'').
    \39\ See, e.g., proposed Rule 6.91(c)(6)(B)(iv),(vi) (providing 
that, rather than joining the COA, these incoming COA-eligible 
orders may trade with RFR Responses or ECOs that don't execute in 
the COA and, if any balance remains still, would initiate a new 
COA--but would not execute during the COA in progress as the current 
rule suggests).
---------------------------------------------------------------------------

     Proposed Rule 6.91(c)(6)(B)(iv) would provide that any 
incoming ECO or COA-eligible order that caused a COA to end early, if 
executable, would trade against any RFR Responses and/or ECOs that did 
not trade with the initiating COA-eligible order. This proposed 
paragraph reflects current functionality and is based on current Rule 
6.91(c)(8)(D) inasmuch as it addresses incoming same-side COA-eligible 
orders that cause the COA to end early.
     Proposed Rule 6.91(c)(6)(B)(v) would provide that any 
remaining balance of incoming ECOs that do not trade against any 
remaining RFR Responses or ECOs received during the RTI would trade 
pursuant to Core Trading Allocation, pursuant to paragraph (a)(2)(ii) 
of this Rule. This proposed rule text is consistent with the treatment 
of the balance of incoming same-side ECOs set forth in current Rule 
6.91(8)(A)-(C), with the added detail that the ECO would first be 
subject to Core Trading Allocation pursuant to proposed Rule 
6.91(a)(2)(ii) before being ranked in the Consolidated Book.
     Proposed Rule 6.91(c)(6)(B)(vi) would provide that the 
remaining balance of any incoming COA-eligible order(s) that does not 
trade against any remaining RFR Responses or ECOs received during the 
RTI would initiate new COA(s) in price-time priority. This proposed 
rule text is based in part on current Rule 6.91(c)(8)(D), which 
provides that any unexecuted portion of the incoming COA-eligible would 
initiate a new COA.\40\
---------------------------------------------------------------------------

    \40\ See Rule 6.91(c)(8)(D) (providing, in part, that ``[t]he 
COA-eligible order that caused the auction to end will ``if 
marketable, initiate another COA''). See supra note 35 (noting 
inaccuracy in current rule, which provides that incoming COA-
eligible orders would execute during the COA in progress).
---------------------------------------------------------------------------

    The Exchange believes that proposed Rules 6.91(c)(6)(B)(i)-(vi) 
would provide greater specificity regarding the impact of arriving 
same-side COA-eligible orders and ECOs on a COA, which adds internal 
consistency, clarity and transparency to Exchange rules. Specifically, 
the Exchange believes that providing for a COA to terminate early under 
the circumstances specified in proposed Rules 6.91(c)(6)(B)(i) and (ii) 
would allow a COA-eligible order to execute (ahead of the incoming 
order) against any RFR Responses or ECOs received during the RTI up 
until that point, while preserving the priority of the incoming order 
to trade with the resting leg markets. The Exchange believes that early 
conclusion in this circumstance would ensure that the COA interacts 
seamlessly with the Consolidated Book so as not to disturb the priority 
of orders on the Book.
    The proposed rule text is consistent with the processing of ECOs 
during Core Trading and ensures that the COA respects the leg markets 
as well as principles of price/time priority.\41\ In addition, the 
proposed rule would also provide greater specificity that the incoming 
COA-eligible order or ECO would, if executable, trade against any 
remaining RFR Responses and/or ECOs received during the RTI, which 
allows the incoming orders opportunities for price improvement. The 
proposed rule would also make clear that any remaining balance of the 
incoming COA-eligible order would then initiate a new COA. The Exchange 
believes that these proposed changes maximize the execution 
opportunities to the incoming order(s), with potential price 
improvement, as these orders may trade with interest received in the 
(original) COA; and, for the incoming COA-eligible order, the potential 
for additional price improvement in a subsequent COA.
---------------------------------------------------------------------------

    \41\ See proposed Rule 6.91(a)(2)(ii) (leg markets have priority 
at a price).
---------------------------------------------------------------------------

    Proposed Rule 6.91(c)(6)(C): would describe the impact of new 
individual quotes or orders (i.e., updates to the leg markets) during 
the RTI on the same or opposite side of the COA-eligible order. In each 
event described below, regardless of whether the COA ends early, the 
COA-eligible order would execute pursuant to proposed Rule 6.91(c)(7) 
(described below); and, consistent with Core Trading Allocation, the 
updated leg markets would execute pursuant to proposed paragraph 
(a)(2)(ii) of this Rule.\42\
---------------------------------------------------------------------------

    \42\ See proposed Rule 6.91(c)(6)(C).
---------------------------------------------------------------------------

     Proposed Rule 6.91(c)(6)(C)(i) would provide that updates 
to the leg markets that would cause the same-side Complex BBO to lock 
or cross any RFR Response(s) and/or ECO(s) would cause the COA to end 
early. The Exchange believes that providing for a COA to terminate 
early when the leg markets update in this manner would allow a COA-
eligible order to execute against any RFR Responses or ECOs received 
during the RTI up until that point, while preserving the priority of 
the updated leg markets.
     Proposed Rule 6.91(c)(6)(C)(ii) would provide that updates 
to the leg markets that would cause the same-side Complex BBO to be 
priced better than the COA-eligible order,\43\ but do not lock or cross 
any RFR Responses and/or ECOs received would not cause the COA to end 
early.
---------------------------------------------------------------------------

    \43\ Individual orders and quotes cause the same-side Complex 
BBO to be ``better'' than the COA-eligible order if they cause the 
Complex BBO to be higher (lower) than the COA-eligible order to buy 
(sell). See proposed Rule 6.91(c)(6)(C)(i).
---------------------------------------------------------------------------

     Proposed Rule 6.91(c)(6)(C)(iii) would provide that 
updates to the leg markets that would cause the contra-

[[Page 87100]]

side Complex BBO to lock or cross the same-side initial Complex BBO 
would cause the COA to end early.
     Proposed Rule 6.91(c)(6)(C)(iv) would provide that updates 
to the leg markets that would cause the contra-side Complex BB (BO) to 
improve (i.e., become higher (lower)), but not lock or cross the same-
side initial Complex BBO, would not cause the COA to end early.
    The believes that proposed Rule 6.91(c)(6)(C)(i)-(iv) respect the 
COA process, while at the same time ensuring a fair and orderly market 
by maintaining the priority of quotes and orders on the Consolidated 
Book as they update. The proposed rule is based in part on Rule 
6.91(c)(9)(A) \44\ and (B),\45\ which address the impact of updates to 
the leg markets on a COA. However, the current rule text does not 
specify on which side of the market the leg markets have updated. The 
Exchange proposes to include this detail in the new rule text for 
additional clarity and transparency. In addition, the current rule text 
uses the term ``derived Complex BBO,'' which is not a defined term. In 
the proposed rule, the Exchange proposes to use the term Complex BBO, 
which is a defined term.\46\ The Exchange further believes this 
proposed rule text promotes transparency and clarity to Exchange rules.
---------------------------------------------------------------------------

    \44\ See Rule 6.91(c)(9)(A) (providing that ``[i]ndividual 
orders and quotes that are entered into the leg markets that cause 
the derived Complex Best Bid/Offer to be better than the COA-
eligible order and to cross the best priced RFR Response will cause 
the auction to terminate, and individual orders and quotes in the 
leg markets will be allocated pursuant to (a)(2)(i) above and 
matched against Electronic Complex Orders and RFR Responses in price 
time priority pursuant to (6) above. The initiating COA-eligible 
order will be matched and executed against any remaining unexecuted 
Electronic Complex Orders and RFR Responses pursuant to (6) 
above''). The Exchange also notes that proposed Rule 
6.91(c)(6)(C)(i) clarifies that the Complex BBO in question is the 
same-side Complex BBO, as the current rule text is silent in this 
regard, which adds clarity and transparency to Exchange rules.
    \45\ See Rule 6.91(c)(9)(B) (providing that ``[i]ndividual 
orders and quotes that are entered into the leg markets that cause 
the derived Complex Best Bid/Offer to cross the price of the COA-
eligible order will cause the auction to terminate, and individual 
orders and quotes in the leg markets will be allocated pursuant to 
(a)(2)(i) above and matched against Electronic Complex Orders and 
RFR Responses in price time priority pursuant to (6) above.''). The 
Exchange also notes that proposed paragraph (c)(6)(C)(ii) clarifies 
that the Complex BBO in question is the contra-side Complex BBO, as 
the current rule text is silent in this regard, which adds clarity 
and transparency to Exchange rules.
    \46\ See supra 21. The Exchange notes that the word ``derived'' 
is no longer needed as it is encompassed in the definition of 
Complex BBO. See id.
---------------------------------------------------------------------------

COA Order Allocation
    Current Rules 6.91(c)(6)(A)-(D) set forth how a COA-eligible order 
executes against same-priced contra-side interest (i.e., at the same 
net price) after executing against any better-priced contra-side 
interest. However, the current rule text does not reflect priority and 
order allocation, including that current paragraphs (c)(6)(B) and (C) 
refer to affording priority to Customer ECOs which is not consistent 
with the Exchange's price/time priority model.
    In short, current Rule 6.91(c)(6) provides that COA-eligible orders 
will be executed against the best priced contra-side interest. The rule 
further provides that at the same net price, the order will be 
allocated as provided for in Rules 6.91(c)(6)(A)-(D). Current Rule 
6.91(c)(6)(A) provides that individual orders and quotes in the leg 
markets resting in the Consolidated Book prior to the initiation of a 
COA have first priority to trade against a COA-eligible order, provided 
the COA-eligible order can be executed in full (or in a permissible 
ratio), on a price/time basis pursuant to Rule 6.76A.\47\ Current Rules 
6.91(c)(6)(B) and (C) provide that Customer ECOs resting in the 
Consolidated Book before, or that are received during, the RTI, and 
Customer RFR Responses shall, collectively have second priority to 
trade against a COA-eligible order followed by resting non-Customer 
ECOs, those received during the RTI, and non-Customer RFR Responses, 
which would have third priority.\48\ Pursuant to the current Rule, the 
allocation of a COA-eligible order against these Customer and non-
Customer ECOs and RFR Responses shall be on a Size Pro Rata basis as 
defined in Rule 6.75(f)(6).\49\ Finally, current Rule 6.91(c)(6)(D) 
provides that individual orders and quotes in the leg markets that 
cause the derived Complex BBO to be improved during the COA and match 
the best RFR Response and/or ECOs received during the RTI will be 
filled after ECOs and RFR Responses at the same net price pursuant to 
Rule 6.76A.\50\
---------------------------------------------------------------------------

    \47\ See Rule 6.91(c)(6)(A).
    \48\ See Rule 6.91(c)(6)(B) and (C).
    \49\ See id.
    \50\ See Rule 6.91(c)(6)(D).
---------------------------------------------------------------------------

    The Exchange proposes to clarify and update the rule text 
describing the priority and allocation of COA-eligible orders during 
the COA process in proposed Rule 6.91(c)(7), under the heading 
``Allocation of COA-Eligible Orders,'' which would replace current 
paragraph (c)(6) in its entirety. Proposed Rule 6.91(c)(7) would 
provide that at the end of the RTI, a COA-eligible order would be 
executed against contra-side interest as provided for in proposed Rules 
6.91(c)(7)(A) and (B), and any unexecuted portion of the COA-eligible 
order would be ranked in the Consolidated Book pursuant to proposed 
Rule 6.91(a)(1).
     Proposed Rule 6.91(c)(7)(A) would provide that RFR 
Responses and ECO priced better than \51\ the initial Complex BBO would 
be eligible to trade first with the COA-eligible order, beginning with 
the highest (lowest), at each price point, on a Size Pro Rata basis as 
defined in Rule 6.75(f)(6). This proposed rule text is based in part on 
current Rule 6.91(c)(6), which provides that COA-eligible orders would 
be executed against the best priced contra side interest (which in this 
case, would be ECOs and RFR Responses) and current Rule 6.91(c)(6)(C), 
which provides that ECOs and RFR Responses are allocated on a Size Pro 
Rata basis. The Exchange believes this proposed change streamlines how 
the allocation process works, and clarifies that if ECOs and RFR 
Responses are the best-priced interest, they would trade with the 
incoming COA-eligible order on a Size Pro Rata basis.
---------------------------------------------------------------------------

    \51\ To qualify as ``better than,'' RFR Responses and ECOs to 
buy (sell) would need to be priced higher (lower) than the initial 
Complex BBO. See proposed Rule 6.91(c)(7)(A).
---------------------------------------------------------------------------

     Proposed Rule 6.91(c)(7)(B) provides that after COA 
allocations pursuant to paragraph (c)(7)(A) of this Rule, the COA-
eligible order would trade with the best-priced contra-side interest 
pursuant to paragraph (a)(2)(ii) above. In other words, once the COA-
eligible order has traded with any ECOs or RFR Responses priced better 
than the initial Complex BBO (i.e., any price-improving interest to 
arrive during the RTI), the initiating COA-eligible order would follow 
regular allocation rules for an incoming marketable ECO. This rule text 
is based in part on current Rule 6.91(c)(6)(A), which provides that if 
the COA-eligible order can be executed in full (or a permissible ratio) 
by the orders and quotes in the Consolidated Book, they will be 
allocated pursuant to Rule 6.76A. Because this allocation is identical 
to how a regular marketable ECO would be allocated, the Exchange 
believes it would streamline the rule and provide greater transparency 
to provide a cross reference to proposed Rule 6.91(a)(2)(ii) instead of 
Rule 6.76.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b)(5) of the Securities Exchange Act of 1934 (the ``Act''),\52\ which 
requires the

[[Page 87101]]

rules of an exchange to promote just and equitable principles of trade, 
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.
---------------------------------------------------------------------------

    \52\ 15 U.S.C. 78f(b).
---------------------------------------------------------------------------

    Overall, the Exchange is proposing various changes that would 
promote just and equitable principles of trade, because ECOs, including 
COA-eligible orders, would be handled in a fair and orderly manner, as 
described above. The various modifications and clarifications, many of 
which are consistent with current functionality are intended to improve 
the rule overall by adding more specificity and transparency. The 
Exchange believes that the proposed rule changes would promote just and 
equitable principles of trade as well as protect investors and the 
public interest by making more clear how ECOs and COA-eligible orders 
are handled on the Exchange, both during Core Trading Hours and when 
there is a COA in progress. In particular, the proposed changes are 
intended to help ensure a fair and orderly market by maintaining price/
priority of incoming ECOs (including COA-eligible orders) and updated 
leg markets. Similarly, the proposed changes are designed to promote 
just and equitable principles by seeking to execute as much interest as 
possible at the best possible price(s).
Execution of ECOs During Core Trading Hours
    The Exchange believes that the proposed rule changes regarding Core 
Trading Order Allocation, which do not alter the substance of the rule 
but instead condense and streamline the rule text, would remove 
impediments to and perfect the mechanism of a free and open market and 
a national market system because the proposed changes are designed to 
protect investors and the public interest by making the Exchange's 
rules more clear, concise, transparent and internally consistent, which 
enhances the overall comprehensibility to investors without altering 
the operation of the rule. Specifically, the Exchange believes that, 
although it does not alter the substance of the rule, the proposed rule 
text regarding Core Trading Order Allocation provides additional 
specificity regarding processing of ECOs against same-priced contra-
side interest and, in particular, under what circumstances the leg 
markets would have first priority to execute against an incoming 
marketable ECO. The Exchange believes this additional transparency, 
which makes the rule clearer and more complete for market participants, 
would encourage additional ECOs to be directed to the Exchange.
Proposed Modifications to COA Process
    Overall, the Exchange believes that the proposed changes to the COA 
Process maximize execution opportunities for the initiating COA-
eligible Order, RFR Responses and ECOs entered during the COA, and the 
leg markets at the best possible price consistent with the principles 
of price/time priority, which would remove impediments to and perfect 
the mechanism of a free and open market and a national market system 
because the proposed changes are designed to protect investors and the 
public interest.
Execution of COA-Eligible Orders, Initiation of COAs and RFR Responses
    In particular, the proposed rule text promotes transparency 
regarding the definition of what constitutes a COA-eligible order and 
the circumstances under which an arriving COA-eligible order would 
receive an immediate execution (i.e., when it can receive price 
improvement from resting ECOs) versus being subject to a COA. The 
proposed rule text is not intended to change how the Exchange currently 
processes ECOs, but rather to provide clarity regarding the processing 
of COA-eligible orders and whether such orders are subject to a COA. 
Specifically, the proposed changes would help ensure a fair and orderly 
market because this information adds clarity and transparency to the 
COA process and would allow market participants to be more informed 
about the COA process. Moreover, the proposed change maximizes the 
opportunities for price improvement for the entire COA-eligible order 
as it would first trade against any price-improving interest in the 
Consolidated Book, and, if any residual interest remains, the order 
would be subject to a COA. Further, the Exchange believes that the 
proposed rule text regarding the requisite characteristics and behavior 
of an RFR Response adds clarity and transparency to Exchange rules, 
including that, like all orders, an RFR Response may be modified or 
cancelled prior to the end of the RTI, which promotes just and 
equitable principles of trade. In addition, the Exchange believes that 
specifying that RFR Reponses are valid for the duration of the COA 
would encourage participation in the COA and would maximize the number 
of contracts traded, which benefits all market participants and 
protects investors and the investing public.
Impact of ECOs, COA-Eligible Orders and Individual Order/Quotes on COA 
in Progress
    Regarding interest that arrives during a COA in progress, the 
Exchange believes that the proposed rule text provides clarity 
regarding the impact of opposite- and same-side ECOs or COA-eligible 
orders on the COA Process, which promotes transparency and adds clarity 
to Exchange rules. Moreover, the Exchange notes that because the COA is 
intended to operate seamlessly with the Consolidated Book, the proposed 
changes would promote just and equitable principles of trade by 
providing price-improvement opportunities for COA-eligible orders while 
at the same time providing an opportunity for such orders to interact 
with orders or quotes received during the RTI, including incoming ECOs. 
In addition, the Exchange believes that this practice of honoring the 
updated leg markets would help ensure a fair and orderly market by 
maintaining the priority of quotes and orders on the Consolidated Book 
as they update. The Exchange believes that the proposed changes to the 
COA would increase the number of options orders that are provided with 
the opportunity to receive price improvement.
    The Exchange also believes that the proposed modification regarding 
when the balance of an initiating (or incoming) COA-eligible order 
would initiate a new COA (as opposed to being posted to the 
Consolidated Book) is likewise consistent with the Act because it would 
remove impediments to and perfect the mechanism of a free and open 
market and a national market system clarifying the rule text to the 
benefit of market participants, particularly those interested in 
submitting COA-eligible orders. In addition, the proposed changes also 
promote additional transparency and internal consistency in Exchange 
rules. The Exchange believes that, as proposed, COA Order Allocation 
maximizes price discovery and liquidity while employing price priority, 
which benefits all market participants.
COA Order Allocation
    The Exchange believes that the proposed rule changes, which clarify 
the priority and order allocation and processing of COA-eligible orders 
would remove impediments to and perfect the mechanism of a free and 
open market and a national market system because the proposed changes 
are designed to protect investors and the public interest by making the 
Exchange's rules more clear, concise, transparent and

[[Page 87102]]

internally consistent, which enhances the overall comprehensibility to 
investors without altering the operation of the rule. For example, the 
Exchange believes that the revised rule text governing the execution of 
COA-Eligible orders provides clarity regarding the circumstances under 
which the leg markets would have first priority to execute against an 
incoming COA-eligible or ECO. The Exchange also believes that the 
proposed changes would conform to the Exchange's price/time priority 
model and reduce the potential for investor confusion.
Non-Substantive Changes
    The Exchange believes that the proposed non-substantive, technical 
changes, including updated cross references that conform rule text to 
proposed changes, promotes just and equitable principles of trade, 
fosters cooperation and coordination among persons engaged in 
facilitating securities transactions, and removes impediments to and 
perfects the mechanism of a free and open market by ensuring that 
members, regulators and the public can more easily navigate the 
Exchange's rulebook and better understand the defined terms used by the 
Exchange.

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. To the contrary, the 
Exchange believes that the proposed changes would encourage increased 
submission of ECOs, as well as increased participation in COAs, which 
will add liquidity to the Exchange to the benefit all market 
participants and is therefore pro-competitive. The proposal does not 
impose an intra-market burden on competition, because these changes 
make the rule clearer and more complete for all participants. Nor does 
the proposal impose a burden on competition among the options 
exchanges, because of the vigorous competition for order flow among the 
options exchanges. To the extent that market participants disagree with 
the particular approach taken by the Exchange herein, market 
participants can easily and readily direct complex order flow to 
competing venues.

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

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period up to 90 days (i) as the 
Commission may designate if it finds such longer period to be 
appropriate and publishes its reasons for so finding or (ii) as to 
which the Exchange consents, the Commission will:
    A. By order approve or disapprove such proposed rule change, or
    B. institute proceedings to determine whether the proposed rule 
change should be disapproved.

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

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-NYSEArca-2016-149 on the subject line.

Paper Comments

     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-2016-149. 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 Web site (http://www.sec.gov/rules/sro.shtml). 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 Web site 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; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File Number SR-NYSEArca-2016-149 and should 
be submitted on or before December 23, 2016.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\53\
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    \53\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-28927 Filed 12-1-16; 8:45 am]
 BILLING CODE 8011-01-P