[Federal Register Volume 84, Number 170 (Tuesday, September 3, 2019)]
[Notices]
[Pages 46062-46069]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-19002]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-86789; File No. SR-NYSEAMER-2019-30]
Self-Regulatory Organizations; NYSE American LLC; Notice of
Filing of Proposed Rule Change To Modify Rules 967NY and 953.1NY
Regarding the Treatment of Orders Subject to Trade Collar Protection
August 28, 2019.
Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby
given that, on August 21, 2019, NYSE American LLC (``NYSE American'' or
the ``Exchange'') 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 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 Rules 967NY (Price Protection--
Orders) and 953.1NY (Limit-Up and Limit-Down During Extraordinary
Market Volatility) regarding the treatment of orders subject to Trade
Collar Protection. The proposed rule change is available on the
Exchange's website 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 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 Rules 967NY(a) and 953.1NY
regarding the treatment of orders subject to Trade Collar Protection.
The Exchange has in place various price check features that are
designed to help maintain a fair and orderly market, including Trade
Collar Protection.\4\ Trading Collars mitigate the risks associated
with orders sweeping through multiple price points (including during
extreme market volatility) and resulting in executions at prices that
are potentially erroneous (i.e., because they are away from the last
sale price or best bid or offer). By applying Trading Collars to
incoming orders, the Exchange provides an opportunity to attract
additional liquidity at tighter spreads and it ``collars'' affected
orders at successive price points until the bid and offer are equal to
the bid-ask differential guideline for that option, i.e., equal to the
Trading Collar. Similarly, by applying Trading Collars to partially
executed orders, the Exchange prevents the balance of such orders from
executing away from the prevailing market after exhausting interest at
or near the top of book on arrival. The Exchange proposes to modify its
rule regarding Trading Collars (i.e., Rule 967NY(a) or the ``Rule'') to
clarify existing functionality and to adopt enhancements to the
operation of the Trading Collars.
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\4\ Per Rule 967NY(a)(2), Trading Collars are determined by the
Exchange on a class-by-class basis and, unless announced otherwise
via Trader Update, are the same value as the bid-ask differential
guidelines established pursuant to Rule 925NY(b)(4). The Exchange
proposes a streamlining technical change to combine the buy and sell
sections of the Rule into one paragraph since the Trading Collar
value is the same whether a buy or sell order. See proposed Rule
967NY(a)(2)(A). To conform with this proposed change, the Exchange
proposes to re-number current paragraph (a)(2)(C) to proposed
(a)(2)(B), without any substantive changes.
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Current Rule 967NY(a)(1)(i) states that Trade Collar Protection
prevents the ``immediate execution'' of incoming Market Orders when the
difference between the National Best Offer (``NBO'') and the National
Best Bid (``NBB'') is greater than one Trading Collar. Rule
967NY(a)(1)(ii) states that Trade Collar Protection prevents the
execution of the balance of an incoming Market Order or marketable
limit order to buy (sell) if it would execute at a price that exceeds
the width of the National Best Bid and Offer (``NBBO'') plus (minus)
the value of one Trading Collar. Thus, the current rule limits the
application of Trade Collar Protection to incoming Market Orders and
only expands this protection to include marketable Limit Orders once
there is a balance of a partially executed order that is subject to
such protection.
The Exchange proposes to modify Rule 967NY(a) to make clear that
Trade Collar Protection may be applied to marketable Limit Orders on
arrival. Although this reflects current functionality, the rule is
silent in this regard and focuses solely on any unexecuted portion of a
marketable Limit Order. Pursuant to proposed Rule 967NY(a), the
Exchange would ``limit the immediate execution'' of incoming Market
Orders and marketable Limit Orders (collectively, ``Marketable
Orders''; and each a ``collared order'') if the width of the NBBO is
greater than one Trading Collar.\5\ This proposed
[[Page 46063]]
change would clarify how Trade Collar Protection currently operates and
explicitly state that marketable Limit Orders may be collared on
arrival, in addition to having any remaining balance likewise subject
to the Trading Collar (the latter point is already explicitly stated in
the current rule). The Exchange would continue to apply Trade Collar
Protection to the balance of Marketable Orders consistent with the
current Rule (as discussed below).\6\
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\5\ See proposed Rule 967NY(a)(1)(A). Because the Exchange is
proposing to move the existing text (albeit modified) into a sub-
paragraph, it proposes to re-number the paragraph in a manner
consistent with the rest of the current rule. See id. Also,
consistent with the clarification that Trade Collar Protection
applies to incoming Marketable Orders, the Exchange proposes to
modify and expand the application of paragraph (a)(4). See proposed
Rule 967NY(a)(4).
\6\ See proposed Rule 967NY(a)(1)(B). Because the Exchange is
proposing to move the existing text (albeit slightly modified) into
a sub-paragraph, it proposes to re-number the paragraph in a manner
consistent with the rest of the current rule. See id. In addition,
the Exchange proposes to modify this provision to refer solely to
``Marketable Orders'' (and to remove now extraneous reference to
marketable Limit Orders), as the Marketable Orders is already
defined in proposed Rule 967NY(a)(1)(A). See proposed Rule
967NY(a)(1)(B).
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Current Rule 967NY(a)(3) provides that Trade Collar Protection does
not apply to order types that have contingencies, namely, IOC, NOW, AON
and FOK orders (the ``Contingent Order Type Provision''). The Exchange
proposes to modify the Contingent Order Type Provision, which currently
indicates that such order types would receive an ``immediate
execution,'' to make clear that such incoming orders would ``receive an
execution, depending upon the availability of an execution pursuant to
the terms of those orders.'' \7\ The Exchange believes this proposed
change (i.e., the removal of the word ``immediate'') would more
accurately reflect current functionality in regards to the processing
of these contingent order types, insofar as such orders will only
``immediately'' execute if the contingency is satisfied. The Exchange
believes this proposed wording change would add clarity, transparency
and internal consistency to Exchange rules.
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\7\ See proposed Rule 967NY(a)(3). Because the listed
contingency orders are not subject to Trade Collar Protection, the
Exchange believes the current rule may refer to such orders
receiving an ``immediate execution'' to contrast the treatment of
orders that are subject to such protection--as such orders (under
the current rule) are ``not immediately executed.'' See Rule
967NY(a)(1) and (a)(3).
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Current Rule 967NY(a)(4) provides that when a Market Order is
subject to Trade Collar Protection pursuant to current paragraph
(a)(1)(i), the Exchange does not immediately execute or route such
orders and instead goes on to state how such orders are processed. The
Exchange proposes to modify this paragraph to make clear that it
relates to Marketable (as opposed to just Market) Orders as well as to
clarify that the ``execution and/or routing'' of such orders would be
limited by the Exchange as discussed below, as opposed to stating that
they would not ``immediately execute or route'' which modifications are
consistent with the changes to Rule 967NY(a)(1)(A) (and consistent with
existing functionality). The Exchange also proposes to make clear that
this provision relates to ``incoming'' Marketable Orders as opposed to
the balance thereof.\8\
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\8\ See proposed Rule 967NY(a)(4). See also proposed Rule
967NY(a)(1)(A) (making clear that incoming marketable Limit Order
are subject to Trading Collar Protection).
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The Exchange also proposes to modify the Rule to specify that
collared orders will be assigned a ``collar execution price,'' which
price depends upon the order type (Market or Limit) and whether (when
the order arrives) the Exchange is already in receipt of another order
being collared.\9\ Current Rule 967NY(a)(4)(A) covers collared Market
Orders to buy (sell), which would not immediately execute or route, but
would be ``displayed at a price equal to the NBB (NBO) plus (minus) one
Trading Collar.'' As proposed, a Market Order to buy (sell) ``received
when there is not already a collared order to buy (sell)'' would be
``assigned a collar execution price'' (as opposed to being
``displayed'') equal to the NBB (NBO) plus (minus) one Trading
Collar.\10\ The Exchange proposes to replace ``displayed'' as used in
the current rule with ``assigned a collar execution price'' because,
once collared (and consistent with current functionality), the order
would be eligible to immediately execute against available interest
before its price is displayed. Examples illustrating this (existing)
functionality are included at the end of the description of these
proposed rule changes.
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\9\ See proposed Rule 967NY(a)(4). The Exchange also proposes to
make a conforming change to update the cross-reference from Rule
967NY(a)(1)(i) to proposed Rule 967NY(a)(1)(A). Also, current Rule
967NY(a)(4)(C)(i)-(iii) address scenarios when an order arrives
while another order is being collared, but the proposed rule text
adds clarity regarding current functionality and addresses
enhancements to the functionality since the rule was adopted.
\10\ See proposed Rule 967NY(a)(4)(B). As discussed further
below, proposed Rule 967NY(a)(4)(A) would provide that ``[a] Market
Order to buy (sell) received when there is already a collared order
to buy (sell) will join that collared order and be processed
consistent with paragraphs (a)(4)(C)-(a)(6),'' which reflects
current functionality.
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In addition, the Exchange proposes an exception to the processing
of incoming Market Orders to buy (sell) that arrive when the NBB (NBO)
is zero (the ``Zero NBBO Collar Exception''). Specifically, a Market
Order to buy entered when the NBB is $0.00 would be assigned a collar
execution price equal to the NBB (i.e., $0.00) plus one Trading Collar
to ensure it is collared to avoid executing at an erroneous price;
whereas, a Market Order to sell entered when the NBO is $0.00, would be
rejected as there is no market for the incoming order.\11\ The Exchange
believes the Zero NBBO Collar Exception would improve the operation of
Trading Collars when the prevailing market is zero (indicating market
dislocation) at the time an incoming Market Order arrives. Absent the
proposed Zero NBBO Collar Exception, a Market Order to buy (sell) that
arrives when the NBB (NBO) is zero would trade based on the last sale
price, if any; if there is no last sale price, the order would trade at
the contra-side NBBO which may result in a bad execution price. The
proposal to collar an incoming buy order when the NBB is zero is
consistent with the handling of other collared orders to buy when the
NBB is not zero (i.e., the collared order is assigned a collar
execution price equal to the NBB plus one Trading Collar).\12\ In
regards to the proposal to reject (as opposed to collar) incoming sell
orders when the NBO is zero, the Exchange believes this change in
functionality is necessary because any attempt to collar such an order
would result in a negative number. In addition, the Exchange has
observed that it is extremely uncommon to have a no (zero) offer
situation and believes it could be indicative of unstable market
conditions. To avoid such orders receiving bad executions in times of
market dislocation, the Exchange believes it would be appropriate to
reject such orders. Thus, the Zero NBBO Exception helps maintain fair
and orderly markets. An example illustrating this new functionality is
included at the end of this section.
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\11\ See proposed Rule 967NY(a)(4)(B)(i), (ii).
\12\ See proposed Rule 967NY(a)(4)(B) (providing, in relevant
part, that a Market Order to buy received when there is not already
a collared order to buy is assigned a collar execution price equal
to the NBB plus one Trading Collar).
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In addition, because the rule has been updated to clarify that
(consistent with current functionality) incoming marketable Limit
Orders may be collared (i.e., proposed Rule 967NY(a)(1)(A)), the
Exchange proposes to further update the rule to address how such orders
would be collared, depending upon whether the Exchange is already in
receipt of a collared order. Specifically, as proposed (and consistent
with current functionality), modified Rule 967NY(a)(4)(C) would clarify
that when the incoming collared order is a marketable Limit Order to
buy (sell) and there is no other order already
[[Page 46064]]
being collared, the order would be ``assigned a collar execution price
equal to the NBO (NBB).'' If, however, a marketable Limit Order arrives
when there is already an order being collared, it would join that
collared order and be processed consistent with proposed paragraph
(a)(6)(B), which is discussed below.\13\
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\13\ See proposed Rule 967NY(a)(4)(C).
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The Exchange also proposes to modify the rule regarding executions
of collared orders. The current rule provides that the Exchange would
``execute or route the collared order to buy (sell) against any contra-
interest priced within one Trading Collar above (below) the displayed
price of the collared order.'' \14\ The Exchange proposes to clarify
that a collared order to buy (sell) would ``trade against any contra-
side interest priced equal to its collar execution price or at prices
within one Trading Collar above (below) the collar execution price
(`the Collar Range').'' \15\ Consistent with proposed Rule
967NY(a)(4)(B),(C), the Exchange proposes to refer to the ``collar
execution price'' (as opposed to a display price) as the collared order
seeks an execution before it would be displayed, thus this change
clarifies existing functionality. In addition, the Exchange believes
that clarifying that the collared order would execute with contra-side
interest priced within a Collar Range (i.e., equal to, and up to one
Trading Collar above (below) the collar execution price), provides more
specificity than the current language, which states only that such
order would execute against interest ``within one Trading Collar'' of
its price. The Exchange believes these proposed changes, which describe
current functionality, would add clarity, transparency, and internal
consistency to Exchange rules.
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\14\ See Rule 967NY(a)(4)(B).
\15\ See proposed Rule 967NY(a)(4)(D). The proposed rule does
not repeat the concept of a collared order being executed or routed
in paragraph (a)(4)(D), because this concept is already covered in
proposed paragraph (a)(4).
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The Exchange proposes to add new paragraph (a)(4)(E) to the Rule to
codify existing functionality and make clear that the Exchange would
cancel a Market Order, or the balance thereof, that has been collared
pursuant to proposed Rule 967NY(a)(1)(A) or (B) if, after exhausting
trading opportunities within the Collar Range, the Exchange determines
there are no quotes on the Exchange and/or no interest on another
market (``Available Interest''). The absence of Available Interest,
such as a Market Maker quote in the series, means that the Exchange
would have no reliable price framework within which to evaluate the
Market Order. Therefore, the Exchange believes that cancellation of the
Market Order would be appropriate and in the best interest of
investors.
Regarding the treatment of the balance of a Marketable Order (i.e.,
a Market Order or a marketable Limit Order) that is subject to Trade
Collar Protection, the Exchange proposes to clarify and update the
collar functionality, including making clear when and at what price the
collared order is first displayed. Current Rule 967NY(a)(5) provides
that ``[w]hen the balance of a partially executed Marketable Order'' is
subject to Trade Collar Protection, such balance ``will be displayed at
the last sale price.'' Further, ``[i]f there is an opportunity for
trading within a Trading Collar above (below) the last sale price, the
balance of the buy (sell) order will be displayed at the NBB (NBO)
established at the time of the initial execution.'' \16\
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\16\ See Rule 967NY(a)(5).
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The Exchange proposes to replace the existing text and replace it
with new rule text titled ``Display of collared orders.'' Pursuant to
new Rule 967NY(a)(5), a Market Order that does not trade on arrival
will be displayed at its collar execution price whereas the display
price of the balance of a partially executed Marketable Order collared
pursuant to proposed paragraph (a)(1)(B) of the Rule, depends upon
eligible contra-side interest.\17\ Specifically, per proposed paragraph
(a)(5)(A) of the Rule, if the collared order has traded against all
contra-side interest within the Collar Range, the order would be
displayed at the most recent execution price.\18\ This proposed
provision sets forth the same concept as the first sentence of current
paragraph (a)(5), except that it specifies that the order would be
displayed at the most recent execution price (i.e., last sale price)
only after it has exhausted trading opportunities within the Collar
Range (whereas the current rule is silent on this fact, though it may
be inferred given that the second sentence of the current Rule
discusses the display price when trading opportunities have not been
exhausted).
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\17\ See proposed Rule 967NY(a)(5). The Exchange notes that the
proposed new rule does not include the last sentence of current
paragraph (a)(5) which provides that the balance of Marketable
Orders that are subject to Trade Collar Protection are processed in
the same fashion as incoming collared orders per current paragraph
(a)(4). The Exchange believes that this language would be redundant
of proposed paragraph (a)(1)(A)-(B), which makes clear what is
deemed a ``collared order'' as well as proposed rule (a)(4)(A)-(E),
which describes how such orders are processed.
\18\ See proposed Rule 967NY(a)(5)(A).
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Per proposed paragraph (a)(5)(B) of the Rule, if, however, there is
contra-side interest priced within one Trading Collar of the most
recent execution price, the order to buy (sell) would be displayed at
the higher (lower) of its assigned collar execution price or the best
execution price of the order that is both within the Collar Range and
at least one Trading Collar away from the best priced contra-side
trading interest (i.e., lowest sell interest for collared buy orders/
highest buy interest for collared sell orders).\19\ This proposed text
modifies the second sentence of current paragraph (a)(5) by replacing
reference to the NBBO at the time of initial execution with the concept
of the collar execution price and clarifying that the display price
would be the better of the collar execution price or keyed off of the
best price contra-side interest. The Exchange believes this modified
provision, which reflects current functionality, provides greater
granularity regarding the circumstances under which the price of a
collared order is first displayed and how that price is determined,
which additional clarity and transparency is beneficial to the
investing public.
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\19\ See proposed Rule 967NY(a)(5)(B).
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In addition, the Exchange also proposes to add rule text to new
paragraph (a)(5) of the Rule to make clear that collared orders would
be displayed at the Minimum Price Variation (``MPV'') for the option,
pursuant to Rule 960NY (Trading Differentials) which rule sets forth
the minimum quoting increments for options traded on the Exchange.\20\
The Exchange believes adding this information to the Rule add
transparency, clarity and internal consistency to Exchange rules.
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\20\ See proposed Rule 967NY(a)(5).
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Current Rule 967NY(a)(4)(C) sets forth scenarios that would trigger
the ``redisplay'' of a collared order. Consistent with the foregoing
changes, the Exchange proposes to update this section with conforming
changes for consistency, with regard to current functionality, and
modify the rule to adopt new functionality. First, the Exchange
proposes to re-number this paragraph as (a)(6), title it ``Repricing of
collared orders,'' and make clear that the Exchange would ``assign a
new collar execution price'' to (as opposed to redisplay) the collared
order upon the happening of one of the listed scenarios (as modified
below).\21\
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\21\ See proposed Rule 967NY(a)(6). Consistent with this change,
the Exchange also proposes to renumber the existing subparagraphs to
proposed (a)(6) as (A)-(C) and existing paragraphs (a)(4)(D) and
(a)(6) as proposed paragraphs (a)(7) and (a)(8), respectively. See
id.
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[[Page 46065]]
The first scenario under the current rule provides that
``an update to the NBBO (based on another market or a quote on the
Exchange or a Limit Order on the Exchange priced one Trading Collar or
less away from the collared order) that improves the same side of the
market as the collared order will result in the collared order being
redisplayed at the new NBB (for buy orders) or NBO (for sell orders)''
\22\ Consistent with the foregoing proposed rule text changes, the
Exchange proposes to modify this provision to replace the words
``redisplayed at'' with ``assigned a new collar execution price equal
to'' the NBB (for buy orders) or NBO (for sell orders), and to add to
the end of this provision that the repriced orders would be ``processed
at the updated collar execution price consistent with paragraphs
(a)(4)(D) and (a)(5) above.'' \23\ The ``new collar execution price''
reflects the updated price at which the collared order is eligible to
trade based on changes in the market. This concept is consistent with
the current rule except that the updated price is not (re)displayed
until it has exhausted all trading opportunities within the Collar
Range.
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\22\ See Rule 967NY(a)(4)(C)(i).
\23\ See proposed Rule 967NY(a)(6)(A). The Exchange also
proposes to add a semi-colon to separate the two clauses regarding
what constitutes a market update event that updates the NBBO (i.e.,
that it must be ``based on another market or a quote on the
Exchange; or a Limit Order on the Exchange priced one Trading Collar
or less away from the collared order''). See id.
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The second scenario under the current rule provides that a
Marketable Order to buy (sell) on the same side of the market as the
collared order or a Limit Order to buy (sell) on the same side of the
market as the collared order and priced greater than one Trading Collar
above (below) the displayed price of the collared order will itself
become subject to Trade Collar Protection and will result in the
collared order and the Limit Order being displayed at one Trading
Collar above (below) the displayed price of the collared order.\24\ The
Exchange proposes to modify this rule to remove reference to
``Marketable Orders to buy (sell) on the same side of the market as the
collared orders,'' because the functionality has been updated such that
a Market Order received when there is already a collared order would
join that collared order (rather than be subject to a separate
collar).\25\ This proposed modification would make clear that this
scenario is applicable solely to marketable Limit Orders received when
there is already an order being collared. Consistent with the proposed
textual changes to the first scenario, the Exchange likewise proposes
to modify this provision to replace the words ``displayed at a price''
with ``assigned a new collar execution price'' one Trading Collar above
or below the displayed price of the collared order, as applicable (at
which new price it will be eligible to trade), and to add to the end of
this provision that the repriced orders would be ``processed at the
updated collar execution price consistent with paragraphs (a)(4)(D) and
(a)(5) above.'' \26\
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\24\ See Rule 967NY(a)(4)(C)(ii). Consistent with the Rule, this
provision excludes IOC Orders, AON Orders, FOK Orders and NOW
Orders. See id.; see also Rule 967NY(a)(3).
\25\ See proposed Rule 967NY(a)(4)(A).
\26\ See proposed Rule 967NY(a)(6)(B).
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The third scenario under the current rule provides that
``upon the expiration of one second, the collared order to buy (sell)
will redisplay at a price one Trading Collar above (below) the
displayed price of the collared order.'' \27\ The Exchange proposes to
modify this provision to add ``and absent an update to the NBBO'' after
language regarding the expiration of one second to distinguish this
scenario from the first scenario where a change in the market (i.e., an
update to the NBBO) caused the collared order to reprice (and
potentially redisplay). Also, consistent with the other two scenarios,
the Exchange proposes to modify this provision to replace the words
``redisplay at a price'' with ``assigned a new collar execution price''
one Trading Collar above or below the ``current displayed price'' of
the collared order, as applicable, and to add to the end of this
provision that the repriced orders would be ``processed at the update
collar execution price consistent with paragraphs (a)(4)(D) and (a)(5)
above.'' \28\ Thus, the collared order to buy (sell) would be eligible
to trade at a price for a period of one second, but if market
conditions prevent it from trading, the order will improve or tick up
(down) and be assigned a new collar execution price one Trading Collar
above (below) the current display price.
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\27\ See Rule 967NY(a)(4)(C)(iii).
\28\ See proposed Rule 967NY(a)(6)(C).
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The Exchange proposes to clarify the functionality under this
(third) scenario, however to provide that ``if the collared order is a
Market Order to sell that has reached $0.00, it will not reprice but
will be posted in the Consolidated Book at its MPV (e.g., $0.01 or
$0.05),'' because an order may never be posted for lower than its MPV--
and the alternative to holding the order at the MPV would be to cancel
it.\29\ The Exchange believes this proposed rule text, which reflects
current functionality, would allow the collared order an opportunity
for an execution (rather than being cancelled) and adds transparency
and internal consistency to Exchange rules.
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\29\ See id.
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The Exchange also proposes to clarify the rule text regarding the
priority of collared orders. Current Rule 967NY(a)(6) states that
``[a]ll orders for which Trade Collar Protection prevents immediate
execution will be ranked based on time priority (with all other orders
for which Trade Collar Protection prevents immediate execution).''
Because the current rule text does not make clear that such collared
orders, like other non-collared orders, will be processed at each price
in time priority, the Exchange proposes to clarify that such orders
would be ``processed in accordance with Rule 964NY, Display, Priority
and Order Allocation--Trading Systems.'' \30\ This proposed change to
reflect current functionality and adds clarity, transparency and
internal consistency to Exchange rules.
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\30\ See proposed Rule 967NY(a)(8).
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* * * * *
Examples of Treatment of Collared Orders 31
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\31\ The Exchange notes that the processing of collared orders
in examples 1-3 reflect current processing, but that, as noted
above, the Exchange has clarified the rule text used to describe the
processing (i.e., reference to ``collar execution price'' versus
``display price'' as well as removing reference to ``last sale'' as
the benchmark for determining display price and adding specificity
about available trading interest impacting display price
determination--which may or may not be the same as the last sale
price, see, e.g., Rule 967NY(a)(5)(A)).
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Example 1: Market Order Received When no Other Orders Being Collared
\32\
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\32\ See id.
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BOX: 0 x 0 - 1.50 x 100 (wide market)
LMM 100 x 0.25 - 1.60 x 100
Cust1 Buy Market x 100
Results:
Cust1 is assigned a collar execution price of 0.50 (i.e., the
NBB (0.25), plus one Trading Collar, which is 0.25 because the NBB is
less than $2.00) \33\
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\33\ See proposed Rule 967NY(a)(4(B) (regarding collar execution
price for Market Orders) and (a)(2)(A)(i) (regarding Trading
Collar).
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Each second that elapses in which Cust1 does not trade (and
absent changes to the NBBO), the order receives a new collar execution
price and is displayed at each successive collar--0.50, then 0.75, then
1.00 \34\
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\34\ See proposed Rule 967NY(a)(6)(C) (regarding assignment of
new collar execution price every one second that the order does not
trade as seconds elapse and NBBO does not change).
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[[Page 46066]]
Once the order ticks up to receive a collar execution price of
1.25, it trades with BOX at 1.50 (as 1.50 is within the Collar Range,
i.e., contra-side interest within one Trading Collar above the collar
execution price--resulting in a permissible execution range of 1.25 up
to and including 1.50) \35\
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\35\ See proposed Rule 967NY(a)(4)(D) (regarding Collar Range).
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Example 2: Limit Order Received When no Other Orders Being Collared
\36\
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\36\ See supra note 31.
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BOX: 100 x 1.50 x 1.60 x 100
T2 Sell 100 @1.70
T3 Sell 100 @1.80
T4 Sell 100 @2.95
T1 Buy 1000 @3.00
Results:
T1 is assigned a collar execution price of 1.60 (i.e., the
NBO) and is eligible to trade with interest within its Collar Range
(i.e., contra-side interest within one Trading Collar (0.25) above the
collar execution price--resulting in a permissible execution range of
1.60 up to and including 1.85) \37\
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\37\ See proposed Rule 967NY(a)(4)(C) (regarding collar
execution price for limit orders) and (a)(4)(D) (regarding Collar
Range) and (a)(2)(A)(i) (regarding Trading Collar).
---------------------------------------------------------------------------
[cir] T1 routes 100 to BOX and trades at 1.60
[cir] T1 trades 100 with T2 at 1.70
[cir] T1 trades 100 with T3 at 1.80
Since T1 has traded with all eligible interest within the
collar range, the balance of T1 (i.e., the remaining 700) is assigned a
collar execution price of 1.80 (the most recent execution price), is
displayed at that price and is eligible to trade within the Collar
Range \38\
---------------------------------------------------------------------------
\38\ See proposed Rule 967NY(a)(5)(A). See also Rule
967NY(a)(5)(A) (regarding collared order that has traded against all
eligible interest in the collar range being displayed at the most
recent execution price).
---------------------------------------------------------------------------
Each second that the T1 does not trade it receives a new
collar execution price and is displayed at each successive collar
(i.e., 2.05 and then ticks up based on $0.40 collar--because price/NBB
is over $2.00--to 2.45) \39\
---------------------------------------------------------------------------
\39\ See proposed Rule 967NY(a)(6)(C) (regarding assignment of
new collar execution price every one second that the order does not
trade as seconds elapse and NBBO does not change) and (a)(2)(A)(i)
(regarding Trading Collar).
---------------------------------------------------------------------------
[cir] Once at 2.85, T1 is eligible to trade within its Collar Range and
trades 100 with T4 at 2.95
The balance of T1 (i.e., the remaining 600) is assigned a
collar execution price of 2.95, is displayed at that price and is
eligible to trade within the Collar Range \40\
---------------------------------------------------------------------------
\40\ See also Rule 967NY(a)(5)(A) (regarding collared order that
has traded against all eligible interest in the collar range being
displayed at the most recent execution price).
---------------------------------------------------------------------------
After one second, T1 is displayed at its limit price of
3.00 and will not be repriced/subject to further Trade Collar
Protection\41\
---------------------------------------------------------------------------
\41\ See proposed Rule 967NY(a)(7) (regarding a limit order not
being eligible to post beyond its limit price).
---------------------------------------------------------------------------
Example 3: Limit Order Received When no Other Orders Being Collared
\42\
---------------------------------------------------------------------------
\42\ See supra note 31.
---------------------------------------------------------------------------
MMQ 100 x 5.00 - 5.40 x 10 (NBBO)
BD1 Sell Limit Order 10 x 5.70
BD2 Sell Limit Order 10 x 5.95
BD3 Buy Limit Order 100 @6.00
Results:
BD3 is assigned a collar execution price of 5.40 (i.e., the
NBO) and is eligible to trade with interest within its Collar Range
(i.e., contra-side interest within one Trading Collar (0.40 because the
NBB does not exceed 5.00) above the collar execution price--resulting
in a permissible execution range of 5.40 up to and including 5.80)
resulting in the following executions:
[cir] BD3 trades 10 with MMQ at 5.40
[cir] BD3 trades 10 with BD1 at 5.70 \43\
---------------------------------------------------------------------------
\43\ See proposed Rule 967NY(a)(4)(C) (regarding collar
execution price for limit orders) and (a)(4)(D) (regarding Collar
Range) and (a)(2)(A)(ii) (regarding Trading Collar).
---------------------------------------------------------------------------
The balance of BD3 (i.e., the remaining 80) is displayed at
5.40 rather than the most recent execution price of 5.70 (``last
sale'') because there is contra-side interest priced within one Trading
Collar of the last sale (i.e., 5.95) \44\
---------------------------------------------------------------------------
\44\ See proposed Rule 967NY(a)(5)(B) (regarding display price
of partially executed collared order where there is contra-side
interesting within on Trading Collar).
---------------------------------------------------------------------------
One second elapses, and BD3 receives a new collar execution
price of 5.90 (i.e., its collar execution price (5.40) plus one Trading
Collar (0.50)) and is eligible to trade with interest within its Collar
Range (i.e., contra-side interest within one Trading Collar (0.50)
above the collar execution price--resulting in a permissible execution
range of 5.90 up to and including 6.40) resulting in the following
execution:
[cir] BD4 trades 10 with BD2 at $5.95 \45\
---------------------------------------------------------------------------
\45\ See proposed Rule 967NY(a)(4)(C) (regarding collar
execution price for limit orders) and (a)(4)(D) (regarding Collar
Range) and (a)(2)(A)(ii) (regarding Trading Collar).
---------------------------------------------------------------------------
Example 4: Market Order Received When the NBB is Zero and no Other
Orders Being Collared (Illustrating the Proposed Zero NBBO Collar
Exception) \46\
---------------------------------------------------------------------------
\46\ See supra note 31.
---------------------------------------------------------------------------
BOX: 0 x 0 - 1.50 x 100
Cust1 Buy Market Order x 100
Result:
Cust1 is assigned a collar execution price of 0.25 (i.e., the
NBB (0.00), plus one Trading Collar which is 0.25 because the NBB is
less than $2.00) \47\
---------------------------------------------------------------------------
\47\ See proposed Rule 967NY(a)(4)(B)(i). See also current and
proposed Rule 967NY(a)(2)(i).
---------------------------------------------------------------------------
Each second that Cust1 does not trade (and absent changes to
the NBBO), it receives a new collar execution price and is displayed at
each successive collar (i.e., 0.50, then 0.75, then 1.00) \48\
---------------------------------------------------------------------------
\48\ See proposed Rule 967NY(a)(6)(C) (regarding assignment of
new collar execution price every one second that the order does not
trade as seconds elapse and NBBO does not change) and (a)(2)(A)(i)
(regarding Trading Collar).
---------------------------------------------------------------------------
Once the order ticks up to receive a collar execution price of
1.25, it seeks an execution within that collar range (i.e., 1.25-1.50)
and trades with BOX at 1.50.
* * * * *
Rule 953.1NY: LULD Rule
The Exchange proposes to update the Rule 953.1NY, Limit-Up and
Limit-Down During Extraordinary Market Volatility, related to the Plan
to Address Extraordinary Market Volatility Pursuant to Rule 608 of
Regulation NMS (``LULD'' or the ``LULD Rule''). The current rule
provides that the Exchange shall reject Market Orders, as defined in
Rule 900.3NY(a), entered when the underlying NMS stock is either in a
Limit State or a Straddle State (an ``LULD State'') and shall notify
ATP Holders of the reason for such rejection.\49\ The Exchange proposes
to add rule text to make clear that the Exchange, under existing
functionality, ``will cancel any Market Order that is a collared order
pursuant to Rule 967NY(a)'' if the underlying NMS stock
[[Page 46067]]
enters an LULD State and ``will notify ATP Holders of the reason for
such cancellation,'' as the current rule does not address this
scenario.\50\ A market order would typically trade upon arrival, unless
collared and pending execution. The Exchange believes this proposed
change would add clarity, transparency and internal consistency to
Exchange rules as it makes clear that, in addition to rejecting a
Market Order received when an underlying NMS stock is in an LULD State,
the Exchange will likewise cancel a resting Market Order if an
underlying NMS stock enters an LULD State.
---------------------------------------------------------------------------
\49\ See Rule 953.1NY(a)(1). The Exchange notes that other
exchanges provide for the cancellation or rejection of market orders
in such circumstance. See, e.g., CBOE Rule 6.3A(b)(1) (LULD rule
citing Rule 6.2 regarding order handling); CBOE Rule 6.2,
Interpretations and Policies .07 (providing that if the underlying
security for an option class is in an LULD State when the class
moves to opening rotation, then all market orders in the system will
be cancelled, except market orders that are considered limit orders
pursuant to CBOE Rule 6.13(b)(vi) and entered the previous trading
day). See also NASDAQ Options Market (``NOM'') Ch. V, Sec. 3(d)
(providing that if, after the opening, the underlying NMS stock for
an option class is in an LULD State, NOM will reject market orders
and notify its participants of the reason for such rejection).
\50\ See proposed Rule 953.1NY(a)(1). For consistency, the
Exchange proposes the technical change of replacing ``shall'' with
``will'' each time in appears in this rule. See proposed Rule
953.1NY.
---------------------------------------------------------------------------
Implementation
The Exchange will announce the Zero NBBO Collar exception in a
Trader Update to be published no later than 60 days following the
approval date of this rule.
2. Statutory Basis
The proposed rule change is consistent with Section 6(b) \51\ of
the Act, in general, and furthers the objectives of Section
6(b)(5),\52\ 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 facilitating transactions in securities, and to
remove impediments to and perfect the mechanisms of a free and open
market and a national market system.
---------------------------------------------------------------------------
\51\ 15 U.S.C. 78f(b).
\52\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
Overall, the Exchange is proposing various changes that would
promote just and equitable principles of trade, because collared 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 what types of orders may be collared and how such orders are
processed, including the circumstances that determine collar execution
price(s) and display price(s).
The Exchange believes that the proposed rule assists with the
maintenance of fair and orderly markets by clarifying and enhancing the
operation of the Trading Collar functionality--which is designed to
mitigate the risk of orders sweeping through multiple price points and
executing at potentially erroneous prices--as the proposed rule would
continue to protect investors from receiving bad executions away from
prevailing market prices. The Exchange notes that Trading Collar
functionality is not new or novel and is available on other options
exchanges.\53\ The Exchange believes that the proposed changes that
codify existing functionality, including how incoming marketable Limit
Orders are collared and the cancellation of collared Market Orders--in
the absence of Available Interest or if an NMS stock enters an LULD
State--would add clarity, transparency and internal consistency to
Exchange rules regarding the handling of orders accepted by the
Exchange (i.e., that such orders would be cancelled, not rejected) and
make them easier for market participants to navigate and comprehend.
---------------------------------------------------------------------------
\53\ See, e.g., CBOE Rule 6.13(b)(v) (setting forth its Hybrid
Trading System Automatic Execution Feature, which prevents the
execution of marketable orders if (a) the width of the NBB and NBO
is not within an ``acceptable price range'' (as determined by CBOE)
or (b) if an execution would follow a partial execution and would be
beyond an ``acceptable tick distance'' (as determined by CBOE), but
unlike Trade Collar Protection on the Exchange, CBOE does not
reprice (or redisplay) orders at narrowing prices. In addition, the
NASDAQ Options Market (``NOM'') and NASDAQ OMX BX (``BX'') each have
identical rules (Chapter VI, Section 18(b)(1) (setting forth the
risk protection feature for quotes and orders, which prevents
executions (partial or otherwise) of orders beyond an ``acceptable
trade range'' (as calculated by the exchange) and when an order (or
quote) reaches the limits of the ``acceptable trade range'', it
posts for a period not to exceed one second and recalculated a new
``acceptable trade range'').
---------------------------------------------------------------------------
Further, the proposal to codify that the Exchange would cancel a
Market Order or the balance thereof that has been collared once it has
exhausted trading opportunities within its collar execution price plus/
minus one Trading Collar if there is no Available Interest would
protect investors from potentially erroneous executions because this
scenario means the Exchange would have no reliable price framework
within which to evaluate the collared orders. Thus, this proposal would
foster cooperation and coordination with persons engaged in
facilitating transactions in securities, and remove impediments to and
perfect the mechanism of a free and open market and a national market
system.
The Exchange believes that the proposal to codify current
functionality regarding a collared order that is a Market Order to sell
that has reached $0.00 such that the Exchange post the order at its MPV
(e.g., $0.01 or $0.05) would promote just and equitable principles of
trade and assist with the maintenance of fair and orderly markets
because an order may never be posted for lower than its MPV--and the
alternative to holding the order at the MPV would be to cancel it. The
Exchange believes the proposed clarification of how such orders are
handled provides the collared order an opportunity for an execution
(rather than being cancelled) and adds transparency and internal
consistency to Exchange rules.
The Exchange likewise believes that the proposed enhancements to
the Trading Collar functionality--the Zero NBBO Collar Exception--
likewise would prevent fraudulent and manipulative acts and practices,
promote just and equitable principles of trade, and remove impediments
to and perfect the mechanisms of a free and open market and a national
market system. In particular, the proposed Zero NBBO Collar Exception
would improve the operation of the Trading Collar when the prevailing
market is zero (indicating market dislocation) at the time an incoming
Market Order arrives. The Exchange believes the Zero NBBO Collar
Exception would improve the operation of Trading Collars when the
prevailing market is zero (indicating market dislocation) at the time
an incoming Market Order arrives. Absent the proposed Zero NBBO Collar
Exception, a Market Order to buy (sell) that arrives when the NBB (NBO)
is zero would trade based on the last sale price, if any; if there is
no last sale price, the order would trade at the contra-side NBBO which
may result in a bad execution price. In regards to the proposal to
reject (as opposed to collar) incoming sell orders when the NBO is
zero, the Exchange believes this change in functionality is necessary
because any attempt to collar such an order would result in a negative
number. In addition, the Exchange has observed that it is extremely
uncommon to have a no (zero) offer situation and believes it could be
indicative of unstable market conditions. To avoid such orders
receiving bad executions in times of market dislocation, the Exchange
believes it would be appropriate to reject such orders. Thus, the Zero
NBBO Exception helps maintain fair and orderly markets.
LULD
The Exchange believes it is appropriate that the Exchange cancel a
Market Order that is collared when an NMS stock enters an LULD State
because when the underlying NMS
[[Page 46068]]
stock enters an LULD State, there may not be a reliable underlying
reference price, there may be a wide bid/ask quotation differential in
the option, and there may be less liquidity in the options markets.
Thus, allowing a collared Market Order to execute (as opposed to
cancel) in such circumstances could lead to executions at unintended
prices (i.e., inferior to the NBBO), and could add to volatility in the
options markets during times of extraordinary market volatility. The
Exchange believes that this current treatment of collared market
orders, and the proposal to explicitly state this treatment in the rule
text, would provide certainty to the treatment of Market Orders during
these times and add clarity and transparency to Exchange rules, thus
promoting just and equitable principles of trade and removing
impediments to, and perfecting the mechanism of, a free and open market
and a national market system. The proposed rule amendments would also
provide internal consistency within Exchange rules and operate to
protect investors and the investing public by making the Exchange rules
easier to navigate and comprehend. The Exchange notes that the proposed
cancellation of an options order if the underlying NMS security is in
an LULD State is not new or novel and is available on other options
exchanges that offer collar functionality similar to the
Exchange's.\54\ However, the Exchange believes that the rules of these
other exchanges do not specifically contemplate the underlying security
entering an LULD state while a market order is resting on the book,
because such orders typically execute on arrival. The Exchange
nonetheless believes that the handling such orders, as well as the
proposed rule clarification, adds transparency and specificity to
Exchange rules.
---------------------------------------------------------------------------
\54\ See supra note 49.
---------------------------------------------------------------------------
Technical Changes
The Exchange notes that the proposed organizational and non-
substantive changes to the rule text would provide clarity and
transparency to Exchange rules and would promote just and equitable
principles of trade and remove impediments to, and perfect the
mechanism of, a free and open market and a national market system. The
proposed rule amendments would also provide internal consistency within
Exchange rules and operate to protect investors and the investing
public by making the Exchange rules easier to navigate and comprehend.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that this proposed rule change would
impose any burden on competition not necessary or appropriate in
furtherance of the purposes of the Act. Instead, the Exchange believes
the proposal provides clarity (including defining the collar execution
price) and enhancement to the Trading Collars that provide market
participants with protection from anomalous executions. Thus, the
Exchange does not believe the proposal creates any significant impact
on competition.
The proposed enhancements to the Trading Collars (i.e., the Zero
NBBO Collar Exception) would improve the operation of the Trading
Collars thereby further protecting investors against the execution of
orders at erroneous prices. As such, the proposal does not impose any
burden on competition. To the contrary, the Exchange believes that the
proposed enhancements may foster more competition. Specifically, the
Exchange notes that it operates in a highly competitive market in which
market participants can readily favor competing venues. The Exchange's
proposed rule change would enhance its ability to compete with other
exchanges that already offer similar trading collar functionality.\55\
Thus, the Exchange believes that this type of competition amongst
exchanges is beneficial to the market place as a whole as it can result
in enhanced processes, functionality, and technologies. The Exchange
further believes that because the proposed rule change would be
applicable to all ATP Holders it would not impose any burden on intra-
market competition that is not necessary or appropriate in furtherance
of the purposes of the Act.
---------------------------------------------------------------------------
\55\ See id.
---------------------------------------------------------------------------
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 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 self-regulatory
organization consents, the Commission will:
(A) By order approve or disapprove the 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-NYSEAMER-2019-30 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-NYSEAMER-2019-30. 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 (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 website viewing and printing in
the Commission's Public Reference Room, 100 F Street NE, Washington, DC
20549 on official business days between the hours of 10:00 a.m. and
3:00 p.m. Copies of the filing also will be available for inspection
and copying at the principal office of the Exchange. All comments
received will be posted without change. Persons submitting comments are
cautioned that we do not redact or edit personal identifying
information from comment submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-NYSEAMER-2019-30 and
[[Page 46069]]
should be submitted on or before September 24, 2019.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\56\
---------------------------------------------------------------------------
\56\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-19002 Filed 8-30-19; 8:45 am]
BILLING CODE 8011-01-P