[Federal Register Volume 87, Number 103 (Friday, May 27, 2022)]
[Notices]
[Pages 32203-32210]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-11396]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-94959; File No. SR-NYSEArca-2022-31]


Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
of Proposed Rule Change To Amend Rule 6.64P-O

May 23, 2022.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby given 
that, on May 20, 2022, NYSE Arca, Inc. (``NYSE Arca'' or ``Exchange'') 
filed with the Securities and Exchange Commission (``Commission'') the 
proposed rule change as described in Items I, II, and III below, which 
Items have been prepared by the self-regulatory organization. The 
Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.

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[[Page 32204]]

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend Rule 6.64P-O (Auction Process). The 
proposed 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 Rule 6.64P-O regarding the 
automated process for both opening and reopening trading in a series on 
the Exchange on Pillar as set forth below.\4\
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    \4\ Rule 6.64P-O (the ``Pillar Rule'') covers the opening and 
reopening of option series, which process is identical on the Pillar 
trading platform. As such, the Exchange will simply refer to the 
``opening'' of a series herein. The Exchange notes that because it 
has not yet migrated to the Pillar platform, Rule 6.64-O continues 
to apply to the opening process, which rule is not being modified by 
this filing. The Exchange has announced July 11, 2022 as the planned 
migration date for Pillar, as announced here: https://www.nyse.com/trader-update/history#110000421498.
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Current Pillar Auction Process
    Rule 6.64P-O(d) sets forth the Auction Process.\5\ Per Rule 6.64P-
O(d)(1), once the Exchange receives the Auction Trigger for a 
series,\6\ the Auction Process begins and the Exchange sends a 
Rotational Quote \7\ to both OPRA and proprietary data feeds indicating 
that the Exchange is in the process of transitioning from a pre-open 
state to continuous trading for that series.
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    \5\ ``Auction Process'' refers to the process that begins when 
the Exchange receives an Auction Trigger for a series and ends when 
the Auction is conducted. See Rule 6.64P-O(a)(5).
    \6\ ``Auction Trigger'' refers to the information disseminated 
by the Primary Market in the underlying security that triggers the 
Auction Process for a series to begin. See Rule 6.64P-O(a)(7).
    \7\ ``Rotational Quote'' refers to the highest Market Maker bid 
and lowest Market Maker offer on the Exchange when the Auction 
Process begins and such a Rotational Quote will be updated (for 
price and size) during the Auction Process. See Rule 6.64P-O(a)(13).
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    Per Rule 6.64P-O(d)(2), once a Rotational Quote has been sent, the 
Exchange conducts an Auction,\8\ provided ``there is both a Legal Width 
Quote and, if applicable, Market Maker quotes with a non-zero offer in 
the series'' within the Opening Timer(s), per Rule 6.64P-O(d)(3).\9\ 
The Exchange deems the Legal Width Quote requirement satisfied if the 
Calculated NBBO (described below) for the series is uncrossed, contains 
a non-zero offer, and has a spread that does not exceed a maximum 
differential that is determined by the Exchange on a class basis and 
announced by Trader Update.\10\ The Calculated NBBO is comprised of the 
highest bid and lowest offer among all Market Maker quotes and the ABBO 
during the Auction Process.\11\ A Calculated NBBO does not require both 
Market Maker quotes and ABBO to be present, and may be composed of 
Market Maker quotes only, of the ABBO only, or a combination thereof.
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    \8\ ``Auction'' refers to the opening or reopening of a series 
for trading either with or without a trade. See Rule 6.64P-O(a)(1).
    \9\ See Rule 6.64P-O(d)(2). Rule 6.64P-O(d)(3) specifies the 
parameters of the Opening MMQ Timers, which are designed to 
encourage (but not require) any Market Maker(s) assigned to an 
option series to submit Legal Width Quotes in connection with the 
Auction Process. The Exchange proposes a non-substantive change of 
``30'' to ``thirty'' regarding the Opening MMQ Timer(s), which would 
add clarity and internal consistency to the to rule. See proposed 
Rule 6.64P-O(d)(3).
    \10\ See Rule 6.64P-O(a)(10)(A)-(C). The maximum spread 
differential for a given series or class of options may be modified 
by a Trading Official. See Rule 6.64P-O(a)(10)(C).
    \11\ See Rule 6.64P-O(a)(8) (defining Calculated NBBO).
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    If the foregoing requirements are met (i.e., per Rule 6.64P-
O(d)(2)), the Exchange will conduct an Auction that will either result 
in a trade or in a quote depending on whether there is (or is not) 
Matched Volume \12\ that can trade at or within the Auction 
Collars.\13\ If there is Matched Volume that can trade at or within the 
Auction Collars, the Auction will result in a trade at the Indicative 
Match Price.\14\ However, if there is no Matched Volume that can trade 
at or within the Auction Collars, the Auction will instead result in a 
quote and the Exchange transitions to continuous trading as set forth 
in Rule 6.64P-O(f).\15\
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    \12\ ``Matched Volume'' refers to the number of buy and sell 
contracts that can be matched at the Indicative Match Price, 
excluding IO Orders. See Rule 6.64P-O(a)(11). An Imbalance Offset 
Order (``IO Order'') is a Limit Order that is to be traded only in 
an Auction. See Rule 6.62P-O(c)(3).
    \13\ ``Auction Collar'' refers to the price collar thresholds 
for the Indicative Match Price for an Auction, with the upper 
Auction Collar being the offer of the Legal Width Quote and the 
lower Auction Collar being the bid of the Legal Width Quote, 
provided that if the bid of the Legal Width Quote is zero, the lower 
Auction Collar will be one MPV above zero for the series. And, if 
there is no Legal Width Quote, the Auction Collars will be published 
in the Auction Imbalance Information as zero. See Rule 6.64P-
O(a)(2).
    \14\ See Rule 6.64P-O(d)(2)(A). ``Indicative Match Price'' 
refers to the price at which the maximum number of contracts can be 
traded in an Auction, including the non-displayed quantity of 
Reserve Orders and excluding IO Orders, subject to the Auction 
Collars. If there is no Legal Width Quote, the Indicative Match 
Price included in the Auction Imbalance Information will be 
calculated without Auction Collars. See Rule 6.64P-O(a)(9).
    \15\ See Rule 6.64P-O(d)(2)(B).
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    Finally, per Rule 6.64P-O(d)(4), unless otherwise specified by 
Trader Update, for the first ninety seconds of the Auction Process 
(inclusive of the thirty-second Opening MMQ Timer(s)), if there is no 
Legal Width Quote, the Exchange will not conduct an Auction, even if 
there is Matched Volume, i.e., the series will not open. After the 
first ninety seconds of the Auction Process, if there is no Matched 
Volume and the Calculated NBBO is wider than the Legal Width Quote, is 
not crossed, and does not contain a zero offer, the Exchange will first 
cancel any Market Orders and MOO Orders and then transition the option 
series to continuous trading per Rule 6.64P-O(f).\16\ Thus, per Rule 
6.64P-O(d)(4)(A), if after the first ninety seconds of the Auction 
Process there is Matched Volume but the other elements of this 
provision are satisfied, the series will not open and will remain 
unopened and the Exchange will not transition to continuous trading 
until the earlier of (i) a Legal Width Quote is established and an 
Auction can be conducted; (ii) the series can be opened as provided for 
in paragraph (d)(4)(A); (iii) the series is halted; or (iv) the end of 
Core Trading Hours.\17\ In other words, a series that does not meet the 
requirements of Rule 6.64P-O(d)(4)(A) may be delayed in opening until 
one of the conditions set forth in Rule 6.64P-O(d)(4)(B) occur.
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    \16\ See Rule 6.64P-O(d)(4)(A).
    \17\ See Rule 6.64P-O(d)(4)(B).
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Proposed Change to Auction Process
    The Exchange notes that waiting for market conditions to change 
before transitioning to continuous trading per the current Pillar Rule 
may result in missed execution opportunities for eligible interest 
submitted to the Exchange during the pre-open state. Moreover, this 
potential (indefinite) delay is inconsistent with the Exchange's 
intention of providing a timely and efficient Auction Process. As

[[Page 32205]]

such, the Exchange proposes to modify Rule 6.64P-O. In short, the 
Exchange proposes that after the first ninety seconds of the Auction 
Process, the Exchange would conduct an Auction of marketable interest 
based on the spread of the then-current market conditions (i.e., a 
Calculated NBBO that is uncrossed with a non-zero offer), provided that 
if the Calculated NBBO exceeds the Legal Width Quote differential 
established per Rule 6.64P-O(a)(10)(C) the Exchange would cancel any 
Market Orders or MOO Orders before conducting the Auction. As further 
proposed, marketable Limit Orders would trade in the Auction bound by 
the Calculated NBBO (i.e., the highest bid and lowest offer among all 
Market Maker quotes and the ABBO), which executions may be earlier and 
more efficient than afforded under the current Pillar Rule. If there is 
no marketable interest after such cancelation, the Exchange would open 
on a quote.\18\
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    \18\ As described further below, consistent with Rule 6.64P-
O(d)(2)(B), an Auction conducted per proposed Rule 6.64P-O(d)(4)(A) 
would open on a quote if there is no Matched Volume).
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    The Exchange believes the proposed change to the Pillar Rule (the 
details of which are described below) would promote competitive 
liquidity by allowing series to open at then-current market prices and 
would promote a fair and orderly opening process by improving the speed 
and efficiency of the Auction Process without impairing price 
discovery.
    First, the Exchange proposes to codify existing rule text into the 
defined phrase the ``initial Auction Process time period'' in proposed 
Rule 6.64P-O(a)(5)(i). As proposed, the initial Auction Process time 
period would mean, ``unless otherwise specified by Trader Update, the 
first ninety seconds after the commencement of the Auction Process,'' 
which definition simply codifies (and relocates) identical text that 
appears in the preamble of both sentences in Rule 6.64P-O(d)(4).\19\ 
The Exchange believes this proposed change is non-substantive and would 
streamline and add clarity to the existing rule.\20\
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    \19\ See proposed Rule 6.64P-O(a)(5)(i). See Rule 6.64P-O(d)(4) 
(providing that ``[u]nless otherwise specified by Trader Update, for 
the first ninety seconds of the Auction Process . . . .'' and 
``[n]inety seconds after the Auction Process begins:'').
    \20\ See id. See proposed Rule 6.64P-O(d)(4)(A) (replacing 
reference to the first ninety-seconds after the Auction Process with 
the proposed definition of the ``initial Auction Process time 
period,'' which would add clarity and internal consistency to the 
Rule, making it easier to navigate and comprehend).
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    Next, the Exchange proposes to modify the definition of Legal Width 
Quote, including by leveraging the newly defined ``initial Auction 
Process time period.'' Rule 6.64P-O(a)(10)(C) provides that, to be 
deemed a Legal Width Quote, the spread of the Calculated NBBO may not 
exceed a maximum differential that is determined by the Exchange on a 
class basis and announced by Trader Update.\21\
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    \21\ See Rule 6.64P-O(a)(10)(C) (which also provides a Trading 
Official may establish maximum differentials for one or more series 
or classes of options, which differ from those established by the 
Exchange).
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    As such, by rule, the Exchange has discretion to establish for each 
option class the maximum allowable spread of the Calculated NBBO within 
which the Exchange will conduct an Auction, provided that the other 
elements of a Legal Width Quote are met.\22\ Nothing in Rule 6.64P-
O(a)(10)(C) precludes the Exchange from establishing one set of 
Calculated NBBO spreads for the first ninety seconds of the Auction 
Process and a second (wider) set of Calculated NBBO spreads for any 
time after the first ninety seconds. However, in the interest of 
clarity and for the avoidance of potential confusion, the Exchange 
proposes to expand the definition of Legal Width Quote (rather than 
modify by Trader Update) in the Pillar Rule to provide that ``after the 
initial Auction Process time period, the Exchange will not impose 
limits for the maximum differential for the spread between the 
Calculated NBBO.'' \23\
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    \22\ To qualify as a Legal Width Quote, the Calculated NBBO must 
also be uncrossed and must contain a non-zero offer, which 
requirements are not being modified by this rule change. See Rule 
6.64P-O(a)(10)(A)-(B).
    \23\ See proposed Rule 6.64P-O(a)(10)(D).
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    The Exchange believes adopting Rule 6.64P-O(a)(10)(D) is consistent 
with its authority under the Pillar Rule to determine the maximum 
allowable Calculated NBBO spread to qualify a series as having a Legal 
Width Quote. However, this rule change would make clear that the 
Exchange would no longer impose these established spread limits (as 
announced by Trader Notice per Rule 6.64P-O(a)(10)(C)) after the 
initial Auction Process time period. The Exchange believes this rule 
change would add clarity and transparency to the Auction Process to the 
benefit of all market participants.\24\ Because the Auction Process, 
including the Auction Collars, the presence of Matched Volume, and the 
determination of the Indicative Match Price, are dependent upon a 
Calculated NBBO that qualifies as a Legal Width Quote, the Exchange 
proposes that any Auction conducted consistent with proposed 6.64P-
O(a)(10)(D) would follow the current Auction Process except as 
described below.\25\
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    \24\ Similar to the Exchange, other options exchanges have rules 
granting them broad discretion to modify the opening parameters for 
each option series, which modifications are disseminated or 
announced to market participants over data feeds or trader notice. 
See, e.g., Cboe Options Exchange, Inc. (``Cboe'') Rule 5.31(a) 
(definitions of Maximum Composite Width and Opening Collar, each of 
which the exchange ``may modify during the opening auction process 
(which modifications the Exchange disseminates to all subscribers to 
the Exchange's data feeds that deliver opening auction updates)''); 
Cboe EDGX Options Exchange, Inc. (``EDGX'') Rule 21.7(a) (same); 
Cboe BZX Options Exchange, Inc. (``BZX'') Rule 21.7(a) (definitions 
of Maximum Composite Width and Opening Collar); Cboe C2 Exchange 
Inc. (``C2'') Rule 6.11(a) (same); see also Miami Securities 
Exchange, Inc. (``MIAX'') Rule 503(f)(2) (which permits MIAX to 
determine by circular an acceptable range in which openings are 
permissible if there is no valid width national best bid or offer 
(``NBBO'')).
    \25\ See, e.g., Rule 6.64P-O(d)(2)(A)-(B) (describing the 
process of opening a series with a trade or a quote depending on 
whether there is Matched Volume).
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    The Exchange proposes to amend Rule 6.64P-O(d)(4) regarding the 
conduct of an Auction after the conclusion of the initial Auction 
Process time period (i.e., after the first ninety seconds).\26\ As 
noted herein, the Pillar functionality (per Rule 6.64P-O(d)(4)(A)) 
permits a series to open based on a ``wide'' Calculated NBBO (that is 
uncrossed with a non-zero offer), but only if there is no Matched 
Volume, which requirement may delay openings and result in missed 
execution opportunities.\27\ To address this unintended potential 
delay, the Exchange proposes that after the initial Auction Process 
time period and consistent with proposed paragraph (a)(10)(D) of this 
Rule (which removes the limit on the maximum allowable Calculated NBBO 
spread), the Exchange would conduct an Auction regardless of Matched 
Volume as long as the Calculated NBBO is not crossed, and does not 
contain a zero offer.\28\ This proposed functionality would allow 
marketable Limit Orders to execute in the Auction, which may result in 
certain option series opening earlier than are opened under the current 
rule and

[[Page 32206]]

increase execution opportunities for Limit Orders at then-current 
market prices.\29\
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    \26\ See proposed Rule 6.64P-O(d)(4) (which includes the 
aforementioned non-substantive change to refer to the newly defined 
``initial Auction Process time period'' rather than the first ninety 
seconds after the Auction Process). The Exchange is not altering 
Auction functionality for the initial Auction Process time period. 
See id.
    \27\ See proposed Rule 6.64P-O(d)(4)(B) (setting forth the 
necessary market conditions to open a series that has not opened per 
paragraph (d)(4) of the Pillar Rule). If the Exchange opens a series 
per Rule 6.64P-O(d)(4)(A), it first cancels any Market Order or MOO 
Orders before conducting an Auction and transitioning to continuous 
trading. See proposed Rule 6.64P-O(d)(4).
    \28\ See proposed Rule 6.64P-O(d)(4)(A). See also proposed Rule 
6.64P-O(a)(10)(D).
    \29\ See id. See also Rule 6.64P-O(a)(9)(A) (providing, in 
relevant part, that ``the Indicative Match Price would not be lower 
(higher) than the highest (lowest) price of a Limit Order to buy 
(sell) ranked Priority 2--Display Orders that is eligible to 
participate in the Auction''). In addition, consistent with the 
proposal, the Exchange proposes to remove as inapplicable the text 
in current Rule 6.64P-O(d)(4)(A) indicating that the ``Auction is 
not intended to end with a trade, but it may result in a trade even 
if there is no Legal Width Quote if orders or quotes arrive during 
the period when the Exchange is evaluating the status of orders and 
quotes'' as well as text indicating that the Exchange would 
``transition to continuous trading as described in paragraph (f) of 
this Rule.'' See proposed Rule 6.64P-O(d)(4)(A).
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    Although Limit Orders would be eligible to execute based on this 
proposed functionality, whether a Market Order or MOO Order may 
participate in the proposed Auction depends on the width of the market 
at the time of the Auction. Specifically, as further proposed, if the 
Calculated NBBO spread is wider than the differential established per 
paragraph (a)(10)(C) of this Rule, the Exchange would cancel Market 
Orders and MOO Orders before conducting the Auction, which proposed 
handling is consistent with the current Pillar Rule.\30\ Conversely, as 
proposed, and consistent with the current Pillar Rule, Market Orders 
and MOO Orders are not canceled and will participate in an Auction that 
is based on a Calculated NBBO that is less than or equal to the 
Calculated NBBO spread limit established per Rule 6.64P-
O(a)(10)(C).\31\ As further proposed, after the cancelation of any 
Market Orders or MOO Orders as applicable, the Auction Process will 
proceed consistent with paragraph (d)(2)(A)-(B) of this Rule and the 
Exchange will execute Matched Volume (if any) to the extent possible 
before transitioning to continuous trading.\32\
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    \30\ See Rule 6.64P-O(d)(4)(A)(i) (providing that Market Orders 
and MOO Orders are cancelled ``[a]ny time a series is opened or 
reopened when there is no Legal Width Quote,'' i.e., when the 
Calculated NBBO exceeds the maximum allowable spread limit set forth 
in Rule 6.64P-O(a)(10)(C)'').
    \31\ See id. To avoid potential confusion regarding the distinct 
handling of Market Orders and MOO Orders under proposed Rule 6.64P-
O(d)(4)(A) depending upon whether an Auction is conducted based on a 
Calculated NBBO spread that is in compliance with Rule 6.64P-
O(a)(10)(C) or with proposed Rule 6.64P-O(a)(10)(D), the Exchange 
has intentionally avoided reference to the presence of a Legal Width 
Quote in the proposed Rule. See proposed Rule 6.64P-O(d)(4)(A).
    \32\ See, e.g., Rule 6.64P-O(d)(2)(A)-(B) (providing that ``[i]f 
there is Matched Volume that can trade at or within the Auction 
Collars, the Auction will result in a trade at the Indicative Match 
Price'' or, ``[i]f there is no Matched Volume that can trade at or 
within the Auction Collars,'' the Auction will not result in a trade 
and the Exchange will transition to continuous trading as described 
in paragraph (f) of this Rule and the Auction will result in a 
quote'').
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    Taken together, the proposed changes to Rule 6.64P-O(a)(10)(D) and 
(d)(4) would allow any series that has not opened by the end of the 
initial Auction Process time period the ability to open based on a 
Legal Width Quote derived from then-market conditions. As such, the 
Exchange proposes to modify Rule 6.64P-O(d)(4)(B) to update the cross-
reference from paragraph (d)(4)(A) to paragraph (d)(4) and to eliminate 
as superfluous paragraph (d)(4)(B)(ii), which refers to waiting until 
``the series can be opened as provided for in paragraph (d)(4)(A).'' 
\33\ The Exchange believes these proposed conforming changes are 
necessary given that the proposed changes to Rule 6.64P-O(a)(10)(D) 
(removing the limit on the Calculated NBBO spread to qualify as Legal 
Width Quote) and (d)(4)(A) (addressing the conduct of an Auction after 
the initial Auction Process time period under the expanded definition 
of Legal Width Quote) render paragraph (d)(4)(B)(ii) of the Rule 
unnecessary.
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    \33\ See proposed Rule 6.64P-O(d)(4)(A). See proposed Rule 
6.64P-O(d)(4)(B). The Exchange also proposes conforming changes to 
re-number the remaining paragraphs in light of the proposed 
deletion, which would add clarity and internal consistency to the 
Rule. See id.
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    The Exchange notes that it is not making any changes to the 
requirements to conduct an Auction during the initial Auction Process 
time period. Instead, the proposed changes relate solely to those 
series that remain unopened after the conclusion of the initial Auction 
Process time period because the Calculated NBBO spread is too wide. The 
Exchange believes that the initial Auction Process time period affords 
market participants sufficient opportunity to absorb available pricing 
information, including Market Makers that are generally responsible for 
pricing the market. If the Calculated NBBO remains wide by the end of 
the initial Auction Process time period, the Exchange believes it is 
unlikely to tighten if the Exchange were to further delay the opening 
of a series. The Exchange has observed that on a typical trading day, 
in the current system, nearly 98% of all series are opened by 9:32 a.m. 
Eastern Time. As such, the Exchange anticipates that the majority of 
series would be opened within ninety seconds of the Auction Process and 
would not be impacted by the proposed rule change. However, for the 
minority of option series that have not opened within the first ninety 
seconds, the Exchange believes it is necessary and appropriate to allow 
such series to open based on prices consistent with then-current market 
conditions, provided the Calculated NBBO for the series is not crossed, 
and does not contain a zero offer.
    The Exchange believes the proposed modification to the Auction 
Process would continue to protect Market Orders and MOO Orders from 
being executed (by cancelling such orders before conducting the 
proposed Auction) when the Calculated NBBO spread exceeds the spread 
differential established per current Rule 6.64P-O(a)(10)(C) before 
conducting the proposed Auction. In addition, the proposed modification 
would allow any eligible Limit Orders to be executed in the proposed 
Auction, bound by the Calculated NBBO. The Calculated NBBO (even if 
wide) represents the best-priced quotes by Market Makers (which 
participants generally are responsible for pricing the market) and/or 
the ABBO, the presence of which indicates that another market has 
opened.\34\
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    \34\ Options exchanges have varying opening processes and have 
made separate determinations on what constitutes individual, 
reasonable opening market widths. Thus, if other options exchanges 
opened a series with a market width, it is reasonable to open the 
series for trading on the Exchange as well (as orders submitted to 
other exchanges may be trading at those widths).
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    Consistent with current functionality (and with the approved Pillar 
Rule), the Exchange would not permit any opening transactions to trade 
through any better-priced interest on any Away Market, even it is 
permitted to do so.\35\ Rather, because interest in the Auction would 
not trade outside of the Calculated NBBO (which defines the then-
current market for the series), any Limit Orders executed in the 
proposed Auction would, bound by Auction Collars, would trade at a 
price that is equal to or better than the price(s) available at other 
exchanges.\36\ Per Rule 6.64P-O(f)(3)(A), any interest remaining after 
such Action is then evaluated for potential routing prior to being 
posted to the Consolidated Book. Further, the Exchange notes that there 
are other price protections available to limit the

[[Page 32207]]

risk of executions at a wider market price.\37\ Thus, the Exchange 
believes that the risk of an extreme execution based on the Calculated 
NBBO available after the initial Auction Process time period may be 
mitigated for the aforementioned reasons. The Exchange believes that, 
on balance, the benefits to market participants of having the series 
open earlier outweighs this mitigated risk.
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    \35\ Although the intermarket linkage rules exempt from trade-
through liability trades occurring during the opening process, the 
Exchange would continue to restrict transactions occurring at the 
open to the NBBO. See Rule 6.94-O(b)(2) (exempting from trade-
through liability those transactions that ``traded through a 
Protected Quotation being disseminated by an Eligible Exchange 
during a trading rotation''). A ``Protected Quotation'' is the Best 
Bid or Best Offer disseminated by OPRA and displayed by an Eligible 
Exchange. See Rule 6.92-O(15)-(16).
    \36\ See Rule 6.64P-O(b)(2)(A) (A) (providing that, `[i]f there 
is Matched Volume that can trade at or within the Auction Collars, 
the Auction will result in a trade at the Indicative Match Price). 
See also Rule 6.64-O(a)(3),(9), and (11) (defining Auction Collars, 
Indicative Match Price, and Matched Volume, respectively).
    \37\ See Rule 6.41P-O(a)(1), (b) (regarding the Arbitrage Check, 
which is applied pre-open). The Exchange notes that the price 
protection mechanisms it employs during continuous trading are based 
on the NBBO, or Auction Prices as applicable. See, e.g., Rules 
6.41P-O(c)(4)(B) (regarding the Intrinsic Value Check); Rule 6.62P-
O(a)(4)(A) (regarding Limit Order Price Protection); and Rule 6.62P-
O(a)(4)(B) (regarding Trading Collars).
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    Finally, the Exchange also proposes to modify the requirements to 
open a series during the initial Auction Process time period for option 
series with two or more assigned Market Makers, per Rule 6.64P-
O(d)(3)(C). Per Rule 6.64P-O(3)(C)(i), if there are two or more Market 
Makers assigned to a series, the Exchange will conduct the Auction, 
without waiting for the Opening MMQ Timer to end, as soon as there is 
both a Legal Width Quote and at least two assigned Market Makers have 
submitted a quote with a non-zero offer. Per Rule 6.64P-O(3)(C)(ii), if 
at least two Market Makers assigned to a series have not submitted a 
quote with a non-zero offer by the end of the Opening MMQ Timer, the 
Exchange will begin a second Opening MMQ Timer. The Exchange proposes 
to modify these provisions to provide that the Exchange would require 
that at least two quotes with non-zero offers be submitted during the 
Opening MMQ Timer, which quotes may be sent by one or more Market 
Makers.\38\
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    \38\ See proposed Rule 6.64P-O(d)(2) (providing that ``[o]nce a 
Rotational Quote has been sent, the Exchange will conduct an Auction 
when there is both a Legal Width Quote and, if applicable, Market 
Maker quotes with a non-zero offer in the series (subject to the 
Opening MMQ Timer(s) requirements in paragraph (d)(3) of this 
Rule'') and Rule 6.64P-O(d)(3)(C)(i) (providing that ``[t]he 
Exchange will conduct the Auction, without waiting for the Opening 
MMQ Timer to end, as soon as there is both a Legal Width Quote and 
at least two quotes with a non-zero offer submitted by assigned 
Market Maker(s)'') and (d)(3)(C)(ii) (providing that ``[i]f the 
Exchange has not received at least two quotes with a non-zero offer 
from any Market Maker(s) assigned to a series by the end of the 
Opening MMQ Timer, the Exchange will begin a second Opening MMQ 
Timer'').
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    The Exchange believes that the proposed change continues to 
encourage (but not require) Market Makers to participate at the open, 
which may increase the availability of Legal Width Quotes in more 
series, thereby allowing more series to open in a timely manner. The 
Exchange believes that expanding the opportunities for each Market 
Maker to enter the market--whether by each Market Maker submitting one 
quote or a single Market Maker submitting two quotes--could result in 
the depth of liquidity that market participants have come to expect in 
options with multiple assigned Market Makers, and a more stable trading 
environment. The Exchange believes the proposed rule change would 
provide more flexibility in terms of how market depth is achieved 
(i.e., based on quotes from a single Market Maker as opposed to two) 
and may result in a more timely and efficient opening process. Further, 
the proposed change may increase the availability of Legal Width Quotes 
in more series and would add clarity and transparency to Exchange 
rules.
Other Exchange Rules: Proposed Non-Substantive or Clarifying Changes
    The Exchange also proposes to make several clarifying or non-
substantive changes to certain of its rules. First, the Exchange 
proposes to modify paragraph (c) of Rule 6.37-O (Obligations of Market 
Makers) regarding ``Unusual Conditions--Auctions'' to add an open 
parenthesis in the cross reference to Rule 6.64P-O(a)(10).\39\ The 
Exchange believes this proposed change would correct an inadvertent 
omission and would add clarity and transparency to Exchange rules.
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    \39\ See proposed Rule 6.37-O(c).
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    Next, the Exchange proposes to correct several cross-references in 
Rule 6.62P-O (Orders and Modifiers). The Exchange proposes to update 
the reference in Rule 6.62P-O(e)(3)(C)(ii) regarding Day ISO ALO Orders 
to correctly cross-reference paragraphs (e)(2)(C)-(F) (rather than to 
paragraphs (e)(2)(C)-(G)) to cover the processing of such ALO Orders 
once resting.\40\ The proposed change would correct an inadvertent 
error adding clarity and transparency to Exchange rules. Similarly, the 
Exchange proposes to update the reference in Rule 6.62P-O(h)(6)(B) to 
correctly cross-reference the defined term Complex Order, which is set 
forth in Rule 6.62P-O(f) (rather than paragraph (e)).\41\ The proposed 
change would correct an inadvertent error adding clarity and 
transparency to Exchange rules.
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    \40\ See proposed Rule 6.62P-O(e)(3)(C)(ii).
    \41\ See proposed Rule 6.62P-O(h)(6)(B).
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2. Statutory Basis
    The proposed rule change is consistent with Section 6(b) of the 
Securities Exchange Act of 1934 (the ``Act''),\42\ in general, and 
furthers the objectives of Section 6(b)(5),\43\ in particular, because 
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, to remove impediments to, and perfect the 
mechanism of, a free and open market and a national market system and, 
in general, to protect investors and the public interest.
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    \42\ 15 U.S.C. 78f(b).
    \43\ 15 U.S.C. 78f(b)(5).
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Proposed Change to Pillar Auction Process
    Overall, the Exchange believes the proposed changes to its Auction 
Process would promote a fair and orderly market by improving the speed 
and efficiency of the Exchange's opening process without impairing 
price discovery, which should result in better and more consistent 
prices on Auction executions and facilitate a fair and orderly 
transition to continuous trading. As noted herein, the Exchange 
believes that the (continued) requirement that interest executed in an 
Auction must trade at or within the Calculated NBBO (which defines the 
then-current market for the series) would provide protection for such 
interest.
    The Exchange believes modifying the definition of Legal Width Quote 
to make clear that after the initial Auction Process time period the 
Exchange would no longer impose its own established limits on the 
maximum allowable Calculated NBBO spread to qualify a series as having 
a Legal Width Quote 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 and protect investors because 
it would add clarity and transparency to the Auction Process to the 
benefit of all market participants.\44\ The Exchange notes that it 
currently has discretion to establish for each option class the maximum 
allowable spread of the Calculated NBBO within which the Exchange will 
conduct an Auction, provided that the other elements of a Legal Width 
Quote are met, which authority is consistent with other options 
exchanges. Although the Exchange has rule authority (per current Rule 
6.64P-O(a)(10)(C)) to establish one set of Calculated NBBO spreads for 
the first ninety seconds of

[[Page 32208]]

the Auction Process and a second (wider) set of Calculated NBBO spreads 
for any time after the first ninety seconds, it believes the proposed 
change to the definition of Legal Width Quote would help avoid 
potential investor confusion to the benefit of all market participants.
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    \44\ See supra note 24 (citing the discretion of Cboe and its 
affiliates and MIAX to modify the opening auction parameters).
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    The Exchange believes the proposal to amend Rule 6.64P-O(d)(4) to 
allow the Exchange to conduct an Auction after the conclusion of the 
initial Auction Process time period and consistent with proposed 
paragraph (a)(10)(D) of this Rule (i.e., without imposing certain 
limits established on the Calculated NBBO spread) 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 
and protect investors. First, the Exchange believes that the proposal 
to wait a ninety-second initial Auction Process time period before 
removing the limits on the permissible Calculated NBBO spread to open a 
series (i.e., proposed Rule 6.64P-O(a)(10)(D)) would continue to 
provide opportunities for price discovery based on then-current market 
conditions, including affording sufficient time to Market Makers (who 
are generally responsible for pricing the market) to absorb available 
pricing information and, if so inclined, to update their quotes 
potentially resulting in tighter spreads. The Exchange has observed 
that on a typical trading day, in the current system, nearly 98% of all 
series are opened by 9:32 a.m. Eastern Time. As such, the Exchange 
anticipates that the majority of series would be opened within ninety 
seconds of the Auction Process and would not be impacted by the 
proposed rule change. For the minority of option series that have not 
opened within the first ninety seconds because of a ``wide'' Calculated 
NBBO, the Exchange believes it is unlikely that such spread would 
tighten if the Exchange were to further delay the opening of a series. 
Thus, the Exchange believes it is necessary and appropriate to allow 
such series to open based on prices consistent with then-current market 
conditions, provided the Calculated NBBO for the series is not crossed, 
and does not contain a zero offer.
    Further, the Exchange believes the proposed modification 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 and protect investors because the proposed Auction 
Process would continue to protect Market Orders and MOO Orders from 
being executed (by cancelling such orders before conducting the 
proposed Auction) when the Calculated NBBO spread exceeds the spread 
differential established per (current) Rule 6.64P-O(a)(10)(C) before 
conducting the proposed Auction. In addition, the proposed modification 
would allow any eligible Limit Orders to be executed in the proposed 
Auction, bound by the Calculated NBBO. The Calculated NBBO (even if 
wide) represents the best-priced quotes by Market Makers (which 
participants generally are responsible for pricing the market) and/or 
the ABBO, the presence of which indicates that another market has 
opened.\45\
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    \45\ Options exchanges have varying opening processes and have 
made separate determinations on what constitutes individual, 
reasonable opening market widths. Thus, if other options exchanges 
opened a series with a market width, it is reasonable to open the 
series for trading on the Exchange as well (as orders submitted to 
other exchanges may be trading at those widths).
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    Consistent with current functionality (and with the approved Pillar 
Rule), the Exchange would not permit any opening transactions to trade 
through any better-priced interest on any Away Market, even it is 
permitted to do so.\46\ Rather, because interest in the Auction would 
not trade outside of the Calculated NBBO (which defines the then-
current market for the series), any Limit Orders executed in the 
proposed Auction would, bound by Auction Collars, would trade at a 
price that is equal to or better than the price(s) available at other 
exchanges.\47\ Per Rule 6.64P-O(f)(3)(A), any interest remaining after 
such Action is then evaluated for potential routing prior to being 
posted to the Consolidated Book. Further, the Exchange notes that there 
are other price protections available to limit the risk of executions 
at a wider market price.\48\ Thus, the Exchange believes that the risk 
of an extreme execution based on the Calculated NBBO available after 
the initial Auction Process time period may be mitigated for the 
aforementioned reasons. The Exchange believes that, on balance, the 
benefits to market participants of having the series open earlier 
outweighs this mitigated risk.
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    \46\ Although the intermarket linkage rules exempt from trade-
through liability trades occurring during the opening process, the 
Exchange would continue to restrict transactions occurring at the 
open to the NBBO. See Rule 6.94-O(b)(2) (exempting from trade-
through liability those transactions that ``traded through a 
Protected Quotation being disseminated by an Eligible Exchange 
during a trading rotation''). A ``Protection Quotation'' is the Best 
Bid or Best Offer disseminated by OPRA and displayed by an Eligible 
Exchange. See Rule 6.92-O(15)-(16).
    \47\ See Rule 6.64P-O(b)(2)(A) (A) (providing that, `[i]f there 
is Matched Volume that can trade at or within the Auction Collars, 
the Auction will result in a trade at the Indicative Match Price). 
See also Rule 6.64-O(a)(3),(9), and (11) (defining Auction Collars, 
Indicative Match Price, and Matched Volume, respectively).
    \48\ See Rule 6.41P-O(a)(1), (b) (regarding the Arbitrage Check, 
which is applied pre-open). The Exchange notes that the price 
protection mechanisms it employs during continuous trading are based 
on the NBBO, or Auction Prices as applicable. See, e.g., Rules 
6.41P-O(c)(4)(B) (regarding the Intrinsic Value Check); Rule 6.62P-
O(a)(4)(A) (regarding Limit Order Price Protection); and Rule 6.62P-
O(a)(4)(B) (regarding Trading Collars).
---------------------------------------------------------------------------

    The Exchange believes its proposal to modify the requirements to 
open a series for option series that have two or more assigned Market 
Makers 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 and protect investors because it would 
continue to provide Market Makers assigned to such series the 
opportunity to submit a quote while potentially promoting a more timely 
opening once at least two quotes (even if from a single Market Maker) 
have been submitted and would add clarity and transparency to Exchange 
rules. The Exchange believes the proposed rule change would provide 
more flexibility in terms how of market depth in the affected series is 
achieved (i.e., based on quotes from a single Market Maker as opposed 
to two) and may result in a more timely and efficient opening process. 
Further, the proposed change may increase the availability of Legal 
Width Quotes in more series and would add clarity and transparency to 
Exchange rules. Improving the validity of the opening price benefits 
all market participants and also benefits the reputation of the 
Exchange as being a venue that provides accurate price discovery. To 
the extent that this proposed rule change results in an option series 
opening sooner, which, in turn would increase the times during which 
investors may conduct trading in these options, this proposed change 
would benefit investors and the investing public.
    The Exchange believes that the proposed non-substantive and 
conforming changes to Rule 6.64P-O (including to paragraph (d)(4)(B)) 
would promote just and equitable principles of trade because such 
changes would streamline Rule 6.64P-O, thus adding clarity to the 
Auction Process making it easier to comprehend and navigate to the 
benefit of market participants and would promote transparency and 
internal consistency within Exchange rules making them easier to 
comprehend and navigate.\49\
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    \49\ See supra notes 20, 26, 29 and 33.

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[[Page 32209]]

Additional Proposed Non-Substantive or Clarifying Changes to Exchange 
Rules
    The Exchange believes that the proposed non-substantive and 
clarifying changes that update/correct inaccurate references would 
promote transparency and internal consistency within Exchange rules 
making them easier to comprehend and navigate.\50\
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    \50\ See supra notes 39-41.
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act. The Exchange operates in a 
competitive market and regularly competes with other options exchanges 
for order flow. The Exchange does not believe that the proposed rule 
change would impose any burden on intra-market competition that is not 
necessary or appropriate in furtherance of the purposes of the Act 
because all market participants may trade in any series that opens 
subject to the proposed (modified) opening process.
    The Exchange does not believe that the proposed rule change would 
impose any burden on intermarket competition that is not necessary or 
appropriate in furtherance of the purposes of the Act because it is 
designed to open series on the Exchange in a fair and orderly manner. 
The Exchange believes the proposed opening process will continue to 
provide market participants with an opportunity for price discovery 
based on then-current market conditions when the Exchange opens series 
for trading. This will facilitate the presence of sufficient liquidity 
in a series when it opens, and increase the ability of series to open 
at prices consistent with then-current market conditions (at the 
Exchange and on other exchanges). As noted herein, several options 
exchanges likewise have discretion to modify their opening procedures 
to address then-current market conditions.\51\ Further, the Exchange 
does not believe that the proposed rule change will impose any burden 
on intra-market competition that is not necessary or appropriate in 
furtherance of the purposes of the Act, as all market participants that 
participate in the opening process may benefit equally from the 
proposal, as the rules of the Exchange apply equally to all market 
participants.
---------------------------------------------------------------------------

    \51\ See, e.g., supra note 24 (citing the discretion of Cboe and 
its affiliates and MIAX to modify the opening auction parameters).
---------------------------------------------------------------------------

    The Exchange does not believe that the proposed change to open 
those series with more than one assigned Market Maker based on two 
quotes regardless of the source would result in an undue burden on 
competition. Market Makers are encouraged but not required to quote in 
their assigned series at the open regardless of whether a Market Maker 
is one of several assigned to a series or is the only one. As such, 
this proposal would not subject any Market Maker to additional 
obligations. Thus, the Exchange does not believe this proposed change 
would result in an undue burden on intra-market competition as it would 
apply equally to all similarly-situated Market Makers regarding their 
assigned series. The Exchange believes that the proposal to allow a 
series with more than one assigned Market Maker to open based on two 
quotes regardless of the source would continue to encourage 
participation of Market Makers at the open, may increase the 
availability of Legal Width Quotes in more series, thereby allowing 
more series to open (sooner). Improving the validity of the opening 
price benefits all market participants and also benefits the reputation 
of the Exchange as being a venue that provides accurate price 
discovery. With respect to inter-market competition, the Exchange notes 
that most options exchanges do not require Market Makers to quote 
during the opening.\52\
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    \52\ See, e.g., Cboe and its affiliated exchanges.
---------------------------------------------------------------------------

    Additionally, the non-substantive changes proposed by the Exchange 
provide additional clarity and detail in the Exchange's rules and are 
not changes made for any competitive purpose.

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-NYSEArca-2022-31 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-2022-31. 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-NYSEArca-2022-31 and should be submitted 
on or before June 17, 2022.


[[Page 32210]]


    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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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022-11396 Filed 5-26-22; 8:45 am]
BILLING CODE 8011-01-P