[Federal Register Volume 89, Number 171 (Wednesday, September 4, 2024)]
[Notices]
[Pages 71962-71964]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-19778]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-100864; File No. SR-NYSEARCA-2024-66]


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

August 28, 2024.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby given 
that, on August 13, 2024, NYSE Arca, Inc. (``NYSE Arca'' or the 
``Exchange'') filed with the Securities and Exchange Commission (the 
``Commission'') the proposed rule change as described in Items I and II 
below, which Items have been prepared by the self-regulatory 
organization. The Commission is publishing this notice to solicit 
comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend Rule 6.64P-O (Auction Process). 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 Rule 6.64P-O (Auction Process) 
regarding the automated process for opening (and reopening) option 
series on the Exchange.\4\
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    \4\ An ``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). For simplicity, the Exchange will simply refer to the 
``opening'' of a series herein.
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    Rule 6.64P-O (the ``Rule'') describes the opening Auction 
Process.\5\ The Exchange has determined that the Auction Process could 
be incrementally improved by removing the existing requirement that the 
Exchange disseminate a Rotational Quote before commencing an Auction. 
The Exchange believes that this proposed modification could enhance the 
speed and efficiency of its Auction Process without impairing price 
discovery.
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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).
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Commencement of the Auction Process
    Pursuant to the Rule, for each option series, the Auction Process 
begins once the Exchange receives the Auction Trigger, and the Exchange 
sends a Rotational Quote \6\ to both OPRA and proprietary data 
feeds.\7\ The Auction Trigger occurs when the Primary Market for the 
underlying security first disseminates both a two-sided quote and a 
trade of any size that is at or

[[Page 71963]]

within the quote.'' \8\ The Auction Trigger signals the opening of 
trading in an underlying security, which in turn, enables the Exchange 
to commence the process of opening options on that underlying.
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    \6\ ``Rotational Quote'' refers to the highest Market Maker bid 
and lowest Market Maker offer on the Exchange when the Auction 
Process begins, and such Rotational Quote will be updated (for price 
and size) during the Auction Process. See Rule 6.64P-O(a)(13).
    \7\ See Rule 6.64P-O(d)(1).
    \8\ See Rule 6.64P-O(a)(7). For a Core Open Auction, the Auction 
Trigger occurs at or after 9:30 a.m. EST and for a Trading Halt 
Auction, the Auction Trigger occurs at the end of a trading halt. 
See Rule 6.64P-O(a)(7)(A) and (B), respectively.
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    After the Auction Trigger, the Exchange sends a Rotational Quote 
for each option series on the underlying security. Once a Rotational 
Quote is disseminated, the Exchange waits a minimum of two milliseconds 
and then conducts an Auction, provided that ``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).'' \9\
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    \9\ See Rule 6.64P-O(d)(2). See Rule 6.64P-O(a)(10)(A)-(C) 
(describing that a Legal Width Quote is comprised of a Calculated 
NBBO that may be locked, but not crossed, does not contain a zero 
offer, and does not exceed the Exchange-determined ``maximum 
differential''). A Calculated NBBO is ``the highest bid and lowest 
offer'' among all Market Maker quotes and the ABBO [i.e., Away 
Market BBO] during the Auction Process. See Rule 6.64P-O(a)(8).
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Proposed Change to Commencement of the Auction Process
    The Exchange proposes to remove from the Rule the requirements that 
the Exchange delay its opening Auction until it disseminates a 
Rotational Quote and waits at least two additional milliseconds post-
dissemination (the ``Rotational Quote Requirement'').\10\ The proposed 
rule will specify that, upon receipt of an Auction Trigger for an 
underlying security, the Exchange will disseminate a message to market 
participants indicating the initiation of the opening process and will 
begin transitioning each option series for that underlying security 
from a pre-open state to continuous trading.\11\ This proposed change 
does not alter any of the other prerequisites to commencing an Auction. 
Consistent with current functionality, the Auction process will begin 
opening an option series once there is a Legal Width Quote.\12\
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    \10\ See proposed Rule 6.64P-O(d)(1)-(2). Consistent with this 
proposed change, the Exchange proposes to eliminate from Rule 6.64P-
O(a)(13) the definition of Rotational Quote. See proposed Rule 
6.64P-O(a) (which would no longer include (a)(13)).
    \11\ See proposed Rule 6.64P-O(d)(1). The proposed rule 
specifies that a message is disseminated to market participants 
informing them that the Auction Trigger has been received, the 
receipt of which enables the Exchange to transition option series in 
that underlying security from a pre-open state to continuous 
trading. The Exchange notes that the dissemination of a message 
indicating receipt of the Auction Trigger is consistent with current 
functionality except that, with the removal of the Rotational Quote 
Requirement, this message now signals to market participants that 
the Exchange may commence its transition of option series in that 
underlying to continuous trading.
    \12\ The Rule addresses how an option series transitions from 
pre-open state to continuous trading in circumstances where, after a 
specified time period, the prerequisites to commencing an Auction 
have not yet been satisfied. See Rule 6.64P-O(d)(4).
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    The Exchange believes that this proposed change would result in a 
more timely and efficient opening process. At a minimum, once the 
Auction Trigger is received and, absent the Rotational Quote 
Requirement, each option series would open at least two milliseconds 
earlier.\13\ The Exchange has determined (based on feedback from market 
participants) that the relative benefit of delaying the Auction Process 
for the Rotational Quote Requirement is outweighed by the benefit of 
improving the speed at which each option series opens. The Exchange 
notes that, notwithstanding the proposal to eliminate the Rotational 
Quote Requirement, the Exchange would continue to disseminate imbalance 
messages as early as 8:00 a.m. EST indicating the trading interest 
available in each option series pre-Auction (i.e., the ``Auction 
Imbalance Information'').\14\ Similarly, the proposed elimination of 
the Rotational Quote Requirement would likewise not alter the other 
prerequisites to the Exchange commencing an Auction (e.g., the presence 
of a Legal Width Quote). Furthermore, the Exchange notes that its 
Auction Process, as modified herein, would remain consistent with that 
of at least one other options exchange that likewise does not include a 
Rotational Quote Requirement as a precondition to opening each option 
series.\15\ The Exchange therefore believes that the proposal to 
eliminate the Rotational Quote Requirement would benefit market 
participants because it would allow the Exchange to compete on more 
equal footing with at least one other options exchange that does not 
include such a requirement as a precondition to opening each series.
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    \13\ Compare proposed Rule 6.64P-O(d)(2) with (current) Rule 
6.64P-O(d)(2). The Exchange notes that the required delay of at 
least two milliseconds occurs after the Exchange has disseminated a 
Rotational Quote. Thus, under the current Rule, the time lapse from 
receipt of Auction Trigger to commencing an Auction is, by 
necessity, longer than two milliseconds. See Rule 6.64P-O(d)(2).
    \14\ See Rule 6.64P-O(c)(1). The Auction Imbalance Information 
includes the Auction Collars, Auction Indicator, Book Clearing 
Price, Far Clearing Price, Indicative Match Price, Matched Volume, 
Market Imbalance, and Total Imbalance. See Rule 6.64P-O(a)(3)(A)-
(D). For Trading Halt Auctions, the Exchange disseminates the 
Auction Imbalance Information at the beginning of a trading halt See 
Rule 6.64P-O(c)(2).
    \15\ See, e.g., Cboe Options Exchange Inc. (``Cboe'') Rule 
5.31(d)(1)(A)(ii) (providing that Cboe initiates its ``opening 
rotation'' for a series upon receipt of ``both the first 
disseminated transaction and the first disseminated quote on the 
primary market'' on or after 9:30 a.m. EST, which is identical the 
Exchange's ``Auction Trigger,'' without waiting for the 
dissemination of a Rotational Quote (or an additional two 
milliseconds)). The Exchange believes that its ``Auction Process'' 
is akin to Cboe's ``opening rotation'' (compare Rule 6.64P-O(a)(5) 
with Cboe Rule 5.31(e)) and its ``Auction Imbalance Information'' is 
akin to Cboe's ``Opening Auction Updates'' (compare Rule 6.64P-
O(a)(3) with Cboe Rule 5.31(c)). Like Cboe, the Exchange 
disseminates a message to its market participants to signal the 
initiating of the opening process. Compare Cboe Rule 5.31(d) with 
proposed Rule 6.64P-O(d)(1).
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    Finally, the Exchange proposes to make a technical change to 
renumber current Rule 6.64P-O(a)(5)(i) to Rule 6.64P-O(a)(5)(A), which 
would add clarity and internal consistency to Exchange rules.
2. Statutory Basis
    The proposed rule change is consistent with Section 6(b) of the 
Securities Exchange Act of 1934 (the ``Act''),\16\ in general, and 
furthers the objectives of Section 6(b)(5),\17\ 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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    \16\ 15 U.S.C. 78f(b).
    \17\ 15 U.S.C. 78f(b)(5).
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    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. The Exchange has 
determined (based on feedback from market participants) that the 
relative benefit of delaying the Auction Process for the Rotational 
Quote Requirement is outweighed by the benefit of improving the speed 
at which each option series opens. The Exchange notes that, 
notwithstanding the proposal to eliminate the Rotational Quote 
Requirement, the Exchange would continue to disseminate the Auction 
Imbalance Information, which informs market participants about the 
trading interest available pre-Auction. Moreover, the proposed change 
would not alter any of the Exchange's other prerequisites to commencing 
an Auction (e.g., the presence of a Legal Width Quote).
    Furthermore, the Exchange believes that the proposed change would

[[Page 71964]]

promote just and equitable principles of trade because it would allow 
the Exchange to compete on more equal footing with at least one other 
options exchange that does not include an analogous Rotational Quote 
Requirement as a precondition to opening each option series.\18\
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    \18\ See supra note 15 (regarding Cboe's opening process, per 
Cboe Rule 5.31).
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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 believes that 
the proposed change to the Auction Process would not impose any burden 
on intermarket competition that is not necessary or appropriate in 
furtherance of the purposes of the Act because 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. With respect to inter-market competition, the Exchange 
notes that the Exchange's modified Auction Process would remain 
consistent with that of other options exchanges that likewise do not 
include a Rotational Quote Requirement as a precondition to opening 
each option series.\19\
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    \19\ Id.
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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

    The Exchange has filed the proposed rule change pursuant to Section 
19(b)(3)(A)(iii) of the Act \20\ and Rule 19b-4(f)(6) thereunder.\21\ 
Because the proposed rule change does not: (i) significantly affect the 
protection of investors or the public interest; (ii) impose any 
significant burden on competition; and (iii) become operative prior to 
30 days from the date on which it was filed, or such shorter time as 
the Commission may designate, if consistent with the protection of 
investors and the public interest, the proposed rule change has become 
effective pursuant to Section 19(b)(3)(A) of the Act and Rule 19b-
4(f)(6)(iii) thereunder.\22\
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    \20\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \21\ 17 CFR 240.19b-4(f)(6).
    \22\ 17 CFR 240.19b-4(f)(6). In addition, Rule19b-4(f)(6)(iii) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file the proposed rule change, along 
with a brief description and text of the proposed rule change, at 
least five business days prior to the date of filing of the proposed 
rule change, or such shorter time as designated by the Commission. 
The Exchange has satisfied this requirement.
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    A proposed rule change filed under Rule 19b-4(f)(6) \23\ normally 
does not become operative prior to 30 days after the date of the 
filing. However, pursuant to Rule 19b4(f)(6)(iii),\24\ the Commission 
may designate a shorter time if such action is consistent with the 
protection of investors and the public interest.
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    \23\ 17 CFR 240.19b-4(f)(6).
    \24\ 17 CFR 240.19b-4(f)(6)(iii).
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    At any time within 60 days of the filing of such proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act. If the Commission 
takes such action, the Commission shall institute proceedings under 
Section 19(b)(2)(B) \25\ of the Act to determine whether the proposed 
rule change should be approved or disapproved.
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    \25\ 15 U.S.C. 78s(b)(2)(B).
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IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
file number SR-NYSEARCA-2024-66 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-NYSE-SR-NYSEARCA-2024-
66. 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 (https://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 a.m. and 3 p.m. Copies of the filing also will be available 
for inspection and copying at the principal office of the Exchange. Do 
not include personal identifiable information in submissions; you 
should submit only information that you wish to make available 
publicly. We may redact in part or withhold entirely from publication 
submitted material that is obscene or subject to copyright protection. 
All submissions should refer to file number SR-SR-NYSEARCA-2024-66 and 
should be submitted on or before September 25, 2024.
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    \26\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\26\
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2024-19778 Filed 9-3-24; 8:45 am]
BILLING CODE 8011-01-P