[Federal Register Volume 87, Number 71 (Wednesday, April 13, 2022)]
[Notices]
[Pages 21959-21984]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-07843]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-94637; File No. SR-NYSEArca-2021-68]


Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
of Amendment Nos. 1 and 2 and Order Granting Accelerated Approval of a 
Proposed Rule Change, as Modified by Amendment Nos. 1 and 2, To Adopt 
New Exchange Rule 6.91P-O

April 7, 2022.

I. Introduction

    On July 23, 2021, NYSE Arca, Inc. (``NYSE Arca'' or the 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a 
proposed rule change to adopt new Exchange Rule 6.91P-O to govern the 
trading of Electronic Complex Orders (``ECOs'') on the Exchange's 
Pillar technology platform and to make conforming amendments to 
Exchange Rule 6.47A-O. The proposed rule change was published for 
comment in the Federal Register on August 10, 2021.\3\ The Commission 
received no comments regarding the proposal. On September 20, 2021, 
pursuant to Section 19(b)(2) of the Act,\4\ the Commission extended the 
time for Commission action on the proposal until November 8, 2021.\5\ 
On October 29, 2021, the Commission issued an order instituting 
proceedings pursuant to Section 19(b)(2)(B) of the Act \6\ to determine 
whether to approve or disapprove the proposed rule change.\7\ On March 
22, 2022, the Exchange filed Amendment No. 1 to the proposal, which 
supersedes the original filing in its entirety.\8\ April 4, 2022, the 
Exchange filed Amendment No. 2 to the proposal.\9\ The Commission is 
publishing this notice to solicit comment on Amendment Nos. 1 and 2 to 
the proposed rule change from interested persons and is approving the 
proposed rule change, as modified by

[[Page 21960]]

Amendment Nos. 1 and 2, on an accelerated basis.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 92563 (August 4, 
2021), 86 FR 43704 (``Notice'').
    \4\ 15 U.S.C. 78s(b)(2).
    \5\ See Securities Exchange Act Release No. 93057 (September 20, 
2021), 86 FR 53128 (September 24, 2021).
    \6\ 15 U.S.C. 78s(b)(2)(B).
    \7\ See Securities Exchange Act Release No. 93466 (October 29, 
2021), 86 FR 60955 (November 4, 2021).
    \8\ Amendment No. 1 makes certain non-substantive clarifying 
changes from the original filing (including alphabetizing the 
proposed definitions and relocating the description of Complex Only 
Orders), and makes the following substantive changes from the 
original filing: (1) Adds new definitions of Away Market Deviation 
and Leg Ratios; (2) revises the definition of DBBO to add cross-
reference to ABBO, as that term is defined in the Single-Leg Pillar 
Filing, and to include details regarding market conditions that 
impact the trading of complex strategies; (3) revises the definition 
of an ECO to remove reference to Stock/Option Orders and Stock/
Complex Orders; (4) adds Complex QCCs as an ECO order type and 
specifies that an ECO designated as FOK must also be designated as a 
Complex Only Order; (5) specifies that an ECO will not trade with 
leg market orders designated as FOK; (6) specifies circumstances 
when an ECO may trade with another ECO at the leg market price and 
when an ECO must price improve at least a portion of the leg markets 
when there is displayed Customer interest on the Exchange; and (7) 
modifies the description of how a COA Order trades on arrival and 
prior to initiating a COA. Amendment No. 1 is available on the 
Commission's website at: https://www.sec.gov/comments/sr-nysearca-2021-68/srnysearca202168.htm.
    \9\ Amendment No. 2 revises proposed Exchange Rule 6.91P-O(c)(4) 
to provide that bids and offers for complex strategies may be 
expressed in one cent ($0.01) increments regardless of the MPV 
otherwise applicable to the individual leg(s) of the ECO. The 
Exchange notes that this provision is consistent with the rules of 
other options exchanges, including Nasdaq ISE, Options 3, Section 14 
(c)(1). In addition, Amendment No. 2 revises proposed Exchange Rule 
6.91P-O(d)(1)(B) to delete an erroneous cross-reference to proposed 
Exchange Rule 6.91P-O(a)(5)(B). Deleting the erroneous cross-
reference will make clear that the Exchange will not open a complex 
strategy in the absence of an Exchange BO or ABO, even if there is 
an Exchange BB or an ABB. Amendment No. 2 is available on the 
Commission's website at: https://www.sec.gov/comments/sr-nysearca-2021-68/srnysearca202168.htm.
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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
Background
    The Exchange plans to transition its options trading platform to 
its Pillar technology platform. The Exchange's and its national 
securities exchange affiliates' \10\ (together with the Exchange, the 
``NYSE Exchanges'') cash equity markets are currently operating on 
Pillar. For this transition, the Exchange proposes to use the same 
Pillar technology already in operation for its cash equity markets. In 
doing so, the Exchange will be able to offer not only common 
specifications for connecting to both of its cash equity and equity 
options markets, but also common trading functions. The Exchange plans 
to roll out the new technology platform over a period of time based on 
a range of symbols, anticipated for the second quarter of 2022.
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    \10\ The Exchange's national securities exchange affiliates are 
the New York Stock Exchange LLC (``NYSE''), NYSE American LLC 
(``NYSE American''), NYSE National, Inc. (``NYSE National''), and 
NYSE Chicago, Inc. (``NYSE Chicago'').
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    In this regard, the Exchange recently filed a proposal to add new 
rules to reflect how options, particularly single-leg options, would 
trade on the Exchange once Pillar is implemented.\11\ The current 
proposal sets forth how Electronic Complex Orders \12\ would trade on 
the Exchange once Pillar is implemented. As noted in the Single-Leg 
Pillar Filing, as the Exchange transitions to Pillar, certain rules 
would continue to be applicable to symbols trading on the current 
trading platform, but would not be applicable to symbols that have 
transitioned to trading on Pillar.\13\ Consistent with the Single-Leg 
Pillar Filing, proposed Rule 6.91P-O would have the same number as the 
current Electronic Complex Order Trading rule, but with the modifier 
``P'' appended to the rule number. Current Rule 6.91-O, governing 
Electronic Complex Order Trading, would remain unchanged and continue 
to apply to any trading in symbols on the current system. Proposed Rule 
6.91P-O would govern Electronic Complex Orders for trading in options 
symbols migrated to the Pillar platform. This Amendment No. 1 
supersedes the original filing in its entirety.\14\
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    \11\ See Securities Exchange Act Release No. 94072 (January 26, 
2022), 87 FR 5592 (February 1, 2022) (Notice of filing Notice of 
Filing of Amendment No. 4 and Order Granting Accelerated Approval of 
a Proposed Rule Change, as Modified by Amendment No. 4) (SR-
NYSEArca-2021-47) (``Single-Leg Pillar Filing'').
    \12\ The term ``Electronic Complex Order'' is currently defined 
in the preamble to Rule 6.91-O to mean any Complex Order, as defined 
in Rule 6.62-O(e) or any Stock/Option Order or Stock/Complex Order 
as defined in Rule 6.62-O(h) that is entered into the NYSE Arca 
System (the ``System'').
    \13\ See Single-Leg Pillar Filing (providing that, once a symbol 
is trading on the Pillar trading platform, a rule with the same 
number as a rule with a ``P'' modifier would no longer be operative 
for that symbol and the Exchange would announce by Trader Update 
when symbols are trading on the Pillar trading platform).
    \14\ This Amendment No. 1 makes certain non-substantive 
clarifying changes from the original filing (including alphabetizing 
the proposed definitions and relocating the description of Complex 
Only Orders), and makes the following substantive changes from the 
original filing: (1) Adds new definitions of Away Market Deviation 
and Leg Ratios; (2) revises the definition of DBBO to add cross-
reference to ABBO, as that term is defined in the Single-Leg Pillar 
Filing, and to include details regarding market conditions that 
impact the trading of complex strategies; (3) revises the definition 
of an ECO to remove reference to Stock/Option Orders and Stock/
Complex Orders; (4) adds Complex QCCs as an ECO order type and 
specifies that an ECO designated as FOK must also be designated as a 
Complex Only Order; (5) specifies that an ECO will not trade with 
leg market orders designated as FOK; (6) specifies circumstances 
when an ECO may trade with another ECO at the leg market price and 
when an ECO must price improve at least a portion of the leg markets 
when there is displayed Customer interest on the Exchange; and (7) 
modifies the description of how a COA Order trades on arrival and 
prior to initiating a COA.
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    Similar to the Single-Leg Pillar Filing, proposed Rule 6.91P-O 
would (1) use Pillar terminology based on Pillar terminology that the 
Exchange uses for cash equities trading, as described in Exchange Rule 
7-E; and (2) introduce new functionality for Electronic Complex Order 
trading (e.g., adopting a DBBO and Away Market Deviation price check as 
well as enhancing the opening process for ECOs as described below).
    Finally, as discussed in the Single-Leg Pillar Filing, the Exchange 
will announce by Trader Update when symbols are trading on the Pillar 
trading platform. The Exchange intends to transition Electronic Complex 
Order trading on Pillar at the same time that single-leg trading is 
transitioned to Pillar.
Proposed Rule 6.91P-O: Electronic Complex Order Trading
    Current Rule 6.91-O (Electronic Complex Order Trading) specifies 
how the Exchange processes Electronic Complex Orders submitted to the 
Exchange. The Exchange proposes new Rule 6.91P-O to establish how such 
orders would be processed after the transition to Pillar. To promote 
clarity and transparency, the Exchange proposes to add a preamble to 
current Rule 6.91-O specifying that it would not be applicable to 
trading on Pillar.
    As discussed in greater detail below and unless otherwise specified 
herein, the Exchange is not proposing fundamentally different 
functionality regarding how Electronic Complex Orders would trade on 
Pillar than is currently available on the Exchange. However, with 
Pillar, the Exchange would use Pillar terminology to describe 
functionality that is not changing and also introduce certain new or 
updated functionality for Electronic Complex Orders (i.e., enhancing 
the opening auction process, including introducing the ``ECO Auction 
Collars'') that will also be available for outright options trading on 
the Pillar platform.
    Definitions. Proposed Rule 6.91P-O(a) would set forth the 
definitions applicable to trading on Pillar under the new rule.
    <bullet> Proposed Rule 6.91P-O(a)(1) would define the term ``Away 
Market Deviation'' as the difference between the Exchange BB (BO) for a 
series and the ABB (ABO) for that same series when the Exchange BB (BO) 
is lower (higher) than the ABB (ABO).\15\ The maximum allowable Away 
Market Deviation is the greater of $0.05 or 5% below (above) the ABB 
(ABO) (rounded down to the nearest whole penny). As further proposed, 
no ECO on the Exchange would execute at a price that would exceed the 
maximum allowable Away Market Deviation on any component of the complex 
strategy. The maximum allowable Away Market Deviation is designed to 
protect market participants from having their complex strategies

[[Page 21961]]

execute at prices that are significantly outside of (and inferior to) 
the market for the individual legs. The proposed functionality provides 
the Exchange with flexibility in determining the acceptable execution 
range by allowing that it be calculated using either a percentage 
amount or a dollar amount. This proposed risk protection is not new or 
novel as it is available on other options exchanges.\16\ As discussed 
further below, the Exchange proposes that its calculation of the DBBO 
(for each leg of a complex strategy) as well as trading of ECOs with 
the leg markets would be bound by the maximum allowable Away Market 
Deviation as an additional protection against ECOs being executed on 
the Exchange at prices too far away from the current market. This 
proposed definition is new and would promote clarity and transparency.
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    \15\ In the Single-Leg Pillar Filing, the Exchange defines the 
(new) term ``Away Market BBO (`ABBO')'' as referring to the best 
bid(s) or offer(s) disseminated by Away Markets and calculated by 
the Exchange based on market information the Exchange receives from 
OPRA and the terms ``ABB'' and ``ABO'' as referring to the best Away 
Market bid and best Away Market offer, respectively. See Single-Leg 
Pillar Filing (defining Away Market BBO in proposed Rule 1.1).
    \16\ See, e.g., BOX Options Exchange LLC (``BOX'') Rule 
7240(b)(3)(iii)(A) (providing that each leg of a complex strategy 
trade equal to or better than the ``Extended cNBBO,'' which has a 
default setting (per Rule 7240(a)(5)) of 5% of the cNBB or cNBO (per 
Rule 7240(a)(2) and (4), respectively) as applicable, or $0.05); 
Nasdaq ISE, LLC (``Nasdaq ISE''), Options 3, Section 16 (a) 
(providing that, in regard to ``Price limits for Complex Orders, 
``[n]otwithstanding, the System will not permit any leg of a complex 
strategy to trade through the NBBO for the series or any stock 
component by a configurable amount calculated as the lesser of (i) 
an absolute amount not to exceed $0.10, and (ii) a percentage of the 
NBBO not to exceed 500%, as determined by the [ISE] Exchange on a 
class, series or underlying basis'').
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    <bullet> Proposed Rule 6.91P-O(a)(2) would define the term 
``Complex NBBO'' to mean the derived national best net bid and derived 
national best net offer for a complex strategy calculated using the NBB 
and NBO for each component leg of a complex strategy. This definition 
is based on current Rule 6.1A-O(a)(11)(b), without any substantive 
differences.
    <bullet> Proposed Rule 6.91P-O(a)(3) would define ``Complex Order 
Auction'' or ``COA'' to mean an auction of an ECO as set forth in 
proposed Rule 6.91P-O(f) (discussed below). This definition is based on 
the title of paragraph (c) of current Rule 6.91-O, which sets forth the 
COA Process for ECOs without any substantive differences. Proposed Rule 
6.91P-O(a)(3) would also state that the terms defined in paragraphs 
(a)(3)(A)-(D) would be used for purposes of a COA.
    Proposed Rule 6.91P-O(a)(3)(A) would define a ``COA Order'' to mean 
an ECO that is designated by the OTP Holder as eligible to initiate a 
COA. This definition is based on the definition of a ``COA-eligible 
order'' as set forth in current Rule 6.91-O(c)(1) and (c)(1)(i), with a 
difference that the proposed definition would not require that an 
option class be designated as COA-eligible because all option classes 
that trade on Pillar would be COA-eligible.
    Proposed Rule 6.91P-O(a)(3)(B) would define the term ``Request for 
Response'' or ``RFR'' to refer to the message disseminated to the 
Exchange's proprietary complex data feed announcing that the Exchange 
has received a COA Order and that a COA has begun. As further proposed, 
the definition would provide that each RFR message would identify the 
component series, the price, the size and side of the market of the COA 
Order. This definition is based on the description of RFR in Rule 6.91-
O(c)(3) without any substantive differences. The Exchange proposes a 
clarifying difference to make clear that RFR messages would be sent 
over the Exchange's proprietary complex data feed, which is based on 
current functionality.
    Proposed Rule 6.91P-O(a)(3)(C) would define the term ``RFR 
Response'' to mean any ECO received during the Response Time Interval 
(defined below) that is in the same complex strategy, on the opposite 
side of the market of the COA Order that initiated the COA, and 
marketable against the COA Order.\17\ This definition is based in part 
on the description of RFR Responses in Rule 6.91-O(c)(5). However, 
unlike the current definition, an RFR Response would not have a time-
in-force contingency for the duration of the COA. Instead, the Exchange 
would consider any ECOs received during the Response Time Interval 
(defined below) that are marketable against the COA Order as an RFR 
Response. As described below, the Exchange proposes to define 
separately the term ``ECO GTX Order,'' which would be more akin to the 
current definition of RFR Response. In addition, the proposed 
definition omits the current rule description that an RFR Response may 
be entered in $0.01 increments or that such responses may be modified 
or cancelled because these features are applicable to all ECOs and 
therefore not necessary to separately state in connection with RFR 
Responses.
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    \17\ The term ``marketable'' is defined in proposed Rule 1.1 of 
the Single-Leg Pillar Filing.
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    Proposed Rule 6.91P-O(a)(3)(D) would define the term ``Response 
Time Interval'' to mean the period of time during which RFR Responses 
for a COA may be entered and would provide that the Exchange would 
determine and announce by Trader Update the length of the Response Time 
Interval; provided, however, that the duration of the Response Time 
Interval would not be less than 100 milliseconds and would not exceed 
one (1) second. This definition is based in part on the description of 
Response Time Interval in Rule 6.91-O(c)(4), with a difference that the 
Exchange proposes to reduce the minimum time from 500 milliseconds to 
100 milliseconds. While other options exchanges do not establish a 
minimum duration for a COA, the Exchange notes that the proposed 100 
millisecond minimum is consistent with the minimum auction length for 
electronic-paired auctions on NYSE American and for auctions on other 
markets.\18\ Given that other options exchanges have (for years) 
offered electronic auction mechanisms with a Response Time Interval of 
at least 100 milliseconds, the Exchange believes that the proposed 
Response Time Interval of at least this length would provide OTP 
Holders and OTP Firms adequate time to respond to a COA.\19\
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    \18\ See, e.g., NYSE American Rules 971.1NY(c)(2)(B) (providing 
that for a Customer Best Execution Auction ``[t]he minimum/maximum 
parameters for the Response Time Interval will be no less than 100 
milliseconds and no more than one (1) second'') and 971.2NY(c)(1)(B) 
(same); Cboe Exchange Inc. (``Cboe'') Rule 5.33(d)(3) (providing 
that Cboe ``determines the duration of the Response Time Interval on 
a class-by-class basis, which may not exceed 3000 milliseconds'').
    \19\ See, e.g., Securities Exchange Act Release Nos. 82498 
(January 12, 2018), 83 FR 2823 (January 19, 2018) (SR-NYSEAmer-2017-
26) (Notice of filing and immediate effectiveness of proposed rule 
change to reduce the response time interval for a CUBE Auction to no 
less than 100 milliseconds); 83384 (June 5, 2018), 83 FR 27061 (June 
11, 2018) (SR-NYSEAMER-2018-05) (Order approving Complex CUBE 
functionality, including Rule 971.2NY(c)(1)(B), providing that 
``[t]he minimum/maximum parameters for the Response Time Interval 
will be no less than 100 milliseconds and no more than one (1) 
second'')).
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    <bullet> Proposed Rule 6.91P-O(a)(4) would define the term 
``Complex strategy'' to mean a particular combination of leg components 
and their ratios to one another. The proposed definition would further 
provide that new complex strategies can be created when the Exchange 
receives either a request to create a new complex strategy or an ECO 
with a new complex strategy. This proposed definition is new and is 
consistent with how this concept is defined on other options exchanges 
and would promote clarity and transparency.\20\
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    \20\ See, e.g., Cboe Rule 5.33(a) (defining ``complex strategy'' 
as ``a particular combination of components and their ratios to one 
another'' and further providing that ``[n]ew complex strategies can 
be created as the result of the receipt of a complex instrument 
creation request or complex order for a complex strategy that is not 
currently in the System''); MIAX Options Exchange (``MIAX'') Rule 
518(a)(6) (same).
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    <bullet> Proposed Rule 6.91P-O(a)(5) would define the term ``DBBO'' 
to address situations where it is necessary to derive a (theoretical) 
bid or offer for a particular complex strategy. As

[[Page 21962]]

proposed, ``DBBO'' would mean the derived best net bid (``DBB'') and 
derived best net offer (``DBO'') for a complex strategy. The bid 
(offer) price used to calculate the DBBO on each leg would be the 
Exchange BB (BO) \21\ (if available), bound by the maximum allowable 
Away Market Deviation (as defined above). If a leg of a complex 
strategy does not have an Exchange BB (BO), the bid (offer) price used 
to calculate the DBBO would be the ABB (ABO) for that leg. Thus, the 
``bid (offer)'' prices used to calculate the DBBO would be based on the 
Exchange BB (BO) for each leg when available, and, absent an Exchange 
BB (BO) for a given leg, the ABB (ABO). The proposed definition would 
also provide that the DBBO would be updated as the Exchange BBO or 
ABBO, as applicable, is updated.
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    \21\ The term BBO when used with respect to options traded on 
the Exchange would mean ``the best displayed bid or best displayed 
offer on the Exchange.'' See Single-Leg Pillar Filing (defining BBO 
in Rule 1.1, which definition is substantially identical to the 
current definition of BBO in Rule 6.1A-O(a)(2)(a)).
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    Proposed Rule 6.91P-O(a)(5)(A) would provide further detail about 
how the DBBO would be derived when, for a leg, there is no Exchange BB 
(BO) and no ABB (ABO). As proposed, in such circumstances, the bid 
(offer) price used to calculate the DBBO would be the offer (bid) price 
for that leg (i.e., Exchange BO (BB), bound by the maximum allowable 
Away Market Deviation (or the ABO (ABB) for that leg if no Exchange BO 
(BB) is available)), minus (plus) ``one collar value,'' which would be 
(i) $0.25 where the offer (bid) is priced $1.00 or lower, or the lesser 
of $2.50 or 25% of the offer (bid) where the offer (bid) is priced 
above $1.00 (rounded down to the nearest whole penny); or (ii) $0.01, 
if the offer is equal to or less than one collar value. The proposed 
values used to generate a DBBO in the absence of local or Away Market 
interest is consistent with the values used in the Trading Collars for 
single-leg orders, per Rule 6.62P-O(a)(4)(C).\22\ In addition, such 
values are within the current parameters for determining whether a 
trade is an Obvious Error or Catastrophic Error.\23\ This proposed 
definition of the DBBO is new and is based, in part, on the current 
definition of Complex BBO set forth in Rule 6.1A-O(a)(2)(b), as well as 
on how this concept is defined on other options exchanges, including on 
NYSE American.\24\ The Exchange believes that providing an alternative 
means of calculating the DBBO (i.e., by looking to the contra-side best 
bid (offer) in the absence of same-side interest) would benefit market 
participants as it should increase opportunities for trading. For 
example, absent this proposed functionality, the Exchange would not be 
able to trade complex strategies when, for at least one leg of such 
strategy, the Exchange has no displayed interest on one or both sides 
of such component leg. Allowing the Exchange to look to the ABBO to 
calculate the DBBO in such circumstances would increase trading 
opportunities for ECOs to the benefit of all market participants. The 
Exchange believes that the additional detail about how the DBBO would 
be calculated in the absence of an Exchange BB (BO) and ABB (ABO), 
including that it would be rounded down to the nearest whole penny, 
would promote clarity and transparency. As noted above and herein, the 
Exchange believes that binding the DBBO (when calculated using the 
Exchange BBO) to the maximum allowable Away Market Deviation would help 
prevent ECOs from executing on the Exchange at prices too far away from 
the current market.
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    \22\ See Single-Leg Pillar Filing (describing the calculation of 
Trading Collars, per Rule 6.62P-O(a)(4)(C), which ``for an order to 
buy (sell) will be a specified amount above (below) the Reference 
Price, as follows: (1) For orders with a Reference Price of $1.00 or 
lower, $0.25; or (2) for orders with a Reference Price above $1.00, 
the lower of $2.50 or 25%)''). The Reference Price for calculating 
the Trading Collar for an order to buy (sell) will be the NBO (NBB), 
except in certain enumerated circumstances. See id. (setting forth 
the applicable Reference Price, per Rule 6.62P-O(a)(4)(B)).
    \23\ See Rules 6.87-O(c)(1) (thresholds for Obvious Errors) and 
6.87-O(d)(1) (thresholds for Catastrophic Errors).
    \24\ See, e.g., NYSE American Rule 900.2NY(7)(b) (providing that 
the Derived BBO ``is calculated using the BBO from the Consolidated 
Book for each of the options series comprising a given complex order 
strategy''); Cboe Rule 5.33(a) (defining ``Synthetic Bed Bid or 
Offer and SBBO'' for complex orders as ``the best bid and offer on 
the Exchange for a complex strategy calculated using'' the ``BBO for 
each component (or the NBBO for a component if the BBO for that 
component is not available) of a complex strategy from the [Cboe] 
Simple Book'').
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    Proposed Rule 6.91P-O(a)(5)(B) would provide that, if for a leg of 
a complex strategy, there is neither an Exchange BBO nor an ABBO, the 
Exchange would not allow the complex strategy to trade until, for that 
leg, there is either an Exchange BB or BO, or an ABB or ABO, on at 
least one side of the market. The Exchange believes that preventing a 
complex strategy from trading when, for a leg, there is no reliable 
pricing indication--either on the Exchange or in Away Markets, would 
benefit market participants by preventing potentially erroneous 
executions. Moreover, including this additional detail in the proposed 
rule about when a complex strategy would not trade would benefit market 
participants as it would promote clarity and transparency in Exchange 
rules regarding ECO trading.
    Proposed Rule 6.91P-O(a)(5)(C) would provide that if the best bid 
and offer prices (when not based solely on the Exchange BBO) for a 
component leg of a complex strategy are locked or crossed, the Exchange 
would not allow an ECO for that strategy to execute against another ECO 
until the condition resolves. The Exchange notes that, as described 
above, the DBBO may be calculated using leg prices derived either 
exclusively from, or a combination of, the Exchange BBO, the ABBO, or 
the Exchange BBO as adjusted to be priced within the maximum allowable 
Away Market Deviation. As such, if the best bid and offer prices (when 
not based solely on Exchange BBO) for a component leg of a complex 
strategy are locked or crossed, a DBBO calculated when using those 
prices could be erroneous.\25\ Accordingly, the Exchange believes that 
it is appropriate to not permit an ECO to execute against another ECO 
under these circumstances until the locked or crossed market resolves. 
The Exchange believes preventing ECO-to-ECO trading in this 
circumstance would benefit market participants by preventing 
potentially erroneous ECO executions. Moreover, including this 
additional detail in the proposed rule about when an ECO would be 
prevented from trading with another ECO would benefit market 
participants as it would promote clarity and transparency in Exchange 
rules regarding ECO trading.
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    \25\ The reliability of the Exchange's calculated DBBO is 
essential to ECO trading on the Exchange as this concept permeates 
all aspects of complex trading, including to determine price 
parameters at the opening of each series and in determining when, 
and at what price, a COA Order may initiate a COA as well as market 
events impacting the DBBO that would result in an early end to a 
COA. See, e.g., proposed Rule 6.91P-O(d)(3) (relying on the DBBO to 
determine ECO Auction Collars for the ECO Opening Auction Process) 
and 6.91P-O(f)(2)(A) and (f)(3) (relying on the DBBO to both 
initiate and price a COA Order as well as to terminate a COA early 
under certain market conditions)).
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    Further, per proposed Rule 6.91P-O(a)(5)(C), if an Away Market 
quote updates to lock or cross the current Exchange BB (BO) or ABB 
(ABO) for a component leg of a complex strategy, the Exchange would 
allow an ECO for that strategy to execute against leg market interest 
on the Exchange. Allowing an eligible ECO to execute against leg market 
interest in these

[[Page 21963]]

circumstances is consistent with the way single-leg orders trade. In 
this regard, the Exchange notes that, to the extent that leg prices are 
locked or crossed as a result of updates to the ABBO, such updates do 
not prevent resting leg market interest from trading at its resting 
price with all eligible contra-side interest, which includes incoming 
ECOs in the same complex strategy.\26\
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    \26\ See Single-Leg Pillar Filing (discussing Rules 6.76P-
O(b)(3) providing that ``[i]f an Away Market locks or crosses the 
Exchange BBO, the Exchange will not change the display price of any 
Limit Orders or quotes ranked Priority 2--Display Orders and any 
such orders will be eligible to be displayed as the Exchange's 
BBO'').
---------------------------------------------------------------------------

    Moreover, to the extent that an ECO trades with leg market interest 
in a complex strategy when interest in the leg markets is crossed, such 
executions are not deemed as trade-throughs.\27\ As such, the Exchange 
believes that allowing an ECO to trade with leg market interest in this 
circumstance would maximize the execution opportunities of such ECO 
while respecting price-time priority of the leg markets.
---------------------------------------------------------------------------

    \27\ See Rule 6.94-O(b)(3) (exempting from trade-through 
liability transactions that occur ``when there was a Crossed 
Market''). See also the Options Order Protection And Locked/Crossed 
Market Plan, dated April 14, 2009, available here, https://www.theocc.com/getmedia/7fc629d9-4e54-4b99-9f11-c0e4db1a2266/options_order_protection_plan.pdf.
---------------------------------------------------------------------------

    <bullet> Proposed Rule 6.91P-O(a)(6) would define the term ``ECO 
Order Instruction'' to mean a request to cancel, cancel and replace, or 
modify an ECO. As described further below, this concept relates to 
order processing when a series opens or reopens for trading and is 
based on the term ``order instruction'' as used in Rule 7.35-E(g) and 
proposed to be used in Rules 6.64P-O(e) and (f), which (similarly) 
would define an ``order instruction'' for options as a request to 
cancel, cancel and replace, or modify an order or quote.\28\
---------------------------------------------------------------------------

    \28\ See Single-Leg Pillar Filing (describing opening Auction 
Process rule per Rule 6.64P-O).
---------------------------------------------------------------------------

    <bullet> Proposed Rule 6.91P-O(a)(7) would define the term 
``Electronic Complex Order'' or ``ECO'' to mean a Complex Order as 
defined in Rule 6.62P-O(f) that would be submitted electronically to 
the Exchange.\29\ This proposed definition is based on the preamble to 
Rule 6.91-O, except that, under Pillar, an ECO would not include Stock/
Option Orders and Stock/Complex Order \30\ and the Exchange proposes to 
replace reference to the ``NYSE Arca System'' with the term 
``Exchange'' and to update cross-reference to the definition of a 
Complex Order as proposed in the Single-Leg Pillar Filing.
---------------------------------------------------------------------------

    \29\ The proposed definition of Complex Order under Pillar is 
set forth in Rule 6.62P-O(f), as described in the Single-Leg Pillar 
Filing, and is substantially identical to the current definition.
    \30\ See Single-Leg Pillar Filing (describing Stock/Option 
Orders and Stock/Complex Orders, per Rule 6.642-O(H)(6)(A) and (B) 
respectively, as open outcry only orders). Although current Rule 
6.91-O provides that Stock/Option Orders and Stock/Complex Orders 
may trade as ECOs, under current functionality (and consistent with 
Pillar) such orders only trade in open outcry.
---------------------------------------------------------------------------

    <bullet> Proposed Rule 6.91P-O(a)(8) would define the term ``leg'' 
or ``leg market'' to mean each of the component option series that 
comprise an ECO. This definition is consistent with the concept of leg 
markets as used in current Rule 6.91-O(a), which defines legs as 
individual orders and quotes in the Consolidated Book. The Exchange 
believes the proposed definition would add clarity regarding how the 
terms ``leg'' and ``leg market'' would be used in connection with ECO 
trading on Pillar.
    <bullet> Proposed Rule 6.91P-O(a)(9) would define ``Ratio'' or 
``leg ratio'' to mean the quantity of each leg of an ECO broken down to 
the least common denominator such that the ``smallest leg ratio'' is 
the portion of the ratio represented by the leg with the fewest 
contracts. The Exchange believes the proposed definition would add 
clarity regarding how the terms ``ratio'' and ``leg ratio'' would be 
used in connection with ECOs trading on Pillar, which definition is 
consistent with how this concept is described on other options 
exchanges.\31\
---------------------------------------------------------------------------

    \31\ See, e.g., Cboe, US Options Complex Book Process, Complex 
Order Basics, Section 2.1, Ratios, available here: https://cdn.batstrading.com/resources/membership/US-Options-Complex-Book-Process.pdf (providing that ``[t]he quantity of each leg of a 
complex order broken down to the lowest terms will determine the 
ratio of the complex order'').
---------------------------------------------------------------------------

    Types of ECOs. Proposed Rule 6.91P-O(b) would set forth the types 
of ECOs that would trade on Pillar. Proposed Rule 6.91P-O(b)(1) would 
provide that ECOs may be entered as Limit Orders, Limit Orders 
designated as Complex Only Orders, or as Complex QCCs.\32\ This 
proposed text is based on current Rule 6.91-O(b)(1), with a difference 
to provide that the Exchange would offer Complex Only Orders and 
Complex QCCs on Pillar. Allowing ECOs to be designated as Complex QCCs 
(which order type is described in the Single-Leg Pillar Filing) is 
consistent with current functionality not described in the rule and the 
Exchange believes that this additional specificity to the proposed rule 
would add clarity and transparency. Complex Only Orders (as described 
below) are based on existing functionality for PNP Plus orders, with 
updated functionality available on Pillar.\33\
---------------------------------------------------------------------------

    \32\ See Single-Leg Pillar Filing (describing Limit Orders and 
Complex QCC Orders per Rule 6.62P-O(a)(2) and (g)(1)(A), (C) and 
(D)).
    \33\ See, infra, for discussion of proposed Rule 6.91P-
O(e)(1)(C) (discussing Complex Only Order functionality).
---------------------------------------------------------------------------

    <bullet> Proposed Rule 6.91P-O(b)(2) would set forth the time-in-
force contingencies available to ECOs, which would be Day, IOC, FOK, or 
GTC, as those terms are defined in the Single-Leg Pillar Filing in Rule 
6.62P-O(b), and GTX (per proposed Rule 6.91P-O(b)(2)(C) as described 
below). The proposed text is based on current Rules 6.91-O(b)(2) and 
(3), except that it adds GTX (as described below). The proposed text 
also omits AON because the Exchange would not offer AONs for ECO 
trading on Pillar.
    <bullet> Proposed Rule 6.91P-O(b)(2)(A) would provide that an ECO 
designated as IOC or FOK would be rejected if entered during a pre-open 
state,\34\ which is consistent with the time-in-force of the order 
(because they could not be traded when a complex strategy is not open 
for trading) as well as with current functionality.
---------------------------------------------------------------------------

    \34\ The term ``pre-open state'' is defined in Rule 6.64P-
O(a)(12), as described in the Single-Leg Pillar Filing, to mean 
``the period before a series is opened or reopened.''
---------------------------------------------------------------------------

    <bullet> Proposed Rule 6.91P-O(b)(2)(B) would provide that an ECO 
designated as FOK must also be designated as a Complex Only Order (per 
proposed Rule 6.91P-O(b)(1) and described further below). This proposed 
rule, which is new under Pillar, would simplify the operation of 
electronic complex order trading and would add clarity and transparency 
that ECOs designated as FOK (i.e., that have conditional size-related 
instructions) would not be eligible to trade with the leg markets.
    <bullet> Proposed Rule 6.91P-O(b)(2)(C) would provide that an ECO 
designated as GTX would be defined as an ``ECO GTX Order'' and would 
have the following features: It would not be displayed; it may be 
entered only during the Response Time Interval of a COA; it must be on 
the opposite side of the market as the COA Order; and it must specify 
the price, size, and side of the market. As further proposed, ECO GTX 
Orders may be modified or cancelled during the Response Time Interval 
and any remaining size that does not trade with the COA Order would be 
cancelled at the end of the COA. This definition is based on the 
description of an RFR Response in current Rule 6.91-O(c)(5)(A)-(C), 
which likewise are not displayed and expire at the end of the COA.
    Priority and Pricing of ECOs. Proposed Rule 6.91P-O(c) would set

[[Page 21964]]

forth how ECOs would be prioritized and priced under Pillar. The 
proposed priority scheme for ECOs under Pillar is consistent with 
current functionality, with the differences and clarifications noted 
below. As proposed, an ECO received by the Exchange that is not 
immediately executed (or cancelled), including an ECO that cannot trade 
due to conditions described in paragraphs (a)(5)(B)-(C) (above) \35\ 
and (c)(1)-(2) of this proposed Rule (below) or does not initiate a COA 
per paragraph (f)(1) (below), would be ranked in the Consolidated Book 
according to price-time priority based on the total net price and the 
time of entry of the order. This proposed rule adds cross-references to 
new rule text but is otherwise based on Rule 6.91-O(a)(1), without any 
substantive differences. The Exchange proposes a non-substantive 
difference to refer simply to a ``net price'' rather than a ``net debit 
or credit price,'' which streamlined terminology is consistent with the 
use of the term ``net price'' on other options exchanges.\36\ The 
proposed rule also incorporates the first sentence of Rule 6.91-
O(a)(2)(iii)(A), regarding the ranking and priority of ECOs not 
immediately executed, with additional detail regarding the time-in-
force modifier of the ECO, which adds clarity and transparency to the 
proposed Rule.\37\
---------------------------------------------------------------------------

    \35\ Proposed Rule 6.91P-O(a)(5)(B)-(C) describe conditions 
related to the leg markets when complex strategies will not trade.
    \36\ See, e.g., Cboe Rule 5.33(f)(2) (setting forth parameters 
for the ``net price'' of complex orders traded on Cboe); Nasdaq ISE, 
Options 3, Section 14 (c) (providing, in relevant part, that 
``[c]omplex strategies will not be executed at prices inferior to 
the best net price achievable from the best ISE bids and offers for 
the individual legs'').
    \37\ For example, an ECO designated as IOC that does not 
immediately execute would cancel rather than be ranked on the 
Consolidated Book, whereas an ECO designated as Day or GTC that does 
not immediately execute would be ranked on the Consolidated Book.
---------------------------------------------------------------------------

    Proposed Rule 6.91P-O(c) would further provide that, unless 
otherwise specified in this Rule, ECOs would be processed as follows:
    <bullet> Proposed Rule 6.91P-O(c)(1) would provide that when 
trading with the leg markets, an ECO would trade at the price(s) of the 
leg markets provided the leg markets are priced no more than the 
maximum allowable Away Market Deviation (as defined herein). The 
proposed rule requiring that when trading with the leg markets, the 
components of the ECO would trade at the prices of the leg markets is 
consistent with current functionality, per Rule 6.91-O(a)(2)(ii); 
requiring that such prices be bound by the Away Market Deviation for an 
ECO to trade with the leg markets is new under Pillar, as discussed 
further below).\38\
---------------------------------------------------------------------------

    \38\ See Rule 6.91-O(a)(2)(ii) (providing that ``[i]f, at a 
price, the leg markets can execute against an incoming [ECO] in full 
(or in a permissible ratio), the leg markets will have first 
priority at that price and will trade with the incoming [ECO] 
pursuant to Rule 6.76A before [ECO] resting in the Consolidated Book 
can trade at that price'').
---------------------------------------------------------------------------

    For example, if there is sell interest in a leg market at $1.00, 
and a leg of an ECO to buy could trade up to $1.05, the ECO would trade 
with such leg market at $1.00. This would result in the ECO receiving 
price improvement and is consistent with the ECO trading as the 
Aggressing Order.\39\ The proposed functionality that an ECO would 
trade with leg markets only if the prices of the leg markets are within 
(and do not exceed the maximum allowable) Away Market Deviation would 
be new under Pillar and is designed to operate as an additional 
protection against ECOs being executed on the Exchange at prices too 
far away from the current market.
---------------------------------------------------------------------------

    \39\ The term ``Aggressing Order'' is defined in Rule 1.1, as 
described in the Single-Leg Pillar Filing, to mean ``a buy (sell) 
order or quote that is or becomes marketable against sell (buy) 
interest on the Consolidated Book.''
---------------------------------------------------------------------------

    <bullet> Proposed Rule 6.91P-O(c)(2) would provide that when 
trading with another ECO, each component leg of the ECO must trade at a 
price at or within the Exchange BBO for that series, and no leg of the 
ECO may trade at a price of zero.\40\ This provision is based in part 
on current Rule 6.91-O(a)(2), which provides that no leg of an ECO will 
be executed outside of the Exchange BBO.\41\ This proposed rule, which 
ensures that ECOs would never trade through interest in the leg 
markets, is consistent with current functionality and adds clarity and 
transparency to the proposed Rule. This proposed rule is also 
consistent with how ECOs are processed on other options exchanges.\42\
---------------------------------------------------------------------------

    \40\ See, infra, for discussion of proposed Rule 6.91P-O(e)(1) 
(discussing ``Execution of ECOs During Core Trading Hours,'' 
including the treatment of ECOs that have executed, at a price, to 
the extent possible with the leg markets and of ECOs designated as 
Complex Only).
    \41\ As noted herein, no ECO on the Exchange would execute at a 
price that would exceed the maximum allowable Away Market Deviation 
on any component of the complex strategy. See proposed Rule 6.91P-
O(a)(1) (defining Away Market Deviation).
    \42\ See, e.g., BOX Rule 7240(b)(3)(ii). See also Securities 
Exchange Act Release Nos. 69027 (March 4, 2013), 78 FR 15093, 15094 
(March 8, 2013) (SR-BOX-2013-01) (providing that ``where two Complex 
Orders trade against each other, the resulting execution prices will 
be at a price equal to or better than NBBO and BOX best bid or offer 
(``BBO'') for each of the component Legs,'' per proposed Rule 
7240(b)(3)(ii)). See, e.g., Cboe Rule 5.33(f)(2) (providing that 
complex orders may not execute at a net price that would cause any 
component of the complex strategy to be executed at a price of 
zero).
---------------------------------------------------------------------------

    <bullet> Proposed Rule 6.91P-O(c)(3) would provide that an ECO may 
trade without consideration of prices of the same complex strategy 
available on other exchanges, which is based on the same text as 
contained in current Rule 6.91-O(a)(2) without any substantive 
differences.
    <bullet> Proposed Rule 6.91P-O(c)(4) would provide that bids and 
offers for complex strategies may be expressed in one cent ($0.01) 
increments, and the leg(s) of complex strategies may trade in one cent 
($0.01) increments regardless of the MPV otherwise applicable to the 
individual leg(s) of the ECO, which is based on current Rule 6.91-O, 
Commentary .01 without any substantive differences, except that it 
provides for bids and offers to be expressed in pennies rather than in 
decimals which is consistent with current functionality as well as with 
other options exchanges.\43\
---------------------------------------------------------------------------

    \43\ See Amendment No. 2 and Nasdaq ISE, Options 3, Section 14 
(c)(1) (providing, in relevant part, that ``[b]ids and offers for 
Complex Options Strategies may be expressed in one cent ($0.01) 
increments, and the options leg of Complex Options Strategies may be 
executed in one cent ($0.01) increments, regardless of the minimum 
increments otherwise applicable to the individual options legs of 
the order'').
---------------------------------------------------------------------------

    Execution of ECOs at the Open (or Reopening after a Trading Halt). 
Current Rule 6.91-O(a)(2)(i) sets forth how ECOs are executed upon 
opening or reopening of trading. Proposed Rule 6.91P-O(d) would set 
forth details about how ECOs would be executed at the open or reopen 
following a trading halt.
    With the transition to Pillar, the Exchange proposes new 
functionality regarding the ``ECO Opening Auction Process'' on the 
Exchange, which would be applicable both to openings and reopenings 
following a trading halt. The Exchange proposes to incorporate into the 
ECO Opening Auction Process certain functionality currently available 
on the Exchange's cash equity platform, which the Exchange has 
similarly proposed to include in the Auction Process for single-leg 
options.\44\ Accordingly, proposed Rule 6.91P-O(d) would use Pillar 
terminology relating to auctions that is based in part on Pillar 
terminology set forth in Rule 7.35-E for cash equity trading and in 
part on Rule 6.64P-O for single-leg options.
---------------------------------------------------------------------------

    \44\ See Single-Leg Pillar Filing (describing opening Auction 
Process rule per Rule 6.64P-O).
---------------------------------------------------------------------------

    <bullet> Proposed Rule 6.91P-O(d)(1) would set forth the conditions 
required for the commencement of an ECO Opening Auction Process. 
Specifically, as proposed, the Exchange would initiate an ECO Opening 
Auction Process for a complex strategy only if all legs of the complex 
strategy have opened or

[[Page 21965]]

reopened for trading, which text is based on current Rule 6.91-
O(a)(2)(i)(A) without any substantive differences. Proposed Rule 6.91P-
O(d)(1)(A)-(B) would set forth conditions that would prevent the 
opening of a complex strategy, as follows:
    [cir] Any leg of the complex strategy has neither an Exchange BO 
nor an ABO; or
    [cir] The complex strategy cannot trade per proposed Rule 6.91P-
O(a)(5)(C).\45\
---------------------------------------------------------------------------

    \45\ See Amendment No. 2.
---------------------------------------------------------------------------

    The proposal to detail these conditions for opening (and reopening) 
are consistent with current functionality not set forth in the current 
rule. The Exchange believes that this added detail would not only add 
clarity and transparency to Exchange rules but would also protect 
market participants from potentially erroneous executions when there is 
a lack of reliable information regarding the price at which a complex 
strategy should execute, thereby promoting a fair and orderly ECO 
Opening Auction Process.
    <bullet> Proposed Rule 6.91P-O(d)(2) would provide that any ECOs in 
a complex strategy with prices that lock or cross one another would be 
eligible to trade in the ECO Opening Auction Process. This proposed 
rule is based on current Rule 6.91-O(a)(2)(i)(B), which provides than 
an opening process will be used if there are ECOs that ``are marketable 
against each other.'' The Exchange proposes a difference in Pillar not 
to require that such ECOs be ``priced within the Complex NBBO'' because 
the proposed ECO Opening Auction Process under Pillar would instead 
rely on the DBBO (as described below).\46\ As such, the Exchange may 
open a series based on the Exchange BBO, bound by the Away Market 
Deviation (or, the ABBO if the Exchange BBO is not available), which is 
consistent with ECO handling during Core Trading (per proposed Rule 
6.91P-O(e)). The Exchange believes this proposed change would better 
align the permissible opening price for a series with the permissible 
execution price during Core Trading, which adds consistency to ECO 
order handling to the benefit of investors.
---------------------------------------------------------------------------

    \46\ See Rule 6.91-O(a)(2)(i)(B) (providing that ``[t]he CME 
will use an opening auction process if there are Electronic Complex 
Orders in the Consolidated Book that are marketable against each 
other and priced within the Complex NBBO''). Per Rule 6.1A-
O(a)(11)(b) (and proposed Rule 6.91P-O(a)(2), the ``Complex NBBO'' 
for each complex strategy is derived from the national best bid and 
national best offer for each leg.
---------------------------------------------------------------------------

    Proposed Rule 6.91P-O(d)(2)(A) would provide that an ECO received 
during a pre-open state would not participate in the Auction Process 
for the leg markets pursuant to Rule 6.64P-O, which is based on the 
same text (in the second sentence) of current Rule 6.91-O(a)(2)(i)(A) 
without any substantive differences.
    Proposed Rule 6.91P-O(d)(2)(B) would provide that a complex 
strategy created intra-day when all leg markets are open would not be 
subject to an ECO Opening Auction Process and would instead trade 
pursuant to paragraph (e) of the proposed Rule (discussed below) 
regarding the handling of ECOs during Core Trading Hours.
    Proposed Rule 6.91P-O(d)(2)(C) would provide that the ECO Opening 
Auction Process would be used to reopen trading in ECOs after a trading 
halt. This proposed rule is consistent with current Rule 6.64-O(e) and 
makes clear that the ECO Opening Auction Process would be applicable to 
reopenings, which would add internal consistency to Exchange rules and 
promote a fair and orderly ECO Opening Auction Process following a 
trading halt.
    <bullet> Proposed Rule 6.91P-O(d)(3) would describe each aspect of 
the ECO Opening Auction Process. First, proposed Rule 6.91P-O(d)(3)(A) 
would describe the ``ECO Auction Collars,'' which terminology would be 
new for ECO trading and is based on the term ``Auction Collars'' used 
in Rule 7.35-E for trading cash equity securities as well as in Rule 
6.64P-O(a)(2) for single-leg options trading.\47\
---------------------------------------------------------------------------

    \47\ See Single-Leg Pillar Filing (defining Auction Collars in 
Rule 6.64P-O(a)(2)).
---------------------------------------------------------------------------

    As proposed, the upper (lower) price of an ECO Auction Collar for a 
complex strategy would be the DBO (DBB); provided, however, that if the 
DBO (DBB) is calculated using the Exchange BBO for all legs of the 
complex strategy and all such Exchange BBOs have displayed Customer 
interest, the upper (lower) price of an ECO Auction Collar would be one 
penny ($0.01) times the smallest leg ratio inside the DBO (DBB). This 
new functionality on Pillar would ensure that if there is displayed 
Customer interest on the Exchange on all legs of the strategy, the 
opening price for the complex strategy would price improve the DBBO, 
which the Exchange believes is consistent with fair and orderly markets 
and investor protection.
    <bullet> Next, proposed Rule 6.91P-O(d)(3)(B) would describe the 
``ECO Auction Price.'' As proposed, the ECO Auction Price would be the 
price at which the maximum volume of ECOs can be traded in an ECO 
Opening Auction, subject to the proposed ECO Auction Collar. As further 
proposed, if there is more than one price at which the maximum volume 
of ECOs can be traded within the ECO Auction Collar, the ECO Auction 
Price would be the price closest to the midpoint of the ECO Auction 
Collar, or, if the midpoint falls within such prices, the ECO Auction 
Price would be the midpoint, provided that the ECO Auction Price would 
not be lower (higher) than the highest (lowest) price of an ECO to buy 
(sell) that is eligible to trade in the ECO Opening (or Reopening) 
Auction Process. The concept of an ECO Auction Price is consistent with 
the concept of ``single market clearing price'' set forth in current 
Rule 6.91-O(a)(2)(i)(B). For Pillar, the Exchange proposes to determine 
the ECO Auction Price in a manner that is based in part on how an 
Indicative Match Price is determined for trading of cash equity 
securities, as set forth in Rule 7.35-E(a)(8)(A), and how the Exchange 
proposes to determine the price for Auctions on Pillar for single-leg 
options trading.\48\
---------------------------------------------------------------------------

    \48\ See Single-Leg Pillar Filing (describing Rule 6.64P-
O(a)(9)).
---------------------------------------------------------------------------

    Finally, as proposed, if the ECO Auction Price would be a sub-penny 
price, it would be rounded to the nearest whole penny, which text is 
based on current Rule 6.91-O(a)(2)(i)(B), with a difference that the 
current rule refers to the midpoint of the Complex NBBO (which could be 
a sub-penny price and if so, is rounded down to the nearest penny) as 
opposed to referring to the ECO Auction Price, which would be a new 
Pillar term for trading ECOs, which price, if in sub-pennies, would be 
rounded (up or down) to the nearest MPV.
    Proposed Rule 6.91P-O(d)(3)(B)(i) would provide that an ECO to buy 
(sell) with a limit price at or above (below) the upper (lower) ECO 
Auction Collar would be included in the ECO Auction Price calculation 
at the price of the upper (lower) ECO Auction Collar, but ranked for 
participation in the ECO Opening (or Reopening) Auction Process in 
price-time priority based on its limit price. This proposed text is 
based in part on current Rule 6.91-O(a)(2)(i)(B). The proposed rule is 
also based on how the Exchange processes auctions for cash equity 
trading, as described in Rules 7.35-E(a)(10)(B) and (a)(6) and how the 
Exchange proposes to process Auctions on Pillar for single-leg options 
trading.\49\
---------------------------------------------------------------------------

    \49\ See Single-Leg Pillar Filing (describing Rules 6.64P-
O(a)(9)(B)(i) and 6.64P-O(b)).
---------------------------------------------------------------------------

    Proposed Rule 6.91P-O(d)(3)(B)(ii) would provide that locking and 
crossing ECOs in a complex strategy would trade at the ECO Auction 
Price. As further proposed, if there are no locking or crossing ECOs in 
a complex strategy at

[[Page 21966]]

or within the ECO Auction Collars, the Exchange would open the complex 
strategy without a trade. This proposed text would be new and is based 
in part on Rule 6.64P-O(d)(2)(B) for single-leg options, which 
describes when an option series could open without a trade.\50\
---------------------------------------------------------------------------

    \50\ See Single-Leg Pillar Filing (describing Rule 6.64P-
O(d)(2)(B)).
---------------------------------------------------------------------------

    <bullet> Proposed Rule 6.91P-O(d)(4) would describe the ``ECO Order 
Processing during ECO Opening Auction Process.'' Because the Exchange 
would be using the same Pillar auction functionality for ECO trading 
that is used for its cash equity market and that the Exchange is 
proposing for single-leg options trading, the Exchange proposes to 
apply existing Pillar auction functionality regarding how to process 
ECOs that may be received during the period when an ECO Auction Process 
is ongoing.
    Accordingly, as proposed, new ECOs and ECO Order Instructions (as 
defined in proposed Rule 6.91P-O(a)(6), described above) that are 
received when the Exchange is conducting the ECO Opening Auction 
Process for the complex strategy would be accepted but would not be 
processed until after the conclusion of this process. As further 
proposed, when the Exchange is conducting the ECO Opening Auction 
Process, ECO Order Instructions would be processed as follows:
    [cir] Proposed Rule 6.91P-O(d)(4)(A) would provide that an ECO 
Order Instruction received during the ECO Opening Auction Process would 
not be processed until after this process concludes if it relates to an 
ECO that was received before the process begins and that any subsequent 
ECO Order Instruction(s) relating to such ECO would be rejected if 
received during the ECO Opening Auction Process when a prior ECO Order 
Instruction is pending.
    [cir] Proposed Rule 6.91P-O(d)(4)(B) would provide that an ECO 
Order Instruction received during the ECO Opening Auction Process would 
be processed on arrival if it relates to an order that was received 
during this process.
    Proposed Rule 6.91P-O(d)(4) and sub-paragraphs (A) and (B) are 
based on both current Rule 7.35-E(g) and its sub-paragraphs (1) and (2) 
and Rule 6.64P-O(e) and its sub-paragraphs (1) and (2) (as described in 
the Single-Leg Pillar Filing) with differences only to reference the 
defined term ECO Order Instruction and to refer to the ECO Opening 
Auction Process. The Exchange believes that the proposed rule text 
would provide transparency regarding how ECO Order Instructions that 
arrived during the ECO Opening Auction Process would be processed.
    <bullet> Proposed Rule 6.91P-O(d)(5) would describe the 
``Transition to continuous trading'' after the ECO Opening Auction 
Process. As proposed, after the ECO Opening Auction, ECOs would be 
subject to ECO Price Protection, per proposed Rule 6.91P-O(g)(2) (as 
described below) and, if eligible to trade, would trade as follows:
    [cir] Proposed Rule 6.91P-O(d)(5)(A) would provide that ECOs 
received before the complex strategy was opened that did not trade in 
whole in the ECO Opening Auction Process and that lock or cross other 
ECOs or leg markets in the Consolidated Book would trade pursuant to 
proposed Rule 6.91P-O(e) (discussed below) regarding the handling of 
ECOs during Core Trading Hours; otherwise, such ECOs would be added to 
the Consolidated Book. This provision is based on the (last sentence) 
of current Rule 6.91-O(a)(2)(i)(B) and (C), with non-substantive 
differences to use Pillar terminology.
    [cir] Proposed Rule 6.91P-O(d)(5)(B) would provide that ECOs 
received during the ECO Opening Auction Process would be processed in 
time sequence relative to one another based on original entry time. 
This proposed rule is based on both current functionality and how the 
Exchange proposes to process orders in an option series that were 
received during an Auction Processing Period, as described in the 
Single-Leg Pillar Filing for Rule 6.64P-O(a)(6).
    Execution of ECOs During Core Trading Hours. Proposed Rule 6.91P-
O(e) would describe how ECOs would be processed during Core Trading 
Hours.
    Proposed Rule 6.91P-O(e)(1) would provide that once a complex 
strategy is open for trading, an ECO would trade with the best-priced 
contra-side interest as follows:
    <bullet> Proposed Rule 6.91P-O(e)(1)(A) relates to ECOs that are 
permitted to trade with the leg markets and would provide that if, at a 
price, the leg markets can trade with an eligible ECO,\51\ in full or 
in a permissible ratio, the leg markets would trade first at that 
price, pursuant to proposed Rule 6.76AP-O,\52\ until the quantities on 
the leg markets are insufficient to trade with the ECO, at which time 
such ECO would trade with contra-side ECOs resting in the Consolidated 
Book at that price, which is based on Rule 6.91-O(a)(2)(ii).\53\ 
Although the current rule makes clear that the leg markets have first 
priority, at a price, to trade with an ECO in full or in a permissible 
ratio, the proposed rule would add text to specify that an ECO may 
trade with another ECO at the leg market price only after such ECO has 
executed to the extent possible with the leg markets at that price. In 
other words, such ECO must first exhaust any available interest in the 
leg markets at that price that can satisfy the ECO, in full or in a 
permissible ratio, before it may trade with another ECO at that price.
---------------------------------------------------------------------------

    \51\ See proposed Rule 6.91P-O(e)(1)(C) and (D) (for description 
of ECOs that are not eligible to trade with the leg markets).
    \52\ See Single-Leg Pillar Filing (describing Rule 6.76AP-O, 
Order Execution and Routing, which is the substantively identical 
Pillar version of current Rule 6.76AP-O).
    \53\ See Rule 6.91-O(a)(2)(ii) (providing that ``[i]f, at a 
price, the leg markets can execute against an incoming [ECO] in full 
(or in a permissible ratio), the leg markets will have first 
priority at that price and will trade with the incoming 
[ECO]pursuant to Rule 6.76A before [ECO] resting in the Consolidated 
Book can trade at that price'').
---------------------------------------------------------------------------

    This proposed description regarding how ECOs would trade with other 
ECOs is consistent with the rules of the BOX, and is therefore not new 
or novel.\54\ Per BOX Rule 7240(b)(2)(ii), ``[a] Complex Order for 
which a leg of such Complex Orders' underlying Strategy is not in a 
one-to-one ratio with each other leg of such Strategy'' must first 
trade with all eligible interest in the leg markets, i.e., ``for all of 
the quantity available at the best price in a permissible ratio until 
the quantities remaining on the BOX Book are insufficient to execute 
against the Complex Order while respecting the ratio.'' \55\ And, after 
such execution on the BOX Book, ``the remaining quantity of the Complex 
Order may execute against other Complex Orders and the component Legs 
of the Complex Order may trade at prices equal to the corresponding 
prices on the BOX Book.'' \56\
---------------------------------------------------------------------------

    \54\ See BOX Rule 7240(b)(2)(ii). See also Securities Exchange 
Act Release Nos. 69027 (March 4, 2013) 78 FR 15093 (March 8, 2013) 
(Notice of Proposed Rule Change, as Modified by Amendment No. 1, 
regarding, among other things, allowing the execution of certain 
Complex Orders to trading at the same price as best-priced interest 
in the BOX Book after such eligible leg interest has been exhausted) 
(``BOX Notice''); 69419 (April 19, 2013) 78 FR 24449 (April 25, 
2013) (Order Approving BOX Notice) (``BOX Approval Order'') (SR-BOX-
2013-01).
    \55\ See BOX Rule 7240(b)(2)(ii). The ``BOX Book'' is 
conceptually the same as the leg markets and are defined as ``the 
electronic book of orders on each single series of options 
maintained by the BOX Trading Host.'' See BOX Rule 100(a)(10).
    \56\ See BOX Rule 7240(b)(2)(ii).
---------------------------------------------------------------------------

    Consistent with BOX Rule 7240(b)(2)(ii), proposed Rule 6.91P-
O(e)(1)(A) would provide that an ECO that is eligible to trade with the 
leg markets must first trade with the leg markets, at a price, to the 
extent possible (i.e., in full or in a permissible

[[Page 21967]]

ratio) before that ECO can trade at the same price with another 
ECO.\57\ As proposed, such ECO would never trade ahead of interest 
(Customer or otherwise) in the leg markets if that interest is 
sufficient to satisfy the ECO in full or in a permissible ratio. 
However, such ECO may execute with another ECO, at a price, after 
exhausting eligible leg market interest--Customer or otherwise--at that 
price if the leg markets cannot satisfy the ratio spread of the 
ECO).\58\ Thus, per proposed Rule 6.91P-O(e)(1)(A), such ECO would be 
eligible to trade with contra-side ECOs resting in the Consolidated 
Book at the same price, which is consistent with BOX's rules.\59\
---------------------------------------------------------------------------

    \57\ See proposed Rule 6.91P-O(e)(1)(A).
    \58\ See id. Unlike BOX, the Exchange has deemed it unnecessary 
to refer to ECOs with other than one-to-one ratios and believes the 
proposed rule text is clear and concise in stating that if the leg 
markets have sufficient quantity to satisfy an ECO in full or in a 
permissible ratio, such leg markets have first priority to trade 
with such ECO (ahead of any ECOs resting in the Consolidated Book at 
that price) unless or until the leg market interest cannot satisfy 
the ECO ratio spread.
    \59\ The Exchange does not propose to copy into Rule 6.91P-
O(e)(1)(A) the requirement of current Commentary .02 to Rule 6.91-O 
that at least one leg of an ECO must execute at a price better than 
the corresponding leg market price containing Customer interest 
because this requirement would be incorporated into how Complex Only 
Orders would function on the Exchange, and therefore the Exchange no 
longer needs to separately specify that requirement. See proposed 
Rule 6.91P-O(a)(1)(C) (requiring of Complex Only Order that, when 
there is displayed Customer interest on all legs of the complex 
strategy, such Complex Only Order must price improve at least a 
portion of such displayed Customer interest).
---------------------------------------------------------------------------

    The Exchange believes this proposed Rule makes clear that the 
priority of the leg markets remains primary--as such interest is 
afforded the opportunity to trade at the best price, but also ensures 
that ECO trading opportunities are maximized. As noted by BOX, the 
Exchange proposes to apply the ``straightforward principle'' of 
allowing the execution of an ECO against another ECO once any eligible 
interest on the leg markets at the same net price has already been 
executed.\60\
---------------------------------------------------------------------------

    \60\ See BOX Notice, 78 FR, at 15093.
---------------------------------------------------------------------------

    The following example illustrates how proposed Rule 6.91P-
O(e)(1)(A) would be applied.
    Example: Assume an ECO consisting of the simultaneous purchase of 
one Option A instrument and two Option B instruments (A+2B).
    The interest in the leg markets is initially as follows:
    Leg market for Option A is:

 
 
 
Order to buy 2 at $1.00...................  Order to sell 20 at $1.06.
Order to buy 5 at $0.99...................  Order to sell 2 at $1.10.
 

    Leg market for Option B is:

 
 
 
Order to buy 3 at $1.00...................  Order to sell 3 at $1.10.
 

    Complex Order Book for Strategy A+2B:

 
 
 
ECO to buy 2 at $3.00.....................  ECO to sell 10 at $3.20.
ECO to buy 5 at $2.90.....................
 

    The DBBO is $3.00 bid, $3.26 offered.
    In this example, an ECO is received to sell 2 A+2B at $3.00. This 
order can match with either the existing $3.00 bid on A+2B in the 
Complex Order Book or with the interest on the leg markets for $3.00. 
However, as the Exchange proposes to give priority to interest on the 
leg markets over executable ECOs, 1 unit of the incoming order to sell 
A+2B at $3.00 will execute against the orders on the respective legs 
(selling 1 A and 2 B at $1.00 each ($1.00 + 2($1.00) = $3.00)).
    After this initial execution against the leg markets, the leg 
markets are as follows:
    Leg Market for Option A is:

 
 
 
Order to buy 1 at $1.00...................  Order to sell 20 at $1.06.
Order to buy 5 at $0.99...................  Order to sell 2 at $1.10.
 

    Leg Market for Option B is:

 
 
 
Order to buy 1 at $1.00...................  Order to sell 3 at $1.10.
 

    Complex Order Book for Strategy A+2B:

 
 
 
ECO to buy 2 at $3.00.....................  ECO to sell 10 at $3.20.
ECO to buy 5 at $2.90.....................
One ECO to sell A+2B at $3.00 remains.....
 

    Because insufficient quantity remains on the bid of B at $1.00 to 
combine with the bid on A (of $1.00) to respect the ECO ratio (i.e., 
the incoming ECO seeks to sell 2B, but the remaining leg market bid is 
for 1B), the remaining order to sell 1 A+2B at $3.00 would be executed 
against the resting ECO to buy at $3.00. In the above scenario, 
consistent with proposed Rule (e)(1)(A), the Exchange may trade two 
ECOs without at least one leg having a price better than the best 
prices on the leg markets.\61\
---------------------------------------------------------------------------

    \61\ See proposed Rule 6.91P-O(e)(1)(A); see also BOX Rule 
7240(b)(2)(ii)).
---------------------------------------------------------------------------

    The Exchange believes that proposed Rule 6.91P-O(e)(1)(A) would 
benefit market participants because it is designed to protect the 
priority of orders on the leg markets by requiring an ECO to execute 
first against interest on the leg markets at the best price to the 
extent possible, i.e., in full or in a permissible ratio, and only then 
permitting an ECO to execute against another ECO at that price. Thus, 
following the executions against the best-priced interest on the leg 
markets, an ECO would no longer be executable against interest on the 
leg markets at the best price because the leg markets would lack 
sufficient quantity to fill the ECO in a permissible ratio at that 
price. Absent this provision in Rule 6.91P-O(e)(1)(A), the Exchange 
believes that otherwise executable ECOs at the leg market price would 
lose execution opportunities without any benefit to interest on the leg 
markets, which is unable to trade with the ECO at that price.\62\ 
Because ``orders are executable against each other only when both the 
price and the quantity of the orders match,'' the Exchange believes it 
is appropriate (and does not deny leg markets priority) to allow ECOs 
to trade with other ECOs at the leg market price when such eligible leg 
market interest at that price has been exhausted.\63\
---------------------------------------------------------------------------

    \62\ See BOX Notice, 78 FR at 15093.
    \63\ See BOX Approval Order, 78 FR at 24449.
---------------------------------------------------------------------------

    <bullet> Proposed Rule 6.91P-O(e)(1)(B) would provide that an ECO 
would not trade with orders in the leg markets designated as AON, FOK, 
or with an MTS modifier. This proposed text would be new and is based 
in part on existing functionality (for AON and FOK) and also reflects 
the Exchange's proposed treatment under Pillar of its new MTS modifier 
for orders in the leg markets.\64\ Consistent with current 
functionality, orders with an AON, FOK, or (new) MTS modifier are 
conditional and, by design, will miss certain execution opportunities. 
The Exchange believes that this proposed rule would simplify the 
operation of electronic complex order trading and would add clarity and 
transparency that ECOs would not trade with orders that have 
conditional size-related instructions.
---------------------------------------------------------------------------

    \64\ See Single-Leg Pillar Filing (describing Minimum Trade Size 
or MTS Modifier in Rule 6.62P-O(i)(3)(B)).
---------------------------------------------------------------------------

    <bullet> Proposed Rule 6.91P-O(e)(1)(C) would provide that an ECO 
designated as Complex Only would be eligible to trade solely with 
another ECO and would not trade with the leg markets. The proposed 
Complex Only Orders are based on existing functionality for PNP Plus 
orders, with updated functionality available on Pillar.\65\ The 
Exchange

[[Page 21968]]

proposes on Pillar not to use the term ``PNP Plus Order'' and instead 
rename this order type as a Complex Only Order, which is more aptly 
named, and is consistent with similar order types available on other 
options exchanges.\66\
    As further proposed, an ECO designated as Complex Only must trade 
at a price at or within the DBBO; provided that, if the DBB (DBO) is 
calculated using the Exchange BBO for all legs of the complex strategy 
and all such Exchange BBOs have displayed Customer interest, the 
Complex Only Order would not trade below (above) one penny ($0.01) 
times the smallest leg ratio inside the DBB (DBO), regardless of 
whether there is sufficient quantity on such leg markets to satisfy the 
ECO.\67\ This proposed requirement is designed to ensure that, if there 
is displayed Customer interest on all legs of the strategy on the 
Exchange, a Complex Only Order would price improve at least some 
portion of such interest making up the DBBO. Thus, a Complex Only Order 
does not get the benefit of the priority treatment set out in proposed 
Rule 6.91P-O(e)(1)(A). If a Complex Only Order is unable to trade 
within the aforementioned price parameters, it would remain on the 
Consolidated Book until it can trade with another ECO per the 
requirements of proposed Rule 6.91P-O(e)(1)(C).
---------------------------------------------------------------------------

    \65\ See Rule 6.91-O(b)(1) (providing that ECOs may be 
designated as Limit Orders designated as PNP Plus); Rule 6.62-O(y) 
(describing PNP Plus orders as ECOs that may only trade with other 
ECOs, but which will continuously be repriced if locking or crossing 
the Complex BBO). Unlike the PNP Plus Order, which trades inside the 
Complex BBO (conceptual equivalent to the DBBO), the Complex Only 
Order may trade with another ECO at the DBBO, unless there is 
certain displayed Customer interest on the Exchange (as described 
herein), in which case the Complex Only Order must trade inside the 
DBBO.
    \66\ See proposed Rule 6.91P-O(e)(1)(C). Other options exchanges 
likewise offer Complex Orders that trade only with Complex Orders. 
See, e.g., Cboe Rule 5.33(a) (defining ``Complex Only'' order as an 
ECO ``that a [Cboe] Market-Maker may designate to execute only 
against complex orders in the COB and not Leg into the Simple 
Book''). The proposed Complex Only Order (like its predecessor PNP 
Plus Order) would be available to all market participants.
    \67\ See proposed Rule 6.91P-O(e)(1)(C). Because Complex Only 
Orders would never trade with the leg markets, whether or not there 
is sufficient quantity at the displayed Customer price is irrelevant 
to the operation of this order type.
---------------------------------------------------------------------------

    As noted above, the (renamed) Complex Only Order type is based on 
existing PNP Plus Order functionality, with updated functionality for 
trading on Pillar. Specifically, unlike the operation of the PNP Plus 
Order, the Exchange would not reprice a resting Complex Only Order and 
instead would restrict a Complex Only Order from trading until such 
order could trade at a price at or inside the DBBO, as described above. 
The Exchange believes that allowing Complex Only Orders to trade up to 
the DBBO unless there is displayed Customer interest on all legs of the 
strategy on the Exchange at the DBBO (as described above), provides 
market participants additional trading opportunities while still 
protecting displayed Customer interest on the Exchange.
    The proposed operation of the Complex Only Order, insofar as it 
protects displayed Customer interest in the leg markets when an ECO 
trades with another ECO, is consistent with the rules of NYSE American 
and is therefore not new or novel.\68\
---------------------------------------------------------------------------

    \68\ See NYSE American Rule 980NY, Commentary .02(i) (providing 
that, when executing an ECO, if each leg of the contra-side Derived 
BBO--calculated using the BBO from the Consolidated Book for each of 
the options series comprising a given complex order strategy per 
Rule 900.2NY(7)(a)(b)--for the components of the ECO includes 
Customer interest, the price of at least one leg of the order must 
``trade at a price that is better than the corresponding price of 
all customer bids or offers in the Consolidated Book for the same 
series, by at least one standard trading increment as defined in 
Rule 960NY,'' which minimum trading increment is one cent ($0.01). 
See NYSE American Rule 960NY(b).
---------------------------------------------------------------------------

    <bullet> Proposed Rule 6.91P-O(e)(1)(D) would provide that ECOs 
with any one of the following complex strategies would be ineligible to 
trade with the leg markets and would be processed as a Complex Only 
Order:
    [cir] A complex strategy with more than five legs;
    [cir] a complex strategy with two legs and both legs are buying or 
both legs are selling, and both legs are calls or both legs are puts; 
or
    [cir] a complex strategy with three or more legs and all legs are 
buying or all legs are selling.
    The proposal to restrict ECOs with more than five legs from trading 
with the leg markets (and being treated as Complex Only Orders), per 
proposed Rule 6.91P-O(e)(1)(D)(i), would be new functionality under 
Pillar and is designed to help Market Makers manage risk. The Exchange 
currently requires Market Makers to utilize certain risk controls for 
quoting to help mitigate risk particularly during periods of market 
volatility, and would require Market Makers to continue to use risk 
controls on Pillar.\69\ Because the execution of a multi-legged ECO is 
a single transaction, comprising discrete legs that must all trade 
simultaneously, allowing ECOs with more than five legs to trade with 
the leg markets may allow a multi-legged transaction to occur before a 
Market Maker's risk settings would be triggered. This proposed 
limitation is designed to prevent such multi-legged transactions, which 
would help ensure that Market Makers continue to provide liquidity and 
do not trade above their established risk tolerance levels. The 
Exchange notes that this restriction is consistent with similar limits 
established on other options exchanges.\70\
---------------------------------------------------------------------------

    \69\ See Single-Leg Pillar Filing (describing the activity-based 
controls with updated functionality under Pillar that Market Makers 
would be required to use to manage risk in connection with their 
quotes, per Rule 6.40P-O(a)(3) and (b)(2)). The proposed Pillar risk 
controls are substantively identical to the existing risk controls 
set forth in Rules 6.40-O(b)(2), (c)(2) and (d)(2) and Commentary 
.04 to Rule 6.40-O.
    \70\ See, e.g., Cboe Rule 5.33(g) (providing the ECOs may be 
restricted from trading with the leg markets if such ECO has more 
than a maximum number of legs, which maximum the Exchange determines 
on a class-by-class basis and may be two, three, or four).
---------------------------------------------------------------------------

    Proposed Rule 6.91P-O(e)(1)(D)(ii)-(iii), which treats ECOs with 
certain complex strategies as Complex Only Orders, is based in part on 
current Rule 6.91-O(b)(4)(i)-(ii), with a difference that currently, 
such so-called ``directional strategies'' are rejected. The proposed 
handling under Pillar would be less restrictive than the current rule 
because such strategies would not be rejected and is consistent with 
the treatment of such complex strategies on other options 
exchanges.\71\ As with the proposal to restrict ECOs with more than 
five legs trading with the leg markets, this proposed restriction is 
also designed to ensure that Market Maker risk settings would not be 
bypassed. Because ECOs with directional strategies are typically geared 
towards an aggressive directional capture of volatility, such ECOs can 
represent significantly more risk than trading any one of the legs in 
isolation. As such, because Market Maker risk settings are only 
triggered after the entire ECO package has traded, the Exchange 
believes this proposed rule change would help ensure fair and orderly 
markets by preventing such orders from trading with the leg markets, 
which would minimize risk to Market Makers.
---------------------------------------------------------------------------

    \71\ See, e.g., Nasdaq ISE Options 3, Section 14 (d)(3)(A)-(B) 
(providing that ECOs with these complex strategies may trade only 
with other ECOs).
---------------------------------------------------------------------------

    Proposed Rule 6.91P-O(e)(2) would provide that the Exchange would 
evaluate trading opportunities for a resting ECO when the leg markets 
comprising a complex strategy update, provided that during periods of 
high message volumes, such evaluation may be done less frequently. The 
Exchange believes that this proposed rule promotes transparency of the 
frequency with which the Exchange would be evaluating the leg markets 
for updates.
    The Exchange believes the proposed handling of ECOs during Core 
Trading

[[Page 21969]]

is reasonably designed to facilitate increased interaction between 
orders on the leg markets and ECOs, and to do so in such a manner as to 
ensure a dynamic, real-time trading mechanism that maximizes the 
opportunity for trade executions for both ECOs and orders on single 
option series.
    Execution of ECOs During a COA. Proposed Rule 6.91P-O(f) would 
describe how ECOs would trade during a COA. The COA Process is 
currently described in Rule 6.91-O(c). Under Pillar, the Exchange 
proposes to modify the COA process, including by relying on the DBBO 
(as described above) for pricing, allowing a COA Order to initiate a 
COA only on arrival, and streamlining the rule text describing the 
circumstances that would cause an early end to a COA.
    As proposed, a COA Order received when a complex strategy is open 
for trading and that satisfies the requirements of paragraph (f)(1) of 
the proposed Rule would initiate a COA only on arrival after trading 
with eligible interest per proposed Rule 6.91P-O(f)(2)(A) (described 
below). As further proposed, a COA Order would be rejected if entered 
during a pre-open state or if entered during Core Trading Hours with a 
time-in-force of FOK or GTX. This proposed order handling is based in 
part on current Rule 6.91-O(c)(1)(ii), which requires that COA Orders 
be submitted during Core Trading Hours. The proposed rejection of such 
orders during a pre-open state would be new under Pillar and is 
consistent with the Exchange's proposed functionality that a COA Order 
would initiate a COA only on arrival. In addition, the proposal would 
clarify that COA Orders designated as FOK or GTX would be rejected, 
even if submitted during Core Trading Hours, is based on current 
functionality and this addition would add further detail and 
clarification to the rule text. Finally, as further proposed, only one 
COA may be conducted at a time in a complex strategy, which is 
identical to text in current Rule 6.91-O(c)(3).
    Proposed Rule 6.91P-O(f)(1) would describe the conditions required 
for the ``Initiation of a COA.'' As proposed, to initiate a COA, the 
limit price of the COA Order to buy (sell) must be higher (lower) than 
the best-priced, same-side ECOs resting on the Consolidated Book and 
equal to or higher (lower) than the midpoint of the DBBO, which is 
designed to encourage aggressively-priced COA Orders and, in turn, to 
attract a meaningful number of RFR Responses to potentially provide 
price improvement of the COA Order's limit price. This proposed text is 
based in part on current Rule 6.91-O(c)(3)(i), with a difference to add 
a new ``midpoint of the DBBO'' requirement to reflect this new concept 
under Pillar. As further proposed, a COA Order that does not satisfy 
these pricing parameters would not initiate a COA and, unless it is 
cancelled (i.e., if an IOC), such order would be ranked in Consolidated 
Book and processed as an ECO, per proposed Rule 6.91P-O(e) (described 
above). This would be new under Pillar, as current Rule 6.91-O(c)(3) 
allows an order designated for COA to reside on the Consolidated Book 
unless or until such order meets the requisite pricing conditions to 
initiate a COA. The Exchange believes this proposed change would 
simplify the COA process and promote the orderly initiation of COAs, 
which is essential to maintaining a fair and orderly market for ECOs.
    Finally, as proposed, once a COA is initiated, the Exchange would 
disseminate a Request for Response message, the Response Time Interval 
would begin and, during such interval, the Exchange would accept RFR 
Responses, including ECO GTX Orders. This proposed text is based on 
current functionality set forth in Rule 6.91-O(c), with non-substantive 
differences to use Pillar terminology, including using the new Pillar 
term for ECO GTX Orders.
    Proposed Rule 6.91P-O(f)(2) would describe the ``Pricing of a 
COA.'' As proposed, a COA Order to buy (sell) would initiate a COA at 
its limit price, unless its limit price locks or crosses the DBO (DBB), 
in which case it would initiate a COA at a price equal to one penny 
($0.01) times the smallest leg ratio inside the DBO (DBB) (the ``COA 
initiation price''). This proposed functionality utilizes the new 
concept of a DBBO, is consistent with current functionality (that 
relies on substantively similar concept of Complex BBO), and ensures 
(consistent with current functionality) that interest on the leg 
markets maintain priority.
    <bullet> Proposed Rule 6.91P-O(f)(2)(A) would provide that prior to 
initiating a COA, a COA Order to buy (sell) would trade with any ECO to 
sell (buy) resting in the Consolidated Book that is priced equal to or 
lower (higher) than the DBO (DBB), unless the DBO (DBB) is calculated 
using the Exchange BBO for all legs of the complex strategy and all 
such Exchange BBOs have displayed Customer interest, in which case the 
COA Order will trade up (down) to one penny ($0.01) times the smallest 
leg ratio inside the DBO (DBB) (i.e., priced better than the leg 
markets) and any unexecuted portion of such COA Order would initiate a 
COA. This proposed rule is based on current Rule 6.91-O(c)(2) with a 
difference to use the Pillar concept of DBBO rather than refer to the 
contra-side Complex BBO and to specify that the COA Order must price 
improve the DBBO when there is displayed Customer interest on the 
Exchange leg markets, as noted above.
    <bullet> Proposed Rule 6.91P-O(f)(2)(B) would provide that a COA 
Order would not be eligible to trade with the leg markets until after 
the COA ends, which added detail, while not explicitly stated in the 
current rule, is consistent with current functionality described in 
Rules 6.91-O(c)(7)(A) and (B) that only RFR Responses (i.e., GTX 
orders) and ECOs will be allocated in a COA and that the COA Order 
would not trade with the leg markets until after the COA allocations.
    <bullet> Proposed Rule 6.91P-O(f)(3) would set forth the conditions 
that would result in the ``Early End to a COA'' (i.e., a COA ending 
prior to the expiration of the Response Time Interval), which 
conditions are consistent with current Rule 6.91-O(c)(6) as described 
below. Currently, as described in Rule 6.91-O(c)(3), the Exchange takes 
a snapshot of the Complex BBO at the start of a COA and uses that 
snapshot as the basis for determining whether to end a COA early. Under 
Pillar, the Exchange would no longer use a snapshot of the Complex BBO 
as the basis for determining whether to end a COA early but would 
instead rely on the DBBO (calculated per proposed Rule 6.91P-O(a)(5)), 
which is updated as market conditions change (including during the 
Response Time Interval).\72\ The Exchange believes relying on the DBBO 
is appropriate and would benefit investors as it would provide real-
time trading information that includes an additional layer of price 
protection for ECO trading as the DBBO is based on Exchange BBOs, when 
available, or the ABBO. The Exchange proposes a COA would end early 
under the following conditions:
---------------------------------------------------------------------------

    \72\ As discussed infra regarding proposed Rule 6.91P-O(a)(5) 
and the definition of the Derived BBO, ``the DBBO will be updated as 
the Exchange BBO or ABBO, as applicable, is updated'').
---------------------------------------------------------------------------

    [cir] Proposed Rule 6.91P-O(f)(3)(A) would provide that a COA would 
end early if the Exchange receives an incoming ECO or COA Order to buy 
(sell) in the same complex strategy that is priced higher (lower) than 
the initiating COA Order to buy (sell), which proposed text is based on 
current Rule 6.91-O(c)(6)(B)(i) without any substantive differences.
    [cir] Proposed Rule 6.91P-O(f)(3)(B) would provide that a COA would 
end early if the Exchange receives an RFR Response that locks or 
crosses the DBBO on the same-side as the COA Order,

[[Page 21970]]

which proposed text is based on current Rule 6.91-O(c)(6)(A)(i), except 
(as noted above) it refers to the DBBO rather than the ``initial 
Complex BBO.''
    [cir] Proposed Rule 6.91P-O(f)(3)(C) would provide that a COA would 
end early if the leg markets update causing the DBBO on the same-side 
as the COA Order to lock or cross (i) any RFR Response(s) or (ii) if no 
RFR Responses have been received, the best-priced, contra-side ECOs. 
This proposed rule is based in part on current Rule 6.91-O(c)(6)(C)(i), 
with differences to use Pillar terminology, including reference to the 
DBBO.
    [cir] Proposed Rule 6.91P-O(f)(3)(D) would provide that a COA would 
end early if the leg markets update causing the contra-side DBBO to 
lock or cross the COA initiation price. This proposed rule is based in 
part on current Rule 6.91-O(c)(6)(C)(ii), except that it would refer to 
the DBBO and the COA initiation price, which would be new concepts 
under Pillar.
    Because the DBBO may be calculated using the ABBO for a given leg, 
the Exchange notes that it would be new under Pillar to have a COA end 
early based on (locking or crossing) market conditions outside of the 
Exchange. The Exchange believes this proposed functionality would 
benefit market participants by preventing COA Orders from executing at 
prices too far away from the prevailing market for that complex 
strategy. In addition, the Exchange believes this proposed 
functionality would promote internal consistency and benefit market 
participants because, as proposed, the execution of ECOs on the 
Exchange, including whether such ECO may initiate a COA as a COA Order, 
is based on the DBBO. As such, the Exchange believes it is appropriate 
and to the benefit of market participants that the early termination of 
a COA likewise be based on the DBBO--regardless of whether the prices 
used to calculate such DBBO include (or consist entirely of) ABBO 
prices.
    <bullet> Proposed Rule 6.91P-O(f)(4) would set forth the 
``Allocation of COA Orders'' after a COA either ends early or after the 
expiration of the Response Time Interval. Current Rule 6.91-O(c)(7)(A) 
sets forth that the COA-eligible orders are allocated against the best-
priced interest received in the COA at each price on a ``Size Pro Rata 
Basis,'' as that concept is defined in Rule 6.75-O(f)(6). Under Pillar, 
the allocation of the COA Order would be based on price-time priority, 
rather than Size Pro Rata, which would align the allocation of ECOs in 
a COA with standard processing of ECOs on the Exchange, which adds 
transparency and consistency to ECO processing on the Exchange as well 
as internal consistency to Exchange rules, all to the benefit of market 
participants.
    Proposed Rule 6.91P-O(f)(4)(A) would provide that RFR Responses to 
sell (buy) that are priced lower (higher) than a COA Order to buy 
(sell) would trade in price-time priority up (down) to the DBBO; 
provided, however, that if all legs of the DBB (DBO) are calculated 
using Exchange BBOs and all such Exchange BBOs have displayed Customer 
interest, RFR Responses to sell (buy) would not trade below (above) one 
penny ($0.01) times the smallest leg ratio inside the DBB (DBO). This 
proposed rule would ensure that the COA Order would not trade at a 
worse price than the leg markets and would price improve the DBBO where 
there is displayed Customer interest on all legs of the complex 
strategy on the Exchange. The proposed text is based in part on current 
Rule 6.91-O(c)(7)(A) insofar as it ensures that the COA Order would 
trade with the best-priced RFR Responses received in the COA and 
differs substantively because the COA Order would not trade ahead of 
certain displayed Customer interest and, as discussed above, the COA 
Order would trade with RFR Responses in price-time priority (and not 
Size Pro Rata).
    Proposed Rule 6.91P-O(f)(4)(B) would provide that after COA 
allocations pursuant to paragraph (f)(4)(A) of this proposed Rule, any 
unexecuted balance of a COA Order (including COA Orders designated as 
IOC) would be eligible to trade with any contra-side interest, 
including the leg markets unless the COA Order is designated or treated 
as a Complex Only Order. This proposed text is based on existing 
functionality and makes explicit that a COA Order would trade solely 
with complex interest (and not the leg markets) during a COA. This 
proposed rule is designed to provide clarity and transparency that the 
remaining balance of a COA Order would be eligible to trade with the 
leg markets after the COA ends.
    Proposed Rule 6.91P-O(f)(4)(C) would provide that after a COA Order 
trades pursuant to proposed Rule 6.91P-O(f)(4)(B), any unexecuted 
balance of a COA Order that is not cancelled (i.e., if an IOC) would be 
ranked in the Consolidated Book and processed as an ECO pursuant to 
paragraph (e) of this Rule. The proposed text is based on current Rule 
6.91-O(c)(7)(B) without any substantive differences.
    Proposed Rule 6.91P-O(f)(5) would set forth ``Prohibited Conduct 
related to COAs,'' and is based on the first sentence of current 
Commentary .04 to Rule 6.91-O with one substantive differences: To add 
reference to quotes, and would provide that a pattern or practice of 
submitting ``unrelated quotes or orders that cause a COA to conclude 
early would be deemed conduct inconsistent with just and equitable 
principles of trade,'' \73\ which addition would broaden the scope of 
``Prohibited Conduct'' to the benefit of market participants and would 
also add clarity and transparency to Exchange rules.
---------------------------------------------------------------------------

    \73\ See proposed Rule 6.91P-O(f)(5) (emphasis added). In 
addition, rather than copy into proposed Rule 6.91P-O the second 
sentence of current Rule 6.91-O, Commentary .04, which provides that 
dissemination of information related to COA Orders to third parties 
would also be deemed as conduct inconsistent with just and equitable 
principles of trade, the Exchange proposes to add more expansive 
language regarding this prohibited conduct to the order exposure 
rule. See infra for discussion of proposed change to Rule 6.47A-O.
---------------------------------------------------------------------------

    ECO Risk Checks. Proposed Rule 6.91P-O(g) would describe the ``ECO 
Risk Checks,'' which are designed to help OTP Holders and OTP Firms to 
effectively manage risk when trading ECOs. Current Commentaries .03, 
.05, and .06 of Rule 6.91-O set forth the existing risk checks for 
ECOs. With the transition to Pillar, the Exchange proposes to modify 
and enhance its existing risk checks for ECOs, as follows:
    <bullet> Proposed Rule 6.91P-O(g)(1) would set forth the ``Complex 
Strategy Limit.'' As proposed, the Exchange would establish a limit on 
the maximum number of new complex strategies that may be requested to 
be created per MPID, which limit would be announced by Trader 
Update.\74\ As further proposed, when an MPID reaches the limit on the 
maximum number of new complex strategies, the Exchange would reject all 
requests to create new complex strategies from that MPID for the rest 
of the trading day. In addition, and notwithstanding the established 
Complex Strategy Limit, the Exchange proposes that it may reject a 
request to create a new complex strategy from any MPID whenever the 
Exchange determines it is necessary in the interests of a fair and 
orderly market.
---------------------------------------------------------------------------

    \74\ The Exchange has proposed to add the definition of MPID to 
proposed Rule 1.1, which would refer to ``the identification 
number(s) assigned to the orders and quotes of a single ETP Holder, 
OTP Holder, or OTP Firm for the execution and clearing of trades on 
the Exchange by that permit holder. An ETP Holder, OTP Holder, or 
OTP Firm may obtain multiple MPIDs and each such MPID may be 
associated with one or more sub-identifiers of that MPID.'' See 
Single-Leg Pillar Filing.
---------------------------------------------------------------------------

    This is new functionality proposed under Pillar but is conceptually 
similar to the Complex Order Table Cap (the ``Cap''), set forth in 
Commentary .03 to Rule 6.91-O, which Cap (like the

[[Page 21971]]

Complex Strategy Limit), would help maintain a fair and orderly market 
because it would operate as a system protection tool that enables the 
Exchange to prevent any single MPID from creating more than a limited 
number of complex strategies during the trading day. The Exchange also 
notes that other options exchanges likewise impose a limit on new 
complex order strategies.\75\
---------------------------------------------------------------------------

    \75\ See, e.g., Cboe Rule 5.33(a) (providing, in its definition 
of ``complex strategy'' that Cboe ``may limit the number of new 
complex strategies that may be in the [Cboe] System at a particular 
time'') and MIAX Rule 518(a)(6) (providing, in its definition of 
``complex strategy'' that MIAX ``may limit the number of new complex 
strategies that may be in the System at a particular time and will 
communicate this limitation to Members via Regulatory Circular'').
---------------------------------------------------------------------------

    <bullet> Proposed Rule 6.91P-O(g)(2) would set forth the ECO Price 
Protection. The existing ECO ``Price Protection Filter'' is set forth 
in Commentary .05 to current Rule 6.91-O (the ``ECO Filter''). The 
proposed ``ECO Price Protection'' on Pillar would work similarly to how 
the current ECO price protection mechanism functions on the Exchange 
because an ECO would be rejected if it is priced a specified percentage 
away from the contra-side Complex NBB or NBO.\76\ However, on Pillar, 
the Exchange proposes to use new thresholds and reference prices, which 
would not only simplify the existing price check, but it would also 
align the proposed functionality with the proposed ``Limit Order Price 
Protection'' for single-leg interest, thus adding uniformity to 
Exchange rules.\77\ Although the mechanics of the ECO Price Protection 
would vary slightly from the existing Price Protection Filter, the goal 
of this feature would remain the same: To prevent the execution of ECOs 
that are priced too far away from the prevailing market for the same 
strategy and therefore potentially erroneous. Whereas the Away Market 
Deviation (vis a vis a DBBO based on an Exchange BBO) is designed to 
make sure that ECOs do not trade too far away from the prevailing 
market, the ECO Order Protection as proposed (and as is the case today) 
is to prevent the execution of ECOs that were potentially 
(inadvertently) entered at prices too far away from the prevailing 
market and, as such, this mechanism protects the order sender from 
itself.
---------------------------------------------------------------------------

    \76\ As noted above, the Exchange proposes to define the Complex 
NBBO as the derived national best bid and derived national best 
offer for a complex strategy calculated using the NBB and NBO for 
each component leg of a complex strategy. See proposed Rule 6.91P-
O(a)(2).
    \77\ See Single-Leg Pillar Filing (Rule 6.62P-O(a)(3) sets forth 
the Limit Order Price Protection applicable to Limit Orders and 
quotes).
---------------------------------------------------------------------------

    Proposed Rule 6.91P-O(g)(2)(A) would provide that each trading day, 
an ECO to buy (sell) would be rejected or cancelled (if resting) if it 
is priced a Specified Threshold amount or more above (below) the 
Reference Price (as described below), subject to proposed paragraphs 
(g)(2)(A)(i)-(v) of the Rule as described below. Because ECO Price 
Protection would be applied each trading day, an ECO designated GTC 
would be re-evaluated for ECO Price Protection on each day that it is 
eligible to trade and would be cancelled if the limit price is equal to 
or through the Specified Threshold.
    [cir] Proposed Rule 6.91P-O(g)(2)(A)(i) would provide that an ECO 
that arrives when a complex strategy is open for trading would be 
evaluated for ECO Price Protection on arrival. The Exchange has 
proposed similar functionality for single-leg options.\78\
---------------------------------------------------------------------------

    \78\ See Single-Leg Pillar Filing (discussion regarding Rule 
6.62P-O(a)(3)(A)(i)).
---------------------------------------------------------------------------

    [cir] Proposed Rule 6.91P-O(g)(2)(A)(ii) would provide that an ECO 
received during a pre-open state would be evaluated for ECO Price 
Protection after the ECO Opening Auction Process concludes.\79\ The 
Exchange has proposed similar functionality for single-leg options.\80\
---------------------------------------------------------------------------

    \79\ See discussion infra regarding proposed Rule 6.91P-O(d), 
which describes the ECO Opening Auction Process (or Reopening after 
a Trading Halt) as well as the concepts of ECO Auction Collars and 
ECO Auction Price.
    \80\ See Single-Leg Pillar Filing (discussion regarding Rule 
6.62P-O(a)(3)(A)(ii)).
---------------------------------------------------------------------------

    [cir] Proposed Rule 6.91P-O(g)(2)(A)(iii) would provide that an ECO 
resting on the Consolidated Book before a trading halt would be 
reevaluated for ECO Price Protection after the ECO Opening Auction 
Process concludes. The Exchange has proposed similar functionality for 
single-leg options.\81\
---------------------------------------------------------------------------

    \81\ See Single-Leg Pillar Filing (discussion regarding Rule 
6.62P-O(a)(3)(A)(iii)).
---------------------------------------------------------------------------

    [cir] Proposed Rule 6.91P-O(g)(2)(A)(iv) would provide that QCC 
Orders (per Rule 6.62P-O(g)(1)) would not be subject to ECO Price 
Protection, as the Exchange subjects such paired orders to distinct 
price validations.\82\ The Exchange has proposed similar functionality 
for single-leg options.\83\
---------------------------------------------------------------------------

    \82\ See Single-Leg Pillar Filing (discussion regarding Rule 
6.62P-O(g)(1)(C) and (D) regarding price requirements for execution 
of QCC Orders and Complex QCC Orders, respectively).
    \83\ See Single-Leg Pillar Filing (discussion regarding Rule 
6.62P-O(a)(3)(A) excluding Cross Orders).
---------------------------------------------------------------------------

    [cir] Proposed Rule 6.91P-O(g)(2)(A)(v) would provide that ECO 
Price Protection would not be applied if there is no Reference Price 
for an ECO. The Exchange has proposed similar functionality for single-
leg options.\84\
---------------------------------------------------------------------------

    \84\ See Single-Leg Pillar Filing (discussion regarding Rule 
6.62P-O(a)(3)(A)).
---------------------------------------------------------------------------

    Proposed Rule 6.91P-O(g)(2)(B) would specify the ``Reference 
Price'' used in connection with the ECO Price Protection. As proposed, 
the Reference Price for calculating ECO Price Protection for an ECO to 
buy (sell) would be the Complex NBO (NBB), provided that, immediately 
following an ECO Opening Auction Process, the Reference Price would be 
the ECO Auction Price or, if none, the Complex NBO (NBB). The Exchange 
believes that adjusting the Reference Price for ECO Price Protection 
immediately following an ECO Opening Auction would ensure that the most 
up-to-date price would be used to assess whether to cancel an ECO that 
was received during a pre-open state, including during a Trading Halt. 
The Exchange notes this functionality is consistent with the proposed 
operation of the Limit Order Price Protection for single-leg 
options.\85\
---------------------------------------------------------------------------

    \85\ See Single-Leg Pillar Filing (discussion regarding Rule 
6.62P-O(a)(3)(B) describing that the Reference Price for Limit Order 
Price Protection would be adjusted immediately following an Auction 
would ensure that the most up-to-date price would be used to assess 
whether to cancel a Limit Order that was received during a pre-open 
state or would be reevaluated after a Trading Halt Auction).
---------------------------------------------------------------------------

    As further proposed, there would be no Reference Price for an ECO 
if there is no NBBO for any leg of such ECO (i.e., the Exchange would 
not calculate a Complex NBB (NBO)), which text is based on current Rule 
6.91-O, Commentary .05(c), except that the proposed rule would not 
reference OPRA because, as further proposed, for purposes of 
determining a Reference Price, the Exchange would not use an adjusted 
NBBO (i.e., such NBBO is implicitly reliant on information from 
OPRA).\86\ The Exchange notes that using an unadjusted NBBO to 
calculate the Reference Price is based on how Limit Order Price 
Protection currently functions on the Exchange's cash equity market, as 
described in Rule 7.31-E(a)(2)(B) and is also consistent with the 
proposed operation of the Limit Order Price Protection for single-leg 
options.\87\

[[Page 21972]]

Proposed Rule 6.91P-O(g)(2)(C) would set forth the ``Specified 
Threshold'' used in connection with the ECO Price Protection. As 
proposed, the Specified Threshold for calculating ECO Price Protection 
would be $1.00, unless determined otherwise by the Exchange and 
announced to OTP Holders and OTP Firms by Trader Update.
---------------------------------------------------------------------------

    \86\ See Single-Leg Pillar Filing (discussion regarding the 
definition of ``NBBO'' in Rule 1.1 describing that the ``NBBO'' for 
purposes of options trading as referring to the national best bid or 
offer and that ``[u]nless otherwise specified, the Exchange may 
adjust its calculation of the NBBO based on information about orders 
it sends to Away Markets, execution reports received from those Away 
Markets, and certain orders received by the Exchange'').
    \87\ References to the NBBO, NBB, and NBO in Rule 7.31-E refer 
to using a determination of the national best bid and offer that has 
not been adjusted. See Single-Leg Pillar Filing (describing use of 
unadjusted NBBO for single-leg Limit Order Price Protection in Rule 
6.62P-O(a)(3)(B)).
---------------------------------------------------------------------------

    The Exchange believes that the proposed Specified Threshold of 
$1.00 simplifies how the Reference Price would be calculated as 
compared to the calculations currently specified in Commentary .05 to 
Rule 6.91-O. In addition, consistent with Commentary .05(d), the 
Exchange proposes that the Specified Threshold could change, subject to 
announcing the changes by Trader Update. Providing flexibility in 
Exchange rules regarding how the Specified Threshold would be set is 
consistent with the rules of other options exchanges as well as the 
proposed functionality for the single-leg Limit Order Price Protection 
feature.\88\
---------------------------------------------------------------------------

    \88\ See, e.g., Cboe Rule 5.34(b)(6) (describing the ``Drill-
Through Protection'' and that Cboe ``determines a default buffer 
amount on a class-by-class basis). See Single-Leg Pillar Filing 
(describing use of Trader Update to modify Specified Thresholds in 
Rule 6.62P-O (a)(3)(C)).
---------------------------------------------------------------------------

    <bullet> Proposed Rule 6.91P-O(g)(3) would set forth the ``Complex 
Strategy Protections.'' The proposed protections are based on current 
Rule 6.91-O, Commentary .06, which are referred to as the ``Debit/
Credit Reasonability Checks.'' The Exchange believes this name change 
is appropriate because it more accurately conveys that the check 
applies solely to certain complex strategies and because (as discussed 
above), the Exchange proposes to refer simply to a ``net price'' as 
opposed to the ``total net debit or credit price.'' The proposed Pillar 
Complex Strategy Protections would function similarly to the current 
Debit/Credit Reasonability Checks because potentially erroneously 
priced incoming ECOs would be rejected. However, rather than to refer 
to specified debit or credit amounts as a way to determine whether a 
given strategy is erroneously priced, the proposed rule would instead 
focus on the expectation of the order sender and what would result if 
the ECO were not rejected. Consistent with current functionality, the 
proposed Complex Strategy Protections are designed to prevent the 
execution of ECOs at prices that are inconsistent with/not aligned with 
their strategies.
    As proposed, to protect an OTP Holder or OTP Firm that sends an ECO 
(each an ``ECO sender'') with the expectation that it would receive (or 
pay) a net premium but has priced the ECO such that the ECO sender 
would instead pay (or receive) a net premium, the Exchange would reject 
any ECO that is comprised of the erroneously-priced complex strategies 
as set forth in proposed Rule 6.91P-O(g)(3)(A)-(C) and described below.
    Proposed Rule 6.91P-O(g)(3)(A) would provide that `` `All buy' or 
`all sell' strategies'' would be rejected as erroneously-priced if it 
is an ECO for a complex strategy where all legs are to buy (sell) and 
it is entered at a price less than one penny ($0.01) times the sum of 
the number of options in the ratio of each leg of such strategy (e.g., 
a complex strategy to buy (sell) 2 calls and buy (sell) 1 put with a 
price less than $0.03). The proposed text is based on Rule 6.91-O, 
Commentary .06(a)(1), with no substantive differences, except that the 
Exchange has streamlined the text and set forth the minimum price 
(i.e., $0.03) for any ``all buy'' or ``all sell'' strategies.
    Proposed Rule 6.91P-O(g)(3)(B) would provide for the rejection of 
erroneously-priced ``Vertical spreads,'' which are defined as complex 
strategies that consists of a leg to sell a call (put) option and a leg 
to buy a call (put) option in the same option class with the same 
expiration but at different strike prices. As proposed, the Exchange 
would reject as erroneously-priced: (i) An ECO for a vertical spread to 
buy a lower (higher) strike call and sell a higher (lower) strike call 
and the ECO sender would receive (pay) a net premium (proposed Rule 
6.91P-O(g)(3)(B)(i)); and (ii) an ECO for a vertical spread to buy a 
higher (lower) strike put and sell a lower (higher) strike put and the 
ECO sender would receive (pay) a net premium (proposed Rule 6.91P-
O(g)(3)(B)(ii)). The proposed strategy protections for vertical spreads 
are based on current Rule 6.91-O, Commentary .06(a)(2), except that, as 
noted above, the proposed Rule is written from the standpoint of the 
expectation of the ECO sender as opposed to reviewing total net debit 
or credit price of the strategy.
    Proposed Rule 6.91P-O(g)(3)(C) would provide for the rejection of 
erroneously-priced ``Calendar spreads,'' which are defined as 
consisting of a leg to sell a call (put) option and a leg to buy a call 
(put) option in the same option class at the same strike price but with 
different expirations. As proposed, the Exchange would reject as 
erroneously-priced: (i) An ECO for a calendar spread to buy a call leg 
with a shorter (longer) expiration while selling a call leg with a 
longer (shorter) expiration and the ECO sender would pay (receive) a 
net premium (proposed Rule 6.91P-O(g)(3)(C)(i)); and (ii) an ECO for a 
calendar spread to buy a put leg with a shorter (longer) expiration 
while selling a put leg with a longer (shorter) expiration and the ECO 
sender would pay (receive) a net premium (proposed Rule 6.91P-
O(g)(3)(C)(ii)). The proposed strategy protections for calendar spreads 
are based on current Rule 6.91-O, Commentary .06(a)(3), except that, as 
noted above, the proposed Rule is written from the standpoint of the 
expectation of the ECO sender as opposed to reviewing the total net 
debit or credit price of the strategy. The Exchange has also not 
retained discretion to disable the strategy protections for calendar 
spreads (as contained in Commentary .06(a)(3)(i) of the current Rule) 
because since adopting this provision in 2017, the Exchange has never 
exercised this discretion and therefore has determined that such 
discretion is no longer needed.
    Proposed Rule 6.91P-O(g)(3)(D) would provide that any ECO that is 
not rejected by the complex strategy protections would still be subject 
to the ECO Price Protection, per paragraph (g)(2) of this Rule, which 
proposed text is based on Rule 6.91-O, Commentary .06(b) without any 
substantive difference.
Rule 6.47A-O: Order Exposure Requirements--OX
    The Exchange also proposes conforming, non-substantive amendments 
to Rule 6.47A-O, regarding order exposure, to add a cross-reference to 
new Pillar Rule 6.91P-O. Current Rule 6.47A-O(iii) exempts orders 
submitted to the COA Process, (per current Rule 6.91-O) from its one-
second order exposure requirements. This proposed amendment would 
extend the exemption from the order exposure requirements to orders 
submitted to a COA on Pillar.\89\ The Exchange also proposes to modify 
the reference to ``Complex Order Auction Process (`COA')'' to simply 
``Complex Order Auction (`COA')'' (i.e., removing the word Process) 
consistent with how this concept is defined in proposed Rule 6.91P-
O(a)(3). As previously stated, the Exchange believes that the proposed 
Response Time Interval for a COA (with a duration of no less than 100 
milliseconds) is of sufficient length to allow OTP Holders and OTP 
Firms time to respond to a COA. As such, the

[[Page 21973]]

proposal is designed to promote timely execution of the COA Order, 
while ensuring adequate exposure of such orders. Accordingly, the 
Exchange proposes to amend Rule 6.47A-O(iii) to extend the exemption 
from the one-second exposure requirement to COA Orders under Pillar, 
which exemption is consistent with the treatment of similar orders on 
other options exchanges.\90\ Consistent with Rule 6.47A-O, Commentary 
.01, OTP Holders and OTP Firms would only utilize the COA where there 
is a genuine intention to execute a bona fide transaction.\91\
---------------------------------------------------------------------------

    \89\ See proposed Rule 6.47A-O(iii). Consistent with the Single-
Leg Pillar Filing, the Exchange also proposes to replace reference 
to ``OX'' with ``the Exchange.'' See id. (preamble).
    \90\ See, e.g., NYSE American Rule 935NY(iii) (exempting from 
the one-second order exposure requirement orders submitted to the 
Customer Best Execution Auction (or CUBE) process per Rules 971.1NY 
(for single-leg CUBE) and 971.2NY (for Complex CUBE)).
    \91\ See Rule 6.47A-O, Commentary .01 (``Rule 6.47A-O prevents a 
User from executing agency orders to increase its economic gain from 
trading against the order without first giving other trading 
interest on the Exchange an opportunity to either trade with the 
agency order or to trade at the execution price when the User was 
already bidding or offering on the book'').
---------------------------------------------------------------------------

    The Exchange also proposes to modify Commentary .03 to Rule 6.47A-
O, which is currently Reserved, to provide that ``[p]rior to or after 
submitting an order to the Exchange, an OTP Holder or OTP Firm cannot 
inform another OTP Holder or OTP Firm or any other third party of any 
of the terms of the order.'' The proposed provision is designed to 
prevent OTP Holders or OTP Firms from providing material, non-public 
information to third parties and is consistent with similar provisions 
on other options exchanges.\92\
---------------------------------------------------------------------------

    \92\ See, e.g., NYSE American Rule 935NY, Commentary .04 
(providing that ``[p]rior to or after submitting an order to the 
System, an ATP Holder cannot inform another ATP Holder or any other 
third party of any of the terms of the order'').
---------------------------------------------------------------------------

* * * * *
    As discussed above, because of the technology changes associated 
with the migration to the Pillar trading platform, subject to approval 
of this proposed rule change, the Exchange will announce by Trader 
Update when rules with a ``P'' modifier will become operative and for 
which symbols. The Exchange believes that keeping existing rules on the 
rulebook pending the full migration of Pillar will reduce confusion 
because it will ensure that the rules governing trading on the 
Exchange's current system will continue to be available pending the 
full migration to Pillar.
2. Statutory Basis
    The proposed rule change is consistent with Section 6(b) of the 
Securities Exchange Act of 1934 (the ``Act''),\93\ in general, and 
furthers the objectives of Section 6(b)(5),\94\ 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. The Exchange 
believes that proposed Rule 6.91P-O to support electronic complex 
trading on Pillar would remove impediments to and perfect the mechanism 
of a free and open market and a national market system because the 
proposed rule would promote transparency in Exchange rules by using 
consistent terminology governing trading on both the Exchange's cash 
equity and options Pillar trading platforms, thereby ensuring that 
members, regulators, and the public can more easily navigate the 
Exchange's rulebook and better understand how options trading is 
conducted on the Exchange.
---------------------------------------------------------------------------

    \93\ 15 U.S.C. 78f(b).
    \94\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Exchange believes that adding new Rule 6.91P-O with the 
modifier ``P'' to denote that this rule would be operative for the 
Pillar trading platform would remove impediments to and perfect the 
mechanism of a free and open market and a national market system by 
providing transparency of which rules would govern trading once a 
symbol has been migrated to the Pillar platform. The Exchange similarly 
believes that adding a preamble to current Rule 6.91-O stating that it 
would not be applicable to trading on Pillar would remove impediments 
to and perfect the mechanism of a free and open market and a national 
market system because it would promote transparency regarding which 
rules would govern trading on the Exchange during and after the 
transition to Pillar.
    The Exchange believes that incorporating Pillar functionality 
currently available on the Exchange's cash equity market (and recently 
proposed for single-leg options),\95\ for trading of electronic complex 
orders on its options market in proposed Rule 6.91P-O would remove 
impediments to and perfect the mechanism of a free and open market and 
a national market system because the Exchange would be able to offer 
consistent functionality across both its options and cash equity 
trading platforms, adapted as applicable for trading of electronic 
complex orders. As discussed herein, and unless otherwise specified 
herein, the Exchange is not proposing fundamentally different 
functionality regarding how ECOs would trade on Pillar than is 
currently available on the Exchange. Accordingly, with the transition 
to Pillar, the Exchange would use Pillar terminology to describe 
functionality that is not changing and also introduce certain new or 
updated functionality for Electronic Complex Orders (i.e., enhancing 
the opening auction process, including introducing the ``ECO Auction 
Collars'') that will also be available for outright options trading on 
the Pillar platform. As such, the Exchange believes that using Pillar 
terminology and incorporating updated functionality for the proposed 
new rule would remove impediments to and perfect the mechanism of a 
free and open market and a national market system because it would 
promote consistency in the Exchange's rules across both its options and 
cash equity platforms.
---------------------------------------------------------------------------

    \95\ See generally the Single-Leg Pillar Filing.
---------------------------------------------------------------------------

Definitions, Types of ECOs and Priority and Pricing of ECOs
    The Exchange believes that the proposed definitions in Rule 6.91P-
O(a) would remove impediments to and perfect the mechanism of a free 
and open market and a national market system because the proposed 
changes are designed to promote clarity and transparency by 
consolidating existing defined terms related to electronic complex 
trading into one section of the proposed rule. The Exchange believes 
that the proposed non-substantive amendments to those terms currently 
defined in Rule 6.91-O would promote clarity and transparency by using 
Pillar terminology. The Exchange further believes consolidating defined 
terms in proposed Rule 6.91P-O(a) (including alphabetizing the proposed 
terms) would make the proposed rule more transparent and easier to 
navigate.
    The Exchange believes that the proposed new definition of Away 
Market Deviation would further remove impediments to and perfect the 
mechanism of a free and open market and a national market system 
because it would promote clarity and transparency to market 
participants regarding how the Exchange would calculate this additional 
protection against ECOs being executed on the Exchange at prices too 
far away from the current market.
    The Exchange believes that the proposed new definition of DBBO (and 
related terms of DBB and DBO) would further remove impediments to and 
perfect the mechanism of a free and open market and a national market

[[Page 21974]]

system because it would promote clarity and transparency to market 
participants regarding how the DBBO would be calculated under Pillar. 
The proposed definition is not novel and is based in part on similarly 
defined terms used on NYSE American and Cboe. The Exchange believes 
that providing an alternative means of calculating the DBBO (i.e., by 
looking to the contra-side best bid (offer) in the absence of same-side 
interest) would remove impediments to and perfect the mechanism of a 
free and open market and a national market system thereby benefitting 
as it should increase opportunities for trading. This proposed 
definition of Away Market Derivation is new and would promote clarity 
and transparency In addition, the proposal to use the Away Market 
Deviation as a means of binding the Exchange's calculation of the DBBO 
as well as trading of ECOs with the leg markets would remove 
impediments to and perfect the mechanism of a free and open market and 
a national market system because such limitation would benefit market 
participants by providing an additional protection against ECOs being 
executed on the Exchange at prices too far away from the current 
market.
    In addition, the Exchange believes that setting forth additional 
definitions in proposed Rule 6.91P-O(a), including those that are used 
on other options exchanges (e.g., ``complex strategy'' and ``ratio'') 
and clarifying terms (e.g., ``leg'' and ``leg markets''), would remove 
impediments to and perfect the mechanism of a free and open market and 
a national market system because it would promote clarity and 
transparency to market participants regarding electronic complex 
trading under Pillar. Finally, the proposed definition of ``ECO Order 
Instruction'' would remove impediments to and perfect the mechanism of 
a free and open market and a national market system because it would 
incorporate for ECOs existing Pillar order handling functionality in an 
auction that is currently available on the Exchange's cash equity 
platform, as described in Rule 7.35-E(g) and is proposed for options 
trading in Rule 6.64P-O(e) and its sub-paragraphs (1) and (2) (as 
described in the Single-Leg Pillar Filing). The Exchange similarly 
proposes this functionality for the ECO Opening Auction Process, with 
non-substantive differences only to use an ECO-specific defined term 
and to refer to the ECO Opening Auction Process.
    The Exchange believes that the proposed types of ECOs available per 
Rule 6.91P-O(b) would remove impediments to and perfect the mechanism 
of a free and open market and a national market system because it would 
describe the ECOs and time-in-force modifiers that would be available 
on Pillar, as well as specifying additional ECO types. The Exchange is 
not proposing any new ECO order types or time-in-force modifiers on 
Pillar and believes that the non-substantive differences to use Pillar 
terminology to describe the available ECO order types would promote 
transparency and clarity in Exchange rules. The Exchange believes that 
the proposed Complex Only Order is not novel because it is based in 
part on the existing PNP Plus order functionality as both order types 
only interact with other ECOs. In addition, the proposed ECO GTX Order 
uses Pillar terminology to describe what is referred to as an ``RFR 
Response'' in the current rules, and therefore is not novel.
    The Exchange believes that proposed new Rule 6.91P-O(c), and 
subparagraphs (2), (3), and (4), would remove impediments to and 
perfect the mechanism of a free and open market and a national market 
system because the proposed rules would set forth a price-time priority 
model for Pillar and pricing requirements for ECO trading that are 
substantively the same as the Exchange's current price-time priority 
model and pricing requirements as set forth in Rule 6.91-O(a)(1) and 
Commentaries .01 and .02(i) to Rule 6.91-O. The Exchange proposes 
certain modified functionality, including the Complex Only Order as 
noted above, and regarding ECO trading vis a vis the DBBO (and binding 
such DBBO by the maximum allowable Away Market Deviation when the 
Exchange BBO is used to calculate the DBBO for a leg), which would 
benefit market participants as the proposes features would provide 
additional price protection in ECO trading and would add clarity and 
transparency to the rules. The Exchange believes that proposed Rule 
6.91P-O(c)(1)-(4) would remove impediments to and perfect the mechanism 
of a free and open market and a national market system because they 
would promote transparency and clarity in Exchange rules regarding how 
ECOs would trade with the leg markets and with other ECOs.
Execution of ECOs at the Open (or Reopening After a Trading Halt)
    The Exchange believes that proposed Rule 6.91P-O(d) regarding the 
ECO Opening Auction Process would remove impediments to and perfect the 
mechanism of a free and open market and a national market system 
because the proposed rule maintains the fundamentals of an auction 
process that the Exchange currently uses for ECOs, as described in Rule 
6.91-O(a)(2)(i)(B), while at the same time enhancing the process by 
incorporating Pillar auction functionality that is currently available 
on the Exchange's cash equity platform, as described in Rule 7.35-E as 
well as proposed for single-leg options in Rule 6.64P-O. For example, 
the Exchange proposes to use Pillar functionality to determine how to 
price an ECO Opening Auction Process, as described in proposed Rule 
6.91P-O(d)(3), including using proposed ``ECO Auction Collars'' and an 
``ECO Auction Price,'' which are consistent with the core functionality 
for opening ECOs, with additional detail that would promote clarity and 
transparency to market participants regarding this process. The 
Exchange believes it is appropriate to refrain from opening a series 
when there is a lack of reliable pricing indication(s) regarding the 
price at which a complex strategy should execute because doing so would 
protect market participants from potentially erroneous executions, 
thereby promoting a fair and orderly ECO Opening Auction Process.
    Moreover, the Exchange believes that the proposal to use the DBBO 
(as opposed to the currently used Complex NBBO) for the ECO Opening 
Process would allow the Exchange to open a series based on the Exchange 
BBO, bound by the Away Market Deviation (or, the ABBO if the Exchange 
BBO is not available), which is consistent with ECO handling during 
Core Trading (per proposed Rule 6.91P-O(e)). The Exchange believes this 
proposed change would better align the permissible opening price for a 
series with the permissible execution price during Core Trading, which 
adds consistency to ECO order handling (as well as internal consistency 
to Exchange rules) to the benefit of investors. As such, this proposed 
change would remove impediments to and perfect the mechanism of a free 
and open market and a national market system.
    In addition, the Exchange believes that requiring that the opening 
price for a complex strategy must improve the DBBO if there is 
displayed Customer interest on all legs of the strategy on the Exchange 
would protect displayed Customer interest, and protect investors in 
general, while ensuring a fair and orderly ECO Opening Process.
    The Exchange also proposes to process ECOs received during an ECO 
Opening Auction Process, as described in proposed Rule 6.91P-O(d)(4), 
and transition to continuous trading following an ECO Opening Auction 
Process, as described in proposed Rule

[[Page 21975]]

6.91P-O(d)(5), in a manner similar to how the Exchange's cash equity 
market processes orders that are received during an Auction Processing 
Period and transitions to continuous trading following a cash equity 
Trading Halt Auction, which the Exchange also proposes for single-leg 
options in Rule 6.64P-O. The Exchange believes that using similar 
functionality for different types of auctions would promote consistency 
across the Exchange's options and cash equity trading platforms. 
Because the Exchange would be harnessing Pillar technology to support 
the ECO Opening Auction Process for electronic complex options trading, 
the Exchange believes that structuring proposed Rule 6.91P-O(d) based 
on Rule 7.35-E and Rule 6.64P-O would promote transparency in the 
Exchange's trading rules.
    The Exchange further believes that the proposed Rules 6.91P-O(d)(1) 
and (2), which describe when the Exchange would initiate an ECO Opening 
Auction Process and which ECOs would be eligible to trade in that 
process, would remove impediments to and perfect the mechanism of a 
free and open market and a national market system because they would 
provide clarity and transparency of the conditions required before the 
Exchange would initiate an ECO Opening Auction Process. The Exchange 
further believes that those conditions are not novel and are based on 
existing conditions specified in Rule 6.91-O(a)(2)(i)(A) and (B), with 
additional specificity designed to promote clarity and transparency. 
Accordingly, the Exchange believes that the ECO Opening Auction Process 
for ECOs trading on Pillar would remove impediments to and perfect the 
mechanism of a free and open market and a national market system 
because the proposed process is based on the current opening process, 
including that orders would be matched based on price-time priority at 
a price at which the maximum volume can be traded.
Execution of ECOs During Core Trading Hours
    The Exchange believes that proposed Rule 6.91P-O(e), setting forth 
the execution of ECOs during Core Trading Hours, would remove 
impediments to and perfect the mechanism of a free and open market and 
a national market system because the proposed functionality would 
incorporate the Exchange's existing price-time priority model for 
trading ECOs, including providing that the leg markets would have 
priority at a price. The Exchange believes that the proposed rule 
change to add text to specify that an ECO may trade with another ECO at 
the leg market price if the interest in the leg markets is insufficient 
to trade at that price (i.e., the leg markets cannot trade at that 
price in full or in a permissible ratio), would continue to respect the 
priority of the leg markets at a price, but would also ensures that ECO 
trading opportunities are maximized after eligible interest in the leg 
markets is exhausted at that price resulting in more efficient 
executions. The Exchange note that this proposed functionality is 
consistent with the rule of at least one options exchange and is 
therefore not new or novel.\96\ Once interest in the leg markets is 
exhausted at a price, such interest is no longer executable as ``orders 
are executable against each other only when both the price and the 
quantity of the orders match.'' \97\
---------------------------------------------------------------------------

    \96\ See BOX Rule 7240(b)(2)(ii); see also BOX Notice, 78 FR at 
15093 and BOX Approval, 78 FR, at 24449.
    \97\ See BOX Approval Order, 78 FR, at 24449.
---------------------------------------------------------------------------

    In addition, the Exchange believes that allowing Complex Only 
Orders to trade up to the DBBO unless there is displayed Customer 
interest on each leg on the Exchange at the DBBO (as described above) 
would provide market participants additional trading opportunities 
while still protecting Customer interest on the Exchange, which would, 
in turn, remove impediments to and perfect the mechanism of a free and 
open market and national market system.
    The Exchange believes that it would remove impediments to and 
perfect the mechanism of a free and open market and national market 
system to specify that ECOs will not trade with orders in the leg 
markets designated AON, FOK or with an MTS modifier (as described in 
the Single-Leg Pillar Filing) because it would add clarity and 
transparency to the proposed Rule regarding the handling of ECO vis a 
vis these single-leg order types that are conditional based on order 
size. The Exchange further believes that it would remove impediments to 
and perfect the mechanism of a free and open market and a national 
market system for ECOs to trade as Complex Only Orders (rather than be 
rejected as they would under current rules) if they have a complex 
strategy that could result in a Market Maker breaching their 
established risk settings.\98\ This proposed process is also consistent 
with the treatment of similar ECOs on other options markets.\99\ The 
Exchange further believes that it would remove impediments to and 
perfect the mechanism of a free and open market and a national market 
system to specify the frequency with which the Exchange would evaluate 
trading opportunities for an ECO with the leg markets update because it 
would promote clarity and transparency in Exchange rules.
---------------------------------------------------------------------------

    \98\ See discussion infra regarding rationale for proposed Rule 
6.91P-O(e) to restrict certain ECOs from executing as a package and 
bypassing Market Maker risk settings.
    \99\ See supra notes 62 and 63 (citing to Cboe Rule 5.33(g) and 
Nasdaq ISE Options 3, Section 14 (d)(3)(A)-(B) regarding similar 
functionality).
---------------------------------------------------------------------------

    Overall, the Exchange believes the proposal for ECO trading during 
Core Trading would help maintain a fair and orderly market and would 
benefit investors by facilitating increased interaction between ECOs 
(not designated as Complex Only) and leg markets interest. In 
particular, such ECOs would execute against interest in the leg markets 
for all of the quantity available at the best price in a permissible 
ratio until the quantities remaining on such leg markets are 
insufficient to execute against the ECO while respecting the spread 
ratio. The Exchange believes that requiring Complex Only Orders to 
improve at least a portion of the displayed Customer interest on the 
leg markets when all legs of a complex strategy contain displayed 
Customer interest would provide market participants with additional 
trading opportunities while still protecting displayed Customer 
interest on the Exchange. To the extent that this proposed handling of 
ECOs on the Exchange during Core Trading results in greater liquidity 
(because of increased opportunity for order execution) this increased 
liquidity should, in turn, enhance execution quality.
Execution of ECOs During a COA
    The Exchange believes that proposed Rule 6.91P-O(f), setting forth 
the execution of ECOs during a COA, would remove impediments to and 
perfect the mechanism of a free and open market and a national market 
system and promote just and equitable principles of trade because the 
proposed functionality would both incorporate existing functionality to 
provide that COA Orders would trade solely with other ECOs (and not the 
leg markets) during the auction and that a COA Order would be allocated 
on price-time priority, which is consistent with the Exchange's 
priority scheme. The Exchange believes that relying on the DBBO (and 
binding such DBBO by the maximum allowable Away Market Deviation when 
the Exchange BBO is used to calculate the DBBO for a leg) as

[[Page 21976]]

opposed to an initial snapshot of the Complex BBO (as is currently the 
case), would benefit market participants as the proposed operation of 
the DBBO would provide additional price protection in ECO trading, 
including during a COA, and would add clarity and transparency to the 
rules. The Exchange also believes that the proposed change to add 
reference to quotes (in addition to orders) to Rule 6.91P-O(f)(5) 
(Prohibited Conduct) regarding the COA Process, would benefit market 
participants as it would broaden the scope of such the prohibition. 
Overall, the Exchange believes the proposed rule would add clarity and 
transparency to OTP Holders and OTP Firms utilizing the COA process.
    In addition, the Exchange further believes that the proposed 
changes to the COA process on Pillar that either differ from current 
functionality or that would be new would remove impediments to and 
perfect the mechanism of a free and open market and national market 
system because:
    <bullet> Requiring that a COA Order initiate a COA on arrival, else 
be treated as a standard ECO, is new under Pillar as, per the current 
Rule, a COA Order may sit on the Consolidated Book until market 
conditions change such that it may initiate a COA. The Exchange 
believes the proposed change would provide OTP Holders and OTP Firms 
with a higher level of transparency and determinism of when a COA Order 
could initiate a COA and would also encourage market participants to 
submit aggressively-priced orders in order to qualify for initiation of 
a COA, which better-priced interest benefits all investors and improves 
market quality.
    <bullet> Making explicit that COA Orders may only execute with ECOs 
(and not the leg markets) until after the COA ends is consistent with 
current functionality, per Rule 6.91-O(c)(2), but is designed to make 
clear that ECOs have priority during a COA.
    <bullet> Streamlining the rule text that would describe the market 
events that, under Pillar, would cause an early end to a COA would 
simplify the COA process and would provide OTP Holders and OTP Firms 
with a higher level of transparency and determinism regarding the 
handling of COA Orders.
    <bullet> Allowing a COA to end early based on the DBBO, which may 
be calculated using ABBO leg prices, would benefit market participants 
and promote internal consistency because, as proposed, such early 
termination would prevent COA Orders from executing at prices too far 
away from the prevailing market for that complex strategy. In addition, 
the DBBO is used to determine the execution of ECOs on the Exchange, 
including whether such ECO may initiate a COA as a COA Order. As such, 
the Exchange believes it is appropriate and to the benefit of market 
participants that the early termination of a COA likewise be based on 
the DBBO--regardless of whether the prices used to calculate such DBBO 
include (or consist entirely of) ABBO prices.
ECO Risk Checks
    The Exchange believes that proposed Rule 6.91P-O(g), setting forth 
ECO Risk Checks, would remove impediments to and perfect the mechanism 
of a free and open market and a national market system and promote just 
and equitable principles of trade because the proposed functionality 
would incorporate existing risk controls, without any substantive 
differences. The Exchange further believes that the proposed changes to 
ECO Risk Checks on Pillar that either differ from current functionality 
or would be new would remove impediments to and perfect the mechanism 
of a free and open market and national market system because:
    <bullet> The Exchange believes that the new Complex Strategy Limit 
(which is conceptually similar to the Complex Order Table Cap under the 
current Rule) would help maintain a fair and orderly market because it 
would operate as a system protection tool that enables the Exchange to 
prevent any single MPID from creating more than a limited number of 
complex strategies during the trading day. The proposed limits are not 
novel and are based on limits imposed by other options exchanges on new 
complex order strategies.\100\
---------------------------------------------------------------------------

    \100\ See supra note 67 (citing Cboe Rule 5.33(a) and MIAX Rule 
518(a)(6) regarding each exchange's ability to limit the number of 
new complex strategies in their systems at any particular time).
---------------------------------------------------------------------------

    <bullet> The proposed ECO Price Protection on Pillar would work 
similarly to how the current ECO price protection mechanism functions 
on the Exchange because an ECO would be rejected if it is priced a 
specified percentage away from the contra-side Complex NBB or NBO.\101\ 
The Exchange believes that the proposed differences on Pillar, to use 
new thresholds and reference prices, would not only simplify the 
existing price check, but it would also align the proposed 
functionality with the proposed ``Limit Order Price Protection'' for 
single-leg interest, thus adding uniformity to Exchange rules.\102\ 
Although the mechanics of the ECO Price Protection would vary slightly 
from the existing Price Protection Filter, the goal of this feature 
would remain the same: Prevent the execution of ECOs that are priced 
too far away from the prevailing market for the same strategy and 
therefore potentially erroneous to be benefit of market participants.
---------------------------------------------------------------------------

    \101\ As noted above, the Exchange proposes to define the 
Complex NBBO as the derived national best bid and derived national 
best offer for a complex strategy calculated using the NBB and NBO 
for each component leg of a complex strategy. See proposed Rule 
6.91P-O(a)(2).
    \102\ See Single-Leg Pillar Filing (Rule 6.62P-O(a)(3) sets 
forth the Limit Order Price Protection Filter applicable to Limit 
Orders and quotes).
---------------------------------------------------------------------------

    <bullet> The proposed Pillar Complex Strategy Protections would 
function similarly to the current Debit/Credit Reasonability Checks 
because erroneously priced incoming ECOs would be rejected. Consistent 
with current functionality, the proposed Complex Strategy Protections 
are designed to prevent the execution of ECOs at prices that are 
inconsistent with/not aligned with their strategies to the benefit of 
market participants. The Exchange believes that the non-substantive 
differences to focus on the expectation of the ECO sender and what 
would result if the ECO were not rejected rather than refer to 
specified debit or credit amounts as a way to determine whether a given 
strategy is erroneously priced would remove impediments to and perfect 
the mechanism of a free and open market system because it would promote 
clarity and transparency in Exchange rules.
Rule 6.47A-O
    The Exchange believes that the proposed non-substantive change to 
Rule 6.47A-O to update references to ``COA'' (versus COA Process) and 
``the Exchange,'' to delete reference to ``OX,'' and add the reference 
to Rule 6.91P-O would remove impediments to and perfect the mechanism 
of a free and open market and a national market system and, in general, 
protect investors and the public interest because the proposed 
conforming changes would add clarity, transparency and consistency to 
the Exchange's rules. The Exchange believes that market participants 
would benefit from the increased clarity, thereby reducing potential 
confusion. Similarly, the Exchange believes that adding a cross-
reference to proposed Rule 6.91P-O(f) and extending the exemption from 
the one-second order exposure requirement of Rule 6.47A-O would remove 
impediments to and perfect the mechanism of a free and open market and 
a national market system because it would promote clarity and 
transparency of which Pillar rules would be eligible for the exception 
specified in that Rule.

[[Page 21977]]

    As previously stated, the Exchange believes that the proposed 
Response Time Interval for a COA (i.e. no less than 100 milliseconds) 
is of sufficient length so as to permit OTP Holders and OTP Firms time 
to respond to a COA. As such, the Exchange believes the proposed rule 
change would provide the order sender with a timely execution of its 
COA Order, while ensuring that there is an adequate exposure of such 
order. Accordingly, the Exchange proposes to amend Rule 6.47A-O(iii) to 
extend the exemption from the one-second order exposure requirement to 
COA Orders under Pillar, which exemption is consistent with the 
treatment of similar orders on other options exchanges.\103\ Consistent 
with Rule 6.47A-O, Commentary .01, OTP Holders and OTP Firms would only 
utilize the COA where there is a genuine intention to execute a bona 
fide transaction.\104\
---------------------------------------------------------------------------

    \103\ See supra note 82 (regarding NYSE American Rule 
935NY(iii)).
    \104\ See supra note 83 (regarding Rule 6.47A-O, Commentary 
.01).
---------------------------------------------------------------------------

    The Exchange believes that the proposed prohibition that OTP Holder 
and OTP Firms not inform another OTP Holder or OTP Firm or any other 
third party of any of the terms of the order, per proposed Commentary 
.03 to Rule 6.47A-O, would remove impediments to and perfect the 
mechanism of a free and open market and a national market system and, 
in general, protect investors and the public interest because the 
proposed change is designed to prevent OTP Holders or OTP Firms from 
providing material, non-public information to third parties and 
consistent with similar provisions on other options exchanges.\105\
---------------------------------------------------------------------------

    \105\ See supra note 84 (regarding similarly provision contained 
in NYSE American Rule 935NY, Commentary .04).
---------------------------------------------------------------------------

* * * * *
    For the reasons set forth above, the Exchange believes proposed 
Rule 6.91P-O, regarding ECO trading, including the priority and 
execution of such ECOs vis a vis the leg markets, is consistent with 
the goals of the Act to remove impediments to and to perfect the 
mechanism of a free and open market and a national market system, and 
to protect investors and the public interest.

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 believes that the transition to Pillar for 
trading of ECOs on its options trading platform would promote 
competition among options exchanges by offering a low-latency platform 
that offers more deterministic outcomes for trading interest, which, in 
turn, facilities ECO trading on a continuous and real-time basis on the 
Exchange.
    The proposed rule changes would support that inter-market 
competition by allowing the Exchange to offer additional functionality 
to its OTP Holders and OTP Firms, thereby potentially attracting 
additional order flow to the Exchange. Otherwise, the proposed changes 
are not designed to address any competitive issues, but rather to amend 
the Exchange's rules relating to trading of ECOs to support the 
transition to Pillar. As discussed in detail above, with this rule 
filing, the Exchange is not proposing to change its core functionality 
regarding the treatment of ECOs. Rather, the Exchange believes that the 
proposed rule changes would promote consistent use of terminology to 
support options (both single-leg and complex) and cash equity trading 
on the Exchange, making the Exchange's rules easier to navigate. The 
Exchange does not believe that the proposed rule changes would raise 
any intra-market competition as the proposed rule changes would be 
applicable to all OTP Holders and OTP Firms, and reflects the 
Exchange's existing treatment of ECOs, without proposing any material 
substantive changes.

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. Discussion and Commission Findings

    After careful review, the Commission finds that the proposed rule 
change, as modified by Amendment Nos. 1 and 2, is consistent with the 
requirements of the Act and the rules and regulations thereunder 
applicable to a national securities exchange.\106\ In particular, for 
the reasons discussed below, the Commission finds that the proposed 
rule change, as amended, is consistent with Section 6(b)(5) of the 
Act,\107\ which requires, among other things, that the rules of a 
national securities exchange be designed to prevent fraudulent and 
manipulative acts and practices, to promote just and equitable 
principles of trade, to remove impediments to and perfect the mechanism 
of a free and open market and a national market system, and, in 
general, to protect investors and the public interest. This order 
approves the proposed rule change in its entirety, although only 
certain more significant aspects of the proposed rules are discussed 
below.
---------------------------------------------------------------------------

    \106\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. See 15 U.S.C. 78c(f).
    \107\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

A. Definitions

    Several defined terms in proposed Exchange Rule 6.91P-O(a) are 
consistent with defined terms in the Exchange's rules or in the rules 
of other options exchanges. The definition of Complex NBBO in proposed 
Exchange Rule 6.91P-O(a)(2) is consistent with defined terms used on 
other options exchanges.\108\ Similarly, the definition of complex 
strategy in proposed Exchange Rule 6.91P-O(a)(4) is consistent with 
definitions in the rules of other options exchanges.\109\ The 
definition of ECO Order Instruction in proposed Exchange Rule 6.90P-
O(a)(6) is based on the term ``order instruction'' used in Exchange 
Rules 7.35-E(g) and 6.64P-O(e), which the Commission has previously 
approved.\110\ The Commission believes that the definitions of ``leg'' 
or ``leg market,'' and ``ratio'' or ``leg ratio'' in proposed Exchange 
Rules 6.91P-O(a)(8) and (9), respectively, should help to clarify the

[[Page 21978]]

terminology used to describe the trading of ECOs.
---------------------------------------------------------------------------

    \108\ See, e.g., BOX Rule 7240(a)(3) (stating that the term 
``cNBBO'' means the best net bid and offer price for a Complex Order 
Strategy based on the NBBO for the individual options components of 
such Strategy); and MIAX Rule 518(a)(2)) (stating, in part, that the 
cNBBO is calculated using the NBBO for each component of a complex 
strategy to establish the best net bid and offer for a complex 
strategy).
    \109\ See, e.g., BOX Rule 7240(a)(9) (stating that the term 
Complex Order Strategy or Strategy means a particular combination of 
components of a Complex Order and their ratios to one another. BOX 
will assign a strategy identifier to each Strategy); and MIAX Rule 
518(a)(6) (stating that the term ``complex strategy'' means a 
particular combination of components and their ratios to one 
another. New complex strategies can be created as the result of the 
receipt of a complex order or by the Exchange for a complex strategy 
that is not currently in the System. The Exchange may limit the 
number of new complex strategies that may be in the System at a 
particular time and will communicate this limitation to Members via 
Regulatory Circular).
    \110\ Exchange Rule 7.35E(g) states that, for purposes of 
paragraphs (g) and (h) of Exchange Rule 7.35E, an ``order 
instruction'' refers to a request to cancel, cancel and replace, or 
modify an order. Exchange Rule 6.64P-O(e), which the Commission 
approved in the Single-Leg Pillar Proposal, states that, for 
purposes of paragraphs (e) and (f) of Exchange Rule 6.64P-O, an 
``order instruction'' refers to a request to cancel, cancel and 
replace, or modify an order or quote.
---------------------------------------------------------------------------

    Currently, Exchange Rule 6.91-O defines Electronic Complex Order to 
mean any Complex Order as defined in Exchange Rule 6.62-O(e) or any 
Stock/Option Order or Stock/Complex Order as defined in Exchange Rule 
6.62-O(h) that is entered into the NYSE Arca System. Proposed Exchange 
Rule 6.91P-O(a)(7) eliminates the references to Stock/Option and Stock/
Complex Orders and defines an Electronic Complex Order or ECO to mean a 
Complex Order as defined in Exchange Rule 6.62P-O(f) that is submitted 
electronically to the Exchange.\111\ The definition of Complex Order in 
Exchange Rule 6.62P-O(f) is consistent with the definition of complex 
order used on other options exchanges.\112\ In addition, the 
elimination of references to Stock/Option and Stock/Complex Orders 
helps to ensure that the definition of ECO accurately reflects the 
Exchange's functionality because the Exchange does not permit trading 
of such orders electronically.\113\
---------------------------------------------------------------------------

    \111\ Exchange Rule 6.62P-O(f), which the Commission approved in 
the Single-Leg Pillar Proposal, defines a Complex Order as any order 
involving the simultaneous purchase and/or sale of two or more 
option series in the same underlying security (the ``legs'' or 
``components'' of the Complex Order), for the same account, in a 
ratio that is equal to or greater than one-to-three (.333) and less 
than or equal to three-to-one (3.00) and for the purpose of 
executing a particular investment strategy.
    \112\ See, e.g., BOX rule 7240(a)(7); EDGX Rule 21.20(a); ISE 
Options 3, Section 14(a)(1); and MIAX Rule 518(a)(5).
    \113\ Stock/Option Orders and Stock/Complex Orders are available 
only for open outcry trading on the Exchange. See Exchange Rule 
6.62P-O(h)(6). See also Amendment No. 1 at n. 23.
---------------------------------------------------------------------------

    Proposed Exchange Rule 6.91P-O(a)(1) defines the Away Market 
Deviation to mean the difference between the Exchange BB(BO) for a 
series and the ABB(ABO) for that same series when the Exchange BB(BO) 
is lower (higher) than the ABB(ABO). The maximum allowable Away Market 
Deviation is the greater of $0.05 or 5% below (above) the ABB(ABO) 
(rounded down to the nearest whole penny). No ECO on the Exchange will 
execute at a price that would exceed the maximum allowable Away Market 
Deviation on any component of the complex strategy.\114\ The Exchange 
states that the Away Market Deviation will provide additional 
protection against ECOs being executed on the Exchange at prices too 
far away from the current market.\115\ The Commission notes that other 
options exchanges have adopted similar protections for complex 
orders.\116\
---------------------------------------------------------------------------

    \114\ See proposed Exchange Rules 6.91P-O(a)(1).
    \115\ See Amendment No. 1 at 43.
    \116\ See, e.g., ISE Options 3, Section 16(a) (providing that 
ISE's system ``will not permit any leg of a complex strategy to 
trade through the NBBO for the series or any stock component by a 
configurable amount calculated as the lesser of (i) an absolute 
amount not to exceed $0.10, and (ii) a percentage of the NBBO not to 
exceed 500%, as determined by the Exchange on a class, series or 
underlying basis. A Member can also include an instruction on a 
Complex Order that each leg of the Complex Order is to be executed 
only at a price that is equal to or better than the NBBO for the 
options series or any stock component, as applicable''); and BOX 
Rule 7240(a)(5) (providing that the ``'Extended cNBBO' means the 
maximum permissible net bid and offer execution price for a Complex 
Order Strategy. The Extended cNBBO is calculated by subtracting the 
Extended cNBBO Limit from the cNBB and adding the Extended cNBBO 
Limit to the cNBO. In calculating the Extended cNBBO, each side of 
the Extended cNBBO is rounded to the nearest penny within the 
Extended cNBBO (i.e., the cNBB is rounded up to the nearest penny 
and the cNBO is rounded down to the nearest penny'')).
---------------------------------------------------------------------------

    The definitions in proposed Exchange Rule 6.91P-O(a)(3) related to 
the COA are substantially similar to the current COA definitions in 
Exchange Rule 6.91-O(c), with certain differences.\117\ The definition 
of RFR Response in proposed Exchange Rule 6.91-O(a)(3)(C) eliminates 
the time-in-force contingency in the current definition of RFR Response 
and would include as an RFR Response any ECO received during the 
Response Time Interval that is on the opposite side of the market of, 
and marketable against, the COA Order.\118\ By treating any ECO 
received during the Response Time Interval that is marketable against 
the COA Order as an RFR Response, the Commission believes that the 
proposed definition of RFR Response could help to increase competition 
in the COA, thereby potentially increasing price improvement 
opportunities for the COA Order.
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    \117\ For example, the definition of COA Order in proposed 
Exchange Rule 6.91P-O(a)(3)(A), unlike the current definition of 
COA-eligible order, will not require that an option class be 
designated as COA-eligible because all option classes that trade on 
Pillar will be COA-eligible. The definition of RFR in proposed 
Exchange Rule 6.91P-O(a)(3)(B) will indicate that the Exchange 
disseminates RFR messages through its proprietary data feed.
    \118\ The Exchange also proposes to adopt an ECO GTX Order that 
is similar to the current RFR Response. See Amendment No. 1 at 7-8 
and proposed Exchange Rule 6.91P-O(b)(2)(C).
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    The definition of Response Time Interval in proposed Exchange Rule 
6.91P-O(a)(3)(D) will reduce the minimum duration of the Response Time 
Interval from no less than 500 milliseconds, as provided in Exchange 
Rule 6.91-O(c)(4), to no less than 100 milliseconds. The Exchange also 
proposes to amend Exchange Rule 6.47A-O to provide that orders 
submitted to the proposed COA will satisfy the order exposure 
requirements of Exchange Rule 6.47A-O. The Exchange states that the 
proposed Response Time Interval will provide OTP Holders and OTP Firms 
with adequate time to respond to a COA, given that other options 
exchanges have for several years offered electronic paired auctions 
with a Response Time Interval of at least 100 milliseconds.\119\ The 
Exchange further states that the proposal is designed to provide the 
order sender with a timely execution of the COA Order while ensuring 
adequate exposure of the order.\120\ Based on the Exchange's 
representations, the Commission believes that the proposed Response 
Time Interval is designed to provide market participants with adequate 
time to respond to a COA, which should continue to assure competition 
for the auctioned orders. Accordingly, the Commission also believes 
that it is consistent with the Act to allow Users to utilize the 
proposed COA to satisfy the order exposure requirements of Exchange 
Rule 6.47A-O.
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    \119\ See Amendment No. 1 at 8, citing NYSE American Rule 
971.1NY(c)(2)(B) (providing that for a Customer Best Execution 
Auction ``[t]he minimum/maximum parameters for the Response Time 
Interval will be no less than 100 milliseconds and no more than one 
(1) second''); and 971.2NY(c)(1)(B) (same); Cboe Exchange Inc. 
(``Cboe'') Rule 5.33(d)(3) (providing that Cboe ``determines the 
duration of the Response Time Interval on a class-by-class basis, 
which may not exceed 3000 milliseconds''). See also BOX Rule 
7245(f)(1) (providing for a Complex Order Price Improvement Period 
of 100 milliseconds); and ISE Options 3, Section 13(e)(4)(i) 
(providing an exposure period for the Complex Price Improvement 
Mechanism of no less than 100 milliseconds and no more than one 
second). The Exchange states that other options exchanges do not 
establish a minimum duration for a COA. See Amendment No. 1 at 8.
    \120\ See Amendment No. 1 at 50.
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    As described more fully above, proposed Exchange Rule 6.91P-O(a)(5) 
defines the DBBO as the derived best net bid (``DBB'') and derived best 
net offer (``DBO'') for a complex strategy, calculated using the 
Exchange BB(BO) for each leg of the strategy (if available) or the ABB 
(ABO) for a leg if the Exchange has no BB(BO) for that leg.\121\ The 
proposed definition states that when the Exchange uses the Exchange

[[Page 21979]]

BB(BO) to calculate the DBBO, the Exchange BB(BO) will be bound by the 
maximum allowable Away Market Deviation, which the Exchange believes 
will help to prevent ECOs from executing on the Exchange at prices that 
are too far away from the current market.\122\ The proposed definition 
of DBBO further provides that the Exchange will calculate the DBBO by 
adding or subtracting one ``collar value'' from a quote on one side of 
the market when there is no quote available on the other side of the 
market. The Exchange notes that the proposed values used to generate a 
DBBO in the absence of local or Away Market interest are consistent 
with the values used in the Trading Collars for single-leg orders.\123\ 
The Exchange states that providing alternative means for calculating 
the DBBO will benefit market participants by providing increased 
trading opportunities for ECOs.\124\
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    \121\ The Commission notes that another options exchange also 
uses away market prices to calculate the synthetic best bid and 
offer for a strategy when the exchange has no bid or offer for a 
component leg of the strategy. See Cboe Rule 5.33(a) (defining the 
Synthetic Best Bid or Offer or SBBO to mean the best net bid and net 
offer on the Exchange for a complex strategy calculated using: (1) 
For complex orders, the BBO for each component (or the NBBO for a 
component if the BBO for that component is not available) of a 
complex strategy from the Simple Book; and (2) for stock-option 
orders, the BBO for each option component (or the NBBO for a 
component if the BBO for that component is not available) and the 
NBBO of the stock component of a complex strategy).
    \122\ See proposed Exchange Rule 6.91P-O(a)(5) and Amendment No. 
1 at 10.
    \123\ See Amendment No. 1 at 9.
    \124\ See id. at 10.
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    The proposed definition of DBBO provides that the Exchange will not 
allow a strategy to trade if there is neither an Exchange BBO nor an 
ABBO for a component leg of a strategy, which could help to protect 
investors by preventing a strategy from trading when reliable pricing 
for a component leg of the strategy is unavailable.\125\ ECOs for a 
strategy will not be permitted to execute against each other when the 
bids and offers (when not based solely on the Exchange BBO) are locked 
or crossed.\126\ The Exchange states that preventing ECO-to-ECO trading 
in this circumstance would benefit market participants by preventing 
potentially erroneous ECO executions.\127\ If an Away Market quote 
updates to lock or cross the current Exchange BB (BO) or ABB (ABO) for 
a component leg of a complex strategy, the Exchange will allow an ECO 
for that strategy to execute against leg market interest on the 
Exchange.\128\ The Exchange states that allowing an eligible ECO to 
execute against leg market interest in these circumstances is 
consistent with the trading of single-leg orders because updates to the 
ABBO that lock or cross leg market prices do not prevent resting leg 
market interest from trading at its resting price with eligible contra-
side interest.\129\ The Exchange further notes that if an ECO trades 
with leg market interest in a complex strategy when the leg markets are 
crossed, such an execution would not be deemed a trade-through.\130\ 
The Exchange states that allowing these executions against leg market 
interest will maximize the execution opportunities for ECO while 
respecting the price-time priority of the leg markets.\131\
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    \125\ See proposed Exchange Rule 6.91P-O(a)(5)(B).
    \126\ See proposed Exchange Rule 6.91P-O(a)(5)(C).
    \127\ See Amendment No. 1 at 11.
    \128\ See proposed Exchange Rule 6.91P-O(a)(5)(C).
    \129\ See Amendment No. 1 at 11-12 (citing Exchange Rule 6.76P-
O(b)(3), which provides that ``[i]f an Away Market locks or crosses 
the Exchange BBO, the Exchange will not change the display price of 
any Limit Orders or quotes ranked Priority 2--Display Orders and any 
such orders will be eligible to be displayed as the Exchange's 
BBO'').
    \130\ See Amendment No. 1 at 12 and Exchange Rule 6.94-O(b)(3) 
(providing an exception from trade-through liability for trade-
throughs that occur when there was a Crossed Market). See also the 
Options Order Protection And Locked/Crossed Market Plan, dated April 
14, 2009, available here, https://www.theocc.com/getmedia/7fc629d9-4e54-4b99-9f11-c0e4db1a2266/options_order_protection_plan.pdf.
    \131\ See Amendment No. 1 at 12.
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B. Order Types and Times-in-Force

    The ECO order types and times-in-force in proposed Exchange Rule 
6.91P-O(b) are similar to the order types and times-in-force currently 
available for Electronic Complex Orders on the Exchange or on other 
options markets. Current Exchange Rule 6.91-O(b)(1) provides that 
Electronic Complex Orders may be entered as Limit Orders or as Limit 
Orders designated as PNP Plus. Proposed Exchange Rule 6.91P-O(b)(1) 
states that ECOs may be entered as Limit Orders, Limit Orders 
designated as Complex Only Orders, or Complex QCCs.\132\ The Exchange 
states that Complex Only Orders are based on the existing functionality 
for PNP Plus Orders, and, like PNP Plus Orders, will trade only with 
another ECO and not with leg market interest.\133\ As discussed more 
fully below, a Complex Only Order will be required to execute at a 
price that is better than the DBB(DBO) if the DBB(DBO) is calculated 
using the Exchange BBO for all of the legs of the complex strategy and 
all of the Exchange BBOs for those legs have displayed Customer 
interest.\134\
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    \132\ The Commission approved the Exchange's Complex QCC Orders 
in the Single-Leg Pillar Proposal. See Single-Leg Pillar Approval 
Order, supra note 11. The Exchange states that allowing ECOs to be 
designated as Complex QCCs is consistent with current functionality. 
See Amendment No. 1 at 13.
    \133\ See proposed Exchange Rule 6.91P-O(c)(1)(C) and Amendment 
No. 1 at 26. See also Exchange Rule 6.62-O(y) (stating that an 
Electronic Complex Order designated as PNP Plus will be 
automatically re-priced by the Exchange as an MPV greater than the 
Complex BBO bid (for sell orders) or an MPV lower than the Complex 
BBO offer (for buy orders) for any or all of the order that remains 
unexecuted and would otherwise lock or cross the Complex BBO should 
it be displayed in the Consolidated Book. The re-priced order will 
then be posted in the Consolidated Book. The PNP Plus order will 
continue to be repriced at an MPV greater than the Complex BBO bid 
(for sell orders) or an MPV lower than the Complex BBO offer (for 
buy orders) and re-posted in the Consolidated Book, with each change 
in the Complex BBO, until such time as the Complex BBO has moved to 
a price where the original limit price of the PNP Plus Order no 
longer locks or crosses the Complex BBO, at which time the PNP Plus 
Order will revert to the original limit price of such order. 
Electronic Complex Orders designated as PNP Plus shall be ranked in 
the Consolidated Book pursuant to Rule 6.91-O(a)(1) and assigned a 
new price time priority as of the time of each reposting). Unlike 
PNP Plus Orders, the Exchange will not reprice a resting Complex 
Only Order and instead will restrict a Complex Only Order from 
trading with leg market interest. See Amendment No. 1 at 27.
    \134\ See proposed Exchange Rule 6.91P-O(e)(1)(C).
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    Proposed Exchange Rule 6.91P-O(b)(2) states that ECOs may be 
designated with a time-in-force of Day, IOC, FOK, or GTC, as those 
terms are defined in Exchange Rule 6.62P-O(b), or GTX.\135\ The 
Exchange's current rules allow Electronic Complex Orders to be 
designated as FOK or AON and to be entered with a time-in-force of IOC, 
Day, or GTC.\136\ The Commission notes that other options exchanges 
offer similar order types and times-in-force for complex orders.\137\ 
Under the proposal, an ECO designated as FOK must also be designated as 
a Complex Only Order.\138\ Similarly, an ECO will not trade with orders 
in the leg markets designated as AON, FOK, or with an MTS 
Modifier.\139\ The Commission notes that other options exchanges have 
adopted similar restrictions with respect to the execution of AON 
orders.\140\
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    \135\ As noted above, ECO GTX Orders are similar to the RFR 
Responses provided in current Exchange Rule 6.91O-(c)(5). See 
Amendment No. 1 at 8 and 14.
    \136\ See Exchange Rules 6.91-O(b)(2) and (3).
    \137\ See, e.g., BOX Rule 7240(b)(4)(i) (allowing complex orders 
to be entered as Fill-and-Kill orders, Limit Orders, Market Orders, 
or Session Orders); ISE Options 3, Section 14(b) (allowing complex 
orders to be entered as, among others, market orders, limit orders, 
AON orders, Day orders, FOK orders, IOC orders, and GTC orders; and 
MIAX Rule 518(b)(1) (permitting the entry of complex orders that are 
limit orders, market orders, GTC, or day limit orders, among 
others).
    \138\ See proposed Exchange Rule 6.91P-O(b)(2)(B). In addition, 
an ECO designated as IOC or FOK will be rejected if entered during a 
pre-open state. See proposed Exchange Rule 6.91P-O(b)(2)(A). The 
Exchange notes that this is consistent with the time-in-force of 
these orders, which could not be traded when a complex strategy is 
not open for trading. See Amendment No. 1 at 14.
    \139\ See proposed Exchange Rule 6.91P-O(e)(1)(B).
    \140\ See Cboe Rules 5.33(d)(5) (stating that an AON complex 
order may only execute against COA Responses and unrelated orders 
resting in the COB in price-time priority if there is sufficient 
size to satisfy the AON complex order (and may not execute against 
orders resting in the Simple Book)); and 5.33(g)(4) (stating that 
Post Only complex orders and AON complex orders may not Leg into the 
Simple Book); and EDGX Rules 21.20(d)(5)(A) and 21.20(g)(4) (same). 
See also NYSE American Rule 900.3NY(d)(4) (providing that an All-or-
None Order is a Market or Limit Order that is to be executed on the 
Exchange in its entirety or not at all. AON Orders that do not 
execute on arrival will not have standing in any Order Process in 
the Consolidated Book and will not be routed or displayed. AON 
Orders will not be eligible to execute against incoming interest and 
may execute solely against interest resting in the Consolidated Book 
when sufficient size is available. The System monitors the 
Consolidated Book for AON Order execution opportunities).

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[[Page 21980]]

C. Priority and Pricing of ECOs

    The Exchange states that proposed Exchange Rule 6.91P-O(c) sets 
forth a price-time priority model and ECO pricing requirements that are 
substantively the same as the price-time priority model and pricing 
requirements currently forth in Exchange Rules 6.91-O(a)(1) and 6.91-O, 
Commentaries .01 and .02(i).\141\ Proposed Exchange Rule 6.91P-O(c)(1) 
states that when trading with the leg markets, an ECO will trade at the 
price(s) of the leg markets unless the leg markets are priced more than 
the maximum allowable Away Market Deviation. The requirement that an 
ECO trading with the leg markets trade at the price(s) of the leg 
markets is consistent with current Exchange Rule 6.91-O(a)(2)(ii).\142\ 
The The Commission believes that the proposed limitation on the 
execution prices to within the maximum allowable Away Market Deviation 
for the component legs of an ECO is designed to protect investors by 
helping to prevent ECOs from executing at prices that do not reflect 
the current market. The Commission notes that other options exchanges 
have adopted similar protections for complex orders.\143\
---------------------------------------------------------------------------

    \141\ See Amendment No. 1 at 44. Proposed Exchange Rule 6.91P-
O(c) states that an ECO that is not executed immediately (or 
cancelled), including if it cannot trade under proposed Exchange 
Rules 6.91(a)(5)(B)-(C) and 6.91(c)(1)-(2), or does not initiate a 
COA, as provided in proposed Exchange Rule 6.91(f)(1), will be 
ranked in the Consolidated Book according to price-time priority 
based on the total net price and time of entry of the order. Current 
Exchange Rule 6.91-O(a)(1) provides that Electronic Complex Orders 
in the Consolidated Book will be ranked according to price/time 
priority based on the total or net debit or credit and the time of 
entry of the order.
    \142\ See Amendment No. 1 at 15. Exchange Rule 6.91-O(a)(2)(ii) 
states that ``[i]f, at a price, the leg markets can execute against 
an incoming Electronic Complex Order in full (or in a permissible 
ratio), the leg markets will have first priority at that price and 
will trade with the incoming Electronic Complex Order pursuant to 
Rule 6.76A before Electronic Complex Orders resting in the 
Consolidated Book can trade at that price.''
    \143\ See note 116, supra.
---------------------------------------------------------------------------

    The Commission believes that proposed Exchange Rules 6.91P-O(c)(2), 
(3), and (4) are consistent with the Exchange's current rules and with 
the rules of other options exchanges. The requirement that each 
component leg of an ECO that executes against another ECO trade at a 
price at or within the Exchange BBO for that series is consistent with 
current Exchange Rule 6.91-O(a)(2) and the rules of other options 
exchanges, and ensures that ECOs will never trade through leg market 
interest.\144\ Similarly, the provisions in proposed Exchange Rule 
6.91P-O(c)(2) (stating that no leg of an ECO may trade at a price of 
zero), proposed Exchange Rule 6.91P-O(c)(3) (stating that ECOs may 
trade without consideration of prices of the same complex strategy 
available on other exchanges), and proposed Exchange Rule 6.91P-O(c)(4) 
(allowing complex strategies to be quoted and traded in $0.01 
increments regardless of the MPV otherwise applicable to the individual 
leg(s) of the ECO) are consistent with the existing rules of other 
options exchanges.\145\
---------------------------------------------------------------------------

    \144\ See proposed Exchange Rule 6.91P-O(c)(2) and Amendment No. 
1 at 16. Exchange Rule 6.91(a)(2) states that no leg of an 
Electronic Complex Order will be executed at a price outside the 
Exchange best bid/offer for that leg. See also BOX Rule 
7240(b)(3)(iii) (stating that the exchange will filter inbound 
Complex Orders to ensure that each leg of a Complex Order will be 
executed at a price that is equal to or better than the BOX BBO for 
each of the component series); and Cboe Rule 5.33(f)(2)(A)(iii) 
(stating that the System does not execute a complex order at a price 
that would cause any component of the complex strategy to be 
executed at a price worse than the individual component prices on 
the Simple Book).
    \145\ See, e.g., Cboe Rule 5.33(f)(2)(A)(i) and MIAX Rule 
518(c)(1)(iii) (prohibiting any component leg of a complex strategy 
from executing at a price of zero); Exchange Rule 6.91O-(a)(2) 
(stating that Electronic Complex Orders submitted to the System may 
be executed without consideration of prices of either single-legged 
orders or the same complex order strategy that might be available on 
other exchanges) and BOX Rule 7420(b)(3) (stating that Complex 
Orders will be executed without consideration of any prices on the 
same Strategy that might be available on other exchanges); and ISE, 
Options 3, Section 14(c)(1) (stating that bids and offers for 
Complex Options Strategies may be expressed in one cent ($0.01) 
increments, and the options leg of Complex Options Strategies may be 
executed in one cent ($0.01) increments, regardless of the minimum 
increments otherwise applicable to the individual options legs of 
the order) and MIAX Rule 518(c)(1)(i) (stating that bids and offers 
on complex orders and quotes may be expressed in $0.01 increments, 
and the component(s) of a complex order may be executed in $0.01 
increments, regardless of the minimum increments otherwise 
applicable to individual components of the complex order). See also 
Amendment No. 2 (revising proposed Exchange Rule 6.91P-O(c)(4) to 
state that bids and offers for complex strategies may be expressed 
in one cent ($0.01) increments).
---------------------------------------------------------------------------

D. Execution of ECOs at the Opening or Reopening After a Trading Halt

    The Commission believes that the ECO opening auction process in 
proposed Exchange Rule 6.91P-O(d) is designed to provide for the 
orderly opening, or re-opening after a trading halt, of ECOs on the 
Exchange.\146\ As discussed below, the proposed ECO opening auction 
process is similar to the Exchange's current opening process for 
Electronic Complex Orders and incorporates Pillar auction functionality 
that is currently available for single-leg options and on the 
Exchange's cash equity platform. The Commission notes that the proposed 
ECO Auction Collar, which establishes the boundaries for the ECO 
Auction Price, protects the priority of resting displayed Customer leg 
market interest by providing that when the DBO (DBB) used to determine 
the ECO Auction Collar is calculated using the Exchange BBO for all 
legs of the complex strategy and all the Exchange BBOs have displayed 
Customer interest, the upper (lower) price of the ECO Auction Collar 
will be one penny ($0.01) times the smallest leg ratio inside the DBO 
(DBB).\147\ The Exchange states that this requirement will protect 
displayed Customer interest, and protect investors in general, while 
ensuring a fair and orderly ECO Opening Process.\148\
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    \146\ See proposed Exchange Rule 6.91P-O(d)(2)(C) (stating that 
the ECO Opening Auction Process will be used to reopen trading in 
ECOs after a trading halt). The Exchange notes that this is 
consistent with current Rule 6.64-O(e). See Amendment No. 1 at 18.
    \147\ See proposed Exchange Rule 6.91P-O(d)(3)(A).
    \148\ See Amendment No. 1 at 45.
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    The Exchange states that proposed Exchange Rule 6.91P-O(d) 
maintains the fundamentals of the opening auction process for 
Electronic Complex Orders in current Exchange Rule 6.91-
O(a)(2)(i)(B).\149\ The Exchange notes that the proposed ECO Auction 
Price--the price at which the maximum volume of ECOs can be traded in 
an ECO Opening Auction, subject to the ECO Auction Collar--is 
consistent with the ``single market clearing price'' in current 
Exchange Rule 6.91-O(a)(2)(i)(B) and will be determined in a manner 
that is based, in part, on how an Indicative Match Price is determined 
for the trading of cash equity securities and how the Exchange will 
determine the price for auctions on Pillar for single-leg options.\150\ 
The Exchange believes that proposed Exchange Rule 6.91P-O(d)(1), which 
provides that the Exchange will not open a complex strategy under 
certain circumstances when pricing information for a component leg of 
the strategy is unavailable or when the market for the component leg is 
locked or crossed, could protect market participants from potentially 
erroneous executions.\151\
---------------------------------------------------------------------------

    \149\ See Amendment No. 1 at 44.
    \150\ See Amendment No. 1 at 19 and Exchange Rule 6.64P-O(a)(9).
    \151\ See Amendment No. 1 at 17. Proposed Exchange Rule 6.91P-
O(d)(1) provides, in part, that a complex strategy will not be 
opened if any leg of the complex strategy has neither an Exchange BO 
nor an ABO; or the complex strategy cannot trade per proposed 
Exchange Rule 6.91P-O(a)(5)(C). See Amendment No. 2.

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[[Page 21981]]

    The Exchange states that proposed Exchange Rule 6.91P-O(d)(3)(B)(i) 
regarding the ranking and pricing of orders in the ECO opening auction 
is based in part on current Exchange Rule 6.91-O(a)(2)(i)(B) and on the 
Exchange's auction processes for cash equity trading and single-leg 
options trading.\152\ Similarly, proposed Exchange Rule 6.91P-
O(d)(3)(B)(ii), which provides that locking and crossing ECOs in a 
complex strategy will trade at the ECO Auction Price, and that the 
Exchange will open a complex strategy without a trade if there are no 
locking or crossing ECOs in the complex strategy at or within the ECO 
Auction Collars, is based in part on Exchange Rule 6.64P-O(d)(2)(B) for 
single-leg options.\153\ Proposed Exchange Rule 6.91P-O(d)(4) regarding 
the processing of new ECOs and ECO Order Instructions received when the 
Exchange is conducting the ECO Opening Auction Process for a strategy 
is based on Exchange Rules 7.35-E(g)(1) and (2) and 6.64P-O(e)(1) and 
(2).\154\ Proposed Rule 6.91P-O(d)(5)(A) and (B), which describe the 
processing of ECOs during the transition to continuous trading after 
the ECO Opening Auction Process, are based, respectively, on current 
Exchange Rules 6.91-O(a)(2)(i)(B) and (C) and Exchange Rule 6.64P-
O(a)(6) for single-leg options.\155\
---------------------------------------------------------------------------

    \152\ See Amendment No. 1 at 20.
    \153\ See Amendment No. 1 at 20.
    \154\ See Amendment No. 1 at 21.
    \155\ See Amendment No. 1 at 21-22.
---------------------------------------------------------------------------

E. Execution of ECOs During Core Trading Hours

    The Commission believes that proposed Exchange Rule 6.91P-
O(e)(1)(A) is designed to provide for the execution of complex orders 
while protecting the priority of established leg market interest. Under 
proposed Exchange Rule 6.91P-O(e)(1)(A), after a complex strategy is 
open for trading, an ECO will trade with the best-priced contra-side 
interest and if, at a price, the leg markets can trade with an eligible 
ECO, in full or in a permissible ratio, the leg markets will trade 
first at that price, pursuant to Exchange Rule 6.76AP-O, until the 
quantities on the leg markets are insufficient to trade with the ECO, 
at which time the ECO will trade with contra-side ECOs resting in the 
Consolidated Book at that price. The Exchange notes that under the 
proposed rule an ECO would never trade ahead of resting leg market 
interest (Customer or otherwise) if the leg market interest is 
sufficient to satisfy the ECO in full or in a permissible ratio.\156\ 
The Exchange further states that the proposed rule makes clear that the 
priority of the leg markets remains primary, but also ensures that ECO 
trading opportunities are maximized after eligible interest in the leg 
markets at a price is exhausted.\157\ The Commission notes that the 
execution priority in proposed Exchange Rule 6.91P-O(e)(1)(A) is 
consistent with the rules of another options exchange.\158\ The 
Commission further notes, however, that unlike ECOs that are eligible 
to execute against leg market interest, Complex Only Orders will not be 
able to trade at the DBB(DBO) for a strategy when the DBB(DBO) is 
calculated using Exchange BBOs and all of those Exchange BBOs have 
displayed Customer interest.\159\
---------------------------------------------------------------------------

    \156\ See Amendment No. 1 at 23.
    \157\ See Amendment No. 1 at 24 and 46.
    \158\ See BOX Rule 7240(b)(2)(ii). See also BOX Rules 
7240(b)(3)(i) and (ii). BOX Rule 7240(b)(2)(ii) provides that ``A 
Complex Order for which a leg of such Complex Order's underlying 
Strategy is not in a one-to-one ratio with each other leg of such 
Strategy will execute against the bids and offers on the BOX Book 
for the individual legs of the Strategy for all of the quantity 
available at the best price in a permissible ratio until the 
quantities remaining on the BOX Book are insufficient to execute 
against the Complex Order. Following such execution, a Complex Order 
may execute against another Complex Order and the component legs of 
the Complex Orders may trade at prices equal to the corresponding 
prices on the BOX Book.'' BOX Rule 7240(b)(3)(i) states that 
``Complex Orders will be automatically executed against bids and 
offers on the Complex Order book in price/time priority; provided, 
however, that Complex Orders will execute against Complex Orders 
only after bids and offers at the same net price on the BOX Book for 
the individual legs have been executed.'' BOX Rule 7240(b)(3)(ii) 
states that ``Complex Orders will be automatically executed against 
bids and offers on the BOX Book for the individual legs of the 
Complex Order to the extent that the Complex Order can be executed 
in full or in a permissible ratio by such bids and offers.''
    \159\ See proposed Exchange Rule 6.91P-O(e)(1)(C).
---------------------------------------------------------------------------

    The Commission believes that proposed Exchange Rule 6.91O(e)(1)(C) 
is designed to provide for the execution of Complex Only Orders while 
protecting the priority of resting leg market interest, including 
Customer interest. Under the proposed rule, a Complex Only Order will 
not be able to trade at a price that is worse than the Exchange BB(BO) 
when the DBBO is calculated using the Exchange's BB(BO) for the 
component legs of the order. In addition, if the DBB(DBO) is calculated 
using the Exchange BBOs for all legs of the strategy and all of the 
Exchange BBOs have displayed Customer interest, the Complex Only Order 
will be required to trade at a price that is better than the 
DBB(DBO).\160\ The Exchange states that this requirement is designed to 
ensure that a Complex Only Order would price improve at least some 
portion of the interest making up the DBBO if there is displayed 
Customer interest on all legs of the strategy on the Exchange.\161\ The 
Commission notes that this requirement is consistent with the 
Exchange's current rules and with the rules of other options 
exchanges.\162\
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    \160\ See proposed Exchange Rule 6.91P-O(e)(1)(C) (stating that 
a Complex Only Order must trade at a price at or within the DBBO, 
provided that if the DBB (DBO) is calculated using the Exchange BBOs 
for all legs of the complex strategy and all such Exchange BBOs have 
displayed Customer interest, the Complex Only Order will not trade 
below (above) one penny ($0.01) times the smallest leg ratio inside 
the DBB (DBO), regardless of whether there is sufficient quantity on 
such leg markets to satisfy the ECO).
    \161\ See Amendment No. 1 at 27. If a Complex Only Order is 
unable to trade within these parameters, it will remain on the 
Consolidated Book until it can trade with another ECO as provided in 
proposed Exchange Rule 6.91P-O(e)(1)(C). See id.
    \162\ See Exchange Rule 6.91-O, Interpretation and Policy .02(i) 
(stating that, when executing an ECO, the price of at least one leg 
of the order must trade at a price that is better than the 
corresponding price of all the customer bids or offers in the 
Consolidated Book for the same series, by at least one standard 
trading increment as defined in Exchange Rule 6.72-O) and Amendment 
No. 1 at n. 50. See also ISE Options 3, Section 14(c)(2)(i); MIAX 
Rule 518(c)(3)(i); NYSE American Rule 980NY, Commentary .02(i).
---------------------------------------------------------------------------

    Proposed Exchange Rule 6.91P-O(e)(1)(D) provides that an ECO will 
be processed as a Complex Only Order if the ECO has a complex strategy 
with (i) more than five legs; (ii) two legs and both legs are buying or 
both legs are selling, and both legs are calls or both legs are puts; 
or (iii) three or more legs and all legs are buying or all legs are 
selling. The Exchange states that requiring these ECOs to be processed 
as Complex Only Orders is designed to help Market Makers manage 
risk.\163\ The Commission notes that other options exchanges have 
similar rules.\164\
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    \163\ See Amendment No. 1 at 28-9.
    \164\ See, e.g., Cboe Rule 5.33(g)(2) (stating that complex 
orders for any capacity other than customer with two option legs 
that are both buy or both sell and that are both calls or both puts 
may not leg into the simple book and may execute against other 
complex orders in the COB); Cboe Rule 5.33(g)(3) (stating that all 
complex orders with three or four option legs that are all buy or 
all sell (regardless of whether the option legs are calls or puts) 
may not leg into the Simple Book and may execute against other 
complex orders in the COB); ISE Options 3, Sections 14(d)(3)(A) 
(stating that Complex Orders with two option legs where both legs 
are buying or both legs are selling and both legs are calls or both 
legs are puts may only trade against other Complex Orders in the 
Complex Order Book); ISE Options 3, Section 14(d)(3)(B) (stating 
that complex orders with three or four option legs where all legs 
are buying or all legs are selling may only trade against other 
Complex Orders in the Complex Order Book; and MIAX Rule 518(c)(iii) 
(stating that complex orders with two option legs where both legs 
are buying or both legs are selling and both legs are calls or both 
legs are puts may only trade against other complex orders on the 
Strategy Book and will not be permitted to leg into the Simple Order 
Book. Complex orders with three option legs where all legs are 
buying or all legs are selling may only trade against other complex 
orders on the Strategy Book, regardless of whether the option leg is 
a call or a put).

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[[Page 21982]]

    Proposed Exchange Rule 6.91P-O(e)(2) provides that the Exchange 
will evaluate trading opportunities for a resting ECO when the leg 
markets comprising a complex strategy update, provided that during 
periods of high message volumes, such evaluation may be done less 
frequently. The Commission believes that these evaluations could result 
in additional executions of resting ECOs.

F. Execution of ECOs During a COA

    The Commission believes the COA in proposed Exchange Rule 6.91P-
O(f) is designed to provide COA Orders \165\ submitted to the auction 
with execution and price improvement opportunities while preserving the 
priority of resting interest on the Exchange's limit order book. As 
described more fully above, the COA in proposed Exchange Rule 6.91P-
O(f) would modify the current COA process set forth in Exchange Rule 
6.91-O(c) by, among other things, relying on the DBBO for pricing, 
streamlining the rule text specifying the circumstances that would 
cause a COA to end early, and providing that a COA Order will initiate 
a COA only upon arrival.\166\ The Exchange states that allowing a COA 
order to initiate a COA only upon arrival could simplify the COA 
process, provide OTP Holders with greater certainty regarding when a 
COA Order would initiate a COA, and encourage market participants to 
submit aggressively-priced orders to qualify for the initiation of a 
COA.\167\ In addition, the Exchange states that the proposed pricing 
requirements that an order would be required to satisfy to initiate a 
COA are designed to encourage aggressively-priced COA Orders, which 
could help to attract a meaningful number of RFR Responses to 
potentially provide price improvement to the COA Order.\168\ The 
Commission believes that these requirements could result in more 
competitive COA auctions, which could make it more likely that COA 
Orders will receive price improvement.
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    \165\ A COA Order is an ECO that is designated by OTP Holder as 
eligible to initiate a COA. See proposed Exchange Rule 6.91P-
O(a)(3)(A).
    \166\ See Amendment No. 1 at 48. As discussed above, the 
proposal also reduces the minimum duration of the Response Time 
Interval for submitting COA Responses from not less than 500 
milliseconds to not less than 100 milliseconds.
    \167\ See Amendment No. 1 at 48.
    \168\ See Amendment No. 1 at 30. Proposed Exchange Rule 6.91P-
O(f)(1) provides that, to initiate a COA, the limit price of the COA 
Order to buy (sell) must be higher (lower) than the best-priced, 
same-side ECOs resting on the Consolidated Book and equal to or 
higher (lower) than the midpoint of the DBBO. A COA Order that does 
not satisfy these pricing parameters will not initiate a COA and, 
unless it is cancelled, will be ranked in the Consolidated Book and 
processed as an ECO pursuant to proposed Exchange Rule 6.91P-O(e).
---------------------------------------------------------------------------

    The Commission believes that proposed Exchange Rule 6.91P-
O(f)(2)(A) will help to preserve the priority of resting ECO and leg 
market interest, including displayed Customer leg market interest, by 
providing that prior to initiating a COA, a COA Order to buy (sell) 
will trade with any ECO to sell (buy) resting in the Consolidated Book 
that is priced equal to or lower (higher) than the DBO (DBB). If the 
DBO (DBB) is calculated using the Exchange BBO for all legs of the 
complex strategy and all such Exchange BBOs have displayed Customer 
interest, the COA Order will trade up (down) to one penny ($0.01) times 
the smallest leg ratio inside the DBO (DBB) (i.e., priced better than 
the leg markets) and any unexecuted portion of the COA Order will 
initiate a COA.\169\ Similarly, the Commission believes that proposed 
Exchange Rule 6.91P-O(f)(2) will help to maintain the priority of leg 
market interest (when the Exchange uses the Exchange BB(BO) to 
calculate the DBB(DBO)) by requiring the COA Order to initiate a COA at 
a price equal to one penny ($0.01) times the smallest leg ratio inside 
the DBO (DBB), rather than at the COA Order's limit price, when the COA 
Order's limit price locks or crosses the DBO (DBB). Likewise, the 
Commission believes that proposed Exchange Rule 6.91P-O(f)(4)(A) will 
help to protect the priority of resting leg market interest at the 
conclusion of a COA by providing that RFR Responses to sell (buy) that 
are priced lower (higher) than a COA Order to buy (sell) will trade in 
price-time priority up (down) to the DBBO. If all legs of the DBB (DBO) 
are calculated using Exchange BBOs and all such Exchange BBOs have 
displayed Customer interest, RFR Responses to sell (buy) will not trade 
below (above) one penny ($0.01) times the smallest leg ratio inside the 
DBB (DBO) on the Exchange.\170\
---------------------------------------------------------------------------

    \169\ See proposed Exchange Rule 6.91P-O(f)(2)(A).
    \170\ See proposed Exchange Rule 6.91P-O(f)(4)(A).
---------------------------------------------------------------------------

    The Exchange states that proposed Rule 6.91P-O(f)(3), which would 
identify the conditions that would cause a COA to end prior to the 
expiration of the Response Time Interval, is consistent current 
Exchange Rule 6.91-O(c)(6).\171\ The Exchange states that rather than 
using a snapshot of the Complex BBO taken at the start of a COA as the 
basis for determining whether to end a COA early, the Exchange will 
instead rely on the DBBO, which is updated as market conditions change, 
to determine whether to end the COA early.\172\ The Exchange notes that 
because the DBBO could be calculated using the ABBO for a leg(s) of a 
complex strategy, it would be new under Pillar to have a COA end early 
based on interest on the Exchange that locks or crosses interest on an 
Away Market, rather than interest on the Exchange.\173\ The Commission 
believes that ending a COA early under these circumstances would 
benefit market participants by preventing COA Orders from executing at 
prices too far away from the prevailing market for the complex 
strategy.
---------------------------------------------------------------------------

    \171\ See Amendment No. 1 at 31.
    \172\ See Amendment No. 1 at 31 and proposed Exchange Rule 
6.91P-O(a)(5) (stating that the DBBO will be updated as the Exchange 
BBO or ABBO, as applicable, is updated).
    \173\ See Amendment No. 1 at 32.
---------------------------------------------------------------------------

    Unlike current Exchange Rule 6.91O-(c)(7)(A), which provides for 
the allocation of COA-eligible orders against the best-priced interest 
received in the COA on a size pro rata basis, proposed Exchange Rule 
6.91P-O(f)(4)(A) would provide for the allocation of RFR Responses 
against the COA Order based on price-time priority. The Exchange states 
that this allocation would align the allocation of ECOs in a COA with 
standard processing of ECOs on the Exchange, which would add 
consistency to the Exchange's processing of ECOs.\174\
---------------------------------------------------------------------------

    \174\ See Amendment No. 1 at 33.
---------------------------------------------------------------------------

    Proposed Exchange Rule 6.91P-O(f)(5) would provide that a pattern 
or practice of submitting unrelated quotes or orders that cause a COA 
to conclude early would be deemed conduct inconsistent with just and 
equitable principles of trade. The Exchange states that the proposed 
rule is based on current Exchange Rule 6.91-O, Commentary .04, except 
that it adds a reference to quotes, in addition to orders, thereby 
broadening the scope of the prohibited conduct, to the benefit of 
market participants.\175\ The Commission notes that other options 
exchanges have similar rules.\176\
---------------------------------------------------------------------------

    \175\ See Amendment No. 1 at 34.
    \176\ See, e.g., Cboe Rule 5.33, Interpretation and Policy .03 
(stating that a pattern or practice of submitting orders that cause 
a COA to conclude early will be deemed conduct inconsistent with 
just and equitable principles of trade and a violation of Rule 8.1); 
and ISE Options 3, Section 13, Supplementary Material .01 (stating, 
in part, that it shall be considered conduct inconsistent with just 
and equitable principles of trade for any Member to enter orders, 
quotes, Agency Orders, Counter-Side Orders or Improvement Orders for 
the purpose of disrupting or manipulating the Price Improvement 
Mechanism).
---------------------------------------------------------------------------

    The proposal also adds Commentary .03 to Exchange Rule 6.47A-O, 
which is designed to prevent OTP Holders or OTP Firms from providing 
material,

[[Page 21983]]

non-public information to third parties.\177\ The Commission notes that 
other options exchanges have similar rules.\178\
---------------------------------------------------------------------------

    \177\ See Amendment No. 1 at 41.
    \178\ See, e.g., EDGX Rule 22.12, Interpretation and Policy .04 
(stating that, prior to or after submitting an order to EDGX 
Options, an Options Member cannot inform another Options Member or 
any other third party of any of the terms of the order); and NYSE 
American Rule 935NY, Commentary .04 (same).
---------------------------------------------------------------------------

G. ECO Risk Checks

    The Exchange states that the complex strategy limit in proposed 
Exchange Rule 6.91P-O(g)(1), which limits the maximum number of new 
complex strategies that may be requested to be created per MPID, will 
operate as a system protection tool that enables the Exchange to 
prevent any single MPID from creating more than a limited number of 
complex strategies during a trading day, thereby helping to maintain a 
fair and orderly market.\179\ The Commission notes that other options 
exchanges have similar strategy limits.\180\
---------------------------------------------------------------------------

    \179\ See Amendment No. 1 at 49.
    \180\ See, e.g., Cboe Rule 5.33(a) (stating, in the definition 
of Complex Strategy, that Cboe may limit the number of new complex 
strategies that may be in [Cboe's] System or entered for any EFID 
(which EFID limit would be the same for all Users) at a particular 
time; and MIAX Rule 518(a)(6) (stating that MIAX may limit the 
number of new complex strategies that may be in [MIAX's] System at a 
particular time and will communicate this limitation to Members via 
Regulatory Circular).
---------------------------------------------------------------------------

    The Commission believes that the ECO price and strategy protections 
in proposed Exchange Rule 6.91P-O(g)(2) and (3) are designed to protect 
investors by preventing the entry and execution of ECOs at potentially 
erroneous prices. The Exchange states that the ECO Price Protection in 
proposed Exchange Rule 6.91P-O(g)(2) will work in a manner that is 
similar to the existing electronic complex order Price Protection 
Filter in current Exchange Rule 6.91-O, Commentary .05, although the 
proposed ECO Price Protection will use new thresholds and reference 
prices that are designed to simplify the price check and to align it 
with the Limit Order Price Protection for single-leg interest.\181\ The 
Exchange states that the Complex Strategy Protections in proposed 
Exchange Rule 6.91P-O(g)(3) will function in a manner similar to the 
Debit/Credit Reasonability Checks in current Exchange Rule 6.91-O, 
Commentary .06.\182\ The Exchange further states that, consistent with 
the current functionality, the proposed Complex Strategy Protections 
are designed to prevent the execution of ECOs at prices that are 
inconsistent with or not aligned with their strategies.\183\ The 
Commission notes that other options exchanges have adopted price 
protections for complex strategies.\184\
---------------------------------------------------------------------------

    \181\ See Amendment No. 1 at 35 and proposed Exchange Rule 
6.62P-O(a)(3).
    \182\ See Amendment No. 1 at 38.
    \183\ See id.
    \184\ See, e.g., Cboe Rule 5.34(b)(3); ISE Options 3, Section 
16(b); and MIAX Rule 532(b)(2), (3), and (4).
---------------------------------------------------------------------------

IV. Solicitation of Comments on Amendment Nos. 1 and 2

    Interested persons are invited to submit written data, views, and 
arguments concerning whether Amendment Nos. 1 and 2 are consistent with 
the Act. Comments may be submitted by any of the following methods:

Electronic Comments

    <bullet> Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
    <bullet> Send an email to <a href="/cdn-cgi/l/email-protection#fa888f969fd7999597979f948e89ba899f99d49d958c"><span class="__cf_email__" data-cfemail="1163647d743c727e7c7c747f6562516274723f767e67">[email protected]</span></a>. Please include 
File Number SR-NYSEArca-2021-68 on the subject line.

Paper Comments

    <bullet> Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.

All submissions should refer to File Number SR-NYSEArca-2021-68. 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 such filing also will be available for inspection 
and copying at the principal office of the Exchange. All comments 
received will be posted without change; the Commission does not edit 
personal identifying information from submissions. You should submit 
only information that you wish to make available publicly. All 
submissions should refer to File Number SR-NYSEArca-2021-68, and should 
be submitted on or before May 4, 2022.

V. Accelerated Approval of Proposed Rule Change, as Modified by 
Amendment Nos. 1 and 2

    The Commission finds good cause to approve the proposed rule 
change, as modified by Amendment Nos. 1 and 2, prior to the thirtieth 
day after the date of publication of the notice of Amendment No. 1 in 
the Federal Register. Amendment No. 1 revises the Exchange's original 
proposal to make the changes discussed in detail above. Notably, in 
Amendment No. 1 the Exchange revises the proposal to delete from the 
definition of ECO references to Stock/Option and Stock/Complex Orders, 
which trade only on the Exchange's floor. In addition, Amendment No. 1 
revises proposed Exchange Rule 6.91P-O(c) to indicate that each 
component leg of an ECO that executes against another ECO must trade at 
a price that is at or within the Exchange BBO for the series, which 
makes clear that an ECO may not trade through resting leg market 
interest on the Exchange and aligns the Exchange's rule with the rules 
of other options exchanges. Similarly, Amendment No. 1 revises the 
execution priority provisions in proposed Exchange Rule 6.91P-O(e) to 
more closely align them with the rules of another options exchange and 
to describe the operation of, and price improvement requirements 
associated with, Complex Only Orders, which do not execute against leg 
market interest and must trade at a price that is better than resting 
displayed Customer leg market interest under certain circumstances. 
Amendment No. 1 revises proposed Exchange Rule 6.91P-O(f) to describe 
the price improvement requirements that apply to executions that occur 
prior to the initiation of a COA and in the allocation of orders at the 
conclusion of a COA when the DBBO includes displayed Customer interest. 
In addition, Amendment No. 1 modifies proposed Exchange Rule 6.91P-
O(f)(5) to indicate that the rule's prohibition on submitting unrelated 
interest that causes a COA to end early applies to quotes as well as 
orders, which should provide additional protection to investors. 
Amendment No. 1 also provides additional analysis of several aspects of 
the proposal, thus facilitating the Commission's ability to make the 
findings set forth above to approve the proposal. The Commission 
believes that Amendment No. 2 does not raise any novel regulatory 
issues. As described above, Amendment No. 2 eliminates an incorrect 
cross-reference

[[Page 21984]]

in the rules describing the ECO opening process, which should help to 
assure that the proposed rules accurately describe the Exchange's ECO 
opening process. In addition, Amendment No. 2 revises the proposal to 
state that bids and offers for complex strategies may be expressed in 
$0.01 increments regardless of the MPV otherwise applicable to the 
individual leg(s) of the ECO, which is consistent with the rules of 
other options exchanges. Accordingly, the Commission finds good cause 
for approving the proposed rule change, as modified by Amendment No. 1, 
on an accelerated basis.

VI. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\185\ that the proposed rule change (SR-NYSEArca-2021-68), as 
modified by Amendment Nos. 1 and 2, is approved on an accelerated 
basis.
---------------------------------------------------------------------------

    \185\ 15 U.S.C. 78s(b)(2).
    \186\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\186\
J. Matthew De LesDernier,
Assistant Secretary.
[FR Doc. 2022-07843 Filed 4-12-22; 8:45 am]
BILLING CODE 8011-01-P


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