Document ID: SEC-2019-0373-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NYSE American, LLC
Posted Date: 2019-04-02T04:00Z

[Federal Register Volume 84, Number 63 (Tuesday, April 2, 2019)]
[Notices]
[Pages 12649-12658]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-06308]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-85429; File No. SR-NYSEAMER-2019-06]

Self-Regulatory Organizations; NYSE American LLC; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change To Amend 
Rules 900.3NY, 925.1NY, and 971.1NY

March 27, 2019.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby 
given that on March 14, 2019, NYSE American LLC (``NYSE American'' or 
the ``Exchange'') filed with the Securities and Exchange Commission 
(the ``Commission'') the proposed rule change as described in Items I 
and II below, which Items have been prepared by the self-regulatory 
organization. The Commission is publishing this notice to solicit 
comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to to [sic] amend Rules 900.3NY (Orders 
Defined) and 925.1NY (Market Maker Quotes) to add a new order type and 
quotation designation and to make conforming changes to Rule 971.1NY 
(Single-Leg Electronic Cross Transactions). The proposed rule change is 
available on the Exchange's website at www.nyse.com, at the principal 
office of the Exchange, and at the Commission's Public Reference Room.

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

    In its filing with the Commission, the self-regulatory organization 
included statements concerning the purpose of, and basis for, the 
proposed rule change and discussed any comments it received on the 
proposed rule change. The text of those statements may be examined at 
the places specified in Item IV below. The Exchange has prepared 
summaries, set forth in sections A, B, and C below, of the most 
significant parts of such statements.

[[Page 12650]]

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

1. Purpose
    The purpose of this filing is to modify Rules 900.3NY and 925.1NY 
to add a new order type and quotation designation as described herein. 
The Exchange also proposes to make conforming changes to these rules, 
as well as to Rule 971.1NY regarding the Customer Best Execution 
Auction or CUBE for single-leg options (the ``CUBE Auction'' or 
``Auction''), to reflect the impact of the proposed order type and 
quotation designation on the auction mechanism.
    The proposed order type and quote designation are substantially 
identical to those utilized on NYSE Arca, Inc. (``NYSE Arca'').\4\ 
However, in addition to addressing the impact of the proposed changes 
on the CUBE Auction (which NYSE Arca does not have), the proposal 
differs from the NYSE Arca rules to reflect the Exchange's allocation 
rules, which differ from NYSE Arca's price-time priority allocation 
scheme. Pursuant to Rule 964NY (Display, Priority and Order 
Allocation--Trading Systems), at each price point, the Exchange affords 
Customer orders priority over same-priced non-Customer orders.\5\ 
Specifically, the Exchange ranks and allocates Customer orders at the 
same price in time priority and, after all Customer orders are executed 
at a price, non-Customer orders at the same price are allocated on a 
size pro rata basis.\6\ Aside from the difference in how the repricing 
interest is prioritized and allocated on the Exchange, the proposed 
order type and quotation designation function the same as on NYSE Arca. 
The proposed order type and quote designation are designed to operate 
seamlessly with the CUBE Auction as well as the Exchange's Customer and 
price-time priority model.
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    \4\ See Securities Exchange Act Release Nos. 84451 (October 18, 
2018), 83 FR 53692 (October 24 2018) (``NYSE Arca Repricing 
Notice''); 84737 (``NYSE Arca Repricing Approval Order'') [sic] 
(December 6, 2018), 83 FR 63919 (December 12, 2018) (SR-NYSEArca-
2018-74) (``NYSE Arca Repricing Approval Order'') (approving 
adoption of MMRP, per NYSE Arca Rule 6.37A-O(a)(3)(C) and (a)(4)(B), 
and RPNP, per NYSE Arca Rule 6.62-O(p)(1)). The Exchanges notes that 
the NYSE Arca Repricing Approval Order also included an order type 
and quotation designation that would reprice if it would remove 
liquidity (i.e., a RALO and MMALO, respectively), which are not 
being proposed by the Exchange.
    \5\ The term ``non-Customers'' includes Market Makers, Firms, 
Professional Customers and Non-ATP Holder Market Makers.
    \6\ See Rule 964NY(b)(2)(A) (providing that ``if there is more 
than one highest bid for a Customer account or more than one lowest 
offer for a Customer account, then such bids or offers, 
respectively, will be ranked based on time priority''); and 
(b)(2)(B)-(D). Per Rule 964NY(b)(2)(D), for example, ``[i]f there is 
more than one highest bid or more than one lowest offer in the 
Consolidated Book for the account of a non-Customer, then such bids 
or offers will be afforded priority on a `size pro rata' basis, and 
will comprise the `size pro rata pool' ''). See also Rule 
964NY(b)(3) (setting forth size pro rata allocation method) and (c) 
(providing for executions of orders and quotes on the Exchange).
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Repricing PNP Order (``RPNP'')
    Rule 900.3NY(p) provides that a PNP (Post No Preference) Order is 
eligible to interact solely with interest on the Exchange, will not 
route, and will cancel if it locks or crosses the NBBO.\7\ PNP Orders 
provide market participants control over how their orders interact with 
contra-side liquidity.\8\
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    \7\ See Rule 900.3NY(p) (providing that a PNP Order ``is a Limit 
Order to buy or sell that is to be executed in whole or in part on 
the Exchange, and the portion not so executed is to be ranked in the 
Consolidated Book, without routing any portion of the order to 
another market center; provided, however, the Exchange shall cancel 
a PNP Order that would lock or cross the NBBO''). The Exchange 
proposes to capitalize the ``Market Center'' as used in paragraph 
(p) of the Rule, which is a defined term in Rule 900.2NY(36). See 
proposed Rule 900.3NY(p).
    \8\ A PNP Order may also be designated as an Immediate-Or-Cancel 
Order (``IOC Order'') and, when such designation is made, the IOC 
Order behavior trumps the PNP Order behavior. In other words, the 
portion of a PNP IOC Order that is not executed immediately will 
cancel rather than potentially be ranked in the Consolidated Book. 
The Exchange proposes to modify the definition of a PNP Order to 
specify the behavior of a PNP IOC Order. See proposed Rule 
900.3NY(p) (providing in relevant part that, ``[a] PNP Order that is 
designated as IOC Order will be treated as an IOC Order (per Rule 
900.3NY(k)), such that any unexecuted portion shall cancel''). See 
also 900.3NY(k) (providing that an IOC Order ``is a Limit Order that 
is to be executed in whole or in part on the Exchange as soon as 
such order is received, and the portion not so executed is to be 
canceled'').
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    The Exchange proposes to add an order type--RPNP--that builds on 
the existing PNP Order functionality to allow for repricing (rather 
than cancellation) as described below. As proposed, a RPNP is a PNP 
Order that would be repriced instead of cancelled after trading with 
interest in the Consolidated Book \9\ if it would lock or cross the 
NBBO.\10\ As proposed, an RPNP may only be entered as a Day Order.\11\ 
The Exchange also proposes to amend Rule 900.3NY(p) to provide that an 
RPNP received during pre-open or during a trading halt will be treated 
as a PNP Order (i.e., as a Limit Order and will not reprice) for 
purposes of participating in opening auctions or re-opening auctions. 
This proposed rule text is based on the last sentence of NYSE Arca Rule 
6.62-O(p) without any differences.
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    \9\ See Rule 900.2NY(14) (defining the Consolidated Book (or 
``Book'') as the Exchange's electronic book of limit orders for the 
accounts of Customers and broker-dealers, and Quotes with Size, all 
of which are ranked and maintained in accordance with the rules of 
priority as provided in Rule 964NY).
    \10\ See proposed Rule 900.3NY(p)(1).
    \11\ See proposed Rule 900.3NY(p)(1). This proposed rule text is 
based on the last sentence of NYSE Arca Rule 6.62-O(p)(1) with a 
substantive difference not to reference Reserve Orders, which are 
not available on the Exchange.
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    Proposed Rule 900.3NY(p)(1)(A) would provide that a RPNP to buy 
(sell) that would lock or cross the NBO (NBB) would be displayed at a 
price one MPV below (above) the NBO (NBB). This proposed rule would 
further provide that if the NBO (NBB) moves up (down), the display 
price of the RPNP to buy (sell) and the undisplayed price at which it 
is eligible to trade would be continuously adjusted, up (down) to the 
limit price of the RPNP.\12\ Proposed Rule 900.3NY(p)(1)(A)(i) would 
provide that a RPNP to buy (sell) that is displayed at a price one MPV 
below (above) the NBO (NBB) would be eligible to trade at the NBO 
(NBB), up (down) to the limit price of the RPNP; provided, however, 
that if the NBO (NBB) updates to lock or cross the RPNP's display 
price, such RPNP would trade at its display price.\13\ Proposed Rule 
900.3NY(p)(1)(A)(ii) would further provide that each time there is an 
update to the RPNP's price, the RPNP would be ranked with other 
eligible interest at that price, and would trade at each price, to the 
extent possible, pursuant to Rule 964NY.\14\ For example, at the same 
price (including an updated (re)price), a RPNP submitted on behalf of a 
Customer would have first priority over non-Customer orders. The 
Exchange believes that this proposed handling of RPNPs would respect 
and preserve the Exchange's Customer priority and pro rata allocation 
model.
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    \12\ This proposed rule text is based on NYSE Arca Rule 6.62-
O(p)(1)(A). The proposed RPNP also operates in substantially the 
same manner as the Non-Routable Limit Order available on the NYSE 
Arca's equities market, which, like the RPNP, reprices if it would 
lock or cross a protected quotation of an Away Market or trade 
through a protected quotation. See NYSE Arca Rule 7.31-E(e)(1).
    \13\ This proposed rule text is based on NYSE Arca Rule 6.62-
O(p)(1)(A)(i) with a substantive difference not to reference that 
such orders would trade in time priority behind other eligible 
interest displayed at that price because the Exchange operates on a 
pro rata allocation model.
    \14\ See proposed Rule 900.3NY(p)(1)(A)(ii). This proposed rule 
text is based on NYSE Arca Rule 6.62-O(p)(1)(A)(ii) with a 
substantive difference to cross reference the Exchange's allocation 
model under Rule 964NY rather than NYSE Arca's price-time allocation 
model.
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    To avoid accepting RPNPs priced too far through the NBBO, the 
Exchange proposes to limit the extent to which it

[[Page 12651]]

would reprice such interest.\15\ As proposed, an incoming RPNP would be 
cancelled after trading with eligible interest (if any) if its limit 
price to buy (sell) is more than a configurable number of MPVs above 
(below) the initial display price (on arrival) of the RPNP. The 
Exchange would determine the configurable number of MPVs, which would 
be announced by Trader Update.\16\
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    \15\ See proposed Rule 900.3NY(p)(1)(B). This proposed rule text 
is based on NYSE Arca Rule 6.62-O(p)(1)(B) without any differences.
    \16\ For example, in a Penny Pilot issue, if the local best 
offer is 0.99 and the away best offer is 1.00 with a configuration 
set to 3 MPV, a RPNP to buy at 1.03 or greater would trade with the 
local offer at 0.99 and any remaining interest will be cancelled 
(because the initial display price would be 0.99 which is 4 MPVs 
away from its limit price).
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    The Exchange believes the proposed RPNP would give market 
participants more flexibility and control over the circumstances under 
which their orders trade with contra side-interest, while ensuring that 
RPNPs priced too far through the contra-side NBBO would be rejected. 
The Exchange believes the proposed RPNP would assist market 
participants in maximizing opportunities for execution (as such orders 
would reprice rather than reject) while encouraging the provision of 
greater liquidity to the market, which would contribute to public price 
discovery.
* * * * *
    The following examples illustrate the proposed RPNP order type and 
how it would function under the Exchange's allocation model.
RPNP Example 1 (the MPV is $0.01)
BOX 20 x 1.15-1.23 x 20
BD1 B 50 @1.25 RPNP
BD2 B 10 @1.26 RPNP
BD3 B 15 @1.27 RPNP
Specialist \17\ 30 x 1.24-1.30 x10 MMRP
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    \17\ A Specialist is a Market Maker on the Exchange that has 
heightened obligations in exchange for certain rights and 
privileges. See Rule 927NY. For example, Specialists may receive a 
participation entitlement, provided they are quoting at the NBBO. 
See, e.g., Rule 964NY(b)(2)(C).
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BD4 S 15 Mkt
MM 100 x 1.20-1.25 x 30 MMRP
BD5 S 10 Mkt
Cust6 S 40 Mkt
Expected Result
BOX NBO @1.23
BD1, 2, 3 and Specialist all display @1.22 (priced back one MPV from 
the NBO) and are eligible to trade @1.23 due to BOX offer @1.23
BD4 sells 15 to BD1 @1.23 (leaving BD1 with 35)
MM 1.25 offer does not trade (prohibited by BOX offer @1.23)
BD5 sells 10 to BD1 @1.23 (leaving BD1 with 25)
Cust6 sells 25 to BD1 (exhausting BD1), 10 to BD2 (exhausting BD2), 5 
to BD3 @1.23 (exhausting Cust6), in price-time priority because BD1, 
BD2 and BD3 are trading at an undisplayed price (The Specialist, which 
is eligible to trade @1.23 but displayed at 1.22, is not entitled to an 
allocation guarantee because it is not quoting (displayed) at the NBBO) 
\18\
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    \18\ See Rule 964NY(b)(2)(C) (regarding Specialist 40% 
participation guarantee).
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RPNP Example 2 (the MPV is $0.01)
BOX 20 x 1.15-1.26 x 20
BD1 B 50 @1.25 RPNP
Cust1 B 10 @1.25 RPNP
BD3 B 15 @1.25 RPNP
Specialist 30 x 1.25-1.30 x 10 MMRP
BD4 S 15 Mkt
BD5 S 10 Mkt
Cust6 S 40 Mkt
Expected Result
BOX NBO @1.26
BD1, Cust1, BD3 and Specialist display @limit price of 1.25 (no need to 
reprice because already one MPV away from the NBO) and will trade size 
pro rata with Cust priority and Specialist resulting in:
BD4 sells 10 to Cust1, 5 to Specialist @1.25 (Specialist gets 100% of 5 
lots or smaller) \19\
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    \19\ See Rule 964NY(b)(2)(C)(iv) (providing that ``[f]or all 
orders of five (5) contracts or fewer, the Primary Specialist (as 
defined in Rule 964.2NY(a)) will be allocated the balance after any 
allocation to Customers, not to exceed the size of the Primary 
Specialist's quote, provided the Primary Specialist is quoting at 
the NBBO, and the order was not originally allocated to a Directed 
Order Market Maker'').
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BD5 sells 4 to Specialist @1.25 (i.e., 40%) \20\ and 5 to BD1 and 1 to 
BD3 @1.25, pursuant to size pro rata allocation provided for in Rule 
964NY(b)(3)
Cust6 sells 16 to Specialist @1.25 (i.e., 40%) \21\ and 18 to BD1 and 6 
to BD3 @1.25, pursuant to size pro rata allocation provided for in Rule 
964NY(b)(3)
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    \20\ See supra note 18.
    \21\ Id.
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Market Maker--Repricing Quotation (``MMRP'')
    Current Rule 925.1NY(a) defines Market Maker quotes, including 
quotations designated as Market Maker--Light Only (``MMLO''), and 
specifies how such quotes are processed when a series is open for 
trading. The Exchange proposes to modify Rule 925.1NY(a) to add a new 
quote designation--MMRP--to provide market makers with the same 
functionality for their quotations as are proposed for orders entered 
on the Exchange.\22\ The proposed quotation designation is similar to 
how the proposed RPNP would function and would enable Market Makers to 
exert greater control over how their quotes would interact with contra-
side liquidity, while affording them more opportunities to provide 
liquidity.
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    \22\ See proposed Rule 925.1NY(a)(3)(B) and (a)(4)(B). This 
proposed rule text is based on NYSE Arca Rule 6.37A-O(a)(3)(B) and 
(a)(4)(B). The Exchange proposes to delete reference to MMLO in 
current Rule 925.1NY(a)(3), which would be renumbered as Rule 
925.1NY(a)(4), regarding the ``[t]reatment of Market Maker 
Quotations,'' as too restrictive in light of the proposed MMRP; 
instead, the Exchange proposes to separately describe the treatment 
of each quote type when a series is open for trading. See proposed 
Rule 925.1NY(a)(4).
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    As proposed, an incoming or resting quotation designated as MMRP 
would never display at a price that locks or crosses the NBBO.\23\ 
Instead, after trading with interest in the Consolidated Book, an 
incoming MMRP to buy (sell) that locks or crosses the NBO (NBB) would 
be displayed at a price that is one MPV below (above) the NBO 
(NBB).\24\ If the NBO (NBB) moves up (down), the display price of the 
MMRP to buy (sell) and the undisplayed price at which it is eligible to 
trade would be continuously adjusted, up (down) to the MMRP's limit 
price.\25\
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    \23\ See proposed Rule 925.1NY(a)(3)(B) and (a)(4)(B). The 
Exchange also proposes to replace references to ``another Market 
Center'' with ``the NBBO'' to add clarity and consistency to the 
Rule. See proposed Rule 925.1NY(a)(4)(A), (a)(4)(C)(i), 
(a)(4)(D)(i)-(ii); see also NYSE Arca Rule 6.37A-
O(a)(4)(C)(i),(D)(i)-(ii).
    \24\ See proposed Rule 925.1NY(a)(4)(B). This proposed rule text 
is based on NYSE Arca Rule 6.37A-O(a)(4)(B) without any differences.
    \25\ See id.
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    Similar to the proposed RPNP, an MMRP to buy (sell) that is 
displayed at a price one MPV below (above) the NBO (NBB) would trade at 
the NBO (NBB); provided, however, that if the NBO (NBB) updates to lock 
or cross the MMRP's display price, such MMRP will trade at its display 
price.\26\ Also consistent with the handling of RPNPs, the Exchange 
proposes that each time there is an update to the MMRP's price, the 
MMRP would be ranked with other eligible interest at that price, and 
would trade at each price, to the extent possible, pursuant to Rule 
964NY.\27\ The

[[Page 12652]]

Exchange believes that this handling of MMRPs (which is consistent with 
the proposed handling of RPNPs) would respect and preserve the Exchange 
Customer priority and pro rata allocation model.
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    \26\ See proposed Rule 925.1NY(a)(4)(B)(i). This proposed rule 
text is based on NYSE Arca Rule 6.37A-O(a)(4)(B)(i) with a 
substantive difference not to reference that such orders would trade 
in time priority behind other eligible interest displayed at that 
price because the Exchange operates on a pro rata allocation model.
    \27\ See proposed Rule 925.1NY(a)(4)(B)(ii). This proposed rule 
text is based on NYSE Arca Rule 6.37A-O(a)(4)(B)(ii) butcross 
references the Exchange's allocation model under Rule 964NY rather 
than NYSE Arca's price-time allocation model.
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    The Exchange notes that an MMRP may be submitted when a series is 
not open for trading (i.e., during pre-open or a trading halt) and such 
MMRP would be eligible to participate in the opening auction and re-
opening auction (as applicable) at the limit price of the MMRP.\28\ 
Such MMRPs would not be repriced as an option series may not open (or 
re-open) if a quote is locked or crossed.\29\
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    \28\ See proposed Rule 925.1NY(a)(5). This proposed rule text is 
based on NYSE Arca Rule 6.37A-O(a)(5) without any differences. The 
Exchange also proposes to make clear that ``[a]ll resting quotations 
will be cancelled in the event of a trading halt.'' See id.
    \29\ See Rule 952NY(b)(E) (providing in relevant part, that 
``[i]f the System does not open a series with an Auction Process, 
the System shall open the series for trading after receiving 
notification of an initial uncrossed NBBO disseminated by OPRA for 
the series . . .'').
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    To avoid accepting MMRPs priced too far through the NBBO, the 
Exchange proposes to limit the extent to which it would reprice such 
interest. Specifically, an incoming MMRP that has a limit price more 
than a configurable number of MPVs above (below) the initial display 
price (on arrival) would first trade with marketable interest in the 
Consolidated Book up (down) to the NBO (NBB) and any remaining balance 
would be cancelled.\30\ Similarly, the Exchange would reject an 
incoming MMRP that does not trade (i.e., because there is no marketable 
interest in the Consolidated Book) and has a limit price to buy (sell) 
that is more than a configurable number of MPVs above (below) the 
initial display price (on arrival) of the MMRP.\31\ The Exchange would 
determine the applicable number of MPVs and announce the configurable 
by Trader Update.\32\
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    \30\ See proposed Rule 925.1NY(a)(4)(C)(iii). This proposed rule 
text is based on NYSE Arca Rule 6.37A-O(a)(4)(C)(iii) without any 
differences.
    \31\ See proposed Rule 925.1NY(a)(4)(D)(iii). This proposed rule 
text is based on NYSE Arca Rule 6.37A-O(a)(4)(D)(iii) without any 
differences. The Exchange notes that incoming MMRPs that fail the 
MPV check would be rejected while similarly-priced RPNPs would be 
accepted and then cancelled. The Exchange notes that this is a 
distinction without a difference and simply reflects an operational 
difference in how the Exchange evaluates these types of interest. 
The Exchange also proposes to re-locate text that is currently at 
the end of this provision to the beginning, such that the Rules 
states that ``[a]n incoming quotation will be rejected, and the 
Exchange will cancel the Market Maker's current quotation on the 
same side of the market, if:'' as the Exchange believes this would 
streamline the Rule making it easier to navigate and understand. See 
id. This proposed rule change is also based on NYSE Arca Rule 6.37A-
O(a)(4)(D).
    \32\ See proposed Rule 925.1NY (a)(4)(C)(iii). For example, in a 
Penny Pilot issue, if the local best offer is 0.99 and the away best 
offer is 1.00 with a configuration set to 3 MPV, a MMRP to buy at 
1.03 or greater would trade with the local offer at 0.99 and any 
remaining interest will be cancelled (because the initial display 
price would be 0.99 which is 4 MPVs away from its limit price). 
Because the MMRP is cancelled, the Exchange would also cancel the 
opposite-side quote for that Market Maker. See Rule 925.1NY 
(a)(4)(B)(or, as renumbered, proposed Rule 925.1NY(a)(4)(C)) 
(providing, ``[w]hen such quantity of an incoming quotation is 
cancelled, the Exchange will also cancel the Market Maker's current 
quotation on the opposite side of the market''); see also NYSE Arca 
Rule 6.37A-O(a)(4)(C).
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    The following trading example illustrates the operation of an MMRP 
under the Exchange's allocation model.
MMRP Example (the MPV is $0.01)
MM 10 x 1.24-1.28 x 10
ISE 20 x 1.25-1.32 x 20
BD2 S 100 @1.23 RPNP
MMRP 70 x 1.22-1.23 x 70
BD3 S 50 @1.23 RPNP
ISE Update 0 x 0-1.32 x 20
Expected Result
ISE NBB @1.25
BD2 offer for 100 is eligible to trade @1.25 and will display @1.26 
(priced back one MPV from the NBB)
MMRP offer for 70 is eligible to trade @1.25 and will display @1.26 
(priced back one MPV from the NBB)
BD3 offer for 50 is eligible to trade @1.25 and will display @1.26
ISE bid update to 0 results in the following size pro rata allocation 
(Rule 964NY(b)(3)):
BD2 trades 5 with MM @1.24
MMRP trades 3 with MM @1.24
BD3 trades 2 with MM @1.24
    The Exchange notes that absent the proposed MMRP, incoming quotes 
(or portions thereof) would reject or cancel if such quotes locked or 
crossed away markets, which aligns with the NMS plan for Options Order 
Protection And Locked/Crossed Market Plan (``Plan''), to which the 
Exchange is a party.\33\ Thus, the Exchange believes that affording 
Market Makers the ability to designate quotes as MMRP affords Market 
Makers more certainty when providing liquidity, while ensuring that 
MMRPs priced too far through the contra-side NBBO would cancel or 
reject after trading with any eligible interest on the Exchange.
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    \33\ See Plan, dated April 14, 2009, available here, http://www.optionsclearing.com/components/docs/clearing/services/options_order_protection_plan.pdf. See also Securities Exchange Act 
Release No. 60405 (July 30, 2009), 74 FR 39362 (August 6, 2009) 
(File No. 4-546) (order approving the Plan). The Plan obligates the 
participating exchanges to provide order protection, including 
addressing locked and crossed markets and the potential for trade-
throughs in certain options classes. See id. Consistent with the 
Plan, the rules of the Exchange include prohibitions against trade-
throughs and a pattern or practice of displaying certain quotations 
that lock or cross away markets. See, e.g., Rules 991NY, 992NY.
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    In addition to adding new rule text to describe the function of the 
proposed MMRP \34\ into existing rule text, the Exchange also proposes 
to streamline Rule 925.1NY, by re-organizing and re-numbering related 
text regarding the treatment of untraded incoming quotations. 
Specifically, the Exchange proposes to provide that ``[a]ny untraded 
quantity of an incoming quotation will be added to the Consolidated 
Book, except in the circumstances specified below, which result in the 
remaining balance being cancelled,'' \35\ including when the incoming 
quotation ``is not designated as MMRP'' and locks or crosses the NBBO 
and when it is designated as MMLO and locks or crosses undisplayed 
interest.\36\ Similarly, the Exchange would modify the rule providing 
that an incoming quotation that locks or crosses the NBBO would be 
rejected, provided ``it is not designated as MMRP'' and cannot trade 
with interest in the Consolidated Book at prices that do not trade 
through the NBBO.\37\
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    \34\ See proposed Rule 925.1NY(a)(3)(B) and (a)(4)(B).
    \35\ See proposed Rule 925.1NY(a)(4)(C). This rule text is based 
on NYSE Arca Rule 6.37A-O(a)(4)(C) without any differences.
    \36\ See proposed Rule 925.1NY(a)(4)(C)(i) and (ii). This 
proposed rule text is based on NYSE Arca Rule 6.37A-O(a)(4)(C)(i) 
and (ii) without any differences.
    \37\ See proposed Rule 925.1NY(a)(4)(D)(i). This proposed rule 
text is based on NYSE Arca Rule 6.37A-O(a)(4)(D)(i) without any 
differences.
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    Further, to accommodate the new MMRP, the Exchange proposes to re-
organize paragraph (a) of Rule 925.1NY, by re-locating text that a 
quote will never route from existing paragraph (a)(3) to paragraph 
(a)(2); adding new paragraph (a)(3) to provide that ``[a] Market Maker 
may designate a quote as follows''; and re-numbering the balance of the 
paragraph to account for such changes.\38\ In addition, as proposed, 
the description of the existing quote type MMLO would be re-numbered as 
paragraph (a)(3)(A), and the text would be streamlined to provide 
simply that ``[o]n arrival, a quotation designated MMLO will trade with 
displayed interest in the Consolidated Book only. Once resting, the 
MMLO designation no longer applies and such quotation is

[[Page 12653]]

eligible to trade with displayed and undisplayed interest.'' \39\
---------------------------------------------------------------------------

    \38\ See proposed Rule 925.1NY(a)(2)-(3). This proposed rule 
text is based on NYSE Arca Rule 6.37A-O(a)(2)-(3), however it 
differs from NYSE Arca in that the Exchange is not adding a Market 
Maker--Add Liquidity Only quotation type. See NYSE Arca Rule 6.37A-
O(a)(3)(B).
    \39\ See proposed Rule 925.1NY(a)(3)(A). This proposed rule text 
is based on NYSE Arca Rule 6.37A-O(a)(3)(A) without any differences.
---------------------------------------------------------------------------

    The Exchange notes that this proposal does not relieve a Market 
Maker of its continuous quoting or firm quote obligations pursuant to 
Rules 925.1NY and 970NY, respectively. Further, the Exchange notes that 
Market Makers would still be able to send orders in (and out of) 
classes to which they are appointed, as orders are not affected by this 
proposal.
RPNP/MMRP and the CUBE Auction
    The Exchange proposes to modify Rule 971.1NY, regarding the single-
leg CUBE Auction, to reflect current functionality relating to how the 
proposed RPNP/MMRP would potentially interact with a CUBE Auction.\40\ 
The CUBE Auction is an electronic cross mechanism through which an ATP 
Holder (``Initiating Participant'') may initiate a CUBE Auction by 
submitting for execution a limit order it represents as agent on behalf 
of a public customer, broker dealer, or any other entity (the ``CUBE 
Order''). The Initiating Participant, however, must guarantee the 
execution of the CUBE Order by submitting a contra-side order (``Contra 
Order'') representing principal interest or non-Customer interest it 
has solicited to trade solely with the CUBE Order at a single ``stop 
price,'' or a range of prices that will either ``auto-match'' all 
interest received during the auction or have a price limit on the 
matching (i.e., ``auto match limit price'').\41\ Rule 971.1NY(b) sets 
for [sic] the conditions that must exist for a CUBE Auction to 
commence, including the range of permissible executions and that a CUBE 
Order will be rejected if the NBBO is crossed.\42\ The CUBE Auction is 
designed to afford price improvement opportunities to CUBE Orders while 
interacting seamlessly with the Consolidated Book (i.e., the Auction 
should not disrupt the Exchanges' price-time priority model). ATP 
Holders may participate in the Auction with RFR Responses received 
during the Response Time Interval (``RTI'').\43\
---------------------------------------------------------------------------

    \40\ The Exchange notes that Rule 971.2NY describes the Complex 
CUBE Auction which is not implicated by this filing.
    \41\ See Rule 971.1NY(a), (c)(1)(A)-(C).
    \42\ The Exchange proposes to modify Rule 971.1NY(b)(9) to 
reflect current functionality and make clear that a CUBE Order is 
today (and will be) rejected if NBBO is ``locked or crossed'' 
(emphasis added), which adds clarity and transparency to Exchange 
rules. See proposed Rule 971.1NY(b)(9).
    \43\ The RTI is subject to a random time period that is no less 
than 100 milliseconds and no more than 1 second. See Rule 
971.1NY(c)(2)(B).
---------------------------------------------------------------------------

Modify Definition of RFR Responses To Include Resting Interest
    Current Rule 971.1NY(c)(2)(C) provides that RFR Responses include 
GTX Orders submitted specifically to interact with the Auction \44\ and 
unrelated interest that is on the opposite side of the CUBE Order and 
within the range of permissible executions.\45\ Regarding the latter 
categories of RFR Responses (i.e., unrelated quotes and orders), the 
Exchange proposes to clarify that current CUBE functionality treats 
interest ``resting in the Consolidated Book when the Auction 
commences'' as an RFR Response, provided the interest is on the 
opposite site of the CUBE Order and eligible to participate within the 
range of permissible executions specified in Rule 971.1NY(b)(1).\46\
---------------------------------------------------------------------------

    \44\ See Rule 971.1NY(c)(2)(C)(i) (defining GTX Orders as non-
routable order with a time-in-force contingency for the RTI that 
will not be displayed on the Consolidated Book and will cancel after 
trading (if at all) in the CUBE Auction).
    \45\ See Rule 971.1NY(c)(2)(C)(ii) (including as RFR Responses 
any ``unrelated quotes and orders'' in the same series as, and 
opposite side of, the CUBE Order that arrive during the RTI and 
eligible to participate within the range of permissible executions 
specified in Rule 971.1NY (b)(1)).
    \46\ See proposed Rule 971.1NY(c)(2)(C)(ii) (regarding 
``Unrelated quotes and orders'').
---------------------------------------------------------------------------

    This proposed change reflects current CUBE Auction functionality: 
Currently, standard Market Maker quotes as well as resting PNP Blind 
Orders (each a ``PNPB'') which, when undisplayed are not included in 
the quoted market, are considered ``unrelated quotes and orders'' for 
purposes of Rule 971.1NY(b)(2)(C)(ii).\47\ The proposed change would 
also account for the proposed RPNP/MMRP, which like a PNPB, may be 
resting undisplayed on the Book at the start of a CUBE Auction at a 
price with which a CUBE Order may execute. This proposed amendment is 
consistent with existing rule text regarding how the Exchange handles 
Customer interest resting at the start of an Auction (which could 
include a PNP Blind Order or a proposed RPNP). Specifically, such 
resting interest, at a price, gets first priority to trade with the 
CUBE Order ahead of Customer interest, at a price, that arrives during 
the Auction.\48\ Thus, the Exchange believes that the proposed change 
reflects current functionality and adds clarity, transparency and 
internal consistency to Exchange rules. Moreover, allowing unrelated 
quotes and orders resting in the Consolidated Book at the beginning of 
the Auction--including eligible PNPBs or the proposed RPNP/MMRPs-- to 
interact with the CUBE Auction should increase the number of 
participants against which the CUBE Order may be executed, and is 
consistent with the primary goal of the CUBE Auction: To maximize price 
improvement opportunities for the CUBE Order.\49\
---------------------------------------------------------------------------

    \47\ See Rule 900.3NY(x) (defining a PNPB (or Post No Preference 
Blind) as a Limit Order that is to be executed in whole or in part 
on the Exchange, and the portion not so executed is to be ranked in 
the Consolidated Book, without routing any portion of the order to 
another Market Center; however, if the PNPB locks or crosses the 
NBBO, the price and size of the order is not disseminated. Once the 
PNPB no longer locks or crosses the NBBO, the price and size will be 
disseminated). See Rule 971.1NY(b) (providing that ``[f]or purposes 
of determining whether a CUBE Order is eligible to initiate an 
Auction,'' references to the NBBO or BBO ``refer to the quoted 
market at the time the Auction is initiated'').
    \48\ See Rule 971.1NY(c)(5)(A) (providing that ``[a]t each price 
level, any Customer orders resting on the Consolidated Book at the 
start of the CUBE Auction shall have first priority'' to trade with 
the CUBE Order).
    \49\ The Exchange notes that to the extent that an order that 
was resting undisplayed at the start of the CUBE Order is eligible 
to trade with the CUBE Order, that interest would trade behind 
Customer and displayed interest, at a price, so as not to disturb 
the Exchange's allocation rules, per proposed Rule 971.1NY(c)(5), 
Order Allocation (as discussed herein).
---------------------------------------------------------------------------

Early End Scenarios
    The Exchange also proposes to modify Rule 971.1NY(c)(4), which 
specifies scenarios when a CUBE Auction would conclude early (i.e., 
before the end of the RTI). The purpose of these provisions is to 
enable the CUBE Auction to integrate seamlessly within the Exchange's 
Consolidated Book. Accordingly, a CUBE Auction will conclude early as a 
result of certain events that would otherwise disrupt the priority of 
the Auction within the Consolidated Book. Early conclusion allows the 
Exchange to appropriately handle unrelated quotes and orders without 
the CUBE Auction impacting that handling, and further allows the CUBE 
Order, which has been guaranteed an execution, to execute against the 
best-priced interest in the Auction.
    Current Rule 971.1NY(c)(4)(B) provides that a CUBE Auction will 
conclude early if the Exchange receives during the RTI ``an unrelated 
quote or order that is on the same side of the market as the CUBE 
Order, that is marketable against any RFR Responses or the NBBO (or the 
BBO, for a non-routable order) at the time of arrival.'' Because PNP 
Orders, although non-routable are, by definition, checked against the 
NBBO (not the BBO), the Exchange proposes to modify the rule text to 
provide ``or the BBO, for a non-routable order that is not a PNP

[[Page 12654]]

Order.'' \50\ The proposed language does not alter the current 
operation of this provision--as a same-side PNP Order that is 
marketable against the NBBO would cause an early end to the Auction--
but merely clarifies that PNP Orders would differ because they would be 
checked against the NBBO, not the BBO. This carve out of PNP Order 
would include the proposed RPNP (and a PNPB). Also of note regarding 
this early end scenario is the modified definition of RFR Responses to 
include eligible interest resting in the Consolidated Book at the start 
of an Auction. This modified definition clarifies current functionality 
that an Auction may end early if incoming same-side interest is 
marketable against interest (i.e., an RFR Response) that may not have 
been included in the NBBO or BBO but was resting undisplayed at the 
start of the Auction--which could include a proposed RPNP/MMRP or a 
PNPB. Thus, this provision, as modified, is consistent with CUBE 
functionality and simply updates the rule text to reflect the operation 
of PNP Orders and the interest that may cause an early end.
---------------------------------------------------------------------------

    \50\ See proposed Rule 971.1NY(c)(4)(B) (``Same Side Marketable 
Against RFR Responses or NBBO (or BBO)'') (providing, in relevant 
part, that the Auction would end early if during the RTI the 
Exchange receives a same-side unrelated quote or order that is 
marketable against ``any RFR Responses or the NBBO (or the BBO, for 
a non-routable order that is not a PNP Order) at the time of 
arrival'').
---------------------------------------------------------------------------

    Current Rule 971.1NY(c)(4)(B) also provides that ``[w]hen the 
Auction concludes, the CUBE Order will execute pursuant to paragraph 
(c)(5) [Order Allocation] of this Rule'' and any unexecuted ``GTX 
Orders'' may trade with the interest that caused the Auction to end 
early and then will cancel. The Exchange proposes to modify this 
provision to make clear that any RFR Response--not just those marked as 
GTX Orders--are eligible to trade with the interest that caused the 
Auction to end. As proposed, ``[a]ny RFR Responses that do not execute 
in the CUBE Auction will execute against the unrelated quote or order 
that caused the CUBE Auction to conclude early to the extent possible 
and GTX Orders will then cancel.'' \51\ This proposed change reflects 
the current operation of the CUBE, thus adding clarity, transparency 
and internal consistency to Exchange rules, and accounts for the 
modified definition of RFR Responses (which also reflects current 
functionality) to include interest resting (potentially undisplayed) at 
the start of the Auction such as a PNPB or the proposed RPNP/MMRP.
---------------------------------------------------------------------------

    \51\ See id. Consistent with this change, the Exchange also 
proposes to modify paragraph (c)(4)(D), another early end scenario 
based on same-side interest with similar rule text, to replace ``GTX 
Orders'' with ``RFR Responses'' in terms of interest received during 
the RTI that may trade in the Auction after the CUBE Order is 
filled. See proposed Rule 971.1NY(c)(4)(D) (providing, in relevant 
part, that ``[u]nfilled RFR Responses are eligible to execute 
against the unrelated interest that caused the CUBE Auction to 
conclude early and GTX Orders will then cancel'').
---------------------------------------------------------------------------

    Current Rule 971.1NY(c)(4)(C) provides that a CUBE Auction will 
conclude early if the Exchange receives during the RTI ``any RFR 
Response that is marketable against the NBBO (or the BBO, for a non-
routable order) at the time of arrival.'' Consistent with the proposed 
change to paragraph (c)(4)(B) regarding same-side interest, the 
Exchange proposes to modify the text to make clear that incoming 
opposite-side interest is checked against ``the BBO, for a non-routable 
order that is not a PNP Order,'' as PNP Orders are checked against the 
NBBO.\52\ As noted above, this proposed change [sic] not alter the 
current operation of this provision, but merely clarifies that distinct 
operation of (non-routable) PNP Orders. This carve out of PNP Order 
would include the proposed RPNP (and a PNPB).
---------------------------------------------------------------------------

    \52\ See proposed Rule 971.1NY(c)(4)(C).
---------------------------------------------------------------------------

    In addition, the Exchange proposes to modify this provision to 
include opposite-side interest that is marketable against ``any 
interest resting in the Consolidated Book.'' \53\ The Exchange notes 
that this proposed change reflects current functionality and clarifies 
that an RFR Response may be marketable against undisplayed interest in 
the Book--specifically a PNPB or a RPNP/MMRP--that is not included in 
the quoted BBO resulting in the early end of an Auction.\54\ This 
proposed change reflects the current operation of the CUBE (in regards 
to a PNPB) and also updates the rule to reflect the proposed RPNP/MMRP, 
thus adding clarity, transparency and internal consistency to Exchange 
rules.
---------------------------------------------------------------------------

    \53\ See proposed Rule 971.1NY(c)(4)(C) (Opposite Side 
Marketable Against Interest in the Consolidated Book, the NBBO (or 
BBO) at the Time of Arrival) (providing, in relevant part, that the 
Auction would end early if during the RTI the Exchange receives an 
``any RFR Response that is marketable against the any interest 
resting in the Consolidated Book, the NBBO (or the BBO, for a non-
routable order that is not a PNP Order) at the time of arrival'').
    \54\ See supra note 47 (regarding Rule 971.1NY(b), providing 
that ``[f]or purposes of determining whether a CUBE Order is 
eligible to initiate an Auction,'' references to the NBBO or BBO 
``refer to the quoted market at the time the Auction is 
initiated'').
---------------------------------------------------------------------------

    Current Rule 971.1NY(c)(4)(D) provides that a CUBE Auction will 
conclude early if the Exchange receives during the RTI ``an unrelated, 
non-marketable quote or limit order that is on the same side of the 
market as the CUBE Order to buy (sell) and that would adjust the lower 
(upper) bound of the range of permissible executions to be higher 
(lower) than the initiating price.'' \55\ To clarify existing 
functionality, the Exchange proposes to add new paragraph (c)(D)(i) to 
provide that a same-side IOC \56\ that would otherwise meet the 
requirements of paragraph (c)(4)(D) (i.e., if its limit price was 
incorporated into the NBBO, which it is not) would cause an Auction to 
end early, even if the IOC Order cancels without trading.\57\ If such 
an IOC Order causes a CUBE Auction to end early, the CUBE Order and 
other eligible auction interest would be processed pursuant to 
paragraph (c)(4)(D). This proposed modification reflects existing 
functionality based on how the mechanism is built and would add clarity 
and transparency to the CUBE rule.
---------------------------------------------------------------------------

    \55\ See supra note 51 (regarding modifications to last sentence 
of paragraph (c)(5)(D) regarding unfilled RFR Responses and GTX 
Orders).
    \56\ See supra note 8 (defining IOC Order).
    \57\ See proposed Rule 971.1NY(c)(4)(D)(i).
---------------------------------------------------------------------------

Order Allocation
    The Exchange also proposes to modify Rule 971.1NY(c)(5) regarding 
the allocation of the CUBE Order with eligible interest. Current Rule 
971.1NY(c)(5)(A) provides that, at each price level, the CUBE Order 
will first trade with resting Customers orders, followed by Customer 
orders that arrived during the Auction. Because a Customer may submit a 
PNPB or a RPNP--either of which may have an undisplayed price at which 
it is eligible to trade, the Exchange proposes to modify the Rule to 
make clear that only the ``displayed'' Customer interest benefits from 
Customer priority, pursuant to Rule 964NY(c)(2)(A).\58\ This proposed 
change is consistent with the Exchange's allocation rules,\59\ current 
CUBE operation and simply updates the rule to reflect the treatment of 
PNPB and the proposed RPNP.
---------------------------------------------------------------------------

    \58\ See proposed Rule 971.1NY(c)(5)(A)(providing that, at each 
price level, displayed Customer interest on the Book at the start of 
the Auction have first priority, followed by displayed Customer 
orders that arrived as RFR Responses, pursuant to Rule 
964NY(c)(2)(A), provides that an inbound order will first be matched 
against all available displayed Customer interest in the Book 
(emphasis added). See also proposed Rule 971.1NY(c)(5)(B) (providing 
that ``[a]fter displayed Customer interest at a particular price 
level has been satisfied, remaining contracts shall be allocated 
among the Contra Order and RFR Responses as follows:'').
    \59\ See Rule 964NY(c)(2)(A) (``the inbound order will first be 
matched against all available displayed Customer interest in the 
Consolidated Book'').
---------------------------------------------------------------------------

    As noted above, the Initiating Participant may guarantee the 
execution

[[Page 12655]]

of the CUBE via a single stop price, a range of prices up/down to match 
the best-priced RFR Responses (assuming size of CUBE Order remains) or 
a range of prices matching the best-priced RFR Responses up/down to an 
auto-match limit price. The Exchange proposes to modify the rules 
regarding CUBE Order allocation in these scenarios to clarify current 
functionality regarding the treatment of a PNPB and to account for the 
proposed RPNP and MMRP, which as RFR Responses, may be eligible to 
trade in the Auction even if undisplayed. The current CUBE Order 
allocation rule does not address the priority of RFR Responses that are 
not displayed.
    First, the Exchange proposes to modify the Rule regarding the 
allocation of a CUBE Order that is guaranteed by a single stop price. 
In short, the current rule provides that the CUBE Order will trade with 
any RFR Responses priced better than the stop price (by size pro rata), 
starting with the best-priced RFR Responses until the stop price is 
reached, at which price the Contra Order is entitled to its allocation 
guarantee.\60\ Regarding the priority of RFR Responses priced better 
than the stop price, the Exchange proposes to modify the rule to 
provide that ``[a]t each price point, the CUBE Order shall be allocated 
first to GTX Orders and displayed RFR Responses pursuant to the size 
pro rata algorithm set forth in Rule 964NY(b)(3), and next to any 
undisplayed RFR Responses at that price in time priority, pursuant to 
Rule 964NY(c).'' \61\ The Exchange also proposes to modify the Rule to 
specify the priority of RFR Responses at the stop price (if any portion 
of the CUBE Order remains after the Contra Order receives its 
allocation guarantee).\62\ The modified rule would provide that ``[a]ny 
remaining CUBE Order contracts at the stop price shall be allocated 
first among remaining GTX Orders and displayed RFR Responses pursuant 
to the size pro rata algorithm set forth in Rule 964NY(b)(3), and next 
to any undisplayed RFR Responses pursuant to Rule 964NY(c).'' \63\ This 
proposed change is consistent with the Rule 964NY and simply updates 
the rule to reflect current functionality regarding the treatment of a 
PNPB and to account for the proposed RPNP/MMRP.
---------------------------------------------------------------------------

    \60\ See Rule 971.1NY(c)(5)(B)(i). Rule 964NY(b)(2) sets forth 
priority and order allocation.
    \61\ See proposed Rule 971.1NY(c)(5)(B)(i)(a).
    \62\ See proposed Rule 971.1NY(c)(5)(B)(i)(b).
    \63\ See id.
---------------------------------------------------------------------------

    Second (and consistent with the changes to CUBE Orders guaranteed 
by a stop price), the Exchange proposes to modify the Rule regarding 
the allocation of a CUBE Order that is guaranteed by auto match. In 
short, the current rule provides that the Contra Order is ``allocated 
an equal number of contracts as the aggregate size of all other RFR 
Responses at each price level'' starting with the best priced RFR 
Response, ``until a price point is reached where the balance of the 
CUBE Order can be fully executed (the `clean-up price').'' \64\ At the 
clean-up price, if the Contra Order has not yet received its allocation 
guarantee, and if sufficient size of the CUBE Order remains, the Contra 
Order will be allocated the requisite additional contracts.\65\ 
Further, under the current rule, ``[i]f there are other RFR Responses 
at the clean-up price, the remaining CUBE Order contracts will be 
allocated to such interest pursuant to the size pro rata algorithm set 
forth in Rule 964NY(b)(3).\66\ The Exchange proposes to modify the rule 
to specify the priority of Responses at the clean-up price (if any 
portion of the CUBE Order remains after the Contra Order receives its 
allocation guarantee) to provide that CUBE Order contracts ``will be 
allocated first to GTX Orders and displayed RFR Responses pursuant to 
the size pro rata algorithm set forth in Rule 964NY(b)(3), and next to 
any undisplayed RFR Responses at that price in time priority, pursuant 
to Rule 964NY(c).'' \67\ This proposed change is consistent with the 
operation of Rule 964NY and simply updates the rule to reflect current 
functionality regarding the treatment of a PNPB and to account for the 
proposed RPNP/MMRP.
---------------------------------------------------------------------------

    \64\ See Rule 971.1NY(c)(5)(B)(ii)(a).
    \65\ See Rule 971.1NY(c)(5)(B)(ii)(b).
    \66\ See id. As is the case today, if all RFR Responses are 
filled, any remaining portion of CUBE Order contracts is allocated 
to the Contra Order at the initiating price and, in the event there 
are no RFR Responses received in a given Auction, the CUBE Order 
trades entirely with the Contra Order at the initiating price. See 
Rule 971.1NY(c)(5)(B)(ii)(b),(c).
    \67\ See proposed Rule 971.1NY(c)(5)(B)(ii)(b).
---------------------------------------------------------------------------

    Finally, in a similar vein, the Exchange proposes to modify the 
rule to address how the CUBE Order will be allocated when auto-match 
limit is selected. In short, the current rule provides that the CUBE 
Order will trade with any RFR Responses priced better than the auto-
match limit price (size pro rata), starting with the best-priced 
Responses until the auto-match limit price is reached.\68\ At prices 
equal to or worse than the auto-match limit price (assuming sufficient 
size of CUBE Order remains), the Contra Order will be allocated an 
equal number of contracts as the aggregate size of all other RFR 
Responses and will receive its allocation guarantee (if not already 
met) at the clean-up price. If CUBE Order contracts remain after the 
Contra Order gets its allocation guarantee, RFR Responses will trade 
with the CUBE Order at that (clean-up) price, pro rata.\69\ The 
Exchange proposes to modify paragraph (c)(5)(B)(iii)(a), regarding the 
allocation of the CUBE Order with the best-priced Responses, to provide 
that ``[a]t each price point, the CUBE Order shall be allocated first 
to GTX Orders and displayed RFR Responses pursuant to the size pro rata 
algorithm set forth in Rule 964NY(b)(3), and next to any undisplayed 
RFR Responses at that price in time priority, pursuant to Rule 
964NY(c).'' \70\ Regarding the CUBE Order trading with RFR Responses at 
the clean-up price (if size remains), the Exchange proposes to modify 
the rule to provide such contracts ``will be allocated first to GTX 
Orders and displayed RFR Responses pursuant to the size pro rata 
algorithm set forth in Rule 964NY(b)(3), and next to any undisplayed 
RFR Responses at that price in time priority, pursuant to Rule 
964NY(c).'' \71\ This proposed change is consistent with the operation 
of the CUBE and simply updates the rule to reflect current 
functionality regarding the treatment of a PNPB and to account for the 
proposed RPNP/MMRP.
---------------------------------------------------------------------------

    \68\ See Rule 971.1NY(c)(5)(B)(iii)(a).
    \69\ See Rule 971.1NY(c)(5)(B)(iii)(b).
    \70\ See proposed Rule 971.1NY(c)(5)(B)(iii)(a).
    \71\ See proposed Rule 971.1NY(c)(5)(B)(iii)(b).
---------------------------------------------------------------------------

    The following is an example that illustrates RPNPs trading in a 
CUBE Auction at their undisplayed price in time priority (behind 
displayed interest).
CUBE Example (the MPV is $0.01)
BOX 100 x 1.00-1.25 x 100
MM 10 x 0.95-1.30 x 10
Firm1 RPNP B 100 @1.26
Firm2 RPNP B 100 @1.26
CUBE Order S 100 @1.20/Contra Order Buy guaranteed by automatch
Expected Result
BOX NBO @1.25
Firm1 bid reprices and is eligible to trade 100 @1.25 and will display 
@1.24 (priced back one MPV from the NBO)
Firm2 bid reprices and is eligible to trade 100 @1.25 and will display 
@1.24 (priced back one MPV from the NBO)
At the end of the CUBE auction: The CUBE Order sells 40 to the Contra 
Order @1.25 (i.e., 40% participation guarantee), per Rule 
971.1NY(c)(5)(B)(ii)(a), then 60 to

[[Page 12656]]

Firm1 @1.25, per Rule 971.1NY(c)(5)(B)(ii)(b))
* * * * *
Implementation
    The Exchange will announce by Trader Update the implementation date 
of the proposed rule change within 90 days of the effective date of 
this rule filing.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\72\ in general, and furthers the objectives of Section 
6(b)(5) of the Act,\73\ in particular, in that it is 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.
---------------------------------------------------------------------------

    \72\ 15 U.S.C. 78f(b).
    \73\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

RPNP and MMRP
    The proposed RPNP would remove impediments to and perfect the 
mechanism of a free and open market and a national market system 
because RPNPs would provide market participants with greater 
flexibility and control over how their orders interact with liquidity 
on the Exchange. The Exchange believes this proposal allows market 
participants to provide and access greater liquidity on the Exchange, 
thus benefiting Exchange members. The proposed order type would provide 
a means to display such orders at prices that are designed to maximize 
their opportunities for execution. Specifically, allowing any eligible 
RPNP to be repriced and potentially trade at multiple price points 
would improve the mechanism of price discovery. The Exchange believes 
that ranking a repriced RPNP with other interest eligible to trade at a 
price respects and preserves principles of Customer, as well as price-
time, priority and therefore would promote just and equitable 
principles of trade. The Exchange notes that the RPNP is materially the 
same as the RPNP order type recently approved for trading on NYSE Arca, 
except as noted herein.\74\
---------------------------------------------------------------------------

    \74\ See NYSE Arca Repricing Approval Order, supra note 4. See 
also supra note 6 (regarding the Exchange's Customer and price-time 
priority scheme).
---------------------------------------------------------------------------

    Similar to the proposed RPNP, the proposed MMRP quote designation 
would remove impediments to and perfect the mechanism of a free and 
open market and a national market system because MMRPs would provide 
Market Makers with increased control over interactions with contra-side 
liquidity and would increase opportunities for such interactions. The 
Exchange notes that, absent the proposed repricing functionality 
associated with the MMRP, a Market Maker quote that locks or crosses 
interest on the Exchange or an away market would reject or cancel. In 
the case of MMRPs, the proposal would afford Market Makers more 
certainty when providing liquidity, while ensuring that MMRPs priced 
too far through the contra-side NBBO would cancel or reject after 
trading with any eligible interest on the Exchange. The Exchange notes 
that the proposed MMRP is optional and Market Makers have the choice to 
utilize this quote type (or not). The Exchange believes that ranking 
the repriced MMRP with other interest available to trade at a price 
respects and preserves principles of Customer, as well as price-time, 
priority and therefore would remove impediments to and perfect the 
mechanism of a free and open market and a national market system.
    Because the options market is quote driven and Market Makers are 
vital to the price discovery process, the Exchange believes that the 
proposed (optional) quote types would provide Market Makers with a 
greater level of determinism, in terms of managing their exposure, and 
thus may encourage more aggressive liquidity provision, resulting in 
more trading opportunities and tighter spreads. This too would help 
improve the mechanism of price discovery. Accordingly, the Exchange 
believes that the proposal would improve overall market quality and 
enhance competition on the Exchange to the benefit of all market 
participants.
    Moreover, the Exchange also notes that the proposed MMRP is 
materially the same as the MMRP quote designation recently approved for 
trading on NYSE Arca, except as noted herein.\75\ Accordingly, the 
Exchange believes that the proposal would improve overall market 
quality and improve competition on the Exchange, to the benefit of all 
market participants.
---------------------------------------------------------------------------

    \75\ Id.
---------------------------------------------------------------------------

RPNP/MMRP and the CUBE Auction
    The Exchange believes that the proposed changes to the conduct of 
the CUBE Auction would remove impediments to and perfect the mechanism 
of a free and open market and a national market system because the 
proposed changes are consistent with the current operation of the CUBE 
and would avoid disturbing priority in the Consolidated Book, in 
accordance with Rule 964NY, regarding priority of quotes and orders.
    Specifically, the proposal to modify rule text to make clear that 
RFR Responses include interest resting in the Consolidated Book at the 
start of the Auction would align the rule text with current 
functionality and add transparency and internal consistency to Exchange 
rules, which in turn, would promote just and equitable principles of 
trade and remove impediments to and perfect the mechanism of a free and 
open market and a national market system. This proposed change aligns 
with the treatment of Customer interest resting at the start of a CUBE 
Auction \76\ and would make clear that the proposed RPNP/MMRP (and 
PNPBs) may participate in the Auction even if resting undisplayed on 
the Book at the start of a CUBE Auction (and not included in the quoted 
market).\77\ The Exchange believes that allowing eligible unrelated 
quotes and orders resting on the Consolidated Book at the start of an 
Auction--including eligible RPNP/MMRPs (and PNPBs)--to interact with 
the CUBE Auction protects investors and the public interest because 
this inclusion of resting interest in the Auction should increase the 
number of participants against which the CUBE Order may be executed, 
and is consistent with the primary goal of the CUBE Auction: To 
maximize price improvement opportunities for the CUBE Order, while 
seamlessly interacting with the Consolidated Book.\78\ Similarly, the 
proposed modifications to make clear that--in the event of an early end 
to the Auction--all RFR Responses, not solely GTX Orders, are eligible 
to trade with interest received in the Auction, which would protect 
investors and the investing public because it adds clarity, 
specificity, and transparency to Exchange rules.
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    \76\ See Rule 971.1NY(c)(5)(A) (providing that ``[a]t each price 
level, any Customer orders resting on the Consolidated Book at the 
start of the CUBE Auction shall have first priority'' to trade with 
the CUBE Order).
    \77\ See Rule 971.1NY(b) (providing that ``[f]or purposes of 
determining whether a CUBE Order is eligible to initiate an 
Auction,'' references to the NBBO or BBO ``refer to the quoted 
market at the time the Auction is initiated'').
    \78\ The Exchange notes that to the extent that an order that 
was resting undisplayed at the start of the CUBE Order is eligible 
to trade with the CUBE Order, that interest would trade behind 
Customer and displayed interest, at a price, so as not to disturb 
the Exchange's allocation model, per proposed Rule 971.1NY(c)(5), 
Order Allocation (as discussed herein).
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    Further, the proposed modification of the early end scenarios would 
remove

[[Page 12657]]

impediments to and perfect the mechanisms of a free and open market and 
a national market system because the changes would align the rule text 
with existing functionality and would provide clarity and transparency 
in Exchange rules of when a CUBE Auction would conclude early. As noted 
above, the rationale for an early conclusion to an Auction is to allow 
the Exchange to appropriately handle unrelated quotes and orders 
without the CUBE Auction impacting that handling, and further allow a 
CUBE Order, which has been guaranteed an execution, to execute against 
the Contra Order and any RFR. The changes to the early end provisions 
are designed to ensure internal consistency (in regards to the proposed 
modified definition of RFR Responses) as well as clarify current 
functionality of the early end checks (to carve out PNP Orders from BBO 
check and to make clear that incoming interest may be checked for 
marketability against interest in the Consolidated Book, not just the 
BBO) to appropriately account for the fact that the best-priced 
interest in the Book may not be displayed and thus not included in the 
quoted BBO (such as the proposed RPNP/MMRP). Thus, the Exchange 
believes that the proposed changes are therefore consistent with the 
protection of investors and the public interest because the changes 
provide specificity in Exchange rules regarding when an Auction would 
conclude early.
    In addition, the proposal to specify that IOC Orders that arrive 
during an Auction may cause the Auction to end early would promote just 
and equitable principles of trade and benefit investors as this 
clarification regarding how the CUBE Auction mechanism operates ensures 
that investors are aware of the potential impact of IOC Orders (even 
ones that do not trade) on an Auction in progress.
    Finally, the proposal to clarify the order allocation provision 
would promote just and equitable principles of trade and benefit 
investors as this clarification would make clear that the priority of 
RFR Responses is consistent with the Exchange Customer and price-time 
priority model and would afford first priority, at each price point, to 
displayed RFR Responses followed by undisplayed RFR Responses. These 
proposed changes are consistent with the current operation of the CUBE 
and would avoid disturbing priority in the Consolidated Book, in 
accordance with Rule 964NY, regarding priority of quotes and orders.
Technical Changes
    The Exchange notes that the proposed organizational and non-
substantive changes to the rule text would provide clarity and 
transparency to Exchange rules and would promote just and equitable 
principles of trade and remove impediments to, and perfect the 
mechanism of, a free and open market and a national market system.\79\ 
The proposed rule amendments would also provide internal consistency 
within Exchange rules and operate to protect investors and the 
investing public by making the Exchange rules easier to navigate and 
comprehend.
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    \79\ See, e.g., supra notes 7, 19, 20, 28.
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change would 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act. The Exchange notes that it 
operates in a highly competitive market in which market participants 
can readily direct order flow to competing venues who offer similar 
functionality. The Exchange believes the proposed rule change is 
procompetitive because it would enable the Exchange to provide market 
participants with functionality that is similar to that of other 
options exchanges.\80\
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    \80\ See NYSE Arca Repricing Approval Order, supra note 4.
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    The Exchange believes the proposed MMRP would add value to market 
making on the Exchange and the proposed RPNP would provide market 
participants the option of exercising greater control over how orders 
interact with contra-side liquidity both on the Exchange and on away 
markets. The proposed MMRP/RPNP would allow market participants to 
exert greater control over how their quotes and orders interact with 
liquidity on the Exchange, thereby attracting more investors to the 
Exchange, which, in turn, leads to greater price discovery and improves 
overall market quality.
    The Exchange does not believe the proposal would impose a burden on 
competition among the options exchanges but instead, because the 
Exchange would be offering the proposed (optional) MMRP and RPNP, the 
proposal would add to the existing competitive landscape. In this 
highly competitive market, the Exchange would be at a competitive 
disadvantage absent this proposal, which adopts functionality available 
on other options exchanges. Permitting the Exchange to operate on an 
even playing field relative to other exchanges that have similar 
functionality removes impediments to and perfects the mechanism for a 
free and open market and a national market system. The proposal does 
not impose an undue burden on intramarket competition because the 
proposed MMRP would be available to all Market Makers on the Exchange 
and the proposed RPNP would be available to all market participants. 
The proposal is structured to offer the same enhancement to all Market 
Makers and/or market participants, regardless of size, and would not 
impose a competitive burden on any participant.
    The proposed MMRP, which provide Market Makers with enhanced 
determinism over their quotes, may contribute to more aggressive 
quoting by Market Makers, resulting in more trading opportunities and 
tighter spreads. To the extent this purpose is achieved, the proposed 
MMRP would enhance the market making function on the Exchange, which 
would improve overall market quality and improve competition on the 
Exchange to the benefit of all market participants.
    The Exchange likewise does not believe that the proposed 
clarifications to the rule text regarding the CUBE Auction would impose 
any burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act. The rule changes are not 
intended to address any competitive issues. Rather, the Exchange is 
proposing to add more specificity, clarity and transparency regarding 
the current operation of the CUBE Auction, particularly in light of the 
proposed MMRP/RPNP.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    No written comments were solicited or received with respect to the 
proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Because the foregoing proposed rule change does not: (i) 
Significantly affect the protection of investors or the public 
interest; (ii) impose any significant burden on competition; and (iii) 
become operative for 30 days from the date on which it was filed, or 
such shorter time as the Commission may designate, it has become 
effective pursuant to Section

[[Page 12658]]

19(b)(3)(A) of the Act \81\ and Rule 19b-4(f)(6) thereunder.\82\
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    \81\ 15 U.S.C. 78s(b)(3)(A).
    \82\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file the proposed rule change, along 
with a brief description and text of the proposed rule change, at 
least five business days prior to the date of filing of the proposed 
rule change, or such shorter time as designated by the Commission. 
The Exchange has satisfied this requirement.
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    A proposed rule change filed pursuant to Rule 19b-4(f)(6) under the 
Act \83\ normally does not become operative for 30 days after the date 
of its filing. However, Rule 19b-4(f)(6)(iii) \84\ permits the 
Commission to designate a shorter time if such action is consistent 
with the protection of investors and the public interest. The Exchange 
has requested that the Commission waive the 30-day operative delay so 
that the proposed rule change may become operative upon filing. As 
noted above, the proposed order type and quote designation are 
substantially identical to those utilized on NYSE Arca, Inc., and the 
differences noted herein do not raise substantive or novel issues. 
Waiver of the operative delay would allow the Exchange to immediately 
implement the proposed functionality in coordination with the 
availability of the technology supporting the proposal, which is 
anticipated to be less than 30 days after the filing of the proposed 
rule change. The Commission believes that waiver of the 30-day 
operative delay is consistent with the protection of investors and the 
public interest. Accordingly, the Commission hereby waives the 
operative delay and designates the proposed rule change operative upon 
filing.\85\
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    \83\ 17 CFR 240.19b-4(f)(6).
    \84\ 17 CFR 240.19b-4(f)(6)(iii).
    \85\ For purposes only of waiving the 30-day operative delay, 
the Commission also has considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act. If the Commission 
takes such action, the Commission shall institute proceedings to 
determine whether the proposed rule change should be approved or 
disapproved.

IV. Solicitation of Comments

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

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-NYSEAMER-2019-06 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-NYSEAMER-2019-06. This 
file number should be included on the subject line if email is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (http://www.sec.gov/rules/sro.shtml). 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for website viewing and printing in 
the Commission's Public Reference Room, 100 F Street NE, Washington, DC 
20549, on official business days between the hours of 10:00 a.m. and 
3:00 p.m. Copies of the filing also will be available for inspection 
and copying at the principal office of the Exchange. All comments 
received will be posted without change. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-NYSEAMER-2019-06 and should be submitted 
on or before April 23, 2019.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\86\
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    \86\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019-06308 Filed 4-1-19; 8:45 am]
 BILLING CODE 8011-01-P