Document ID: SEC-2023-0435-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NYSE American, LLC
Posted Date: 2023-04-19T04:00Z

[Federal Register Volume 88, Number 75 (Wednesday, April 19, 2023)]
[Notices]
[Pages 24225-24238]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-08217]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-97297; File No. SR-NYSEAMER-2023-16]

Self-Regulatory Organizations; NYSE American LLC; Notice of 
Filing and Immediate Effectiveness of Proposed Change To Modify Rule 
900.2NY and To Adopt New Rules 964NYP, 964.1NYP, and 964.2NYP

April 13, 2023.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby given 
that, on April 6, 2023, NYSE American LLC (``NYSE American'' or the 
``Exchange'') filed with the Securities and Exchange

[[Page 24226]]

Commission (the ``Commission'') the proposed rule change as described 
in Items I, II, and III below, which Items have been prepared by the 
self-regulatory organization. The Commission is publishing this notice 
to solicit comments on the proposed rule change from interested 
persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to modify Rule 900.2NY (Definitions) and to 
adopt new Rules 964NYP (Order Ranking, Display, and Allocation), 
964.1NYP (Directed Orders and DOMM Quoting Obligations), and 964.2NYP 
(Participation Entitlement of Specialist Pool and Designation of 
Primary Specialist) to reflect the transition of the Exchange's options 
market to the Pillar trading platform. The proposed rule change is 
available on the Exchange's website at www.nyse.com, at the principal 
office of the Exchange, and at the Commission's Public Reference Room.

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

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

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

1. Purpose
Background
    The Exchange plans to transition its options trading platform to 
its Pillar trading platform. The Exchange's affiliated options 
exchange, NYSE Arca, Inc. (``NYSE Arca'' or ``Arca Options'') is 
currently operating on Pillar, as are the Exchange's national 
securities exchange affiliates' cash equity markets.\4\ For this 
transition, the Exchange proposes to use the same Pillar technology 
already in operation on Arca Options.\5\ In doing so, the Exchange will 
be able to offer not only common specifications for connecting to both 
of its equity and options markets, but also common trading functions 
across the Exchange and its affiliated options exchange, NYSE Arca 
Options.
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    \4\ The Exchange's national securities exchange affiliates' cash 
equity markets include: the New York Stock Exchange LLC, NYSE Arca 
Inc., NYSE American LLC, NYSE National, Inc., and NYSE Chicago, Inc. 
(collectively, the ``NYSE Equities Exchanges'').
    \5\ See, e.g., Securities Exchange Act Release No. 94072 
(January 26, 2022), 87 FR 5592 (February 1, 2022) (order approving 
new rules applicable to trading of single-leg options on Pillar) 
(SR-NYSEArca-2021-47) (the ``Arca Options Approval Order''). See, 
e.g., Rules 6.76P-O (Order Ranking and Display) and 6.76AP-O (Order 
Execution and Routing) (together, the ``Arca Priority Rules''). See 
also NYSE Arca Rules 1.1 (Definitions) (which includes definitions 
that describe terms applicable to options trading on Pillar).
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    The Exchange plans to roll out the new Pillar technology platform 
over a period of time based on a range of underlying symbols beginning 
on October 23, 2023.\6\ As was the case for Arca Options when it 
transitioned to Pillar, the Exchange will announce by Trader Update \7\ 
when underlying symbols will be transitioning to the Pillar trading 
platform. With this transition, certain rules would continue to be 
applicable to options overlying symbols trading on the current trading 
platform--the ``Exchange System,'' \8\ but would not be applicable to 
options overlying symbols that have transitioned to trading on Pillar.
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    \6\ See Trader Update, January 30, 2023 (announcing Pillar 
Migration Launch date of October 23, 2023, for the Exchange), 
available here: https://www.nyse.com/trader-update/history#110000530919. The Exchange would not begin to migrate 
underlying symbols to the Pillar platform until all Pillar-related 
rule filings (i.e., with a ``P'' modifier) are either approved or 
operative, as applicable.
    \7\ Trader Updates are available here: https://www.nyse.com/trader-update/history. Anyone can subscribe to email updates of 
Trader Updates, available here: https://www.nyse.com/subscriptions.
    \8\ Rule 900.2NY defines ``Exchange System'' or ``System'' as 
referring to the Exchange's ``current electronic order delivery, 
execution, and reporting system for designated option issues through 
which orders and quotes of Users are consolidated for execution and/
or display.'' With the transition to Pillar, the Exchange would no 
longer use the terms ``Exchange System'' or ``System.'' Once the 
transition is complete, the Exchange will file a subsequent proposed 
rule change to delete references to (and the defined term) the 
``Exchange System'' and ``System'' from the rulebook. See also Rule 
900.2NY (providing substantially identical to definition 
``Consolidated Book'', which is defined as ``the Exchange's 
electronic book of orders and quotes'' and further provides that 
``all orders and quotes that are entered into the Book will be 
ranked and maintained in accordance with the rules of priority as 
provided in Rule 964NY.'').
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    Instead, the Exchange proposes new rules to reflect how options 
would trade on the Exchange once Pillar is implemented. These proposed 
rule changes will (1) use Pillar terminology that is identical to 
Pillar terminology governing options trading on NYSE Arca, except as 
otherwise noted; (2) provide for common functionality on both its 
options markets; and (3) reflect the Exchange's existing Customer 
priority and pro rata allocation model, with any differences noted 
herein.\9\
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    \9\ The current proposal seeks to adopt rules based on certain 
aspects of the Arca Priority rules, as well as certain definitions 
that describe terms applicable to options trading on Pillar set 
forth in NYSE Arca Rule 1.1. However, because the Exchange has (and 
will continue to have) a priority and allocation scheme that differs 
from the price-time model on Arca Options, the proposed rules are 
also based on the Exchange's existing priority Rules 964NY, 964.NY 
and 964.2NY, with differences noted herein.
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Proposed Use of ``P'' Modifier
    As proposed, new rules governing options trading on Pillar would 
have the same numbering as current rules that address the same 
functionality, but with the modifier ``P'' appended to the rule number. 
For example, Rule 964NY, governing Display, Priority and Order 
Allocation--Trading Systems, would remain unchanged and continue to 
apply to any trading in symbols on the Exchange System. Proposed Rule 
964NYP would govern Order, Ranking, Display, and Allocation for trading 
in options symbols migrated to the Pillar trading platform. All other 
current rules that have not had a version added with a ``P'' modifier 
will be applicable to how trading functions on both the Exchange System 
and Pillar. Once options overlying all symbols have migrated to the 
Pillar trading platform, the Exchange will file a separate rule 
proposal to delete rules that are no longer operative because they 
apply only to trading on the Exchange System.
    To reflect how the ``P'' modifier would operate, the Exchange 
proposes to add rule text immediately following the title ``Section 
900NY. Rules Principally Applicable to Trading of Option Contracts,'' 
and before ``Rule 900.1NY. Applicability''), which would provide that 
rules with a ``P'' modifier would be operative for symbols that are 
trading on the Pillar trading platform. As further proposed, and 
consistent with the handling of the transition to Pillar by Arca 
Options, if a symbol (and the option overlying such 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.\10\ 
The Exchange believes that adding this explanation regarding the ``P'' 
modifier in Exchange rules would provide transparency regarding which 
rules

[[Page 24227]]

would be operative during the symbol migration to Pillar.
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    \10\ NYSE Arca used the same description when it transitioned 
its options platform to Pillar. See Arca Options Approval Order.
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    The Exchange will not implement the ``P'' rules proposed herein 
until all other Pillar-related rule filings (i.e., with a ``P'' 
modifier) are either approved or operative, as applicable, and the 
Exchange announces the rollout of underlying symbols to Pillar by 
Trader Update.
Summary of Proposed Rule Changes
    In this filing, the Exchange proposes the following new Pillar 
rules: Rules 964NYP (Order Ranking, Display, and Allocation), 964.1NYP 
(Directed Orders and DOMM Quoting Obligations), and 964.2NYP 
(Participation Entitlement of Specialist Pool and Designation of 
Primary Specialist).\11\ The Exchange also proposes to amend Rule 
900.2NY to add new definitions that would be applicable for options 
trading on Pillar as well as to modify additional definitions as set 
forth below. These proposed rules would set forth the foundation of the 
Exchange's options trading model on Pillar and, among other things, 
would use existing Pillar terminology and functionality currently in 
effect on Arca Options. However, because the Exchange has (and will 
continue to have) a priority and allocation scheme that differs from 
the price-time model on Arca Options, the proposed rules would also 
reflect the Exchange's existing (Customer priority and pro rata 
allocation) model, with any changes to the existing model noted herein. 
As discussed in greater detail below, the Exchange is not proposing 
fundamentally different functionality applicable to options trading on 
Pillar than is currently available on the Exchange System. However, 
with Pillar, the Exchange would introduce new terminology and new or 
updated functionality, as applicable, that would be available for 
options trading.
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    \11\ As described herein, to streamline rule text regarding 
participation guarantees, the Exchanges proposes to include in new 
Rule 964NYP much of the information that is set forth in current 
Rules 964.1NY (Directed Orders), and 964.2NY (Participation 
Entitlement of Specialists and e-Specialists). In some instances, 
the Exchange is proposing to delete from Rules 964.1NY and 964.2NY 
information that is duplicative of rule text being carried over from 
current Rule 964NY.
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    To promote clarity and transparency, the Exchange further proposes 
to add a preamble to the following current rules specifying that they 
would not be applicable to trading on Pillar: Rules 964NY (Display, 
Priority and Order Allocation--Trading Systems), and 964.1NY (Directed 
Orders), and 964.2NY (Participation Entitlement of Specialists and e-
Specialists).
Proposed Rule Changes
Proposed Rule 900.2NY: Definitions
    Rule 900.2NY sets forth definitions that are applicable to options 
trading. In connection with the transition of options trading to 
Pillar, the Exchange proposes the following amendments to Rule 900.2NY. 
As described in detail below, the proposed new definitions are 
identical to how the same terms are defined in NYSE Arca Rule 1.1, 
except that the proposed terms relate solely to options trading.\12\
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    \12\ Unlike NYSE Arca Rule 1.1, the proposed new definitions 
(e.g., of Away Market, ABBO, and MPID) do not include a description 
of how such terms relate to equities trading. Thus, when the 
Exchange states that the proposed definitions are identical to the 
definitions in NYSE Arca Rule 1.1, the Exchange means solely as 
relates to options trading. The Exchange believes this distinction 
is immaterial as Rule 900.2NY pertains solely to options trading, 
whereas Rule 1.1 applies to both options and equities trading.
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     Away Market: The Exchange proposes to adopt the defined 
term of ``Away Market,'' which would refer to ``any Trading Center (1) 
with which the Exchange maintains an electronic linkage, and (2) that 
provides instantaneous responses to orders routed from the Exchange.'' 
This proposed definition is identical to how this term is defined in 
NYSE Arca Rule 1.1 with respect to options trading.\13\
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    \13\ This proposed definition is also based on the definition of 
``NOW Recipient,'' which is currently defined as ``any Market Center 
(1) with which the Exchange maintains an electronic linkage, and (2) 
that provides instantaneous responses to NOW Orders routed from the 
System. The Exchange shall designate from time to time those Market 
Centers that qualify as NOW Recipients and shall periodically 
publish such information via its website.'' The Exchange proposes 
four non-substantive differences for the Pillar options trading 
definition of ``Away Market'': (1) use the Pillar term of ``Away 
Market'' instead of the term ``NOW Recipient;'' (2) use the term 
``Trading Center'' instead of ``Market Center''; (3) refer to 
``orders routed from the Exchange'' instead of ``NOW Orders routed 
from the System''; and (4) delete the text relating to the Exchange 
designating and publishing to its website certain Away Markets. The 
Exchange does not believe that this text needs to be included in the 
definition of Away Market because such markets are, by definition, 
those markets with which the Exchange maintains electronic linkage 
(i.e., pursuant to the Options Order Protection and Locked/Crossed 
Market Plan). The Exchange will file a separate rule filing to 
remove the definition of ``NOW Recipient'' after it transitions to 
Pillar.
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     Away Market BBO or ABBO: The Exchange proposes to adopt 
the defined term ``Away Market BBO'' or ``ABBO,'' which would refer 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. Consistent with this proposal, the Exchange also proposes that 
the term ``ABB'' would mean the best Away Market bid and the term 
``ABO'' would mean the best Away Market offer. This proposed definition 
is identical to how this term is defined in NYSE Arca Rule 1.1 with 
respect to options trading.
    In addition, also identical to NYSE Arca Rule 1.1 with respect to 
options trading, the Exchange proposes that it would adjust its 
calculation of the ABBO for options traded on the Exchange in the same 
manner that the Exchange would calculate the NBBO (as described 
herein). Accordingly, the Exchange proposes that, unless otherwise 
specified, the Exchange may adjust its calculation of the ABBO based on 
information about orders it sends to Away Markets, execution reports 
received from those Away Markets, and certain orders received by the 
Exchange.\14\
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    \14\ Although the Exchange has not presently identified any 
circumstances under which it would use an unadjusted ABBO, it has 
included the ``[u]nless otherwise specified'' text to allow for this 
possibility once the Exchange migrates to the Pillar trading 
platform. Should the Exchange opt to utilize an unadjusted ABBO for 
purposes of a specified rule, it would file a subsequent rule change 
to this effect.
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     Consolidated Book: The Exchange proposes to modify the 
defined term ``Consolidated Book'' to include reference to new Rule 
964NYP. Current Rule 900.2NY defines ``Consolidated Book'' as ``the 
Exchange's electronic book of orders and quotes'' and further provides 
that ``all orders and quotes that are entered into the Book will be 
ranked and maintained in accordance with the rules of priority as 
provided in Rule 964NY.'' The Exchange proposes to add to the end of 
this definition the phrase ``or Rule 964NYP, as applicable.'' This 
proposed change would add transparency and internal consistency to 
Exchange rules.
     Customer and Professional Customer: The Exchange proposes 
to modify the defined term ``Professional Customer,'' which is defined 
as an ``individual or organization that (i) is not a Broker/Dealer in 
securities, and (ii) places more than 390 orders in listed options per 
day on average during a calendar month for its own beneficial 
account(s).'' \15\ This definition further provides that a Professional 
Customer will be treated in the same manner as a non-Customer for 
purposes of enumerated rules of the Exchange, including, among others, 
current Rule 964NY (regarding priority and allocation) and certain 
provisions of Rule 964.2NY (regarding guaranteed

[[Page 24228]]

participation of Specialists). To address the addition of proposed Rule 
964NYP, which would incorporate the provisions of Rule 964.2NY, the 
Exchange proposes to add to the list of applicable rules references: 
Rules ``964NYP (Order Ranking, Display, and Allocation), 
964NYP(h)(2)(A) and (B) (Specialist Pool Guaranteed Participation).'' 
The Exchange also proposes to add reference to Rule 980NYP (Electronic 
Complex Order Trading), which proposed new rule describes Complex Order 
trading on Pillar.\16\ This proposed change would add transparency and 
internal consistency to Exchange rules.
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    \15\ To correct the omission of the word ``an'' in the first 
sentence of the definition, the Exchange proposes to revise the 
definition to state that a Professional Customer is ``an individual 
or organization . . . .'' See proposed Rule 900.2NY (emphasis 
added). This proposed change would add clarity and transparency to 
Exchange rules.
    \16\ See Securities Exchange Act Release No. 97125 (March 13, 
2023), 88 FR 16467 (March 17, 2023) (notice of filing to adopt new 
Rule 980NYP regarding complex order trading on Pillar) (SR-NYSEAMER-
2023-17).
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     Directed Order Market Maker or DOMM: The Exchange proposes 
to modify the defined term ``Directed Order Market Maker,'' which 
refers to a Market Maker that receives a Directed Order, to include 
reference to the shorthand ``DOMM.'' This proposed change would add 
transparency and internal consistency to Exchange rules.
     Market Participant Identifier or MPID: The Exchange 
proposes to adopt the defined term of ``Market Participant Identifier'' 
or ``MPID'', which would refer to the identifier assigned to the orders 
and quotes of a single ATP Holder for the execution and clearing of 
trades on the Exchange by that permit holder. The definition would 
further provide that an ATP Holder may obtain multiple MPIDs and each 
such MPID may be associated with one or more sub-identifiers of that 
MPID. This proposed definition is identical to how this term is defined 
in NYSE Arca Rule 1.1 with respect to options trading. The Exchange 
notes that the proposed definition only includes reference to ATP 
Holders on the Exchange rather than ETP Holders, OTP Holders, or OTP 
Firms on NYSE Arca.
     NBBO: The Exchange proposes to modify the defined term 
``NBBO,'' which refers to the national best bid (NBB) or national best 
offer (NBO), to specify that, unless 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. This 
proposed text reflects how the Exchange currently calculates the NBBO 
for options trading and is identical to how Arca Options describes its 
calculation of the NBBO per NYSE Arca Rule 1.1. The Exchange believes 
that adding this detail to the proposed definition of NBBO would 
promote clarity and transparency in Exchange rules and across its 
affiliated options exchanges. The Exchange further notes that, as is 
the same on Arca Options, there are limited circumstances when the 
Exchange would not adjust its calculation of the NBBO and will specify 
in its rules when it would not be using an adjusted NBBO for purposes 
of a specific rule.\17\
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    \17\ See Arca Options Approval Order, 87 FR 5592, at 5598-59.
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Proposed Rule 964NYP: Order Ranking, Display, and Allocation
    Rule 964NY, titled ``Display, Priority and Order Allocation--
Trading Systems,'' governs order ranking, display and allocation for 
options trading on the current Exchange System. Proposed Rule 964NYP 
would address order ranking, display, and allocation for options 
trading on Pillar. The Exchange proposes that the title for new Rule 
964NYP would be ``Order Ranking, Display and Allocation'' instead of 
``Display, Priority and Order Allocation--Trading Systems,'' because 
the Exchange does not propose to use the term ``Trading Systems,'' 
which term is not defined in current Exchange rules, in connection with 
Pillar.
    Current Rule 964NY sets forth the priority for the allocation of 
incoming orders to resting interest (orders or quotes) at a particular 
price in the Exchange System.\18\ Specifically, per Rule 964NY, the 
priority for the allocation of incoming orders at the same price is as 
follows: (1) resting Customer orders; (2) Directed Order Market Makers 
(or DOMMs), provided they satisfy the criteria to be eligible to 
receive a Directed Order; \19\ (3) the Specialist Pool (including for 
Directed Orders if not allocated to the DOMM); \20\ and (4) non-
Customer interest (on a size pro rata basis).\21\ Under the current 
Rule, a DOMM or the Specialist Pool may be entitled to guaranteed 
participation with an incoming order for up to 40% of that order, 
provided, among other requirements, the DOMM or the Specialist Pool is 
quoting at the NBBO and the execution price is at the NBBO.\22\ If the 
DOMM qualifies for the participation guarantee with an incoming 
Directed Order, the Specialist Pool is not entitled to guaranteed 
participation.\23\ Whether the DOMM or Specialist Pool receives the 
participation guarantee, that participant(s) is entitled to the greater 
of 40% of the incoming order or their size pro rata share, which 
allocation is not to exceed each participants disseminated size.\24\
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    \18\ See Rule 964NY(b) and (c) (regarding priority, allocation, 
and execution of incoming interest (and the balance thereof) against 
orders and quotes resting in the Consolidated Book. The Consolidated 
Book is the Exchange's electronic book of orders and quotes. See 
Rule 900.2NY.
    \19\ Rule 900.2NY defines a Directed Order Market Maker as a 
Market Maker that receives a Directed Order. See Rule 964.1NY 
(Directed Orders) (providing that ``Specialists and Market Makers 
may receive Directed Orders in their appointed classes in accordance 
with the provisions of this Rule 964.1NY'' and describing the 
potential allocation of Directed Orders, as well as the DOMM's 
heightened quoting requirements).
    \20\ Rule 900.2NY defines the Specialist Pool as the aggregated 
size of the best bid and best offer, in a given series, amongst the 
Specialist and e-Specialists that match in price; and defines a 
``Specialist'' as an individual or entity deemed qualified by the 
Exchange to make transactions in accordance with Rule 920NY and 
meets the requirements of Rule 927NY(b). Each Specialist must be 
registered with the Exchange as a Market Maker, and any ATP Holder 
so registered is eligible to be qualified as a Specialist. Per Rule 
927.4NY, the Exchange may designate one or more e-Specialists per 
options class to fulfill certain Specialist's obligations.
    \21\ See Rule 964NY(b)(3) (setting forth size pro rata formula 
and application).
    \22\ See Rule 964NY(b)(2)(B) and (C); Rule 964.1NY(i), (ii) 
(Directed Orders); and Rule 964.2NY (Participation Entitlement of 
Specialists and e-Specialists).
    \23\ See Rule 964NY(b)(2)(B); Rule 964.2NY(b)(4).
    \24\ See Rule 964NY(b)(2)(B)(iii) and (C)(iii). The Primary 
Specialist may be afforded additional weighting in the Specialist 
Pool. See Rules 964.2NY(a) and (b)(3) (regarding criteria considered 
in the selection of the Primary Specialist and its entitlement to 
additional weighting, respectively).
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    On Pillar, orders and quotes will be ranked and maintained in the 
same way that such interest is ranked and maintained on the Exchange 
System, including participation guarantees to DOMMs or the Specialist 
Pool, with one difference. Today, same-priced displayed orders and 
quotes are be ranked ahead of same-priced non-displayed orders and 
quotes, with displayed Customer orders afforded first priority to trade 
ahead of same-priced non-Customer interest and, non-displayed interest, 
orders and quotes are ranked in time priority with no priority afforded 
to Customer interest.
    On Pillar, the Exchange is adopting the same priority categories as 
are utilized by Arca Options, i.e., Priority 1--Market Order, Priority 
2--Display Orders and Priority 3--Non-Display Orders (the ``Pillar 
Priority categories'').\25\ Thus, on the Exchange, Customer orders in 
each priority category will have first priority to trade ahead of same-
priced non-Customer interest in that priority category.\26\ For 
example, same-priced interest ranked Priority 1--Market Orders will 
afford Customer orders at a price first priority, followed by same-
priced non-Customer interest. And the same concept holds

[[Page 24229]]

true for each of the Priority 2 and Priority 3 interest categories. The 
Exchange believes that the proposed new rule is consistent with the 
Exchange's Customer-centric allocation model and affords Customers 
priority at a price regardless of order type utilized. As discussed in 
detail below, the proposed rule also provides transparency with respect 
to how the Exchange's Customer priority and pro rata allocation model 
would operate using new terminology applicable to all orders and quotes 
on the Pillar trading platform.
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    \25\ See Arca Options Rule 6.76P-O(e).
    \26\ See proposed Rule 964NYP(e), discussed infra.
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    Proposed Rule 964NYP(a) would set forth definitions for purposes of 
all ``Options Trading'' on the Pillar trading platform. Each of the 
proposed definitions are identical to definitions utilized on Arca 
Options to describe order ranking and display.\27\ These proposed 
definitions would provide transparency regarding options trading on 
Pillar and would serve as the foundation for the handling of orders/
quotes and modifiers on the new trading platform.\28\ In addition to 
using the same Pillar terminology as is used in Arca Options Rule 
6.76P-O, the Exchange notes that the proposed definitions do not differ 
in substance from the operation of current Rule 964NY relating to 
options trading, as described below.
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    \27\ See Arca Options Rule 6.76P-O(a)(1)-(5).
    \28\ The Exchange will file a separate rule change to adopt 
proposed Rule 900.3NYP that will describe orders and modifiers 
available to Exchange market participants on the Pillar trading 
platform (the ``Pillar Order Type Filing''). Like Arca Options Rule 
6.62P-O, relating to orders and modifiers, proposed Rule 900.3NYP 
would specify whether an order or quote would be displayable, i.e., 
ranked Priority 2--Display Orders, or non-displayable, i.e., ranked 
Priority 3--Non-Display Orders, and would set forth modifier 
instructions available for each order type (e.g., DAY, GTC, IOC, 
etc.).
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     Proposed Rule 964NYP(a)(1) would define the term ``display 
price'' to mean the price at which an order or quote ranked ``Priority 
2--Display Orders'' \29\ or Market Order is displayed, which price may 
be different from the limit price or working price of the order (i.e., 
if it is a non-routable Limit Order). This proposed definition is 
identical to Arca Options Rule 6.76P-O(a)(1). The Exchange notes that, 
also identical to Arca Options Rule 6.76P-O(a)(1), Market Orders would 
be included as interest that may have a display price (for example, 
consistent with current functionality, a Market Order could be 
displayed at its Trading Collar).\30\
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    \29\ The term ``Priority 2--Display Orders'' is described in 
more detail below.
    \30\ Current Trading Collar functionality is set forth in Rule 
967NY(a), and as noted herein the Pillar Order Type Filing will 
separately adopt new Rule 900.3NYP, which will describe how Trading 
Collars would be applied (including to Market Orders) on Pillar. The 
Exchange represents that it would handle collared Market Orders the 
same way such interest is handled on Arca Options, i.e., it would be 
held on the Consolidated Book for 500 milliseconds and, if not 
traded within that period, would cancel. See Arca Options Rule 
6.62P-O(a)(4)(D).
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     Proposed Rule 964NYP(a)(2) would define the term ``limit 
price'' to mean the highest (lowest) specified price at which a Limit 
Order or quote to buy (sell) is eligible to trade. The limit price is 
designated by the order sender. As noted in the proposed definitions of 
display price and working price, the limit price designated by the 
order sender may differ from the price at which the order/quote would 
be displayed or eligible to trade. This proposed definition is 
identical to Arca Options Rule 6.76P-O(a)(2).
     Proposed Rule 964NYP(a)(3) would define the term ``working 
price'' to mean the price at which an order or quote is eligible to 
trade at any given time, which may be different from the limit price or 
display price of an order. This proposed definition is identical to 
Arca Options Rule 6.76P-O(a)(3). The Exchange believes that the term 
``working price'' would provide clarity regarding the price at which an 
order/quote may be executed at any given time. Specifically, the 
Exchange believes that use of the term ``working'' denotes that this is 
a price that is subject to change, depending on the circumstances. The 
Exchange will be using this term in connection with orders/quotes and 
modifiers available on Pillar, which (as noted herein) will be the 
subject of a separate rule filing.\31\
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    \31\ See supra note 28 regarding the Pillar Order Type Filing.
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     Proposed Rule 964NYP(a)(4) would define the term ``working 
time'' to mean the effective time sequence assigned to an order or 
quote for purposes of determining its priority ranking. The Exchange 
proposes to use the term ``working time'' in its rules for trading on 
the Pillar trading platform instead of terms such as ``time sequence'' 
or ``time priority,'' which are used in rules governing options trading 
on the Exchange's current system. The Exchange believes that use of the 
term ``working'' denotes that this is a time assigned to an order/quote 
for purposes of ranking and is subject to change, depending on 
circumstances. This proposed definition is identical to Arca Options 
Rule 6.76P-O(a)(4).
     Proposed Rule 964NYP(a)(5) would be identical to Arca 
Options Rule 6.76P-O(a)(5) and would define an ``Aggressing Order'' or 
``Aggressing Quote'' to mean a buy (sell) order or quote that is or 
becomes marketable against sell (buy) interest on the Consolidated 
Book. The proposed terms would therefore refer to orders or quotes that 
are marketable against other orders or quotes on the Consolidated Book. 
These terms would be applicable to incoming orders or quotes, orders 
that have returned unexecuted after routing, or resting orders or 
quotes that become marketable due to one or more events. For the most 
part, resting orders or quotes will have already traded with contra-
side interest against which they are marketable.
    To maximize the potential for orders or quotes to trade, the 
Exchange continually evaluates whether resting interest may become 
marketable. Events that could trigger a resting order to become 
marketable include updates to the working price of such order or quote, 
updates to the NBBO, changes to other interest resting on the 
Consolidated Book, or processing of inbound messages. To address such 
circumstances and identical to Arca Options Rule 6.76P-O(a)(5), the 
Exchange proposes to include in proposed Rule 964NYP(a)(5) that a 
resting order or quote may become an Aggressing Order or Aggressing 
Quote if its working price changes, if the NBBO is updated, because of 
changes to other orders or quotes on the Consolidated Book, or when 
processing inbound messages. The Exchange believes that these proposed 
definitions would promote transparency in Exchange rules by providing 
detail regarding circumstances when a resting order or quote may become 
marketable, and thus would become an Aggressing Order or Aggressing 
Quote.
    Under current Rule 964NY(a), the Exchange System displays all non-
marketable limit orders in the Display Order Process, unless indicated 
otherwise.\32\ Proposed Rule 964NYP(b)

[[Page 24230]]

would govern the display of non-marketable Limit Orders and quotes. As 
proposed, the Exchange would display ``all non-marketable Limit Orders 
and quotes ranked Priority 2--Display Orders unless the order or 
modifier instruction specifies that all or a portion of the order is 
not to be displayed,'' which functionality is the same as that set 
forth in the first sentence of Rule 964NY(a), except that the proposed 
rule includes reference to quotes, uses Pillar Priority categories to 
describe the same functionality, and does not include reference to the 
Display Order Process. Further, proposed Rule 964NYP(b) is identical to 
Arca Options Rule 6.76P-O(b).
---------------------------------------------------------------------------

    \32\ The Exchange notes that current Rule 964NY(a) refers to the 
display of non-marketable limit orders ``in the Display Order 
Process,'' but that concept is not defined nor referenced elsewhere 
in Rule 964NY and is not being utilized in proposed Rule 964NYP. As 
indicated below, Rules 964NY(b)(2)(E) and (c)(2)(D) refer to orders 
in the ``Working Order File,'' but (as with the Display Order 
Process) that concept is neither defined nor referenced elsewhere in 
current Rule 964NY. Regarding the Working Order Process, it appears 
that detail regarding this concept was deleted at some point because 
this concept is described in the Commission's order approving 
options listing and trading rules on American Stock Exchange LLC 
(``Amex'')--the Exchange's predecessor exchange. See, e.g., 
Securities Exchange Act No. Release 59472 (February 27, 2009), 74 FR 
9843, at 9845-9846 (SR-NYSEALTR-2008-14) (approving, among other 
rules, Rule 964NY(b)(2)(E), which provides that the Working Order 
Process ranks/prioritizes Reserve Orders, AON Orders, Stop/Stop 
Limit Orders, and Stock Contingency Orders).The Exchange believes 
that these undefined (obsolete) concepts are of no import and 
reference to them in current Rule 964NY is likely the result of an 
oversight. As such, the Exchange does not propose to include the 
concepts of the ``Display Order Process'' or ``Working Order File'' 
in proposed Rule 964NYP, which exclusion would add clarity, 
transparency, and internal consistency to Exchange rules.
---------------------------------------------------------------------------

    Proposed Rule 964NYP(b)(1) would provide that the Exchange would 
``disseminate current consolidated quotations/last sale information, 
and such other market information as may be made available from time to 
time pursuant to agreement between the Exchange and other Trading 
Centers, consistent with the Plan for Reporting of Consolidated Options 
Last Sale Reports and Quotation Information.'' This proposed Rule 
mirrors the second sentence of current Rule 964NY(a), except that the 
proposed Rule refers to the ``Exchange'' rather than the ``System'' and 
uses the term ``Trading Centers'' instead of ``Market Centers.'' \33\ 
Further, proposed Rule 964NYP(b)(1) is identical to Arca Options Rule 
6.76P-O(b)(2).
---------------------------------------------------------------------------

    \33\ The second sentence of current Rule 964NY(a) states, 
``[t]he System also will disseminate current consolidated 
quotations/last sale information, and such other market information 
as may be made available from time to time pursuant to agreement 
between the Exchange and other Market Centers, consistent with the 
Plan for Reporting of Consolidated Options Last Sale Reports and 
Quotation Information.''
---------------------------------------------------------------------------

    Finally, proposed Rule 964NYP(b)(2) is identical to Arca Options 
Rule 6.76P-O(b)(3) and would provide that if ``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.'' This proposed rule describes Pillar functionality, which is the 
same as current functionality not described in the rule. The Exchange 
believes that including this text in the proposed rules would promote 
clarity and granularity because this proposed concept makes clear that 
resting displayed interest that did not cause a locked or crossed 
market condition can stand its ground and maintain priority at the 
price at which it was originally displayed.
    Proposed Rule 964NYP(c) would describe the Exchange's general 
process for ranking orders and quotes. Current Rule 964NY(b) describes 
Customer priority, i.e., Customer orders get first priority at a price, 
followed (in second priority) by any guaranteed participation of either 
a DOMM or the Specialist Pool (as described further below), next (and 
third priority) is any non-Customer interest, which may be allocated 
pro rata (as described in proposed Rule 964NYP(i) below); and finally, 
to orders ``in the Working Order File, if eligible for execution,'' 
except that such orders ``do not have any priority or standing until 
they are eligible for execution and/or display.'' \34\
---------------------------------------------------------------------------

    \34\ See note 32, supra (regarding reference to undefined 
concept of a ``Working Order File,'' which concept the Exchange does 
not plan to include in proposed Rule 964NYP).
---------------------------------------------------------------------------

    As proposed, Rule 964NYP(c), which is identical to Arca Options 
Rule 6.76P-O(c), would provide that all non-marketable orders and 
quotes would be ranked and maintained in the Consolidated Book 
according to price-time priority in the following manner: (1) price; 
(2) priority category; (3) time; and (4) ranking restrictions 
applicable to an order/quote or modifier condition. Accordingly, orders 
and quotes would be first ranked by price. Next, at each price level, 
orders and quotes would be assigned a Pillar Priority category and, 
within each priority category, interest would be ranked by time. The 
general requirements for ranking per proposed Rule 964NYP(c) are 
applicable to all orders and quotes, unless an order or quote or 
modifier has a specified exception to this ranking methodology (per 
proposed paragraph (g) as described below).
    Proposed Rule 964NYP(d), which is identical to Arca Options Rule 
6.76P-O(d), would describe how orders and quotes would be ranked based 
on price, which additional detail would provide transparency regarding 
the Exchange's price-ranking process. Specifically, as proposed, all 
orders and quotes would be ranked based on the working price of an 
order or quote. Orders and quotes to buy would be ranked from highest 
working price to lowest working price and orders and quotes to sell 
would be ranked from lowest working price to highest working price. The 
proposed rule would further provide that if the working price of an 
order or quote changes, the price priority of an order or quote would 
change. This proposed pricing priority is current functionality (not 
included in the rule), but the new rule, which is identical to Arca 
Options Rule 6.76P-O(d), would add detail regarding the concept of 
``working price'' and its impact on priority.
    Proposed Rule 964NYP(e) would describe the proposed Pillar Priority 
categories for ranking purposes, which added detail and terminology 
would be new for the Exchange but would be based on Pillar terminology 
as used in Arca Options rules. As proposed, at each price, all orders 
and quotes would be assigned a priority category and, within each 
priority category, Customer orders would be ranked ahead of non-
Customer. If, at a price, there are no remaining orders or quotes in a 
priority category, then same-priced interest in the next priority 
category would have priority. Proposed Rule 964NYP(e) is based on Arca 
Options Rule 6.76P-O(e), except that the Exchange's rule specifies its 
distinct Customer priority model, which affords Customer orders in each 
Pillar Priority category first priority at a price (over same-price 
non-Customer interest), which differs from the price-time model on Arca 
Options.
    The proposed Pillar Priority categories would be:
     Proposed Rule 964NYP(e)(1) would be identical to Arca 
Options Rule 6.76P-O(e)(1) and would specify ``Priority 1--Market 
Orders,'' which provides that unexecuted Market Orders would have 
priority over all other same-side orders with the same working price. 
For example, a Market Order subject to a Trading Collar would be 
displayed on the Consolidated Book. In such circumstances, the 
displayed Market Order would have priority over all other resting 
orders at that price. The Exchange believes that the proposed rule 
change would add transparency and specificity to Exchange rules.
     Proposed Rule 964NYP(e)(2) would be identical to Arca 
Options Rule 6.76P-O(e)(2) and would specify ``Priority 2--Display 
Orders.'' As proposed, non-marketable Limit Orders or quotes with a 
displayed working price would have second priority. For an order or 
quote that has a display price that differs from the working price of 
the order or quote, the order or quote would be ranked Priority 3--Non-
Display Orders at the working price.\35\ The Exchange believes that the

[[Page 24231]]

proposed rule change would add transparency and specificity to Exchange 
rules.
---------------------------------------------------------------------------

    \35\ See supra note 28 regarding the Pillar Order Type Filing, 
which will include a description of Non-Routable Limit Orders, which 
order type will function in substantially the same manner as set 
forth in Arca Options Rule 6.62P-O(e)(1).
---------------------------------------------------------------------------

     Proposed Rule 964NYP(e)(3) would be identical to Arca 
Options Rule 6.76P-O(e)(3) and would specify ``Priority 3--Non-Display 
Orders.'' As proposed, non-marketable Limit Orders or quotes for which 
the working price is not displayed, including reserve interest of 
Reserve Orders, have third priority. This proposed rule is consistent 
with current functionality as described in current Rule 964NY(b)(2)(E), 
which affords last priority to orders that are not displayed (except, 
as noted herein, non-displayed Customer orders are ranked ahead of non-
Customer orders in this category). The Exchange believes that the 
proposed rule would add transparency and specificity to Exchange rules.
    Proposed Rule 964NYP(f) is identical to Arca Options Rule 6.76P-
O(f) and would set forth that at each price level within each priority 
category, orders and quotes would be ranked based on time priority. The 
proposed changes set forth below are consistent with current 
functionality and would add detail not included in existing Rule 964NY.
     Proposed Rule 964NYP(f)(1) would be identical to Arca 
Options Rule 6.76P-O(f)(1) and would provide that an order or quote 
would be assigned a working time when it is first added to the 
Consolidated Book based on the time such order or quote is received by 
the Exchange. This proposed process of assigning a working time to 
orders is current functionality, although not specified in current Rule 
964NY. To provide transparency in Exchange rules, the Exchange further 
proposes to copy Arca Options Rule 6.76P-O(f)(1) by including in 
proposed Rule 964NYP(f)(1) how the working time would be determined for 
orders that are routed, which is consistent with current options 
trading functionality. As proposed:
    [cir] Proposed Rule 964NYP(f)(1)(A) would be identical to Arca 
Options Rule 6.76P-O(f)(1)(A) and would specify that an order that is 
fully routed to an Away Market on arrival, per proposed Rule 
964NYP(k)(1) (described below), would not be assigned a working time 
unless and until any unexecuted portion of the order returns to the 
Consolidated Book. The Exchange notes that this is the current process 
for assigning a working time to an order, although not described in 
current Rule 964NY. This proposed rule is also consistent with current 
Rule 964NY(c)(2)(E), which provides that when an order or portion of an 
order has been routed away and is not executed either in whole or in 
part at the other Market Center, it will be ranked and displayed in the 
Consolidated Book in accordance with the terms of the order.
    [cir] Proposed Rule 964NYP(f)(1)(B) would be identical to Arca 
Options Rule 6.76P-O(f)(1)(B) and would specify that for an order that, 
on arrival, is partially routed to an Away Market, the portion that is 
not routed would be assigned a working time. If any unexecuted portion 
of the order returns to the Consolidated Book and joins any remaining 
resting portion of the original order, the returned portion of the 
order would be assigned the same working time as the resting portion of 
the order. If the resting portion of the original order has already 
executed and any unexecuted portion of the order returns to the 
Consolidated Book, the returned portion of the order would be assigned 
a new working time. This process for assigning a working time to routed 
orders that return to the Exchange is the same as currently used on the 
Exchange.\36\
---------------------------------------------------------------------------

    \36\ See, e.g., Rule 964NY(c)(2)(E)(ii) (providing that when an 
order that was routed away and is not fully executed, upon its 
return such order will be ``will not have time standing relative to 
other orders received at the same price'' while it was routed away 
and outside the Exchange).
---------------------------------------------------------------------------

     Proposed Rule 964NYP(f)(2) would be identical to Arca 
Options Rule 6.76P-O(f)(2) and would provide that an order or quote 
would be assigned a new working time if: (A) the display price of an 
order or quote changes, even if the working price does not change, or 
(B) the working price of an order or quote changes, unless the working 
price is adjusted to be the same as the display price of an order or 
quote. This proposed text would be new, and the Exchange believes that 
adjusting the working time any time the display price of an order or 
quote changes, would respect the priority of orders/quotes that were 
previously displayed at the price to which the display price is 
changing. In addition, the Exchange believes it is appropriate to 
adjust the working time of an order or quote any time its working price 
changes, unless the display price does not change. In addition to being 
identical to Arca Options Rule 6.76P-O(f)(2), this proposed order 
handling in Exchange rules is consistent with the rules of other 
options exchanges.\37\
---------------------------------------------------------------------------

    \37\ See, e.g., Cboe BZX (``BZX'') Rule 11.9(g)(1)(B) (providing 
that, for orders subject to ``display price sliding,'' BZX ``will 
re-rank an order at the same price as the displayed price in the 
event such order's displayed price is locked or crossed by a 
Protected Quotation of an external market'' and that ``[s]uch event 
will not result in a change in priority for the order at its 
displayed price'').
---------------------------------------------------------------------------

     Proposed Rule 964NYP(f)(3), which is identical to Arca 
Options Rule 6.76P-O(f)(3), would provide that an order or quote would 
be assigned a new working time if the size of an order or quote 
increases and that an order or quote retains its working time if the 
size of the order or quote is decreased. This proposed detail about the 
process for assigning (or not) a new working time when the size of an 
order changes is not described in the current Rule 964NY but is 
consistent with existing functionality for how orders (but not quotes) 
are processed on the Exchange System.\38\
---------------------------------------------------------------------------

    \38\ Currently, on the Exchange System, if the size of a quote 
is reduced, the Exchange processes the reduced quantity as a new 
quote that is assigned a new effective time sequence. By contrast, 
orders reduced in size are not assigned a new working time by the 
Exchange System. The Exchange proposes that, on Pillar, both quotes 
and orders reduced in size would not receive a new working time. The 
proposed provision would provide for consistent handling of orders 
and quotes when the size of such interest is reduced.
---------------------------------------------------------------------------

    Proposed Rule 964NYP(g) is identical to Arca Options Rule 6.76P-
O(g) and would specify that the Exchange would apply ranking 
restrictions applicable to specific order, quote or modifier 
instructions as provided for in Rule 900.3NYP.\39\
---------------------------------------------------------------------------

    \39\ As discussed, supra note 28, the Exchange will file a 
separate Pillar Order Type Filing. On Pillar, and consistent with 
Arca Options Rule 6.62P-O (Orders and Modifiers), the Exchange 
proposes that new Rule 900.3NYP (Order Types and Modifiers) would 
similarly maintain much of the basic order type functionality while 
adding detail regarding which Pillar Priority category of each order 
type as well as additional detail about each such order type would 
be handled on Pillar.
---------------------------------------------------------------------------

    Proposed Rule 964NYP(h), ``Allocation of Resting Interest: 
Participation Entitlements and Pro Rata Pool,'' describes the 
Exchange's participation entitlements and participants constituting the 
Size Pro Rata Pool. Unless otherwise specified, proposed Rule 964NYP(h) 
reflects current functionality for allocating non-Customer interest, 
including participation guarantees, and the ``Size Pro Rata Pool'' as 
set forth in Rules 964NY(b)(2)(B), (C) and (D) as well as Rules 964.1NY 
and 964.2NY.\40\
---------------------------------------------------------------------------

    \40\ As noted supra note 10, the Exchange notes that much of the 
text contained in current Rules 964.1NY and 964.2NY is repetitive of 
information in current Rule 964NY. As such, the Exchange proposes to 
streamline proposed Rule 964NYP to include in this single rule the 
salient information related to the participation guarantees.
---------------------------------------------------------------------------

    Proposed Rule 964NYP(h)(1) is consistent with current functionality 
(with one new feature described below) and would provide that when the 
execution price is the NBBO, a DOMM may be entitled to guaranteed 
participation for its quote(s) to be matched against the balance of a 
Directed Order (the ``DOMM Guarantee'').\41\ Such DOMM Guarantee

[[Page 24232]]

would be 40% of the balance of the Directed Order, unless otherwise 
determined by the Exchange and announced by Trader Update, which is 
current functionality.\42\ If the DOMM does not qualify to receive the 
DOMM Guarantee, the bids and offers of that DOMM will be included in 
the ``Size Pro Rata Pool'' (as described below in proposed Rule 
964NYP(h)(3)).\43\ The proposed rule would further provide that, in the 
absence of a DOMM Guarantee, the Specialist Pool (which takes priority 
behind the DOMM) may be entitled to a guaranteed allocation (as 
described below in proposed paragraph (h)(2)), which is current 
functionality.\44\
---------------------------------------------------------------------------

    \41\ See Rule 964NY(b)(2)(B)(i).
    \42\ See Rule 964NY(b)(2)(B)(ii).
    \43\ See Rule 964NY(b)(2)(B)(i); Rule 964.1NY(ii).
    \44\ See Rule 964NY(b)(2)(C).
---------------------------------------------------------------------------

     Proposed Rule 964NYP(h)(1)(A) is the same as current 
functionality and would provide that a DOMM will be allocated a number 
of contracts equal to the greater of the DOMM Guarantee or their ``size 
pro rata'' allocation as provided in this Rule 964NYP(i) (described 
below), but in either case, no greater than the DOMM's disseminated 
size.\45\
---------------------------------------------------------------------------

    \45\ See Rule 964NY(b)(2)(B)(iii).
---------------------------------------------------------------------------

    [cir] Proposed Rule 964NYP(h)(1)(A)(i) would provide that if the 
result of applying the DOMM Guarantee is a fractional allocation of 
contracts, the DOMM Guarantee would be rounded down to the nearest 
contract. Further this proposed Rule would provide that if the result 
of applying the DOMM Guarantee results in less than one contract, the 
DOMM Guarantee will be equal to one contract. The Exchange believes 
that including this additional detail (which is the same as current 
functionality not codified in current rule) in the proposed rule would 
add transparency to Exchange rules. This methodology is also consistent 
with Arca Options Rule 6.76AP-O(a)(1)(C) regarding the analogous Lead 
Market Maker participation guarantee.\46\
---------------------------------------------------------------------------

    \46\ See Arca Options Rule 6.76AP-O(a)(1)(C) (providing that, 
``[i]f the result of applying the LMM Guarantee is a fractional 
allocation of contracts, the LMM Guarantee is rounded down to the 
nearest contract. If the result of applying the LMM Guarantee 
results in less than one contract, the LMM Guarantee will be equal 
to one contract.'').
---------------------------------------------------------------------------

    [cir] Proposed Rule 964NYP(h)(1)(A)(ii) would provide that if a 
DOMM has more than one eligible quote, each quote will receive a pro 
rata share of the DOMM Guarantee, which text would add granularity and 
transparency to Exchange rules. This text would be new and reflects 
that on Pillar, the Exchange would permit multiple quotes from the same 
DOMM at the same price and that each eligible quote would be entitled 
to a pro rata share of the DOMM Guarantee consistent with the 
Exchange's allocation model.\47\
---------------------------------------------------------------------------

    \47\ See Rule 925.1NY(a)(1) (providing that a Market Maker's 
same-side quote will update its previously displayed quote). The 
ability for Market Makers to send multiple quotes will be new 
functionality under Pillar and addressed in a separate rule filing. 
Similar to Arca Options, the Exchange plans to file a separate rule 
filing to address the handling of Market Maker Quotations on the 
Exchange, including that such Market Makers can have more than one 
quote in a series on Pillar. See, e.g., Arca Options Rule 6.37AP-
O(a)(1).
---------------------------------------------------------------------------

    [cir] Proposed Rule 964NYP(h)(1)(B) would provide that for all 
Directed Orders of five (5) contracts or fewer, if the DOMM is also the 
Primary Specialist (as determined per proposed Rule 964.2NYP(b)), such 
DOMM will be allocated the balance of the Directed Order after any 
allocation to Customers, not to exceed the DOMM's disseminated size or, 
if the DOMM has more than one eligible quote, each quote will receive a 
pro rata share. This proposed functionality would be new but is 
consistent with the guaranteed participation entitlement afforded to 
Primary Specialists in the Specialist Pool.\48\ As such, the Exchange 
believes this proposed functionality would add internal consistency to 
Exchange rules.
---------------------------------------------------------------------------

    \48\ 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.). See also Rule 964.2NY(b)(3)(B) (same in 
substance).
---------------------------------------------------------------------------

    Proposed Rule 964NYP(h)(2) is the same as current functionality and 
would provide that when the execution price is the NBBO, participants 
in the Specialist Pool may be entitled to guaranteed participation of 
their quote(s) to be matched against the balance of an Aggressing Order 
or Aggressing Quote (the ``Specialist Pool Guarantee'').\49\ Such 
Specialist Pool Guarantee would be 40% of the balance of an Aggressing 
Order or Aggressing Quote, unless otherwise determined by the Exchange 
and announced by Trader Update.\50\ However, the Specialist Pool will 
not receive a guaranteed allocation if a DOMM has received a guaranteed 
allocation.\51\ Further, if a DOMM has received a guaranteed 
allocation, the bids and offers of the Specialist Pool will be included 
in the ``Size Pro Rata Pool'' as described in proposed Rule 
964NYP(h)(3) below.\52\ Conversely, in the absence of a DOMM Guarantee, 
the Specialist Pool (which takes priority behind the DOMM) may be 
entitled to the Specialist Pool Guarantee as described below.\53\
---------------------------------------------------------------------------

    \49\ See Rule 964NY(b)(2)(C); Rule 964.2NY(b).
    \50\ See Rule 964NY(b)(2)(C)(ii); Rule 964.2NY(b)(2).
    \51\ See Rule 964NY(b)(2)(C); Rule 964.2NY(b)(4).
    \52\ See Rule 964NY(b)(2)(C).
    \53\ See Rule 964NY(b)(2)(C).
---------------------------------------------------------------------------

     Proposed Rule 964NYP(h)(2)(A) is the same as current 
functionality and would provide that the Specialist Pool would be 
allocated a number of contracts equal to the greater of their share in 
the Specialist Pool Guarantee or their ``size pro rata'' allocation as 
provided in proposed Rule 964NYP(i), but in either case, no greater 
than the Specialist's Pool disseminated size.\54\
---------------------------------------------------------------------------

    \54\ See Rule 964.2NY(b)(1)(iv).
---------------------------------------------------------------------------

    [cir] Proposed Rule 964NYP(h)(2)(A)(i) would provide that if the 
result of applying the Specialist Pool Guarantee is a fractional 
allocation of contracts, the Specialist Pool Guarantee is rounded down 
to the nearest contract. Further, this proposed Rule would provide that 
if the result of applying the Specialist Pool Guarantee results in less 
than one contract, the Specialist Pool Guarantee would be equal to one 
contract. The Exchange believes that including this additional detail 
(which is the same as current functionality not codified in current 
rule) in the proposed rule would add transparency to Exchange rules. 
This methodology is also consistent with Arca Options Rule 6.76AP-
O(a)(1)(C) regarding the analogous Lead Market Maker participation 
guarantee.\55\
---------------------------------------------------------------------------

    \55\ See Arca Options Rule 6.76AP-O(a)(1)(C) (providing that, 
``[i]f the result of applying the LMM Guarantee is a fractional 
allocation of contracts, the LMM Guarantee is rounded down to the 
nearest contract. If the result of applying the LMM Guarantee 
results in less than one contract, the LMM Guarantee will be equal 
to one contract.'').
---------------------------------------------------------------------------

    [cir] Proposed Rule 964NYP(h)(2)(A)(ii) is the same as current 
functionality and would provide that the size pro rata participation 
for the Primary Specialist (as determined per proposed Rule 
964.2NYP(b)) in the Specialist Pool will receive additional weighting, 
as determined by the Exchange, and announced by Trader Update (the 
``Additional Weighting'').\56\
---------------------------------------------------------------------------

    \56\ See Rule 964.2NY(b)(3)(A). The Exchange notes that it is 
not proposing to include in the proposed rule the now obsolete 
caveat that ``if all participants in the Specialist Pool are quoting 
the same size, this additional weighting will be no greater than 
66\2/3\% if there is only one e-Specialist, and no greater than 50% 
if there are two or more e-Specialists'' as the Exchange does not 
currently impose these limits nor does it plan to do so on Pillar.
---------------------------------------------------------------------------

    [cir] Proposed Rule 964NYP(h)(2)(A)(iii) is the same as current 
functionality and would provide that each Specialist or e-Specialist in 
the Specialist Pool will be allocated a number of contracts equal to 
the greater of their share in the Specialist Pool Guarantee or their 
``size pro rata'' allocation as provided in proposed Rule 964NYP(i), 
but in either

[[Page 24233]]

case, no greater than the Specialist's disseminated size.\57\
---------------------------------------------------------------------------

    \57\ See Rule 964.2NY(b)(1)(ii).
---------------------------------------------------------------------------

    [ssquf] Proposed Rule 964NYP(h)(2)(A)(iii)(a) is the same as 
current functionality and would provide that if there is only one 
Specialist or e-Specialist in Specialist Pool, that Specialist or e-
Specialist would be allocated a number of contracts equal to the 
greater of their share in the Specialist Pool Guarantee (i.e., the 
entire 40%) or their ``size pro rata'' allocation as provided in 
proposed Rule 964NYP(i), no greater than the size of their disseminated 
size.\58\
---------------------------------------------------------------------------

    \58\ See Rule 964.2NY(b)(2).
---------------------------------------------------------------------------

    [cir] Proposed Rule 964NYP(h)(2)(A)(iv) would be new text and would 
provide that if a Specialist has more than one eligible quote in the 
Specialist Pool, each such quote will receive a pro rata share of the 
Specialist Pool Guarantee, no greater than the size of their 
disseminated size. This would be new text to address the fact that (as 
noted above), on Pillar, Specialists will have the ability to submit 
more than one quote in a series at the same time.\59\
---------------------------------------------------------------------------

    \59\ See supra note 43 (regarding Pillar functionality that 
allows Market Makers to enter more than one quote in the same series 
at the same time, which would update current functionality that 
limits Specialists (including the Primary Specialist) to sending a 
single quote in their assigned series using a single unique 
identifier).
---------------------------------------------------------------------------

    [ssquf] Proposed Rule 964NYP(h)(2)(A)(iv)(a) is new text and would 
provide that if the Primary Specialist has more than one eligible 
quote, each quote will receive Additional Weighting on its pro rata 
share of the Specialist Pool Guarantee. This would be new text to 
address the fact that (as noted above), on Pillar, Specialists will 
have the ability to submit more than one quote in a series at the same 
time \60\ and, consistent with current functionality, the Primary 
Specialist is entitled to Additional Weighting.\61\
---------------------------------------------------------------------------

    \60\ See id.
    \61\ See supra, discussion of proposed Rule 964NYP(h)(2)(A)(ii).
---------------------------------------------------------------------------

     Proposed Rule 964NYP(h)(2)(B) is the same as current 
functionality and would provide that for all Aggressing Orders or 
Aggressing Quotes of five (5) contracts or fewer, the Primary 
Specialist (as determined per proposed Rule 964.2NYP(b)) would be 
allocated the balance of the Aggressing Order or Aggressing Quote after 
any allocation to Customers, not to exceed the Primary Specialist's 
disseminated size, or, if the Primary Specialist has more than one 
eligible quote, each quote will receive a pro rata share.\62\ The 
Exchange also proposes to add Commentary .01 to the proposed rule 
(which is the same in substance as Commentary .01 of current Rule 
964NY) to make clear that on a quarterly basis, the Exchange would 
evaluate what percentage of the volume executed on the Exchange 
comprised of orders of five (5) contracts or fewer that was allocated 
to the Primary Specialist and would reduce the size of the orders 
included in this provision if such percentage is over 40%.\63\
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    \62\ See Rule 964NY(b)(2)(C)(iv). An ``Aggressing Order'' or 
``Aggressing Quote'' refers to a buy (sell) order or quote that is 
or becomes marketable against sell (buy) interest on the 
Consolidated Book. See proposed Rule 964NYP(a)(5).
    \63\ See proposed Rule 964NYP, Commentary .01, which will not 
include cross-reference that appears in the current rule Commentary 
.01 to Rule 964NY, because cross-reference was superfluous (and 
would be obsolete) and the Exchange opted to remove verbiage.
---------------------------------------------------------------------------

    Proposed Rule 964NYP(h)(3) is the same as current Rule 
964NY(b)(2)(D) and would describe interest that is included in the 
``Size Pro Rata Pool.'' As proposed, if there are multiple orders and 
quotes of non-Customers (including Professional Customers) that are 
displayed in the Consolidated Book at the same price, then such orders 
and quotes will be afforded priority on a ``size pro rata'' basis and 
will comprise the ``Size Pro Rata Pool.'' \64\
---------------------------------------------------------------------------

    \64\ See Rule 964NY(b)(2)(D).
---------------------------------------------------------------------------

    Proposed Rule 964NYP(i) is the same as current functionality and 
would set forth the pro rata formula and example of its application to 
same-priced interest in the Size Pro Rata Pool.\65\
---------------------------------------------------------------------------

    \65\ See Rule 964NY(b)(3)(A).
---------------------------------------------------------------------------

     Proposed Rule 964NYP(i)(1) would add non-substantive 
changes by adding a heading for the ``Size Pro Rata Formula and Example 
of Application,'' and adding the prefatory words ``[f]or example, 
assume there are . . .'' to signal the example that follows this text. 
In addition, the Exchange would make several other non-substantive 
clarifying changes to make clear that the Size Pro Rata Formula would 
apply to the ``Remaining Size of Order or Quote to be Allocated'' 
divided by the ``Participants' Aggregated Order/Quote Size,'' which 
result is multiplied by each ``Participant's Order/Quote Size, to 
provide the Size Pro Rata Allocation for each participant in the Size 
Pro Rata Pool. The Exchange believes these non-substantive changes 
would add clarity and transparency to Exchange rules making them easier 
to navigate and understand.
     Proposed Rule 964NYP(i)(2) is consistent with current 
functionality and would provide that the pro rata share allocated to 
each participant in the Size Pro Rata Pool will be rounded down to the 
nearest contract, if applicable and that any residual contracts to be 
filled after the size pro rata calculation has been completed will be 
allocated one contract per participant in the following sequence: \66\
---------------------------------------------------------------------------

    \66\ See Rule 964NY(b)(3)(B). The Exchange proposes that rather 
than refer to the size pro rata share being ``rounded down to a 
whole number'' that such share be ``rounded down to the nearest 
contract'' as the latter formulation is more precise and would add 
clarity and transparency to Exchange rules. See proposed Rule 
964NYP(i)(2).
---------------------------------------------------------------------------

    [cir] Proposed Rule 964NYP(i)(2)(A) would provide that the 
participant in the Size Pro Rata Pool who has the largest remaining 
size (based on the pro rata calculation) will receive the first 
contract, and each successive contract (if any) will be allocated to 
each subsequent participant based on size (largest to smallest).\67\ In 
proposed Rule 964NYP(i)(2)(A), the Exchange also proposes to replace 
reference to the participant with the ``largest fractional amount'' 
with reference to the ``largest remaining size'' as the Exchange 
believes this latter formulation is more accurate and would add clarity 
and transparency to Exchange rules.
---------------------------------------------------------------------------

    \67\ See Rule 964NY(b)(3)(B)(i).
---------------------------------------------------------------------------

    [cir] Proposed Rule 964NYP(i)(2)(A)(i) would provide that if there 
are two or more participants with the same remaining size, then the 
participant in the Size Pro Rata Pool that has first in time priority 
would be allocated the next contract and then each successive contract 
(if any) will be allocated in the same manner.\68\ Proposed Rule 
964NYP(i)(2)(A)(i) would also replace reference to the participant with 
the ``fractional amount and initial quotes size'' with reference to the 
``same remaining size'', which reflects Pillar functionality and would 
add clarity and transparency to Exchange rules.
---------------------------------------------------------------------------

    \68\ See Rule 964NY(b)(3)(B)(ii).
---------------------------------------------------------------------------

    Proposed Rule 964NYP(j) would set forth how orders and quotes are 
matched for execution on Pillar. Proposed Rule 964NY(j) and its 
subparagraphs would set forth the Exchange's order execution process. 
The Exchange proposes to refer to an ``Aggressing Order'' and 
``Aggressing Quote'' rather than an ``inbound order'' as used in 
current Rule 964NY(c) because (as described above) the proposed terms 
allow for interest to be (or become) marketable even after arrival 
(i.e., not limited to ``inbound'' interest) and would also align with 
terminology used in regard to order execution per Arca Options Rule 
6.76AP-O(a).\69\
---------------------------------------------------------------------------

    \69\ An ``Aggressing Order'' or ``Aggressing Quote'' refers to a 
buy (sell) order or quote that is or becomes marketable against sell 
(buy) interest on the Consolidated Book. See proposed Rule 
964NYP(a)(5); Arca Options Rule 6.76P-O(a)(5) (same); Rules 
964NY(c)(1)-(2) (regarding the execution of an ``inbound order'').

---------------------------------------------------------------------------

[[Page 24234]]

    Current Rule 964NY(c) sets forth how orders and quotes are executed 
on the Exchange. Rule 964NY(c)(1) provides that an ``an inbound order 
that is marketable will be immediately executed against bids and offers 
in the Consolidated Book, provided the execution price is at the 
NBBO.'' In addition, Rules 964NY(c)(2)(A)-(D) set forth the sequence 
and manner in which an inbound order will be executed against interest 
resting in the Consolidated Book at a price--first with displayed 
Customers; second per the DOMM Guarantee or Specialist Pool Guarantee, 
if applicable; third with non-Customer interest on a size pro rata 
basis; and fourth with ``orders in the Working Order File in the order 
of their ranking at the limit price.'' The Exchange believes proposed 
Rule 964NYP(j) regarding Order Execution on Pillar is substantially 
similar to the current execution scheme, with the difference being 
that, at a price, both Customer and non-Customer interest within each 
priority category executes until all interest in that Pillar Priority 
category is exhausted before an Aggressing Order or Aggressing Quote 
then executes with same-priced interest in the next Pillar Priority 
Category.
    Proposed Rule 964NYP(j) would specify that, at each price, an 
Aggressing Order or Aggressing Quote in an option series that is open 
for trading would be allocated against contra-side orders or quotes in 
the Consolidated Book as follows.
     First, to Customer orders ranked Priority 1--Market Orders 
based on time (proposed Rule 964NYP(j)(1));
     Second, to non-Customer orders ranked Priority 1--Market 
Orders on a size pro rata basis pursuant to paragraph (i) of this Rule 
(proposed Rule 964NYP(j)(2));
     Third, to Customer orders ranked Priority 2--Display Limit 
Orders based on time (proposed Rule 964NYP(j)(3));
     Fourth, to interest ranked Priority 2--Display Limit 
Orders that is eligible for the DOMM Guarantee or the Specialist Pool 
Guarantee, as applicable, pursuant to paragraph (h) of this Rule 
provided that the execution price is the NBBO; (proposed Rule 
964NYP(j)(4));
     Fifth, to non-Customer orders and quotes in the Pro Rata 
Pool ranked Priority 2--Display Limit Orders on a size pro rata basis 
pursuant to paragraph (i) of this Rule (proposed Rule 964NYP(j)(5));
     Sixth, to Customer orders ranked Priority 3--Non-Display 
Orders based on time (proposed Rule 964NYP(j)(6)); and
     Finally, to non-Customer orders and quotes ranked Priority 
3--Non-Display Orders based on time (proposed Rule 964NYP(j)(7)).
    The proposed allocation set forth in proposed Rules 964NYP(j)(1)-
(7) are consistent with the Exchange's current Customer priority and 
pro rata allocation model.\70\ However, unlike current functionality, 
proposed Rules 964NYP(j)(1)-(7) provides that ``at a price'' interest 
within each of the Pillar Priority categories is exhausted (first 
Customer then non-Customer) before moving to same-priced interest in 
the next Pillar Priority category.\71\ Under current Rule 964NY, 
displayed Customer orders at a price are given first priority to trade 
and this can result in Customer Market Orders and Customer Limit Orders 
executing first at that price.\72\ Proposed Rule 964NYP(j) differs from 
current functionality in that, for example, at a price, both Customer 
and non-Customer Market Orders trade and then same-priced Customer 
Limit Orders trade. Further, under Rule 964NY, non-displayed interest 
is ranked in time priority with no priority afforded to Customer 
interest, whereas per proposed Rule 964NYP, at a price, non-displayed 
Customer orders will trade before same-priced non-Customer interest 
that is not displayed.
---------------------------------------------------------------------------

    \70\ See, e.g., Rules 964NY(c)(2)(A)-(E) providing that after 
executing first with displayed Customer interest, inbound orders 
will trade with interest based on the DOMM or Specialist Pool 
guaranteed participation and then will be traded on a size pro rata 
basis, with resting non-Customer interest, with any remaining size 
of the inbound order being traded with ``orders in the Working Order 
File,'' by ranking at the limit price.
    \71\ The Exchange notes that the concept of ``Split-Price 
Executions'' as set forth in current Rule 964NY(c)(3) is titled as 
such because, at the time it was adopted, the concept was novel. 
However, executing trading interest at multiple price points is now 
customary practice in electronic trading, where incoming orders, at 
a price, trade up or down the Book to the extent possible (or 
route). As such, the Exchange does not propose to refer to this 
concept of Split-Price Executions explicitly because this practice 
is consistent with proposed Rule 964NYP (generally) and with 
proposed paragraph (j), specifically.
    \72\ See, e.g., Rule 964NY(c)(2)(A) providing that an inbound 
order will be executed first against ``all available displayed 
Customer interest in the Consolidated Book.''
---------------------------------------------------------------------------

    Proposed Rule 964NYP(k) would set forth the Exchange's routing 
process. Current Rule 964NY(c)(2)(E) provides that any unexecuted 
portion of an order that is eligible to route is routed to another 
Market Center.\73\ Similarly, proposed Rule 964NYP(k) would provide 
that, absent an instruction not to route, the Exchange would route 
marketable orders to Away Market(s) after such orders are matched for 
execution with any contra-side interest in the Consolidated Book in 
accordance with proposed paragraph (j) of this Rule regarding Order 
Execution. In addition, the proposed rule would provide that while 
determining the venue(s) to which the order(s) would be routed,\74\ 
such order(s) may be held non-displayed at the contra-side ABBO and 
ranked in its respective priority category, per proposed Rule 
964NYP(e), behind displayed interest at that price in that priority 
category.\75\ Proposed Rule 964NYP(k) is identical to Arca Options Rule 
6.76AP-O(b), except that it removes the word ``any'' and states that 
the impacted order would be ranked ``behind displayed interest at that 
price in that priority category,'' which difference is meant to refer 
to the Customer priority ranking within each Pillar Priority 
category.\76\
---------------------------------------------------------------------------

    \73\ Under the current rule, each eligible order is routed ``as 
limit order equal to the price and up to the size of the quote 
published by the Market Center(s)'' See Rule 964NY(c)(2)(E)(ii). In 
the proposed Pillar rule, the Exchange proposes to use the term 
``Away Market'' instead of ``Market Center.''
    \74\ The Exchange's routing determination typically takes a few 
microseconds.
    \75\ To avoid creating a locked or crossed market, the Exchange 
will hold a routable order in a non-displayed state while making the 
routing determination. However, when a previously displayed order is 
to be routed, such order will remain displayed while Pillar makes 
its routing determination.
    \76\ As specified herein, proposed Rule 964NYP(e) provides, in 
relevant part, that ``[a]t each price, all orders and quotes are 
assigned a priority category and, within each priority category, 
Customer orders are ranked ahead of non-Customer.''
---------------------------------------------------------------------------

    Proposed Rule 964NYP(k) would then set forth additional details 
regarding routing that are consistent with current routing 
functionality, but are not described in current rules:
     Proposed Rule 964NYP(k)(1) would provide that an order 
that cannot meet the pricing parameters of proposed Rule 964NYP(j) 
(i.e., cannot trade with interest on the Consolidated Book) may be 
routed to Away Market(s) before being matched for execution against 
contra-side orders and quotes in the Consolidated Book. The Exchange 
believes that this proposed rule text, which is consistent with current 
functionality, provides transparency that an order may be routed before 
being matched for execution, for example, to prevent locking or 
crossing or trading through the NBBO. This proposed rule is identical 
to Arca Options Rule 6.76AP-O(b)(1), except for the distinct cross-
reference to the applicable Exchange rule.
     Proposed Rule 964NYP(k)(2) would provide that an order 
with an

[[Page 24235]]

instruction not to route would be processed as provided for in proposed 
Rule 900.3NYP.\77\ This proposed rule is identical to Arca Options Rule 
6.76AP-O(b)(2), except for the distinct cross-refence to the applicable 
Exchange rule.
---------------------------------------------------------------------------

    \77\ See supra note 28 regarding the Pillar Order Type Filing.
---------------------------------------------------------------------------

     Proposed Rule 964NYP(k)(3) is identical to Arca Options 
Rule 6.76AP-O(b)(3) and would provide that any order or portion thereof 
that has been routed would not be eligible to trade on the Consolidated 
Book, unless all or a portion of the order returns unexecuted. This 
routing methodology is current functionality and covers the same 
subject as current Rule 964NY(c)(2)(E). Rule 964NY(c)(2)(E) provides 
that an order that routed away and returns is ranked and displayed in 
the Consolidated Book but does not have time standing relative to 
orders at the same price that arrived while the order was routed. 
Because, as discussed above, the working time assigned to orders that 
are routed is being proposed to be addressed in new Rules 
964NYP(f)(1)(A) and (B), the Exchange does not propose to include (and 
restate) such information in the proposed rule.
     Proposed Rule 964NYP(k)(4) is identical to Arca Options 
Rule 6.76AP-O(b)(4) and would provide that requests to cancel an order 
that has been routed in whole or in part would not be processed unless 
and until all or a portion of the order returns unexecuted.
    Proposed Rule 964NYP(l), regarding residual interest, would provide 
that after trading with eligible contra-side interest on the 
Consolidated Book and/or returning unexecuted after routing to Away 
Market(s), any unexecuted non-marketable portion of an order would be 
ranked consistent with new Rule 964NYP. This rule represents current 
functionality as set forth in Rule 964NY (generally) and paragraph 
(c)(2)(E) (specifically), as it pertains to orders that were routed 
away and then returned unexecuted in whole or part to the Exchange 
without any substantive differences. This proposed rule is identical to 
Arca Options Rule 6.76AP-O(c), except for the distinct cross-reference 
to the applicable Exchange rule.
    Proposed Rule 964NYP(m) would be applicable to ``Orders Executed 
Manually'' and would contain the same text as set forth in Rule 
964NY(e) without any substantive differences, except that the proposed 
text would correct certain of the punctuation and capitalization as 
contained in one provision of the existing rule.\78\
---------------------------------------------------------------------------

    \78\ See proposed Rule 964NYP(m)(1)(C) (providing, in relevant 
part, that ``[b]ids and offers of broker-dealers or Professional 
Customers (including Market Maker orders and quotes) on the 
Consolidated Book have third priority.'').
---------------------------------------------------------------------------

    The Exchange notes that current Rules 964NY(d)(1) and (2), 
regarding Prohibited Conduct Related to Crossing Orders, provide that 
``Brokers may not execute as principal orders they represent as agent'' 
unless the agency orders meet the exposure requirements of Rule 935NY; 
or the Broker executes the orders pursuant to Rule 934NY. The Exchange 
does not propose to include this provision in new Rule 964NYP because 
the information is not related to priority and allocation. Moreover, 
the Exchange believes it would be duplicative and is unnecessary to 
state that Brokers must comply with Rules 934NY and 935NY as such 
compliance is required by those rules and need not be restated. As 
such, the Exchange believes that not including this language in the 
proposed rule would add clarity, transparency, and internal consistency 
to Exchange Rules.
    Finally, the Exchange does not propose to include Commentary .02 to 
Rule 964NY regarding Self-Trade Prevention (STP) Modifiers in proposed 
Rule 964NYP as the Exchange will add this modifier to proposed Rule 
900.3NYP with certain enhancements that will be identical to Arca 
Options Rule 6.62P-O(i)(2).\79\
---------------------------------------------------------------------------

    \79\ See supra note 28 regarding the Pillar Order Type Filing.
---------------------------------------------------------------------------

Proposed Rule 964.1NYP (Directed Orders and DOMM Quoting Obligations)
    Current Rule 964.1NY, titled ``Directed Orders,'' governs Directed 
Orders, including how such orders may be allocated pursuant to Rule 
964NY, as well as DOMM quoting obligations. The Exchange proposes that 
the new title for Rule 964.1NYP would be ``Directed Orders and DOMM 
Quoting Obligations,'' as this title is a more apt description. The 
Exchange proposes to maintain the current preamble to Rule 964.1NY in 
proposed Rule 964.1NYP(a) but would update the relevant cross-
references, such that the new rule would provide that ``Specialists and 
Market Makers may receive Directed Orders in their appointed classes in 
accordance with the provisions of Rule 964NYP(h), (j) and this Rule 
964.1NYP.''
    The Exchange also proposes that proposed Rule 964.1NYP(b)(1) would 
be identical to current Rule 964N.1(iv), with the only difference being 
the paragraph numbering.
    As noted here, much of the information in current Rule 964.1NY is 
duplicative and repeats information already contained in current (and 
separate) Rule 964NY or that has been added to new Rule 964NYP to 
consolidate information relevant to the DOMM Guarantee into the 
proposed rule, which would add clarity and consistency to Exchange 
rules making them easier to navigate. As such, the Exchange does not 
propose to include in proposed Rule 964.1NYP (duplicative) information 
contained in Rules 964.1NY(i)-(iii) regarding the possible execution of 
Directed Orders (i.e., being allocated per the DOMM Guarantee, if 
available, the Specialist Pool (if no DOMM Guarantee), or as part of 
the Specialist Pool). The Exchange believes having this information in 
two different rules is inefficient and would increase the possibility 
of inconsistencies when rules are updated which may lead to confusion 
for market participants. As such, the Exchange believes that proposed 
Rule 964.1NYP in connection with proposed Rule 964NYP, sufficiently 
describe the potential allocation of Directed Orders, as well as the 
quoting obligations of each DOMM.
Proposed Rule 964.2NYP (Participation Entitlement of Specialist Pool 
and Designation of Primary Specialist)
    Current Rule 964.2NY, titled ``Participation Entitlement of 
Specialists and e-Specialists,'' governs participation entitlement for 
Specialists including the criteria for selecting the Primary 
Specialist, the Additional Weighting accorded to the Primary 
Specialist's pro rata allocation, and the potential allocation of 
orders of five contracts or fewer to the Primary Specialist. The 
Exchange proposes that the title for new Rule 964.2NYP would be 
``Participation Entitlement of Specialist Pool and Designation of 
Primary Specialist'' instead of ``Participation Entitlement of 
Specialists and e-Specialists'' because the current title does not 
indicate that details about the Primary Specialist are included in the 
current rule.
    Proposed Rule 964.2NYP(a) would provide that ``the Exchange may 
establish from time to time a participation entitlement formula that is 
applicable to all Specialists and e-Specialists, collectively the 
Specialist Pool as defined in Rule 900.2NY, pursuant to Rule 
964NYP(h)(2),'' which incorporates the first sentence of current Rule 
964.2NY(a) together with current Rule 964.2NY(b), but is updated to 
cross-reference new paragraph (h)(2). In addition, proposed Rule 
964.2NYP(b) would include verbatim the information from current Rule 
964.2NY(a) (except

[[Page 24236]]

for the first sentence) regarding the criteria for selecting the 
Primary Specialist.
    As noted here, much of the information in current Rule 964.2NY 
(i.e., paragraphs (b)(1)-(4)), is duplicative of current Rule 964NY or, 
would be duplicative of information that the Exchange proposes to 
include in proposed Rule 964NYP (i.e., detailed information related to 
the participation guarantees). As such, the Exchange does not propose 
to include in proposed Rule 964.2NYP the (duplicative) information 
contained in Rules 964.2NY(b)(1)-(4) regarding the application of the 
Specialist Pool Guarantee to Specialists, e-Specialists and the Primary 
Specialist as well as the fact the Specialist Pool Guarantee is not 
available when the DOMM Guarantee is provided. The Exchange believes 
having this information in two different rules is inefficient and would 
increase the possibility of inconsistencies when rules are updated, 
which may lead to confusion for market participants. As such, the 
Exchange believes that proposed Rule 964.2NYP in connection with 
proposed Rule 964NYP, sufficiently describe the application of the 
Specialist Pool Guarantee to Specialists, e-Specialists and the Primary 
Specialist. Moreover, the Exchange believes that including in one rule 
(i.e., proposed Rule 964NYP) all information pertinent to the 
participation guarantees, the criteria for achieving such guarantees, 
as well as how interest that trades pursuant to the guarantees would be 
allocated would add clarity and consistency to Exchange rules making 
them easier to navigate.
    Finally, the Exchange will not include in proposed Rule 964.2NYP 
the provision in current rule 964.2NY(b)(1)(v) that provides that an e-
Specialist is not eligible for the Special Pool Guarantee with respect 
to orders represented in open outcry on the Trading Floor. This 
provision is inapplicable on Pillar.
* * * * *
    As discussed above, because of the technology changes associated 
with the migration to the Pillar trading platform, notwithstanding the 
timing of the effectiveness 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 will continue to be available pending 
the full migration to Pillar.
Implementation
    As noted immediately above, the Exchange will not implement the 
``P'' rules proposed herein until all other Pillar-related rule filings 
(i.e., with a ``P'' modifier) are approved or operative, as applicable, 
and the Exchange announces the migration of underlying symbols to 
Pillar by Trader Update.
2. Statutory Basis
    The proposed rule change is consistent with Section 6(b) of the 
Securities Exchange Act of 1934 (the ``Act''),\80\ in general, and 
furthers the objectives of Section 6(b)(5),\81\ 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 the proposed rules to support Pillar would remove 
impediments to and perfect the mechanism of a free and open market and 
a national market system because the proposed rules would promote 
transparency in Exchange rules by using consistent terminology 
governing trading on Pillar on both the Exchange's cash equity and 
options 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.
---------------------------------------------------------------------------

    \80\ 15 U.S.C. 78f(b).
    \81\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    Generally, the Exchange believes that adding new rules with the 
modifier ``P'' to denote those rules that 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 trading platform. The Exchange 
similarly believes that adding a preamble to those current rules that 
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.
    In addition, the Exchange believes that incorporating functionality 
currently available on Arca Options 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 with its affiliated options trading platform. 
Accordingly, with the transition to Pillar, the Exchange will be able 
to offer additional features to its ATP Holders that are currently 
available on Arca Options. For similar reasons, the Exchange believes 
that using Pillar terminology for the proposed new rules 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 
trading rules on both the Exchange and its affiliated options exchange, 
Arca Options.
Proposed Changes to Rule 900.2NY
    The Exchange believes that the proposed amendments to Rule 900.2NY 
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 in Exchange rules. 
Specifically, the Exchange believes that the new terms it proposes to 
include in Rule 900.2NY (e.g., Away Market, ABBO, and MPID) in 
connection with the migration to Pillar would promote clarity and 
transparency in Exchange rules making them easier for the investing 
public to navigate. The proposed new definitions would also remove 
impediments to, and perfect the mechanism of, a free and open market 
and a national market system because the definitions are identical to 
how the same concepts are described in NYSE Arca Rule 1.1 for trading 
on Arca Options. The proposed modifications to current definitions 
would add clarity, transparency, and internal consistency to Exchange 
rules, including by adding reference to new Pillar rules.
Proposed Rules 964NYP, 964.1NYP and 964.2NYP
    The Exchange believes that proposed new Rule 964NYP would remove 
impediments to and perfect the mechanism of a free and open market and 
a national market system because the Exchange plans to retain the 
fundamental method by which the Exchange would rank and display orders 
and quotes on Pillar as compared to the current Exchange system. 
Specifically, the proposed revisions to

[[Page 24237]]

the Exchange's options trading rules 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 simplify the 
structure of the Exchange's options rules and use identical Pillar 
terminology for trading rules on both the Exchange and its affiliated 
options exchange, Arca Options. For example, the Exchange believes the 
proposed definitions set forth in Rule 964NYP, i.e., display price, 
limit price, working price, working time, and Aggressing Order/
Aggressing Quote, would promote transparency in Exchange rules and make 
them easier to navigate because these proposed definitions would be 
used in other proposed Pillar options trading rules. The Exchange notes 
that these proposed definitions are identical to the definitions set 
forth in Arca Options Rule 6.76P-O for the same terms.
    Moreover, the Exchange is not proposing any functional changes to 
how it would rank and display orders and quotes on Pillar as compared 
to current functionality, except (as noted herein) with regard to the 
treatment of reduced quote sizes, which would be handled the same as 
orders with reduced size under Pillar, thereby adding consistency and 
transparency to Exchange rules.\82\ The Exchange believes that using 
new terminology to describe ranking and display, including the proposed 
Pillar Priority categories of Priority 1--Market Orders, Priority 2--
Display Orders, and Priority 3--Non-Display Orders would remove 
impediments to and perfect the mechanism of a free and open market and 
a national market system because the proposed rule would provide more 
granularity and use Pillar terminology to describe functionality that 
is consistent with the Exchange System currently set forth in Rule 
964NY. The Exchange notes that these proposed Pillar Priority 
categories are identical to those set forth in Arca Options Rule 6.76P-
O.
---------------------------------------------------------------------------

    \82\ See proposed Rule 964NYP(f)(3); supra note 38 (regarding 
existing handling of quotes with reduced size).
---------------------------------------------------------------------------

    The Exchange believes that proposed new Rule 964NYP generally, and 
paragraph (j) in particular, would remove impediments to and perfect 
the mechanism of a free and open market and a national market system 
because the proposed rule would set forth a priority model on Pillar 
that is consistent with the Exchange's Customer-centric, pro rata 
allocation model and affords Customers priority at a price regardless 
of order type utilized. Specifically, using the Customer priority 
overlay, interest in each Pillar Priority category at a price would be 
exhausted before interest in the next category would be eligible to 
trade. For example, same-priced interest ranked Priority 1--Market 
Orders will afford Customer orders at a price first priority, followed 
by same-priced non-Customer interest. And the same concept holds true 
for each of the Priority 2 and Priority 3 interest. Accordingly, the 
Exchange believes that proposed Rule 964NYP 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 
because it would marry the Exchange's current allocation model with the 
terminology for Pillar Priority Categories already used in Arca Options 
rules.
    The Exchange believes that the proposed modifications to the DOMM 
Guarantee and Specialist Pool Guarantee would remove impediments to and 
perfect the mechanism of a free and open market and a national market 
system because it provides clarity of how multiple quotes from a DOMM 
or Specialists (including the Primary Specialist) would be allocated. 
The Exchange similarly believes that eliminating duplicative text from 
proposed Rules 964.1NYP and 964.2NYP would remove impediments to and 
perfect the mechanism of a free and open market and a national market 
system because the proposed changes would streamline the Exchange's 
rules. The Exchange notes that the remaining differences in proposed 
Rule 964NYP relating to the DOMM Guarantee and the Specialist Pool 
Guarantee are designed to promote clarity and transparency in Exchange 
rules and would not introduce new functionality.
    The Exchange believes that proposed new Rules 964.1NYP and 964.2NYP 
would remove impediments to and perfect the mechanism of a free and 
open market and a national market system because it would not repeat 
information that is duplicative of current Rule 964NY but would include 
information solely related to Directed Orders and the provisions of 
proposed Rule 964NYP that must be satisfied to receive such orders 
(i.e., proposed Rules 964NYP(h), (j), in particular and Rule 964.1NYP 
generally) as well as information regarding the provisions of the 
proposed Rule 964NYP that must be satisfied to receive the Specialist 
Pool Guarantee. As a result, new Rules 964.1NYP and 964.2NYP would 
provide information about Directed Orders and DOMM quoting obligations 
as well as the Primary Specialist criteria in a more streamlined 
manner, which would add clarity and consistency to Exchange rules, 
making them easier to navigate.
    The Exchange believes that the structure and content of the rule 
text in proposed Rules 964NYP, 964.1NYP, and 964.2NYP promote 
transparency by using consistent Pillar terminology. The Exchange also 
believes that adding more detail regarding current functionality in new 
Rule Rules 964NYP, as described above, would promote transparency by 
providing notice of when orders would be executed or routed by the 
Exchange.

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 
would promote competition among options exchanges by offering a low-
latency, deterministic trading platform. The proposed rule changes 
would support that inter-market competition by allowing the Exchange to 
offer additional functionality to its ATP Holders, 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 options trading 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 its priority model (e.g., how it would rank, 
display, execute or route orders and quotes). Rather, the Exchange 
believes that the proposed rule changes would promote consistent use of 
terminology to support options trading on the Exchange, making the 
Exchange's rules easier to navigate, and would also offer consistency 
with the terminology used in the rules of Arca Options, the Exchange's 
affiliated options exchange. 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 ATP Holders, and 
reflects the Exchange's existing priority model, including the existing 
DOMM Guarantee and Specialist Pool Guarantee.

[[Page 24238]]

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

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

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

    The Exchange has filed the proposed rule change pursuant to Section 
19(b)(3)(A)(iii) of the Act \83\ and Rule 19b-4(f)(6) thereunder.\84\ 
Because the proposed rule change does not: (i) significantly affect the 
protection of investors or the public interest; (ii) impose any 
significant burden on competition; and (iii) become operative prior to 
30 days from the date on which it was filed, or such shorter time as 
the Commission may designate, if consistent with the protection of 
investors and the public interest, the proposed rule change has become 
effective pursuant to Section 19(b)(3)(A) of the Act and Rule 19b-
4(f)(6)(iii) thereunder.\85\
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    \83\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \84\ 17 CFR 240.19b-4(f)(6).
    \85\ 17 CFR 240.19b-4(f)(6)(iii). In addition, Rule 19b-4(f)(6) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file 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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    At any time within 60 days of the filing of such proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act. If the Commission 
takes such action, the Commission shall institute proceedings under 
Section 19(b)(2)(B) \86\ of the Act to determine whether the proposed 
rule change should be approved or disapproved.
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    \86\ 15 U.S.C. 78s(b)(2)(B).
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IV. Solicitation of Comments

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

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-NYSEAMER-2023-16 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-2023-16. 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-2023-16 and should be submitted 
on or before May 10, 2023.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\87\
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    \87\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-08217 Filed 4-18-23; 8:45 am]
BILLING CODE 8011-01-P