Document ID: SEC-2021-1629-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NYSE Arca, Inc.
Posted Date: 2021-11-22T05:00Z

[Federal Register Volume 86, Number 222 (Monday, November 22, 2021)]
[Notices]
[Pages 66369-66373]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-25352]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-93586; File No. SR-NYSEArca-2021-98]

Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Amend Rule 6.64-
O To Provide an Option for OTP Holders and OTP Firms To Instruct the 
Exchange To Cancel Marketable Orders If a Series Is Not Opened Within a 
Specified Time Period

November 16, 2021.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby 
given that on November 12, 2021, NYSE Arca, Inc. (``NYSE Arca'' or the 
``Exchange'') filed with the Securities and Exchange Commission (the 
``Commission'') the proposed rule change as described in Items I and II 
below, which Items have been prepared by the self-regulatory 
organization. The Commission is publishing this notice to solicit 
comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend Rule 6.64-O (OX Opening Process) to 
provide an option for OTP Holders and OTP Firms to instruct the 
Exchange to cancel Marketable orders if a series is not opened within a 
specified time period. 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.

[[Page 66370]]

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

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

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

1. Purpose
    The Exchange proposes to amend Rule 6.64-O (OX Opening Process) to 
provide an option for OTP Holders and OTP Firms to instruct the 
Exchange to cancel Marketable \4\ orders if a series is not opened 
within a specified time period. The Exchange notes that this proposal 
is substantively identical to a recent rule change on NYSE American, 
LLC.\5\
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    \4\ The term ``Marketable'' is defined in Rule 6.1A-O(a)(7) to 
mean, for a Limit Order, the price matches or crosses the NBBO on 
the other side of the market. Market orders are always considered 
marketable.
    \5\ See Securities Exchange Act Release No. 92668 (August 13, 
2021), 86 FR 46746 (August 19, 2021) (SR-NYSEAMER-2021-36) (Notice 
of filing and immediate effectiveness of proposed rule change to 
amend Rule 952NY to provide an option for ATP Holders to instruct 
the Exchange to cancel marketable orders if a series is not opened 
within a specified time period) (``NYSE American Filing'').
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    Rule 6.64-O sets forth the Exchange's process for opening and 
reopening a series for trading. Rule 6.64-O(b) provides that the 
Exchange will accept market and limit orders for inclusion in the 
opening auction process (``Auction Process'') until such time as the 
Auction Process is initiated in that option series. As further provided 
for in Rule 6.64-O(b), once the primary market for the underlying 
security disseminates a quote and a trade that is at or within the 
quote, the Exchange will open the related option series automatically 
based on the principles and procedures set forth in paragraphs (A)-(F) 
of Rule 6.64-O(b). However, as described in Rule 6.64-O(b)(D), the 
Exchange will not conduct an Auction Process if the bid-ask 
differential for that series is not within an acceptable range, i.e., 
is not within the bid-ask differential guidelines established in Rule 
6.37-O(b)(4). Because Rule 6.64-O(b)(D) cross-references the bid-ask 
differential requirement of Rule 6.37-O(b)(4), which relates to the 
obligations of Market Makers in appointed classes, the Exchange will 
not open a series for trading if Market Makers have not entered 
quotations in a series that are within such bid-ask differentials. If a 
series does not open for trading, market and limit orders entered in 
advance of the Auction Process will remain in the Consolidated Book and 
will not be routed, even if another exchange opens that series for 
trading and such orders become Marketable against an away market NBBO.
    The Exchange proposes to amend Rule 6.64-O to provide OTP Holders 
and OTP Firms with an option to instruct the Exchange to cancel their 
Marketable orders if an option series has not been opened within a 
specified time period. As proposed, new subparagraph (d) to Rule 6.64-O 
\6\ would provide that an OTP Holder or OTP Firm may instruct the 
Exchange to cancel all Marketable orders in a series, including GTC 
Orders, if that series has not opened within a designated time period 
after the Exchange receives notification that the primary market for 
the underlying security has disseminated a quote and a trade that is at 
or within the quote. This proposed change is designed to provide OTP 
Holders and OTP Firms that electronically enter orders before Core 
Trading Hours \7\ begin in a multitude of option series with an 
optional risk protection mechanism for the Exchange to automatically 
cancel Marketable orders on their behalf. OTP Holders and OTP Firms 
could submit requests to cancel such orders themselves, but would have 
to monitor which series have been opened on the Exchange. The proposed 
optional functionality would reduce operational risk for OTP Holders 
and OTP Firms that sent orders in multiple series by providing them 
with a bulk cancel feature that would instruct the Exchange to cancel 
orders on their behalf if a series has not been opened by a specified 
time. Specifically, rather than have Marketable orders remain 
unexecuted on the Consolidated Book if the option series has not opened 
on the Exchange within a specified time period, OTP Holders and OTP 
Firms would have the option to instruct the Exchange to cancel such 
orders back to the OTP Holder/OTP Firm. Once cancelled back, the OTP 
Holder/OTP Firm could choose to re-enter such orders on an exchange 
that has opened that series for trading.
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    \6\ The Exchange proposes a non-substantive amendment to Rule 
6.64-O to renumber current subparagraph (d) to that Rule as 
subparagraph (e).
    \7\ The term ``Core Trading Hours'' is defined in Rule 6.1A-
O(a)(3) to mean the regular trading hours for business set forth in 
the rules of the primary markets underlying those option classes 
listed on the Exchange.
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    The Exchange further proposes to provide that the Exchange would 
not cancel any Marketable orders received after the designated time 
period ends, even if the series has not yet opened. The Exchange 
believes that if an OTP Holder or OTP Firm sends an order in an option 
series to the Exchange after Core Trading Hours begin, and more than 
the designated time period after the primary market for the underlying 
security has opened (i.e., the series open trigger), such OTP Holder/
OTP Firm should be aware that the Exchange has not opened that series 
for trading when it sends the order to the Exchange, and therefore 
intends for such order to be sent to the Exchange even though it has 
not yet opened that series for trading.
    Proposed Rule 6.64-O(d) would also provide that the designated time 
period would be two minutes, unless determined otherwise by the 
Exchange and announced to OTP Holders and OTP Firms via Trader Update, 
in which case the designated time period would not be greater than five 
minutes. The Exchange believes that a two-minute period would provide 
time for Market Makers to update their quotes after the Exchange 
receives the series open trigger so that the bid-ask differential in an 
option series can be within an acceptable range and therefore the 
series can open for trading on the Exchange. Specifically, the Exchange 
has observed that on a typical trading day, nearly 98% of all series 
are opened by 9:32 a.m. Eastern Time, and nearly 99% of all series are 
opened by 9:35 a.m. Eastern Time. By waiting two minutes before 
cancelling orders, the Exchange believes that the majority of series 
would be opened, thereby minimizing the number of series where there 
would be a bulk cancel of Marketable orders. In addition, OTP Holders 
and OTP Firms that want to cancel orders less than two minutes after 
the series open trigger would still be able to submit requests to 
cancel individual orders. The Exchange further believes that it is 
appropriate to provide the Exchange with the ability to adjust the 
designated time period via Trader Update to no more than five minutes 
because it would provide additional flexibility for the Exchange to 
respond to the needs of OTP Holders and OTP Firms to implement the 
instruction to cancel Marketable orders on a different time basis. The 
Exchange believes that a cap of five minutes would be reasonable 
because very few series remain

[[Page 66371]]

unopened five minutes after the series open trigger. The Exchange notes 
that this is an optional instruction, and therefore no OTP Holder nor 
OTP Firm is required to use this proposed new risk feature. The 
Exchange further notes that Exchange flexibility in connection with 
designating time periods for risk limitation measures is consistent 
with current Exchange rules.\8\
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    \8\ See, e.g., Commentary .03 to Rule 6.40-O (Risk Limitation 
Mechanism) (providing that the Exchange will ``specify via Trader 
Update any applicable time period(s) for the Risk Limitation 
Mechanisms; provided, however, that the Exchange will not specify a 
time period of less than 100 milliseconds, inclusive of the duration 
of any trading halt occurring within that time''). The Exchange also 
provides for flexibility in its rules for other risk mechanism 
parameters. See, e.g., Rule 6.60-O(b) (``Unless determined otherwise 
by the Exchange and announced to OTP Holders and OTP Firms via 
Trader Update, the specified percentage shall be as follows: 100% 
for the contra-side NBB or NBO priced at or below $1.00; and 50% for 
the contra-side NBB or NBO priced above $1.00.'')
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    Finally, proposed Rule 6.64-O(d) would provide that this 
instruction would not be available for orders entered by Floor Brokers 
via the Electronic Order Capture System.\9\ The current EOC provider 
could not systemically apply the proposed optional instruction on a 
firm-by firm basis and therefore it would not be available to 
individual Floor Brokers. The Exchange believes that because of the 
unique role of Floor Brokers on the Exchange to provide manual, high-
touch services on behalf of customers, Floor Brokers should not need 
this optional feature. Specifically, unlike an off-Floor OTP Holder/OTP 
Firm that may be relying on an algorithm to send orders in a multitude 
of series, a Floor Broker that provides high-touch services would be 
present on the Trading floor and in a position to monitor whether the 
Exchange has opened a series, and if not, whether to cancel an order 
that becomes Marketable.
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    \9\ As defined in Rule 6.1-O(b)(39), the term ``Electronic Order 
Capture System'' or ``EOC'' means the Exchange's electronic audit 
trail and order tracking system that provides an accurate time-
sequenced record of all orders and transactions on the Exchange. As 
further defined, the EOC includes the electronic communications 
interface between EOC booth terminals and the Floor Broker Hand Held 
applications and also contains an electronic order entry screen.
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    The Exchange will announce via Trader Update when this proposed 
optional feature will be available, which, subject to effectiveness of 
this proposed rule change, the Exchange anticipates will be in the 
fourth quarter of 2021.
2. Statutory Basis
    For the reasons set forth above, the Exchange believes the proposed 
rule change is consistent with Section 6(b) of the Act \10\ in general, 
and furthers the objectives of Sections 6(b)(4) and (5) of the Act,\11\ 
in that it is designed to promote just and equitable principles of 
trade, remove impediments to and perfect the mechanism of a free and 
open market and a national market system and, in general, to protect 
investors and the public interest.
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    \10\ 15 U.S.C. 78f(b).
    \11\ 15 U.S.C. 78f(b)(4) and (5).
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    The Exchange believes that the proposed rule change would remove 
impediments to and perfect the mechanism of a free and open market and 
a national market system because it is designed to provide OTP Holders 
and OTP Firms with an optional risk protection mechanism to instruct 
the Exchange to cancel Marketable orders in an option series on their 
behalf if that series has not opened on the Exchange within a specified 
time period. The Exchange does not open a series if Market Makers have 
not quoted within the acceptable range of bid-ask differentials as 
specified in Rule 6.37-O(b)(4). However, it is possible that another 
exchange, with different opening process rules, could have opened that 
series for trading even if the Exchange does not. If an order that an 
OTP Holder or OTP Firm sent to the Exchange before Core Trading Hours 
begins becomes Marketable on another exchange before the Exchange opens 
that series for trading, such OTP Holder/OTP Firm could choose to 
cancel the order and then send it to the other exchange. By providing 
OTP Holders and OTP Firms with an option to instruct the Exchange to 
cancel their Marketable orders in a series under the specified 
circumstances, the Exchange would perform this monitoring function on 
behalf of OTP Holders and OTP Firms, thereby reducing their operational 
risk.
    The Exchange believes that it would remove impediments to and 
perfect the mechanism of a free and open market and a national market 
system to provide that such instructions would not be applicable to 
Marketable orders received after the designated time period ends 
because the Exchange believes that OTP Holders and OTP Firms that send 
orders to the Exchange more than a specified period after series open 
trigger should be aware that the Exchange has not yet opened that 
series for trading. Therefore, any orders sent after that designated 
time period ends were likely purposefully directed to the Exchange even 
though the Exchange has not yet opened that series for trading.
    The Exchange believes that the proposed designated time period of 
two minutes would remove impediments to and perfect the mechanism of a 
free and open market and a national market system because it is 
designed to provide time for Market Makers to update their quotes so 
that the bid-ask differential in an option series is within an 
acceptable range and therefore the series can open for trading on the 
Exchange. The Exchange believes that the proposed two-minute period is 
reasonable because on a typical trading day, approximately 98% of all 
series that trade on the Exchange are open. OTP Holders and OTP Firms 
that want to cancel orders less than two minutes after the series open 
trigger would still be able to submit requests to cancel individual 
orders. The Exchange further believes that providing the Exchange with 
flexibility to change the designated time period via Trader Update, 
provided that it would never be longer than five minutes, would enable 
the Exchange to respond to the needs of OTP Holders and OTP Firms to 
implement the instruction to cancel Marketable orders on a different 
time basis. The Exchange believes that the proposed cap of five minutes 
would remove impediments to and perfect the mechanism of a free and 
open market and a national market system because on a typical day, 
approximately 99% of all series are opened by 9:35 a.m. Eastern Time. 
The Exchange further notes that this proposed risk mechanism would be 
optional, and therefore OTP Holders and OTP Firms would not be required 
to request that the Exchange cancel unexecuted Marketable orders on 
their behalf if a series has not opened within the designated time 
period. In addition, Exchange flexibility in connection with 
designating time periods for risk limitation measures is consistent 
with current Exchange rules.\12\
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    \12\ See supra note 8.
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    Finally, the Exchange believes that the proposal that the optional 
instruction would not be available for orders entered by Floor Brokers 
via the EOC would remove impediments to and perfect the mechanism of a 
free and open market and a national market system because the current 
EOC provider could not systemically apply the proposed optional 
instruction on a firm-by firm basis. The instruction could therefore 
not be segregated by individual Floor Brokers that each use the EOC. 
The Exchange believes that because of the unique role of Floor Brokers 
on the Exchange to provide manual, high-touch services on behalf of 
customers, Floor Brokers should not need this optional bulk-cancel 
feature. Specifically, unlike an off-Floor OTP

[[Page 66372]]

Holder/OTP Firm that may be relying on an algorithm to send orders in a 
multitude of series, a Floor Broker that provides high-touch services 
would be present on the Trading floor and in a position to monitor 
whether the Exchange has opened a series, and if not, whether to cancel 
an order that becomes Marketable.

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 does not 
believe the proposed rule change would impose any burden on intermarket 
competition, as the proposed rule change is designed to provide an 
option for OTP Holders and OTP Firms to instruct the Exchange to cancel 
Marketable orders if an option series does not open on the Exchange 
within a designated time period. The Exchange believes that the 
proposed rule change would promote intermarket competition because if 
the Exchange cancels such orders on the instruction of an OTP Holder/
OTP Firm, such OTP Holder/OTP Firm could then choose to route such 
orders to another exchange that has opened the option series for 
trading.
    The Exchange does not believe that the proposed rule change would 
impose any burden on intramarket competition that is not necessary or 
appropriate in furtherance of the purposes of the Act because the 
proposed rule change provides for optional functionality. OTP Holders 
and OTP Firms would not be required to use this functionality. In 
addition, the Exchange believes that because of the unique role of 
Floor Brokers on the Exchange to provide manual, high-touch services on 
behalf of customers, Floor Brokers should not need this optional bulk-
cancel feature and it would not impose any undue burden on intramarket 
competition not to provide this optional feature to Floor Brokers. 
Specifically, unlike an off-Floor OTP Holder/OTP Firm that may be 
relying on an algorithm to send orders in a multitude of series, a 
Floor Broker that provides high-touch services would be present on the 
Trading floor and in a position to monitor whether the Exchange has 
opened a series, and if not, whether to cancel an order that becomes 
Marketable.

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

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

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

    Because the foregoing proposed rule change does not: (i) 
Significantly affect the protection of investors or the public 
interest; (ii) impose any significant burden on competition; and (iii) 
become operative for 30 days from the date on which it was filed, or 
such shorter time as the Commission may designate, it has become 
effective pursuant to Section 19(b)(3)(A) of the Act \13\ and Rule 19b-
4(f)(6) thereunder.\14\
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    \13\ 15 U.S.C. 78s(b)(3)(A).
    \14\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file the proposed rule change, along 
with a brief description and text of the proposed rule change, at 
least five business days prior to the date of filing of the proposed 
rule change, or such shorter time as designated by the Commission. 
The Exchange has satisfied this requirement.
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    A proposed rule change filed under Rule 19b-4(f)(6) \15\ normally 
does not become operative prior to 30 days after the date of the 
filing. However, pursuant to Rule 19b-4(f)(6)(iii),\16\ the Commission 
may designate a shorter time if such action is consistent with the 
protection of investors and the public interest. The Exchange has 
requested that the Commission waive the 30-day operative delay so that 
the proposed rule change may become operative prior to 30 days after 
the date of the filing. The Exchange states that waiver of the 
operative delay would be consistent with the protection of investors 
and the public interest because the proposed rule change, as described 
above, would offer OTP Holders and OTP Firms an additional, and 
optional, risk limitation feature to instruct the Exchange to cancel 
their Marketable orders if the Exchange does not open an option series 
within a designated time frame. The Exchange further states that the 
technology supporting the proposed rule change will be available prior 
to 30 days after the date of the filing, and the Exchange seeks to 
implement the proposed rule change without delay. For these reasons, 
the Commission believes that waiver of the 30-day operative delay is 
consistent with the protection of investors and the public interest. 
Accordingly, the Commission hereby waives the operative delay and 
designates the proposed rule change operative upon filing.\17\
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    \15\ 17 CFR 240.19b-4(f)(6).
    \16\ 17 CFR 240.19b-4(f)(6)(iii).
    \17\ For purposes only of waiving the 30-day operative delay, 
the Commission also has considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act. If the Commission 
takes such action, the Commission shall institute proceedings to 
determine whether the proposed rule change should be approved or 
disapproved.

IV. Solicitation of Comments

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

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-NYSEArca-2021-98 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-NYSEArca-2021-98. 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,

[[Page 66373]]

Washington, DC 20549 on official business days between the hours of 
10:00 a.m. and 3:00 p.m. Copies of the filing also will be available 
for inspection and copying at the principal office of the Exchange. All 
comments received will be posted without change. Persons submitting 
comments are cautioned that we do not redact or edit personal 
identifying information from comment submissions. You should submit 
only information that you wish to make available publicly. All 
submissions should refer to File Number SR-NYSEArca-2021-98, and should 
be submitted on or before December 13, 2021.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\18\
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    \18\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-25352 Filed 11-19-21; 8:45 am]
BILLING CODE 8011-01-P