Document ID: SEC-2019-1262-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NYSE Arca, Inc.
Posted Date: 2019-09-04T04:00Z

[Federal Register Volume 84, Number 171 (Wednesday, September 4, 2019)]
[Notices]
[Pages 46593-46600]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-19001]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-86788; File No. SR-NYSEArca-2019-58]

Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
of Proposed Rule Change To Modify Rules 6.60-O and 6.65A-O Regarding 
the Treatment of Orders Subject to Trade Collar Protection

August 28, 2019.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby 
given that, on August 21, 2019, 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, II, 
and III below, which Items have been

[[Page 46594]]

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 Rules 6.60-O (Price Protection--
Orders) and 6.65A-O (Limit-Up and Limit-Down During Extraordinary 
Market Volatility) regarding the treatment of orders subject to Trade 
Collar Protection. The proposed change is available on the Exchange's 
website at www.nyse.com, at the principal office of the Exchange, and 
at the Commission's Public Reference Room.

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

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

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

1. Purpose
    The Exchange proposes to modify Rules 6.60-O(a) and 6.65A-O 
regarding the treatment of orders subject to Trade Collar Protection.
    The Exchange has in place various price check features that are 
designed to help maintain a fair and orderly market, including Trade 
Collar Protection.\4\ Trading Collars mitigate the risks associated 
with orders sweeping through multiple price points (including during 
extreme market volatility) and resulting in executions at prices that 
are potentially erroneous (i.e., because they are away from the last 
sale price or best bid or offer). By applying Trading Collars to 
incoming orders, the Exchange provides an opportunity to attract 
additional liquidity at tighter spreads and it ``collars'' affected 
orders at successive price points until the bid and offer are equal to 
the bid-ask differential guideline for that option, i.e., equal to the 
Trading Collar. Similarly, by applying Trading Collars to partially 
executed orders, the Exchange prevents the balance of such orders from 
executing away from the prevailing market after exhausting interest at 
or near the top of book on arrival. The Exchange proposes to modify its 
rule regarding Trading Collars (i.e., Rule 6.60-O(a) or the ``Rule'') 
to clarify existing functionality and to adopt enhancements to the 
operation of the Trading Collars.
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    \4\ Per Rule 6.60-O(a)(2), Trading Collars are determined by the 
Exchange on a class-by-class basis and, unless announced otherwise 
via Trader Update, are the same value as the bid-ask differential 
guidelines established pursuant to Rule 6.37-O(b)(4). The Exchange 
proposes a streamlining technical change to combine the buy and sell 
sections of the Rule into one paragraph since the Trading Collar 
value is the same whether a buy or sell order. See proposed Rule 
6.60-O(a)(2)(A). To conform with this proposed change, the Exchange 
proposes to re-number current paragraph (a)(2)(C) to proposed 
(a)(2)(B), without any substantive changes.
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    Current Rule 6.60-O(a)(1)(i) states that Trade Collar Protection 
prevents the ``immediate execution'' of incoming Market Orders when the 
difference between the National Best Offer (``NBO'') and the National 
Best Bid (``NBB'') is greater than one Trading Collar. Rule 6.60-
O(a)(1)(ii) states that Trade Collar Protection prevents the execution 
of the balance of an incoming Market Order or marketable limit order to 
buy (sell) if it would execute at a price that exceeds the width of the 
National Best Bid and Offer (``NBBO'') plus (minus) the value of one 
Trading Collar. Thus, the current rule limits the application of Trade 
Collar Protection to incoming Market Orders and only expands this 
protection to include marketable Limit Orders once there is a balance 
of a partially executed order that is subject to such protection.
    The Exchange proposes to modify Rule 6.60-O(a) to make clear that 
Trade Collar Protection may be applied to marketable Limit Orders on 
arrival. Although this reflects current functionality, the rule is 
silent in this regard and focuses solely on any unexecuted portion of a 
marketable Limit Order. Pursuant to proposed Rule 6.60-O(a), the 
Exchange would ``limit the immediate execution'' of incoming Market 
Orders and marketable Limit Orders (collectively, ``Marketable 
Orders''; and each a ``collared order'') if the width of the NBBO is 
greater than one Trading Collar.\5\ This proposed change would clarify 
how Trade Collar Protection currently operates and explicitly state 
that marketable Limit Orders may be collared on arrival, in addition to 
having any remaining balance likewise subject to the Trading Collar 
(the latter point is already explicitly stated in the current rule). 
The Exchange would continue to apply Trade Collar Protection to the 
balance of Marketable Orders consistent with the current Rule (as 
discussed below).\6\
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    \5\ See proposed Rule 6.60-O(a)(1)(A). Because the Exchange is 
proposing to move the existing text (albeit modified) into a sub-
paragraph, it proposes to re-number the paragraph in a manner 
consistent with the rest of the current rule. See id. Also, 
consistent with the clarification that Trade Collar Protection 
applies to incoming Marketable Orders, the Exchange proposes to 
modify and expand the application of paragraph (a)(4). See proposed 
Rule 6.60-O(a)(4).
    \6\ See proposed Rule 6.60-O(a)(1)(B). Because the Exchange is 
proposing to move the existing text (albeit slightly modified) into 
a sub-paragraph, it proposes to re-number the paragraph in a manner 
consistent with the rest of the current rule. See id. In addition, 
the Exchange proposes to modify this provision to refer solely to 
``Marketable Orders'' (and to remove now extraneous reference to 
marketable Limit Orders), as the Marketable Orders is already 
defined in proposed Rule 6.60-O(a)(1)(A). See proposed Rule 6.60-
O(a)(1)(B).
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    Current Rule 6.60-O(a)(3) provides that Trade Collar Protection 
does not apply to order types that have contingencies, namely, IOC, 
NOW, AON and FOK orders (the ``Contingent Order Type Provision''). The 
Exchange proposes to modify the Contingent Order Type Provision, which 
currently indicates that such order types would receive an ``immediate 
execution,'' to make clear that such incoming orders would ``receive an 
execution, depending upon the availability of an execution pursuant to 
the terms of those orders.'' \7\ The Exchange believes this proposed 
change (i.e., the removal of the word ``immediate'') would more 
accurately reflect current functionality in regards to the processing 
of these contingent order types, insofar as such orders will only 
``immediately'' execute if the contingency is satisfied. The Exchange 
believes this proposed wording change would add clarity, transparency 
and internal consistency to Exchange rules.
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    \7\ See proposed Rule 6.60-O(a)(3). Because the listed 
contingency orders are not subject to Trade Collar Protection, the 
Exchange believes the current rule may refer to such orders 
receiving an ``immediate execution'' to contrast the treatment of 
orders that are subject to such protection--as such orders (under 
the current rule) are ``not immediately executed.'' See Rule 6.60-
O(a)(1) and (a)(3).
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    Current Rule 6.60-O(a)(4) provides that when a Market Order is 
subject to Trade Collar Protection pursuant to current paragraph 
(a)(1)(i), the Exchange does not immediately execute or route such 
orders and instead goes on to state how such orders are processed. The 
Exchange proposes to modify this paragraph to make clear that it 
relates to Marketable (as opposed to just Market) Orders as well as to 
clarify that the ``execution and/or routing'' of such orders would be 
limited by the

[[Page 46595]]

Exchange as discussed below, as opposed to stating that they would not 
``immediately execute or route'' which modifications are consistent 
with the changes to Rule 6.60-O(a)(1)(A) (and consistent with existing 
functionality). The Exchange also proposes to make clear that this 
provision relates to ``incoming'' Marketable Orders as opposed to the 
balance thereof.\8\
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    \8\ See proposed Rule 6.60-O(a)(4). See also proposed Rule 6.60-
O(a)(1)(A) (making clear that incoming marketable Limit Order are 
subject to Trading Collar Protection).
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    The Exchange also proposes to modify the Rule to specify that 
collared orders will be assigned a ``collar execution price,'' which 
price depends upon the order type (Market or Limit) and whether (when 
the order arrives) the Exchange is already in receipt of another order 
being collared.\9\ Current Rule 6.60-O(a)(4)(A) covers collared Market 
Orders to buy (sell), which would not immediately execute or route, but 
would be ``displayed at a price equal to the NBB (NBO) plus (minus) one 
Trading Collar.'' As proposed, a Market Order to buy (sell) ``received 
when there is not already a collared order to buy (sell)'' would be 
``assigned a collar execution price'' (as opposed to being 
``displayed'') equal to the NBB (NBO) plus (minus) one Trading 
Collar.\10\ The Exchange proposes to replace ``displayed'' as used in 
the current rule with ``assigned a collar execution price'' because, 
once collared (and consistent with current functionality), the order 
would be eligible to immediately execute against available interest 
before its price is displayed. Examples illustrating this (existing) 
functionality are included at the end of the description of these 
proposed rule changes.
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    \9\ See proposed Rule 6.60-O(a)(4). The Exchange also proposes 
to make a conforming change to update the cross-reference from Rule 
6.60-O(a)(1)(i) to proposed Rule 6.60-O(a)(1)(A). Also, current Rule 
6.60-O(a)(4)(C)(i)-(iii) address scenarios when an order arrives 
while another order is being collared, but the proposed rule text 
adds clarity regarding current functionality and addresses 
enhancements to the functionality since the rule was adopted.
    \10\ See proposed Rule 6.60-O(a)(4)(B). As discussed further 
below, proposed Rule 6.60-O(a)(4)(A) would provide that ``[a] Market 
Order to buy (sell) received when there is already a collared order 
to buy (sell) will join that collared order and be processed 
consistent with paragraphs (a)(4)(C)--(a)(6),'' which reflects 
current functionality.
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    In addition, the Exchange proposes an exception to the processing 
of incoming Market Orders to buy (sell) that arrive when the NBB (NBO) 
is zero (the ``Zero NBBO Collar Exception''). Specifically, a Market 
Order to buy entered when the NBB is $0.00 would be assigned a collar 
execution price equal to the NBB (i.e., $0.00) plus one Trading Collar 
to ensure it is collared to avoid executing at an erroneous price; 
whereas, a Market Order to sell entered when the NBO is $0.00, would be 
rejected as there is no market for the incoming order.\11\ The Exchange 
believes the Zero NBBO Collar Exception would improve the operation of 
Trading Collars when the prevailing market is zero (indicating market 
dislocation) at the time an incoming Market Order arrives. Absent the 
proposed Zero NBBO Collar Exception, a Market Order to buy (sell) that 
arrives when the NBB (NBO) is zero would trade based on the last sale 
price, if any; if there is no last sale price, the order would trade at 
the contra-side NBBO which may result in a bad execution price. The 
proposal to collar an incoming buy order when the NBB is zero is 
consistent with the handling of other collared orders to buy when the 
NBB is not zero (i.e., the collared order is assigned a collar 
execution price equal to the NBB plus one Trading Collar).\12\ In 
regards to the proposal to reject (as opposed to collar) incoming sell 
orders when the NBO is zero, the Exchange believes this change in 
functionality is necessary because any attempt to collar such an order 
would result in a negative number. In addition, the Exchange has 
observed that it is extremely uncommon to have a no (zero) offer 
situation and believes it could be indicative of unstable market 
conditions. To avoid such orders receiving bad executions in times of 
market dislocation, the Exchange believes it would be appropriate to 
reject such orders. Thus, the Zero NBBO Exception helps maintain fair 
and orderly markets. An example illustrating this new functionality is 
included at the end of this section.
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    \11\ See proposed Rule 6.60-O(a)(4)(B)(i), (ii).
    \12\ See proposed Rule 6.60-O(a)(4)(B) (providing, in relevant 
part, that a Market Order to buy received when there is not already 
a collared order to buy is assigned a collar execution price equal 
to the NBB plus one Trading Collar).
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    In addition, because the rule has been updated to clarify that 
(consistent with current functionality) incoming marketable Limit 
Orders may be collared (i.e., proposed Rule 6.60-O(a)(1)(A)), the 
Exchange proposes to further update the rule to address how such orders 
would be collared, depending upon whether the Exchange is already in 
receipt of a collared order. Specifically, as proposed (and consistent 
with current functionality), modified Rule 6.60-O(a)(4)(C) would 
clarify that when the incoming collared order is a marketable Limit 
Order to buy (sell) and there is no other order already being collared, 
the order would be ``assigned a collar execution price equal to the NBO 
(NBB).'' If, however, a marketable Limit Order arrives when there is 
already an order being collared, it would join that collared order and 
be processed consistent with proposed paragraph (a)(6)(B), which is 
discussed below.\13\
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    \13\ See proposed Rule 6.60-O(a)(4)(C).
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    The Exchange also proposes to modify the rule regarding executions 
of collared orders. The current rule provides that the Exchange would 
``execute or route the collared order to buy (sell) against any contra-
interest priced within one Trading Collar above (below) the displayed 
price of the collared order.'' \14\ The Exchange proposes to clarify 
that a collared order to buy (sell) would ``trade against any contra-
side interest priced equal to its collar execution price or at prices 
within one Trading Collar above (below) the collar execution price 
(`the Collar Range').'' \15\ Consistent with proposed Rule 6.60-
O(a)(4)(B),(C), the Exchange proposes to refer to the ``collar 
execution price'' (as opposed to a display price) as the collared order 
seeks an execution before it would be displayed, thus this change 
clarifies existing functionality. In addition, the Exchange believes 
that clarifying that the collared order would execute with contra-side 
interest priced within a Collar Range (i.e., equal to, and up to one 
Trading Collar above (below) the collar execution price), provides more 
specificity than the current language, which states only that such 
order would execute against interest ``within one Trading Collar'' of 
its price. The Exchange believes these proposed changes, which describe 
current functionality, would add clarity, transparency, and internal 
consistency to Exchange rules.
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    \14\ See Rule 6.60-O(a)(4)(B).
    \15\ See proposed Rule 6.60-O(a)(4)(D). The proposed rule does 
not repeat the concept of a collared order being executed or routed 
in paragraph (a)(4)(D), because this concept is already covered in 
proposed paragraph (a)(4).
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    The Exchange proposes to add new paragraph (a)(4)(E) to the Rule to 
codify existing functionality and make clear that the Exchange would 
cancel a Market Order, or the balance thereof, that has been collared 
pursuant to proposed Rule 6.60-O(a)(1)(A) or (B) if, after exhausting 
trading opportunities within the Collar Range, the Exchange determines 
there are no quotes on the Exchange and/or no interest on another 
market (``Available Interest''). The absence of Available Interest, 
such as a Market Maker quote in the series, means that the Exchange 
would have no reliable price framework within which to evaluate the 
Market Order. Therefore, the Exchange believes that cancellation

[[Page 46596]]

of the Market Order would be appropriate and in the best interest of 
investors.
    Regarding the treatment of the balance of a Marketable Order (i.e., 
a Market Order or a marketable Limit Order) that is subject to Trade 
Collar Protection, the Exchange proposes to clarify and update the 
collar functionality, including making clear when and at what price the 
collared order is first displayed. Current Rule 6.60-O(a)(5) provides 
that ``[w]hen the balance of a partially executed Marketable Order'' is 
subject to Trade Collar Protection, such balance ``will be displayed at 
the last sale price.'' Further, ``[i]f there is an opportunity for 
trading within a Trading Collar above (below) the last sale price, the 
balance of the buy (sell) order will be displayed at the NBB (NBO) 
established at the time of the initial execution.'' \16\
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    \16\ See Rule 6.60-O(a)(5).
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    The Exchange proposes to replace the existing text and replace it 
with new rule text titled ``Display of collared orders.'' Pursuant to 
new Rule 6.60-O(a)(5), a Market Order that does not trade on arrival 
will be displayed at its collar execution price whereas the display 
price of the balance of a partially executed Marketable Order collared 
pursuant to proposed paragraph (a)(1)(B) of the Rule, depends upon 
eligible contra-side interest.\17\ Specifically, per proposed paragraph 
(a)(5)(A) of the Rule, if the collared order has traded against all 
contra-side interest within the Collar Range, the order would be 
displayed at the most recent execution price.\18\ This proposed 
provision sets forth the same concept as the first sentence of current 
paragraph (a)(5), except that it specifies that the order would be 
displayed at the most recent execution price (i.e., last sale price) 
only after it has exhausted trading opportunities within the Collar 
Range (whereas the current rule is silent on this fact, though it may 
be inferred given that the second sentence of the current Rule 
discusses the display price when trading opportunities have not been 
exhausted).
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    \17\ See proposed Rule 6.60-O(a)(5). The Exchange notes that the 
proposed new rule does not include the last sentence of current 
paragraph (a)(5) which provides that the balance of Marketable 
Orders that are subject to Trade Collar Protection are processed in 
the same fashion as incoming collared orders per current paragraph 
(a)(4). The Exchange believes that this language would be redundant 
of proposed paragraph (a)(1)(A)-(B), which makes clear what is 
deemed a ``collared order'' as well as proposed rule (a)(4)(A)-(E), 
which describes how such orders are processed.
    \18\ See proposed Rule 6.60-O(a)(5)(A).
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    Per proposed paragraph (a)(5)(B) of the Rule, if, however, there is 
contra-side interest priced within one Trading Collar of the most 
recent execution price, the order to buy (sell) would be displayed at 
the higher (lower) of its assigned collar execution price or the best 
execution price of the order that is both within the Collar Range and 
at least one Trading Collar away from the best priced contra-side 
trading interest (i.e., lowest sell interest for collared buy orders/
highest buy interest for collared sell orders).\19\ This proposed text 
modifies the second sentence of current paragraph (a)(5) by replacing 
reference to the NBBO at the time of initial execution with the concept 
of the collar execution price and clarifying that the display price 
would be the better of the collar execution price or keyed off of the 
best price contra-side interest. The Exchange believes this modified 
provision, which reflects current functionality, provides greater 
granularity regarding the circumstances under which the price of a 
collared order is first displayed and how that price is determined, 
which additional clarity and transparency is beneficial to the 
investing public.
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    \19\ See proposed Rule 6.60-O(a)(5)(B).
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    In addition, the Exchange also proposes to add rule text to new 
paragraph (a)(5) of the Rule to make clear that collared orders would 
be displayed at the Minimum Price Variation (``MPV'') for the option, 
pursuant to Rule 6.72-O (Trading Differentials) which rule sets forth 
the minimum quoting increments for options traded on the Exchange.\20\ 
The Exchange believes adding this information to the Rule add 
transparency, clarity and internal consistency to Exchange rules.
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    \20\ See proposed Rule 6.60-O(a)(5).
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    Current Rule 6.60-O(a)(4)(C) sets forth scenarios that would 
trigger the ``redisplay'' of a collared order. Consistent with the 
foregoing changes, the Exchange proposes to update this section with 
conforming changes for consistency, with regard to current 
functionality, and modify the rule to adopt new functionality. First, 
the Exchange proposes to re-number this paragraph as (a)(6), title it 
``Repricing of collared orders,'' and make clear that the Exchange 
would ``assign a new collar execution price'' to (as opposed to 
redisplay) the collared order upon the happening of one of the listed 
scenarios (as modified below).\21\
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    \21\ See proposed Rule 6.60-O(a)(6). Consistent with this 
change, the Exchange also proposes to renumber the existing 
subparagraphs to proposed (a)(6) as (A)-(C) and existing paragraphs 
(a)(4)(D) and (a)(6) as proposed paragraphs (a)(7) and (a)(8), 
respectively. See id.
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     The first scenario under the current rule provides that 
``an update to the NBBO (based on another market or a quote on the 
Exchange or a Limit Order on the Exchange priced one Trading Collar or 
less away from the collared order) that improves the same side of the 
market as the collared order will result in the collared order being 
redisplayed at the new NBB (for buy orders) or NBO (for sell orders)'' 
\22\ Consistent with the foregoing proposed rule text changes, the 
Exchange proposes to modify this provision to replace the words 
``redisplayed at'' with ``assigned a new collar execution price equal 
to'' the NBB (for buy orders) or NBO (for sell orders), and to add to 
the end of this provision that the repriced orders would be ``processed 
at the updated collar execution price consistent with paragraphs 
(a)(4)(D) and (a)(5) above.'' \23\ The ``new collar execution price'' 
reflects the updated price at which the collared order is eligible to 
trade based on changes in the market. This concept is consistent with 
the current rule except that the updated price is not (re)displayed 
until it has exhausted all trading opportunities within the Collar 
Range.
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    \22\ See Rule 6.60-O(a)(4)(C)(i).
    \23\ See proposed Rule 6.60-O(a)(6)(A). The Exchange also 
proposes to add a semi-colon to separate the two clauses regarding 
what constitutes a market update event that updates the NBBO (i.e., 
that it must be ``based on another market or a quote on the 
Exchange; or a Limit Order on the Exchange priced one Trading Collar 
or less away from the collared order''). See id.
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     The second scenario under the current rule provides that a 
Marketable Order to buy (sell) on the same side of the market as the 
collared order or a Limit Order to buy (sell) on the same side of the 
market as the collared order and priced greater than one Trading Collar 
above (below) the displayed price of the collared order will itself 
become subject to Trade Collar Protection and will result in the 
collared order and the Limit Order being displayed at one Trading 
Collar above (below) the displayed price of the collared order.\24\ The 
Exchange proposes to modify this rule to remove reference to 
``Marketable Orders to buy (sell) on the same side of the market as the 
collared orders,'' because the functionality has been updated such that 
a Market Order received when there is already a collared order would 
join that collared order (rather than be subject to a separate 
collar).\25\ This proposed modification would make clear that this

[[Page 46597]]

scenario is applicable solely to marketable Limit Orders received when 
there is already an order being collared. Consistent with the proposed 
textual changes to the first scenario, the Exchange likewise proposes 
to modify this provision to replace the words ``displayed at a price'' 
with ``assigned a new collar execution price'' one Trading Collar above 
or below the displayed price of the collared order, as applicable (at 
which new price it will be eligible to trade), and to add to the end of 
this provision that the repriced orders would be ``processed at the 
updated collar execution price consistent with paragraphs (a)(4)(D) and 
(a)(5) above.'' \26\
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    \24\ See Rule 6.60-O(a)(4)(C)(ii). Consistent with the Rule, 
this provision excludes IOC Orders, AON Orders, FOK Orders and NOW 
Orders. See id.; see also Rule 6.60-O(a)(3).
    \25\ See proposed Rule 6.60-O(a)(4)(A).
    \26\ See proposed Rule 6.60-O(a)(6)(B).
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     The third scenario under the current rule provides that 
``upon the expiration of one second, the collared order to buy (sell) 
will redisplay at a price one Trading Collar above (below) the 
displayed price of the collared order.'' \27\ The Exchange proposes to 
modify this provision to add ``and absent an update to the NBBO'' after 
language regarding the expiration of one second to distinguish this 
scenario from the first scenario where a change in the market (i.e., an 
update to the NBBO) caused the collared order to reprice (and 
potentially redisplay). Also, consistent with the other two scenarios, 
the Exchange proposes to modify this provision to replace the words 
``redisplay at a price'' with ``assigned a new collar execution price'' 
one Trading Collar above or below the ``current displayed price'' of 
the collared order, as applicable, and to add to the end of this 
provision that the repriced orders would be ``processed at the update 
collar execution price consistent with paragraphs (a)(4)(D) and (a)(5) 
above.'' \28\ Thus, the collared order to buy (sell) would be eligible 
to trade at a price for a period of one second, but if market 
conditions prevent it from trading, the order will improve or tick up 
(down) and be assigned a new collar execution price one Trading Collar 
above (below) the current display price. The Exchange proposes to 
clarify the functionality under this (third) scenario, however to 
provide that ``if the collared order is a Market Order to sell that has 
reached $0.00, it will not reprice but will be posted in the 
Consolidated Book at its MPV (e.g., $0.01 or $0.05),'' because an order 
may never be posted for lower than its MPV--and the alternative to 
holding the order at the MPV would be to cancel it.\29\ The Exchange 
believes this proposed rule text, which reflects current functionality, 
would allow the collared order an opportunity for an execution (rather 
than being cancelled) and adds transparency and internal consistency to 
Exchange rules.
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    \27\ See Rule 6.60-O(a)(4)(C)(iii).
    \28\ See proposed Rule 6.60-O(a)(6)(C).
    \29\ See id.
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    The Exchange also proposes to clarify the rule text regarding the 
priority of collared orders. Current Rule 6.60-O(a)(6) states that 
``[a]ll orders for which Trade Collar Protection prevents immediate 
execution will be ranked based on time priority (with all other orders 
for which Trade Collar Protection prevents immediate execution).'' 
Because the current rule text does not make clear that such collared 
orders, like other non-collared orders, will be processed at each price 
in time priority, the Exchange proposes to clarify that such orders 
would be ``processed in accordance with Rule 6.76-O.Order Ranking and 
Display--OX.'' \30\ This proposed change to reflect current 
functionality and adds clarity, transparency and internal consistency 
to Exchange rules.
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    \30\ See proposed Rule 6.60-O(a)(8).
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* * * * *

EXAMPLES OF TREATMENT OF COLLARED ORDERS 31
---------------------------------------------------------------------------

    \31\ The Exchange notes that the processing of collared orders 
in examples 1-3 reflect current processing, but that, as noted 
above, the Exchange has clarified the rule text used to describe the 
processing (i.e., reference to ``collar execution price'' versus 
``display price'' as well as removing reference to ``last sale'' as 
the benchmark for determining display price and adding specificity 
about available trading interest impacting display price 
determination--which may or may not be the same as the last sale 
price, see, e.g., Rule 6.60-O(a)(5)(A)).
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Example 1: Market Order Received When No Other Orders Being Collared 
32
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    \32\ See id.
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BOX: 0 x 0-1.50 x 100 (wide market)
LMM 100 x 0.25-1.60 x 100
Cust1 Buy Market x 100

    Results:

 Cust1 is assigned a collar execution price of 0.50 (i.e., the 
NBB (0.25), plus one Trading Collar, which is 0.25 because the NBB is 
less than $2.00) \33\
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    \33\ See proposed Rule 6.60-O(a)(4)(B) (regarding collar 
execution price for Market Orders) and (a)(2)(A)(i) (regarding 
Trading Collar).
---------------------------------------------------------------------------

 Each second that elapses in which Cust1 does not trade (and 
absent changes to the NBBO), the order receives a new collar execution 
price and is displayed at each successive collar--0.50, then 0.75, then 
1.00 \34\
---------------------------------------------------------------------------

    \34\ See proposed Rule 6.60-O(a)(6)(C) (regarding assignment of 
new collar execution price every one second that the order does not 
trade as seconds elapse and NBBO does not change).
---------------------------------------------------------------------------

 Once the order ticks up to receive a collar execution price of 
1.25, it trades with BOX at 1.50 (as 1.50 is within the Collar Range, 
i.e., contra-side interest within one Trading Collar above the collar 
execution price--resulting in a permissible execution range of 1.25 up 
to and including 1.50) \35\
---------------------------------------------------------------------------

    \35\ See proposed Rule 6.60-O(a)(4)(D) (regarding Collar Range).
---------------------------------------------------------------------------

Example 2: Limit Order Received When No Other Orders Being Collared 
\36\
---------------------------------------------------------------------------

    \36\ See supra note 31.
---------------------------------------------------------------------------

BOX: 100 x 1.50 x 1.60 x 100
T2 Sell 100 @ 1.70
T3 Sell 100 @ 1.80
T4 Sell 100 @ 2.95
T1 Buy 1000 @ 3.00

    Results:

 T1 is assigned a collar execution price of 1.60 (i.e., the 
NBO) and is eligible to trade with interest within its Collar Range 
(i.e., contra-side interest within one Trading Collar (0.25) above the 
collar execution price--resulting in a permissible execution range of 
1.60 up to and including 1.85) \37\
---------------------------------------------------------------------------

    \37\ See proposed Rule 6.60-O(a)(4)(C) (regarding collar 
execution price for limit orders) and (a)(4)(D) (regarding Collar 
Range) and (a)(2)(A)(i) (regarding Trading Collar).
---------------------------------------------------------------------------

    [cir] T1 routes 100 to BOX and trades at 1.60
    [cir] T1 trades 100 with T2 at 1.70
    [cir] T1 trades 100 with T3 at 1.80
 Since T1 has traded with all eligible interest within the 
collar range, the balance of T1 (i.e.. the remaining 700) is assigned a 
collar execution price of 1.80 (the most recent execution price), is 
displayed at that price and is eligible to trade within the Collar 
Range \38\
---------------------------------------------------------------------------

    \38\ See proposed Rule 6.60-O(a)(5)(A). See also Rule 6.60-
O(a)(5)(A) (regarding collared order that has traded against all 
eligible interest in the collar range being displayed at the most 
recent execution price).
---------------------------------------------------------------------------

 Each second that the T1 does not trade it receives a new 
collar execution price and is displayed at each successive collar 
(i.e., 2.05 and then ticks up based on $0.40 collar--because price/NBB 
is over $2.00--to 2.45) \39\
---------------------------------------------------------------------------

    \39\ See proposed Rule 6.60-O(a)(6)(C) (regarding assignment of 
new collar execution price every one second that the order does not 
trade as seconds elapse and NBBO does not change) and (a)(2)(A)(i) 
(regarding Trading Collar).
---------------------------------------------------------------------------

    [cir] Once at 2.85, T1 is eligible to trade within its Collar Range 
and trades 100 with T4 at 2.95
 The balance of T1 (i.e., the remaining 600) is assigned a 
collar execution price of 2.95, is displayed at that price and is 
eligible to trade within the Collar Range \40\
---------------------------------------------------------------------------

    \40\ See also Rule 6.60-O(a)(5)(A) (regarding collared order 
that has traded against all eligible interest in the collar range 
being displayed at the most recent execution price).

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

[[Page 46598]]

 After one second, T1 is displayed at its limit price of 3.00 
and will not be repriced/subject to further Trade Collar Protection 
\41\
---------------------------------------------------------------------------

    \41\ See proposed Rule 6.60-O(a)(7) (regarding a limit order not 
being eligible to post beyond its limit price).
---------------------------------------------------------------------------

Example 3: Limit Order Received When No Other Orders Being Collared 
\42\
---------------------------------------------------------------------------

    \42\ See supra note 31.
---------------------------------------------------------------------------

MMQ 100 x 5.00-5.40 x 10 (NBBO)
BD1 Sell Limit Order 10 x 5.70
BD2 Sell Limit Order 10 x 5.95
BD3 Buy Limit Order 100 @6.00

    Results:

 BD3 is assigned a collar execution price of 5.40 (i.e., the 
NBO) and is eligible to trade with interest within its Collar Range 
(i.e., contra-side interest within one Trading Collar (0.40 because the 
NBB does not exceed 5.00) above the collar execution price--resulting 
in a permissible execution range of 5.40 up to and including 5.80) 
resulting in the following executions:
    [cir] BD3 trades 10 with MMQ at 5.40
    [cir] BD3 trades 10 with BD1 at 5.70 \43\
---------------------------------------------------------------------------

    \43\ See proposed Rule 6.60-O(a)(4)(C) (regarding collar 
execution price for limit orders) and (a)(4)(D) (regarding Collar 
Range) and (a)(2)(A)(ii) (regarding Trading Collar).
---------------------------------------------------------------------------

 The balance of BD3 (i.e., the remaining 80) is displayed at 
5.40 rather than the most recent execution price of 5.70 (``last 
sale'') because there is contra-side interest priced within one Trading 
Collar of the last sale (i.e., 5.95) \44\
---------------------------------------------------------------------------

    \44\ See proposed Rule 6.60-O(a)(5)(B) (regarding display price 
of partially executed collared order where there is contra-side 
interesting within on Trading Collar).
---------------------------------------------------------------------------

     One second elapses, and BD3 receives a new collar 
execution price of 5.90 (i.e., its collar execution price (5.40) plus 
one Trading Collar (0.50)) and is eligible to trade with interest 
within its Collar Range (i.e., contra-side interest within one Trading 
Collar (0.50) above the collar execution price--resulting in a 
permissible execution range of 5.90 up to and including 6.40) resulting 
in the following execution:
    [cir] BD4 trades 10 with BD2 at $5.95 \45\
---------------------------------------------------------------------------

    \45\ See proposed Rule 6.60-O(a)(4)(C) (regarding collar 
execution price for limit orders) and (a)(4)(D) (regarding Collar 
Range) and (a)(2)(A)(ii) (regarding Trading Collar).
---------------------------------------------------------------------------

Example 4: Market Order Received When the NBB is Zero and No Other 
Orders Being Collared (Illustrating the Proposed Zero NBBO Collar 
Exception) 46
---------------------------------------------------------------------------

    \46\ See supra note 31.
---------------------------------------------------------------------------

BOX: 0 x 0-1.50 x 100
Cust1 Buy Market Order x 100

    Result:

 Cust1 is assigned a collar execution price of 0.25 (i.e., the 
NBB (0.00), plus one Trading Collar which is 0.25 because the NBB is 
less than $2.00) \47\
---------------------------------------------------------------------------

    \47\ See proposed Rule 6.60-O(a)(4)(B)(i). See also current and 
proposed Rule 6.60-O(a)(2)(i).
---------------------------------------------------------------------------

 Each second that Cust1 does not trade (and absent changes to 
the NBBO), it receives a new collar execution price and is displayed at 
each successive collar (i.e., 0.50, then 0.75, then 1.00) \48\
---------------------------------------------------------------------------

    \48\ See proposed Rule 6.60-O(a)(6)(C) (regarding assignment of 
new collar execution price every one second that the order does not 
trade as seconds elapse and NBBO does not change) and (a)(2)(A)(i) 
(regarding Trading Collar).
---------------------------------------------------------------------------

 Once the order ticks up to receive a collar execution price of 
1.25, it seeks an execution within that collar range (i.e., 1.25-1.50) 
and trades with BOX at 1.50.
* * * * *
Rule 6.65A-O: LULD Rule
    The Exchange proposes to update the Rule 6.65A-O, Limit-Up and 
Limit-Down During Extraordinary Market Volatility, related to the Plan 
to Address Extraordinary Market Volatility Pursuant to Rule 608 of 
Regulation NMS (``LULD'' or the ``LULD Rule''). The current rule 
provides that the Exchange shall reject Market Orders, as defined in 
Rule 6.62-O(a), entered when the underlying NMS stock is either in a 
Limit State or a Straddle State (an ``LULD State'') and shall notify 
OTP Holders of the reason for such rejection.\49\ The Exchange proposes 
to add rule text to make clear that the Exchange, under existing 
functionality, ``will cancel any Market Order that is a collared order 
pursuant to Rule 6.60-O(a)'' if the underlying NMS stock enters an LULD 
State and ``will notify OTP Holders of the reason for such 
cancellation,'' as the current rule does not address this scenario.\50\ 
A market order would typically trade upon arrival, unless collared and 
pending execution. The Exchange believes this proposed change would add 
clarity, transparency and internal consistency to Exchange rules as it 
makes clear that, in addition to rejecting a Market Order received when 
an underlying NMS stock is in an LULD State, the Exchange will likewise 
cancel a resting Market Order if an underlying NMS stock enters an LULD 
State.
---------------------------------------------------------------------------

    \49\ See Rule 6.65A-O(a)(1). The Exchange notes that other 
exchanges provide for the cancellation or rejection of market orders 
in such circumstance. See, e.g., CBOE Rule 6.3A(b)(1) (LULD rule 
citing Rule 6.2 regarding order handling); CBOE Rule 6.2, 
Interpretations and Policies .07 (providing that if the underlying 
security for an option class is in an LULD State when the class 
moves to opening rotation, then all market orders in the system will 
be cancelled, except market orders that are considered limit orders 
pursuant to CBOE Rule 6.13(b)(vi) and entered the previous trading 
day). See also NASDAQ Options Market (``NOM'') Ch. V, Sec. 3(d) 
(providing that if, after the opening, the underlying NMS stock for 
an option class is in an LULD State, NOM will reject market orders 
and notify its participants of the reason for such rejection).
    \50\ See proposed Rule 6.65A-O(a)(1). For consistency, the 
Exchange proposes the technical change of replacing ``shall'' with 
``will'' each time in appears in this rule. See proposed Rule 6.65A-
O.
---------------------------------------------------------------------------

Implementation
    The Exchange will announce the Zero NBBO Collar exception in a 
Trader Update to be published no later than 60 days following the 
approval date of this rule.
2. Statutory Basis
    The proposed rule change is consistent with Section 6(b) \51\ of 
the Act, in general, and furthers the objectives of Section 
6(b)(5),\52\ in particular, in that 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, and to 
remove impediments to and perfect the mechanisms of a free and open 
market and a national market system.
---------------------------------------------------------------------------

    \51\ 15 U.S.C. 78f(b).
    \52\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    Overall, the Exchange is proposing various changes that would 
promote just and equitable principles of trade, because collared orders 
would be handled in a fair and orderly manner, as described above. The 
various modifications and clarifications, many of which are consistent 
with current functionality, are intended to improve the rule overall by 
adding more specificity and transparency. The Exchange believes that 
the proposed rule changes would promote just and equitable principles 
of trade as well as protect investors and the public interest by making 
more clear what types of orders may be collared and how such orders are 
processed, including the circumstances that determine collar execution 
price(s) and display price(s).
    The Exchange believes that the proposed rule assists with the 
maintenance of fair and orderly markets by clarifying and enhancing the 
operation of the Trading Collar functionality--which is designed to 
mitigate the risk of orders sweeping through multiple price points and 
executing at potentially erroneous prices--as the proposed rule would 
continue to protect investors from receiving bad executions away from

[[Page 46599]]

prevailing market prices. The Exchange notes that Trading Collar 
functionality is not new or novel and is available on other options 
exchanges.\53\ The Exchange believes that the proposed changes that 
codify existing functionality, including how incoming marketable Limit 
Orders are collared and the cancellation of collared Market Orders--in 
the absence of Available Interest or if an NMS stock enters an LULD 
State--would add clarity, transparency and internal consistency to 
Exchange rules regarding the handling of orders accepted by the 
Exchange (i.e., that such orders would be cancelled, not rejected) and 
make them easier for market participants to navigate and comprehend.
---------------------------------------------------------------------------

    \53\ See, e.g., CBOE Rule 6.13(b)(v) (setting forth its Hybrid 
Trading System Automatic Execution Feature, which prevents the 
execution of marketable orders if (a) the width of the NBB and NBO 
is not within an ``acceptable price range'' (as determined by CBOE) 
or (b) if an execution would follow a partial execution and would be 
beyond an ``acceptable tick distance'' (as determined by CBOE), but 
unlike Trade Collar Protection on the Exchange, CBOE does not 
reprice (or redisplay) orders at narrowing prices. In addition, the 
NASDAQ Options Market (``NOM'') and NASDAQ OMX BX (``BX'') each have 
identical rules (Chapter VI, Section 18(b)(1) (setting forth the 
risk protection feature for quotes and orders, which prevents 
executions (partial or otherwise) of orders beyond an ``acceptable 
trade range'' (as calculated by the exchange) and when an order (or 
quote) reaches the limits of the ``acceptable trade range'', it 
posts for a period not to exceed one second and recalculated a new 
``acceptable trade range'').
---------------------------------------------------------------------------

    Further, the proposal to codify that the Exchange would cancel a 
Market Order or the balance thereof that has been collared once it has 
exhausted trading opportunities within its collar execution price plus/
minus one Trading Collar if there is no Available Interest would 
protect investors from potentially erroneous executions because this 
scenario means the Exchange would have no reliable price framework 
within which to evaluate the collared orders. Thus, this proposal would 
foster cooperation and coordination with persons engaged in 
facilitating transactions in securities, and remove impediments to and 
perfect the mechanism of a free and open market and a national market 
system.
    The Exchange believes that the proposal to codify current 
functionality regarding a collared order that is a Market Order to sell 
that has reached $0.00 such that the Exchange post the order at its MPV 
(e.g., $0.01 or $0.05) would promote just and equitable principles of 
trade and assist with the maintenance of fair and orderly markets 
because an order may never be posted for lower than its MPV--and the 
alternative to holding the order at the MPV would be to cancel it. The 
Exchange believes the proposed clarification of how such orders are 
handled provides the collared order an opportunity for an execution 
(rather than being cancelled) and adds transparency and internal 
consistency to Exchange rules.
    The Exchange likewise believes that the proposed enhancements to 
the Trading Collar functionality--the Zero NBBO Collar Exception--
likewise would prevent fraudulent and manipulative acts and practices, 
promote just and equitable principles of trade, and remove impediments 
to and perfect the mechanisms of a free and open market and a national 
market system. In particular, the proposed Zero NBBO Collar Exception 
would improve the operation of the Trading Collar when the prevailing 
market is zero (indicating market dislocation) at the time an incoming 
Market Order arrives. The Exchange believes the Zero NBBO Collar 
Exception would improve the operation of Trading Collars when the 
prevailing market is zero (indicating market dislocation) at the time 
an incoming Market Order arrives. Absent the proposed Zero NBBO Collar 
Exception, a Market Order to buy (sell) that arrives when the NBB (NBO) 
is zero would trade based on the last sale price, if any; if there is 
no last sale price, the order would trade at the contra-side NBBO which 
may result in a bad execution price. In regards to the proposal to 
reject (as opposed to collar) incoming sell orders when the NBO is 
zero, the Exchange believes this change in functionality is necessary 
because any attempt to collar such an order would result in a negative 
number. In addition, the Exchange has observed that it is extremely 
uncommon to have a no (zero) offer situation and believes it could be 
indicative of unstable market conditions. To avoid such orders 
receiving bad executions in times of market dislocation, the Exchange 
believes it would be appropriate to reject such orders. Thus, the Zero 
NBBO Exception helps maintain fair and orderly markets.
LULD
    The Exchange believes it is appropriate that the Exchange cancel a 
Market Order that is collared when an NMS stock enters an LULD State 
because when the underlying NMS stock enters an LULD State, there may 
not be a reliable underlying reference price, there may be a wide bid/
ask quotation differential in the option, and there may be less 
liquidity in the options markets. Thus, allowing a collared Market 
Order to execute (as opposed to cancel) in such circumstances could 
lead to executions at unintended prices (i.e., inferior to the NBBO), 
and could add to volatility in the options markets during times of 
extraordinary market volatility. The Exchange believes that this 
current treatment of collared market orders, and the proposal to 
explicitly state this treatment in the rule text, would provide 
certainty to the treatment of Market Orders during these times and add 
clarity and transparency to Exchange rules, thus promoting just and 
equitable principles of trade and removing impediments to, and 
perfecting the mechanism of, a free and open market and a national 
market system. The proposed rule amendments would also provide internal 
consistency within Exchange rules and operate to protect investors and 
the investing public by making the Exchange rules easier to navigate 
and comprehend. The Exchange notes that the proposed cancellation of an 
options order if the underlying NMS security is in an LULD State is not 
new or novel and is available on other options exchanges that offer 
collar functionality similar to the Exchange's.\54\ However, the 
Exchange believes that the rules of these other exchanges do not 
specifically contemplate the underlying security entering an LULD state 
while a market order is resting on the book, because such orders 
typically execute on arrival. The Exchange nonetheless believes that 
the handling such orders, as well as the proposed rule clarification, 
adds transparency and specificity to Exchange rules.
---------------------------------------------------------------------------

    \54\ See supra note 49.
---------------------------------------------------------------------------

Technical Changes
    The Exchange notes that the proposed organizational and non-
substantive changes to the rule text would provide clarity and 
transparency to Exchange rules and would promote just and equitable 
principles of trade and remove impediments to, and perfect the 
mechanism of, a free and open market and a national market system. The 
proposed rule amendments would also provide internal consistency within 
Exchange rules and operate to protect investors and the investing 
public by making the Exchange rules easier to navigate and comprehend.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that this proposed rule change would 
impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act. Instead, the Exchange believes 
the proposal provides

[[Page 46600]]

clarity (including defining the collar execution price) and enhancement 
to the Trading Collars that provide market participants with protection 
from anomalous executions. Thus, the Exchange does not believe the 
proposal creates any significant impact on competition.
    The proposed enhancements to the Trading Collars (i.e., the Zero 
NBBO Collar Exception) would improve the operation of the Trading 
Collars thereby further protecting investors against the execution of 
orders at erroneous prices. As such, the proposal does not impose any 
burden on competition. To the contrary, the Exchange believes that the 
proposed enhancements may foster more competition. Specifically, the 
Exchange notes that it operates in a highly competitive market in which 
market participants can readily favor competing venues. The Exchange's 
proposed rule change would enhance its ability to compete with other 
exchanges that already offer similar trading collar functionality.\55\ 
Thus, the Exchange believes that this type of competition amongst 
exchanges is beneficial to the market place as a whole as it can result 
in enhanced processes, functionality, and technologies. The Exchange 
further believes that because the proposed rule change would be 
applicable to all OTP Holders it would not impose any burden on intra-
market competition that is not necessary or appropriate in furtherance 
of the purposes of the Act.
---------------------------------------------------------------------------

    \55\ See id.
---------------------------------------------------------------------------

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

    Within 45 days of the date of publication of this notice in the 
Federal Register or up to 90 days (i) as the Commission may designate 
if it finds such longer period to be appropriate and publishes its 
reasons for so finding or (ii) as to which the self-regulatory 
organization consents, the Commission will:
    (A) By order approve or disapprove the proposed rule change, or
    (B) institute proceedings to determine whether the proposed rule 
change should be 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 rule-comments@sec.gov. Please include 
File Number SR-NYSEArca-2019-58 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-2019-58. 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-NYSEArca-2019-58 and should be submitted 
on or before September 25, 2019.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\56\
---------------------------------------------------------------------------

    \56\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-19001 Filed 9-3-19; 8:45 am]
BILLING CODE 8011-01-P