Document ID: SEC-2022-0823-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NYSE Arca, Inc.
Posted Date: 2022-06-17T04:00Z

[Federal Register Volume 87, Number 117 (Friday, June 17, 2022)]
[Notices]
[Pages 36556-36558]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-13040]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-95088; File No. SR-NYSEArca-2022-34]

Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Amend Rules 
6.40P-O and 6.41P-O

June 13, 2022.
    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 June 3, 2022, 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 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 Rules 6.40P-O (Pre-Trade and 
Activity-Based Risk Controls) and 6.41P-O (Price Reasonability Checks--
Orders and Quotes). 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
    The Exchange proposes to modify Rules 6.40P-O (Pre-Trade and 
Activity-Based Risk Controls) and 6.41P-O (Price Reasonability Checks--
Orders and Quotes) to clarify the application of certain risk checks on 
Pillar as set forth below.\4\
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    \4\ Rules 6.40P-O and 6.41P-O describe certain risk checks 
available for orders and Market Maker quotes on Pillar. The Exchange 
notes that because it has not yet migrated to the Pillar platform, 
Rules 6.40-O (Risk Limitation Mechanism), 6.60-O (Price Protection--
Orders) and 6.61-O (Price Protection--Quotes) set forth the 
applicable risk checks that continue to apply to orders and Market 
Maker quotes, which rules are not being modified by this filing. The 
Exchange has announced July 11, 2022 as the planned migration date 
for Pillar, as announced here: https://www.nyse.com/trader-update/history#110000421498.
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    First, the Exchange proposes a clarifying change to Rule 6.40P-O 
regarding the reference to ``Auction-Only Orders'' as described below. 
Rule 6.40P-O describes Activity-Based Risk Controls that are available 
to Entering Firms.\5\ Each Entering Firm may apply one of three 
activity-based risk limits to its orders and quotes in an options class 
based on specified thresholds measured over the course of a specified 
time period or Interval.\6\ Rule 6.40P-O(c)(2) sets forth the potential 
automated breach action for the Activity-Based Risk Controls that the 
Exchange may take should an Entering Firm exceed its established risk 
limit. Rule 6.40P-O(d) describes how an Entering Firm's ability to 
enter orders, quotes, and related instructions would be reinstated 
after certain automated breach actions have been triggered.\7\ And, 
Rule 6.40P-O(e) sets forth Kill Switch Action functionality that allows 
an Entering Firm to expressly direct the Exchange to take certain bulk 
cancel or block actions with respect to orders and quotes in the event 
of a breach. The Exchange applies the aforementioned actions to the 
quotes and orders submitted by an Entering

[[Page 36557]]

Firm, unless otherwise specified in the Rule. In particular, the Rule 
explicitly refers to the handling of Auction-Only Orders in the event 
of a breach.
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    \5\ See Rule 6.40P-O(a)(1) (defining Entering Firms as all OTP 
Holders and OTP Firms (including those acting as Market Makers)).
    \6\ See Rule 6.40P-O(a)(3) (defining Activity-Based Risk 
Controls, which controls are not applied to interest represented in 
open outcry except for CTB Orders) and Rule 6.40P-O(a)(5) (defining 
Interval as the configurable time period during which the Exchange 
would determine if an Activity-Based Risk Control is breached).
    \7\ See Rule 6.40P-O(c)(2) (applies in the reinstatement of an 
Entering Firm in the event that a ``Block Only'' or ``Cancel and 
Block'' Automated Breach Action is triggered).
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    Rule 6.62P-O(c) sets forth the order types that qualify as 
``Auction-Only Orders,'' which orders are designated to participate 
solely in Auctions held during the opening (or reopening) of option 
series.\8\ Subsequent to the adoption of Rule 6.40P-O, the Exchange 
adopted Rule 6.91P-O, regarding complex order trading. Rule 6.91P-
O(b)(2)(C) describes ECO GTX Orders. ECO GTX Orders are utilized solely 
for a Complex Order Auction or COA, which may only occur once a series 
opens or reopens.\9\ As such, for the avoidance of doubt, the Exchange 
proposes to specify (by definition) that ``Auction-Only Orders'' 
referred to throughout Rule 6.40P-O refer to the order types set forth 
in Rule 6.62P-O(c) (Orders and Modifiers) and (by extension) do not 
include ECO GTX Orders which the Exchange will handle like any other 
unexecuted (non-Auction Only) order when an Activity-Based Risk Control 
threshold is breached.\10\ The Exchange believes this proposed change 
would make clear that Auction-Only Orders do not include ECO GTX Orders 
and, as a result would add clarity and transparency to Exchange rules 
making them easier to navigate and comprehend.
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    \8\ See Rule 6.62P-O(c)(1)-(3) (defining as Auction-Only Orders: 
Limit-on-Open Orders (LOO Orders), Market-on-Open Orders (MOO 
Orders), and Imbalance Offset Orders (IO Orders)).
    \9\ See Rule 6.91P-O(f) (providing, in relevant part, that a COA 
may only be conducted when a complex strategy is open for trading).
    \10\ See proposed Rule 6.40P-O(a)(6). See, e.g., Rule 6.40P-
O(c)(2)(C)(iii) (providing that for Entering Firms that opt for 
``Cancel and Block'' handling upon trigger of an Activity-Based Risk 
Control, ``the Exchange will cancel all unexecuted orders and quotes 
in the Consolidated Book other than Auction-Only Orders and orders 
designated GTC'').
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    Next, the Exchange proposes a clarifying change to Rule 6.41P-O 
regarding the application of the ``Price Reasonability Checks'' to 
orders and quotes, which include the Arbitrage Check and the Intrinsic 
Value Check, when such checks rely on last sale information.\11\ In 
particular, the Arbitrage Check will reject or cancel (if resting) a 
buy order or quote for call options if the price of the order or quote 
``is equal to or greater than the last sale price of the underlying 
security on the Primary Market, plus a specified threshold to be 
determined by the Exchange and announced by Trader Update.'' \12\ 
Similarly, for the Intrinsic Value Check, the Exchange deems the 
Intrinsic Value of a put option as being ``equal to the strike price 
minus the last sale price of the underlying security on the Primary 
Market'' and the Intrinsic Value of a call option as being ``equal to 
the last sale price of the underlying security on the Primary Market 
minus the strike price.'' \13\
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    \11\ See Rule 6.41P-O(b) and (c) (describing the Arbitrage Check 
and the Intrinsic Value Check, respectively).
    \12\ See Rule 6.41P-O(b)(2).
    \13\ See Rule 6.41P-O(c)(2)(1)-(2).
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    However, certain trades such as odd-lot transactions are not 
considered ``last-sale eligible,'' which means the related pricing data 
is not available/reported. As such, when the Exchange does not have 
access to such ``last-sale eligible'' information, it cannot perform 
the Checks as intended. Therefore, the Exchange proposes to clarify the 
impacted sections of the Rule to provide that the applicable Checks 
would use as a reference ``the price of the last-sale eligible trade of 
the underlying security on the Primary Market.'' \14\ In addition, and 
consistent with the aforementioned changes, the Exchange proposes to 
add a provision to Rule 6.41P-O(a)(3), regarding the circumstances 
under which the Price Reasonability Checks do not apply, to include 
``any options series for which there is no last-sale eligible trade in 
the underlying security on the Primary Market since the opening of 
trading.'' \15\ The Exchange believes these proposed changes add 
clarity and transparency to Exchange rules making them easier to 
navigate and comprehend.
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    \14\ See proposed Rule 6.41P-O(b)(2), (c)(1)-(2).
    \15\ See proposed Rule 6.41P-O(a)(3)(iv). The Exchange also 
proposes to make non-substantive conforming changes to this 
paragraph. See proposed Rule 6.41P-O(a)(3)(iii) (removing now-
extraneous and) and (v) (re-numbered existing provision), which 
changes add clarity, transparency, and internal consistency to 
Exchange rules.
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2. Statutory Basis
    The proposed rule change is consistent with Section 6(b) of the 
Securities Exchange Act of 1934 (the ``Act''),\16\ in general, and 
furthers the objectives of Section 6(b)(5),\17\ 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.
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    \16\ 15 U.S.C. 78f(b).
    \17\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes that the proposed rule change to clarify the 
``Auction-Only Orders'' covered in Rule 6.40P-O 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 and 
protect investors because it would add clarity and transparency to 
Exchange rules making them easier to navigate and comprehend. Moreover, 
the proposed change would avoid potential confusion regarding the 
application of Rule 6.40P-O to ECO GTX Orders (as mentioned in Rule 
6.91P-O).
    The Exchange believes that the proposed rule change to clarify that 
the Exchange would rely on ``the price of the last-sale eligible trade 
of the underlying security on the Primary Market,'' in conducting 
certain of the Price Reasonability Checks 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 and 
protect investors because it would add clarity and transparency to 
Exchange rules making them easier to navigate and comprehend.

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 proposed change is not 
intended to address competition, but rather to clarify the Exchange's 
rules regarding certain risk checks and how such checks are applied. 
The proposed change would apply to all similarly-situated market 
participants.

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 \18\ and Rule 19b-4(f)(6) thereunder.\19\ 
Because the proposed rule change does not: (i) significantly affect the 
protection of investors or the public interest; (ii) impose any 
significant burden on

[[Page 36558]]

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)(iii) of the Act \20\ and subparagraph (f)(6) of 
Rule 19b-4 thereunder.\21\
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    \18\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \19\ 17 CFR 240.19b-4(f)(6).
    \20\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \21\ 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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    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) \22\ of the Act to determine whether the proposed 
rule change should be approved or disapproved.
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    \22\ 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-NYSEArca-2022-34 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-2022-34. 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-2022-34 and should be submitted 
on or before July 8, 2022.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\23\
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    \23\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022-13040 Filed 6-16-22; 8:45 am]
BILLING CODE 8011-01-P