Document ID: SEC-2019-1667-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NYSE Arca, Inc.
Posted Date: 2019-11-07T05:00Z

[Federal Register Volume 84, Number 216 (Thursday, November 7, 2019)]
[Notices]
[Pages 60128-60130]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-24255]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-87443; File No. SR-NYSEArca-2019-71]

Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
of Proposed Rule Change Regarding the Applicability and Functionality 
of Certain Order Types on the Exchange

November 1, 2019.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby given 
that, on October 22, 2019, NYSE Arca, Inc. (``NYSE Arca'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``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 its rules to clarify the 
applicability and functionality of certain order types on the Exchange. 
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 amend Rule 6.62-O (Certain Types of Orders 
Defined) to clarify the applicability and functionality of certain 
order types. Specifically, the Exchange proposes to amend the 
definitions of Contingency Orders, Working Orders, Stop Orders, Stop 
Limit Orders and All-or None (``AON'') Orders, as set forth in Rule 
6.62-O(d). The Exchange is not proposing to change or alter any 
obligations, rights, policies or practices enumerated within its rules. 
Rather, this proposal is designed to reduce any potential investor 
confusion as to the functionality and applicability of certain order 
types presently available on the Exchange.
Proposed Changes to Order Type Definitions
    Rule 6.62-O (the ``Rule'') contains certain definitions of options 
order types available on the Exchange. Paragraph (d) of the Rule 
defines Contingency Orders or Working Orders as orders that are 
``contingent upon a condition being satisfied or an order with a 
conditional or undisplayed price and/or size.'' Although not explicitly 
stated in the current rule, such Contingency Orders are maintained in 
the Working Order File of the Consolidated Book until they are eligible 
for execution and/or display. Because such information would add 
clarity and transparency to the handling of such orders, the Exchange 
proposes to add it to the Rule.\4\ The Exchange also proposes to amend 
the definitions of Stop Orders, Stop Limit Orders and AON Orders, which 
are Contingency Orders/Working Orders.
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    \4\ See proposed Rule 6.62-O(d). See Rule 6.76-O(b) (providing, 
in relevant part that, unless otherwise specified, the Exchange will 
display ``all bids and offers at all price levels in the Display 
Order Process of the OX'').
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    Rule 6.62-O(d)(1)-(2) Stop Orders and Stop Limit Orders. A Stop 
Order is an order that becomes a Market Order when the market for a 
particular option contract reaches a specified price.\5\ A Stop Limit 
Order is an order that becomes a Limit Order when the market for a 
particular option contract reaches a specified price.\6\ Stop Orders 
and Stop Limit Orders (collectively, ``Stop Orders'' herein unless 
otherwise specified) track the price of an option and are generally 
used to limit losses as prices move up, in the case of buy orders, or 
down in the case of sell orders. In each case, the ``triggering 
event,'' which converts the order type (to a Market Order or Limit 
Order, as applicable) occurs once the option trades or is (locally) 
quoted at, or above for a buy (below for a sell), the specified stop 
price.\7\ Thus, Stop Orders to buy (sell) may be triggered as the price 
of an option rises (falls). The current rule provides that a Stop Order 
to buy (sell) will be rejected if, at the time of arrival, the stop 
price is below (above) the bid (offer).\8\ Regarding priority, Stop 
Orders (including Stop Limit Orders) are not displayed, have no 
standing in any Order Process in the Consolidated Book.\9\
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    \5\ See Rule 6.62-O(d)(1).
    \6\ See Rule 6.62-O(d)(2).
    \7\ See Rule 6.62-O(d)(1),(2).
    \8\ See Rule 6.62-O(d)(1),(2).
    \9\ See Rule 6.62-O(d)(1) (setting forth details about both Stop 
Orders and Stop Limit Orders, even though paragraph (d)(1) pertains 
solely to Stop Orders). See also Rule 6.76-O(a)(2)(D) (providing 
that Stop Orders within the Working Order Process are ``ranked based 
on the specified stop price and the time of order entry'').
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    The Exchange proposes to modify the description of Stop Orders to 
enhance the clarity of the rule text, including by streamlining some of 
the existing text and adding new text, as appropriate, and deleting 
existing text to correct an inaccuracy regarding current functionality. 
First, the Exchange proposes to streamline the description of the order 
types as follows. The Exchange proposes to revise the first sentence 
describing each order type (i.e., Rule 6.62-O(d)(1),(2)) to state that 
the order type converts to a Market or Limit Order, respectively--or 
``is triggered''--when the market for a particular option contract 
reaches a specified price.\10\ The Exchange also proposes to modify 
Rule 6.62-O(d)(1),(2) to combine into one sentence the description of 
both buy and sell Stop Orders without modifying current functionality. 
The current rule addresses buy and sell Stop Orders in two sentences 
and the Exchange thinks the proposed change would streamline the rule 
and make it easier to navigate. Specifically, proposed Rule 6.62-
O(d)(1),(2) would provide that a Stop Order (or Stop Limit Order) ``to 
buy (sell) is triggered'' such that it becomes a Market Order or Limit 
Order, respectively, ``when the option contract trades at a price equal 
to or greater (less) than the specified 'stop' price on the Exchange or 
another Market Center or when the Exchange bid (offer) is quoted at a 
price equal to or greater (less) than the stop price.'' \11\
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    \10\ See proposed Rule 6.62-O(d)(1), (2).
    \11\ See proposed Rule 6.62-O(d)(1), (2). Consistent with this 
proposed change to address both buy and sell Stop Orders and Stop 
Limit Orders in one sentence, the Exchange proposes to delete as 
unnecessary the sentences in the current definitions that describe 
the functionality for sell Stop Orders and sell Stop Limit Orders. 
See id. For internal consistently, the Exchange also proposes to 
replace reference to NYSE Arca with the ``Exchange.'' See id.

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[[Page 60129]]

    The Exchange also proposes to address the display and standing of 
each type of Stop Order for which information is currently contained 
only in paragraph (d)(1) of Rule 6.62-O.\12\ Specifically, the Exchange 
proposes to modify the current rules to reflect that each type of Stop 
Order ``is not displayed and has no standing in any Order Process in 
the Consolidated Book, unless or until it is triggered (i.e., same-side 
incoming interest trades or quotes at a price equal to or better than 
the stop price).'' \13\ The Exchange also proposes to add new rule text 
to clarify that ``[a]fter the triggering event,'' a Stop Order (per 
Rule 6.62-O(d)(1)) becomes a new Market Order, and a Stop Limit Order 
(per Rule 6.62-O(d)(2)) becomes a new Limit Order, and each converted 
order is processed accordingly.\14\
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    \12\ See Rule 6.62-O(d)(1) (which provides that ``Stop Orders 
(including Stop Limit Orders) shall not have standing in any Order 
Process in the Consolidated Book and shall not be displayed'').
    \13\ See proposed Rule 6.62-O(d)(1), (2). The Exchange notes 
that this proposed text modifies the existing text in paragraph 
(d)(1) and is new text for paragraph (d)(2) of the Rule. See id.
    \14\ See proposed Rule 6.62-O(d)(1), (2). See also Rule 6.62-
O(a), (b) (defining Market Order and Limit Order, respectively).
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    Finally, the Exchange proposes to delete as inaccurate the last two 
sentences in the description of each type of Stop Order, which provides 
for the rejection of such orders to buy (sell) if entered with a stop 
price below the bid (or above the offer). This language is not accurate 
as the Exchange does not reject Stop Orders so priced, but instead 
would execute such orders once triggered. This proposed change would 
reflect current functionality and therefore add clarity and consistency 
to Exchange rules.\15\
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    \15\ See proposed Rule 6.62-O(d)(1), (2).
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    Rule 6.62-O(d)(4) All-Or-None Orders (``AON Orders''). An AON Order 
is a Market or Limit Order that is to be executed in its entirety or 
not at all.\16\ The Exchange is not proposing to modify the 
functionality of an AON Order, but rather proposes to amplify the 
definition of an AON Order to clarify its current functionality. 
Specifically, the Exchange proposes to make clear that an AON Order 
that does not execute on arrival will not be displayed or routed to 
another Market Center (i.e., AON Orders may only be executed on the 
Exchange) and would have no standing in any Order Process in the 
Consolidated Book.\17\ Further, the Exchange proposes to clarify that 
AON Orders are not eligible to execute against incoming interest but 
rather may execute solely against interest resting in the Consolidated 
Book when sufficient size is available.\18\ Finally, the Exchange 
proposes to specify that the System monitors the Consolidated Book for 
AON Order execution opportunities.\19\ The Exchange believes the 
proposed changes would add transparency to the operation of this order 
type, without altering the current functionality.
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    \16\ See Rule 6.62-O(d)(4).
    \17\ See proposed Rule 6.62-O(d)(4). See also Rule 6.76-
O(a)(2)(C) (providing that AON Orders within the Working Order File 
[sic] are ``ranked based on the specified limit price and the time 
of order entry'').
    \18\ See proposed Rule 6.62-O(d)(4).
    \19\ See id.
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Rule 6.76A-O: Order Execution
    The Exchange proposes to make a clarifying change to Rule 6.76A-O, 
which details how bids and orders are executed. In particular, current 
Rule 6.76A-O(b)(1)(A) provides that ``[a]n incoming marketable bid or 
offer shall be matched against orders in [sic] the Working Order 
Process in the order of their ranking, at the price of the displayed 
portion (or in the case of an All-or-None Order, or at the limit price 
for AON Orders [sic]), for the total amount of option contracts 
available at that price or for the size of the incoming bid or offer, 
whichever is smaller.'' \20\ The Exchange proposes to add ``of Reserve 
Orders'' to make clear that reference to ``the price of the displayed 
portion'' refers to such orders. \21\ In addition, the Exchange 
proposes to amend and reorganize the language regarding AON Orders to 
add clarity and coherence to the paragraph. Proposed Rule 6.76A-
O(b)(1)(A) would provide that incoming interest is ``matched against 
orders within the Working Order Process in the order of their ranking, 
at the price of the displayed portion of Reserve Orders, or at the 
limit price of AON Orders, for the total amount of option contracts 
available at that price or for the size of the incoming bid or offer, 
whichever is smaller.'' \22\ As noted herein, Stop Orders have no 
standing unless or until triggered, hence the reason the Working Order 
Process does not address the execution of such orders.
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    \20\ See Rule 6.76A-O(b)(1)(A).
    \21\ See proposed Rule 6.76A-O(b)(1)(A).
    \22\ See id.
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2. Statutory Basis
    The proposed rule change is consistent with Section 6(b) \23\ of 
the Act, in general, and furthers the objectives of Section 
6(b)(5),\24\ 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.
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    \23\ 15 U.S.C. 78f(b).
    \24\ 15 U.S.C. 78f(b)(5).
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    In particular, the Exchange believes that deleting inaccurate 
language (regarding Stop Orders) and enhancing the descriptions as to 
the functionality of Contingency Orders, Working Orders, Stop Orders 
and AON Orders types would add transparency and clarity to the 
Exchange's rules, without altering current functionality. In addition, 
the Exchange believes that clarifying the definitions and current 
operation of Contingency Orders, Working Orders, Stop Orders and AON 
Orders removes impediments to, and perfects the mechanism of a free and 
open market by helping to ensure that investors better understand the 
current functionality of certain orders types available for trading on 
the Exchange.
    The Exchange further believes that the proposal removes impediments 
to, and perfects the mechanism of a free and open market by ensuring 
that members, regulators and the public can more easily navigate the 
Exchange's rulebook and better understand certain order types available 
for trading on the Exchange.
Technical Changes
    The Exchange notes that the proposed organizational and non-
substantive changes to the rule text, including to Rule 6.76A-O, 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.

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. The proposed change is not 
designed to address any competitive issue but rather revise or amplify 
incomplete or

[[Page 60130]]

inaccurate rule text or remove language pertaining to unavailable 
functionality in the Exchange's rulebook, thereby reducing confusion 
and making the Exchange's rules easier to understand and navigate. The 
Exchange believes the proposed changes would add transparency to the 
operation of certain order types, without altering the current 
functionality.

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-2019-71 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-2019-71. 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-2019-71 and should be submitted 
on or before November 29, 2019.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\25\
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    \25\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-24255 Filed 11-6-19; 8:45 am]
 BILLING CODE 8011-01-P