Document ID: SEC-2022-1125-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NYSE Arca, Inc.
Posted Date: 2022-08-19T04:00Z

[Federal Register Volume 87, Number 160 (Friday, August 19, 2022)]
[Notices]
[Pages 51181-51184]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-17830]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-95501; File No. SR-NYSEARCA-2022-52]

Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Amend Rule 
6.64P-O

August 15, 2022.
    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 August 9, 2022, 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 Rule 6.64P-O (Auction Process). 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 Rule 6.64P-O (Auction Process) 
regarding the handling of certain Market Maker quotations and order 
instructions related thereto as set forth below.
Overview
    On July 11, 2022, the Exchange began migrating symbols from its 
existing trading platform to the Pillar trading platform,\4\ As of July 
28, 2022, all symbols have been migrated to the Pillar platform.\5\ 
Since migrating to Pillar, the Exchange has encountered unexpected 
processing of certain Market Maker quotations and related (subsequent) 
``order instructions'' to update such quotations during the abbreviated 
time period of the Auction Processing Period and transition to 
continuous trading (i.e., generally measured in fractions of a second) 
when the Exchange conducts its opening (or reopening) Auction and 
transitions a series from pre-open state to continuous trading.\6\ The 
Exchange believes that, as a result of this unexpected processing 
during this very brief period, Market Makers may be unable to determine 
their potential exposure (and thus be at risk for unexpected 
executions). To prevent this risk to Market Makers, the Exchange 
updated the treatment of this quoting interest during these discrete 
periods, which was announced by a Trader Update (the ``Trader 
Update'').\7\
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    \4\ The Exchange announced the July 11th launch date, as well as 
the schedule for symbol migration in five tranches, via Trader 
Update, available here: https://www.nyse.com/trader-update/history#110000436694.
    \5\ The Exchange announced the migration of the fifth and final 
tranche of symbols to the Pillar trading platform, via Trader 
Update, available here: https://www.nyse.com/trader-update/history#110000440092.
    \6\ Because the opening and reopening process is identical, the 
Exchange will refer to both processes, collectively, as the 
``opening.''
    \7\ The Exchange announced via Trader Update that, effective 
July 29, 2022, ``[d]uring Auction Processing Period or during the 
transition to continuous trading, any new quotes will be rejected 
and, if the Exchange receives order instructions for an existing 
quote, the Exchange will cancel any same-side quotes sent from the 
same order/quote entry port of that Market Maker,'' available here: 
https://www.nyse.com/trader-update/history#110000441036. The 
aforementioned change was made in the interest of maintaining a fair 
and orderly market consistent with Rule 6.64P-O(d)(5). See id.

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[[Page 51182]]

    The Exchange proposes to modify Rule 6.64P-O to codify the updated 
treatment of this quoting interest (as announced in the Trader Update) 
to ensure efficient and consistent handling of Market Maker quotations 
(and related order instructions).\8\ The Exchange believes the proposed 
rule change would provide more certainty as to the handling of certain 
quoting interest during the brief Auction Processing Period and 
transition to continuous trading.
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    \8\ For the avoidance of doubt, this proposal does not modify 
the Exchange's handling or processing of orders (or order 
instructions related thereto) pursuant to Rule 6.64P-O.
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Current Rule
    Rule 6.64P-O (the ``Rule'') covers the entire Auction Process for 
opening option series, which Process begins when the Exchange receives 
an Auction Trigger for a series and ends when the Auction is 
conducted.\9\ The Auction Processing Period is the time during which 
the Auction is being processed and concludes when the Exchange 
transitions to continuous trading.\10\ Paragraphs (e) and (f) to the 
Rule describe how the Exchange handles interest during this brief 
period (as described below), which is typically measured in fractions 
of a second.
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    \9\ See Rule 6.64P-O(a)(5). An Auction Trigger refers to 
information disseminated by the Primary Market in the underlying 
security that triggers the Auction Process for a series to begin. 
See also Rule 6.64P-O(a)(7).
    \10\ See Rule 6.64P-O(a)(6). See also Rule 6.64P-O(a)(12) (A) 
and (B), respectively (defining pre-open state, including that for a 
Core Open Auction and a Trading Halt Auction, the pre-open state 
ends when the Auction Processing Period begins).
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    Rule 6.64P-O(e) describes the Exchange's handling of interest that 
arrives during the Auction Processing Period, i.e., new quote and order 
messages, as well as ``order instructions,'' such as requests to 
cancel, cancel/replace, or otherwise modify, an existing order or 
quote. By Rule, the Exchange will accept new order and quote messages 
during the Auction Processing Period, but such messages will not be 
processed until after this Period.\11\ In addition, an order 
instruction that arrives during the Auction Processing Period will not 
be processed until after this Period if the order instruction relates 
to an order or quote that was received before the Auction Processing 
Period; further, any subsequent order instructions relating to such 
order will be rejected.\12\ As noted above, the Auction Processing 
Period concludes when the Auction is conducted and the Exchange 
transitions to continuous trading.
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    \11\ See Rule 6.64P-O(e).
    \12\ See Rule 6.64P-O(e)(1). Rule 6.64P-O(e)(2), which is not 
being modified by this rule change, provides that ``[a]n order 
instruction that arrives during the Auction Processing Period will 
be processed on arrival if it relates to an order that was received 
during the Auction Processing Period.''
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    Under the current Rule 6.64P-O(f), regarding the transition to 
continuous trading, the Exchange processes order instructions related 
to each order and quote, in time sequence (per paragraphs (f)(3)(A) or 
(B) of this Rule), if such order instruction relates to an order or 
quote that was received before the Auction Processing Period; or 
relates to a series that has already transitioned to continuous trading 
and the order instruction arrives during either the transition to 
continuous trading or the Auction Processing Period (per paragraph 
(e)(1)).\13\ And, any subsequent order instructions relating to such 
order or quote is rejected.\14\ Finally, Rule 6.64P-O(f)(2)(B) provides 
that an order instruction that arrives during the transition to 
continuous trading will be processed on arrival if it relates to an 
order or quote that was entered during either the Auction Processing 
Period or the transition to continuous trading and such order or quote 
has not yet transitioned to continuous trading.\15\
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    \13\ See Rule 6.64P-O(f)(2)(A).
    \14\ See Rule 6.64P-O(f)(2)(A).
    \15\ See Rule 6.64P-O(f)(2)(B).
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Proposed Rule Change
    As noted above, since the migration to Pillar, the Exchange has 
encountered unexpected processing of certain Market Maker quotations 
and related (subsequent) ``order instructions'' to update such 
quotations during the Auction Processing Period and as the Exchange 
transitions to continuous trading. To address this issue, the Exchange 
proposes to modify its handling of such quoting interest during these 
discrete time periods as set forth in paragraphs (e) (Order Processing 
during an Auction Processing Period) and (f) (Transition to Continuous 
Trading) of Rule 6.64P-O.
    First, the Exchange proposes to revise Rule 6.64P-O(e) to specify 
that ``[d]uring the Auction Processing Period, the Exchange will reject 
new quotes and, if the Exchange receives order instructions for 
existing quotes, the Exchange will cancel any same-side quotes sent 
from the same order/quote entry port of that Market Maker.'' \16\ The 
Exchange believes that this proposed change in the treatment of this 
interest would allow for more deterministic handling of order 
instructions for quotes. In addition, by cancelling any same-side 
quotes of that Market Maker, the Exchange would eliminate potentially 
unexpected exposure (or executions) for that Market Maker.
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    \16\ See proposed Rule 6.64P-O(e).
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    Next, the Exchange proposes to reorganize the text of Rule 6.64P-
O(e) to make clear that ``[d]uring the Auction Processing Period, new 
orders will be accepted but will not be processed until after the 
Auction Processing Period and order instructions for existing orders 
will be processed as follows:'' \17\ Consistent with the foregoing, the 
Exchange proposes to modify Rule 6.64P-O(e)(1) to remove reference to 
quotes (as this handling is covered in proposed paragraph (e) to the 
Rule), and to clarify the rule text (consistent with current 
functionality) that subsequent order instructions related to an 
existing order would be rejected ``when a prior order instruction is 
pending.'' \18\
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    \17\ See proposed Rule 6.64P-O(e). The Exchange notes that the 
textual change proposed is substantively identical to the first 
sentence to Rule 6.64P-O(e), except that the proposed sentence omits 
reference to quotes and clarifies that the order instructions relate 
to ``existing orders.'' See id.
    \18\ See proposed Rule 6.64P-O(e)(1).
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    Further, and consistent with the foregoing, the Exchange proposes 
to modify Rule 6.64P-O(f)(2) to specify that during the transition to 
continuous trading, ``the Exchange will reject new quotes and, if the 
Exchange receives order instructions for existing quotes, the Exchange 
will cancel any same-side quotes sent from the same order/quote entry 
port of that Market Maker.'' \19\ As noted above, the Exchange believes 
that this proposed treatment would allow for more deterministic 
handling of order instructions for quotes. Further, by cancelling any 
same-side quotes of that Market Maker, the Exchange would eliminate 
potentially unexpected exposure (or executions) for that Market Maker.
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    \19\ See proposed Rule 6.64P-O(f)(2).
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    In addition, proposed Rule 6.64P-O(f)(2)(A) and (B) would remove 
reference to quotes (as this handling is covered in proposed paragraph 
(f)(2) of the Rule), and proposed Rule 6.64P-O(f)(2)(A) would clarify 
the rule text (consistent with current functionality) that subsequent 
order instructions related to an existing order would be rejected 
``when a prior order instruction is pending.'' \20\ The Exchange also 
proposes to remove as superfluous the unnecessary reference in 
paragraph (f)(2)(A) of the Rule to ``under paragraph

[[Page 51183]]

(e)(1),''which immediately follows ``the Auction Processing Period.'' 
\21\ Finally, in paragraph (f)(3)(C) of the Rule, which specifies the 
treatment of quotes that were received during the Auction Processing 
Period, the Exchange proposes to remove such references to quotes as 
unnecessary to conform with the foregoing proposed changes (i.e., which 
state that any such quotes would be rejected).\22\ The Exchange 
believes these proposed non-substantive changes would add clarity, 
transparency and internal consistency to Exchange rules.
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    \20\ See proposed Rule 6.64P-O(f)(2)(A) and (B).
    \21\ See Rule 6.64P-O(f)(2)(B). The Exchange does not believe 
the extraneous reference paragraph (e)(1) of the Rule adds substance 
to this provision and is therefore distracting and potentially 
confusing to market participants.
    \22\ See proposed Rule 6.64P-O(f)(3)(C). See also proposed Rule 
6.64P-O(e).
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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''),\23\ in general, and 
furthers the objectives of Section 6(b)(5),\24\ 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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    \23\ 15 U.S.C. 78f(b).
    \24\ 15 U.S.C. 78f(b)(5).
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    Overall, the Exchange believes the proposed change would promote a 
fair and orderly market because it would address, in a timely manner, 
the unexpected issue regarding the processing of certain Market Maker 
quotations and (subsequent) order instructions to update such 
quotations, which issue came to light as the Exchange began migrating 
symbols to Pillar for options trading.\25\ The Exchange believes the 
proposed rule change would promote just and equitable principles of 
trade because the proposal would provide Market Makers greater 
determinism and certainty about how quotes (and order instructions 
related thereto) are handled during the abbreviated period that the 
Exchange conducts the opening Auction and transitions to continuous 
trading. Further, the proposed rule change would allow for the 
efficient and consistent handling of such quotes and would reduce the 
potential unexpected exposure (or executions) for Market Makers, which 
would 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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    \25\ See supra note 7, Trader Update.
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    Finally, the Exchange believes that the proposed clarifying 
changes, including non-substantive conforming changes, would promote 
transparency and internal consistency within Exchange rules making them 
easier to comprehend and navigate.\26\
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    \26\ See, e.g., supra notes 17, 18, 20-23.
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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 
designed to be competitive but is instead designed to address an 
unexpected issue regarding the processing of Market Maker quotations 
(and subsequent order instructions related thereto) that arose in 
connection with the Exchange's migration to its Pillar trading 
platform. The Exchange does not believe that the proposed rule change 
would impose any burden on intramarket competition that is not 
necessary or appropriate in furtherance of the Act because the proposed 
change would apply equally to all similarly-situated Market Makers. 
Rather, the Exchange believes that by adding certainty to a Market 
Maker's exposure for quoting interest received during the Auction 
Processing Period and transition to continuous trading, the proposed 
change may incent Market Makers to more readily participate in the 
opening process, which may in turn improve liquidity and price 
discovery to the benefit of all market participants.
    The Exchange does not believe that the proposed rule change would 
impose any burden on intermarket competition that is not necessary or 
appropriate in furtherance of the purposes of the Act because it is 
designed to efficiently handle certain Market Maker quotations and 
certain order instructions related thereto and to promote the opening 
(or reopening) of option series on the Exchange in a fair and orderly 
manner.
    Additionally, the clarifying changes, including non-substantive 
conforming changes proposed by the Exchange provide additional clarity 
and detail in the Exchange's rules and are not changes made for any 
competitive purpose.

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 \27\ and Rule 19b-4(f)(6) thereunder.\28\ 
Because the proposed rule change does not: (i) significantly affect the 
protection of investors or the public interest; (ii) impose any 
significant burden on competition; and (iii) become operative prior to 
30 days from the date on which it was filed, or such shorter time as 
the Commission may designate, if consistent with the protection of 
investors and the public interest, the proposed rule change has become 
effective pursuant to Section 19(b)(3)(A) of the Act and Rule 19b-
4(f)(6)(iii) thereunder.
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    \27\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \28\ 17 CFR 240.19b-4(f)(6).
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    A proposed rule change filed under Rule 19b-4(f)(6) \29\ normally 
does not become operative prior to 30 days after the date of the 
filing. However, pursuant to Rule 19b4(f)(6)(iii),\30\ the Commission 
may designate a shorter time if such action is consistent with the 
protection of investors and the public interest. The Exchange has asked 
the Commission to waive the 30-day operative delay so that the proposal 
may become operative immediately upon filing. The proposed rule change 
would address an unexpected issue regarding the processing of certain 
Market Maker quotations and subsequent order instructions to update 
such quotations, which issue the Exchange states came to light as the 
Exchange began migrating symbols to Pillar for options trading. The 
Exchange represents that implementing the proposed rule change without 
delay would address that unexpected issue by aligning the Exchange's 
rule with the technology change deployed as of July 29, 2022 regarding 
how new quote messages and order instructions related to such 
quotations would be processed once the Auction Processing Period for an 
option series commences. Moreover, the Exchange represents that 
implementing this change without delay would allow the Rule to reflect 
the more deterministic handling and processing

[[Page 51184]]

of quotes (and subsequent instructions related thereto), which would, 
in turn, eliminate potentially unexpected exposure (or executions) for 
Market Makers. For these reasons, and based on the representations of 
the Exchange, the Commission believes that waiver of the 30-day 
operative delay for this proposal is consistent with the protection of 
investors and the public interest. Accordingly, the Commission hereby 
waives the 30-day operative delay and designates the proposal operative 
upon filing.\31\
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    \29\ 17 CFR 240.19b-4(f)(6).
    \30\ 17 CFR 240.19b-4(f)(6)(iii).
    \31\ For purposes only of waiving the 30-day operative delay, 
the Commission has considered the proposed rule change's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
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    At any time within 60 days of the filing of 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) \32\ of the Act to determine whether the proposed 
rule change should be approved or disapproved.
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    \32\ 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-2022-52 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-2022-52. 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-2022-52 and should be submitted 
on or before September 9, 2022.
    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\33\
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    \33\ 17 CFR 200.30-3(a)(12).

Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2022-17830 Filed 8-18-22; 8:45 am]
BILLING CODE 8011-01-P