Document ID: SEC-2017-0359-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NYSE Arca, Inc.
Posted Date: 2017-03-07T05:00Z

[Federal Register Volume 82, Number 43 (Tuesday, March 7, 2017)]
[Notices]
[Pages 12869-12878]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-04352]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-80138; File No. SR-NYSEArca-2016-149]

Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
of Amendment Nos. 1 and 2 and Order Granting Accelerated Approval of a 
Proposed Rule Change, as Modified by Amendment Nos. 1 and 2, To Amend 
NYSE Arca Rule 6.91

March 1, 2017.

I. Introduction

    On November 14, 2016, NYSE Arca, Inc. (``Exchange'' or ``NYSE 
Arca'') filed with the Securities and Exchange Commission (the 
``Commission''), pursuant to Section 19(b)(1) \1\ of the Securities 
Exchange Act of 1934 (the ``Act''),\2\ and Rule 19b-4 thereunder,\3\ a 
proposed rule change to amend NYSE Arca Rule 6.91 to clarify and 
provide greater specificity to its rules governing the trading of 
Electronic Complex Orders (``ECOs''), and to correct inaccuracies in 
those rules.\4\ The proposed rule change was published for comment in 
the Federal Register on December 2, 2016.\5\ NYSE Arca filed Amendment 
No. 1 to the proposal, which supersedes the original filing in its 
entirety, on December 23, 2016, and filed Amendment No. 2 to the 
proposal

[[Page 12870]]

on February 17, 2017.\6\ On January 9, 2017, the Commission extended 
the time period for Commission action to March 2, 2017.\7\ The 
Commission received no comment letters regarding the proposal. This 
order provides notice of filing of Amendment Nos. 1 and 2 and approves 
the proposed rule change, as modified by Amendment Nos. 1 and 2, on an 
accelerated basis.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
    \4\ For purposes of NYSE Arca Rule 6.91, an Electronic Complex 
Order is any Complex Order, as defined in NYSE Arca Rule 6.62(e), or 
any Stock/Option Order or Stock/Complex Order, as defined in NYSE 
Arca Rule 6.62(h), that is entered into the NYSE Arca System. See 
NYSE Arca Rule 6.91.
    \5\ See Securities Exchange Act Release No. 79404 (November 28, 
2016), 81 FR 87094 (``Notice'').
    \6\ As discussed in greater detail below, Amendment No. 1 makes 
several changes that further clarify the operation of NYSE Arca Rule 
6.91. In particular, Amendment No. 1 revises NYSE Arca Rule 
6.91(a)(ii) to delete an incorrect cross-reference to NYSE Arca Rule 
6.76A; adds a cross-reference to NYSE Arca Rule 6.91(a)(2) to NYSE 
Arca Rule 6.91(c); revises NYSE Arca Rule 6.91(c)(3)(ii) to indicate 
that NYSE Arca will determine the number of ticks away from the 
current, contra-side market for a COA-eligible order; amends NYSE 
Arca Rule 6.91(c)(3)(iii) to indicate that a COA-eligible order will 
reside on the Consolidated Book until it meets the requirements for 
COA eligibility and can initiate a COA; revises NYSE Arca Rules 
6.91(c)(6)(A)(iv), 6.91(c)(6)(B)(v), and 6.91(c)(7)(B) to indicate 
that complex orders could trade pursuant to NYSE Arca Rule 
6.91(c)(iii); amends NYSE Arca Rule 6.91(c)(6)(B) to indicate that 
when a COA ends early, or at the end of the Response Time Interval, 
the initiating COA-eligible order will execute pursuant to NYSE Arca 
Rule 6.91(c)(7) ahead of interest that arrived during the COA; and 
amends NYSE Arca Rule 6.91(c)(7) to indicate that when a COA ends 
early, or at the end of the Response Time Interval, the COA-eligible 
order will be executed against the contra-side interest received 
during the COA. Amendment No. 2 revises proposed NYSE Rule 
6.91(c)(3) to delete proposed paragraph (iii), which would have 
required that the limit price of a COA-eligible order be at or 
within the NYSE Arca best bid/offer for each leg of the order to 
initiate a COA. In addition, Amendment No. 2 revises proposed NYSE 
Arca Rule 6.91(c)(6)(C)(i) to indicate that any updates to the leg 
markets that cause the same-side Complex BBO to lock or cross 
Electronic Complex Orders (``ECOs'') resting in the Consolidated 
Book will cause the COA to end early. Amendment No. 2 also revises 
proposed NYSE Arca Rule 6.91(c)(6)(C)(ii) to provide that updates to 
the leg markets that cause the same-side BBO to be priced higher 
(lower) than the COA-eligible order to buy (sell), but do not lock 
or cross ECOs resting in the Consolidated Book will not cause the 
COA to end early. To promote transparency of its proposed 
amendments, when NYSE Arca filed Amendment Nos. 1 and 2 with the 
Commission, it also submitted Amendment Nos. 1 and 2 as comment 
letters to the file, which the Commission posted on its Web site and 
placed in the public comment file for NYSEArca-2016-149 (available 
at https://www.sec.gov/comments/sr-nysearca-2016-149/nysearca2016149-1446653-130072.pdf). NYSE Arca also posted a copy of 
Amendment Nos. 1 and 2 on its Web site https://www.nyse.com/publicdocs/nyse/markets/nyse-arca/rule-filings/filings/2016/NYSEArca-2016-149,%20Am%201.pdf) when it filed Amendment Nos. 1 and 
2 with the Commission.
    \7\ See Securities Exchange Act Release No. 79759, 82 FR 4430 
(January 13, 2017).
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II. Description of the Proposed Rule Change

    NYSE Arca Rule 6.91 governs the trading of ECOs in NYSE Arca's 
Complex Matching Engine (``CME''). As described more fully in the 
Notice, NYSE Arca proposes to amend NYSE Arca Rule 6.91 to provide 
additional specificity, transparency, and clarity to its processing of 
ECOs. The proposal also corrects inaccuracies in NYSE Arca Rule 6.91.

Execution of ECOs During Core Trading Hours

    The proposals makes several changes to NYSE Arca Rule 6.91(a)(2), 
``Execution of Electronic Complex Orders.'' The proposal amends NYSE 
Arca Rule 6.91(a)(2) to indicate that ECOs may be executed not only 
without consideration of prices of the same complex order that might be 
available on other exchanges, as the rule currently provides, but also 
without consideration of prices of single-legged orders that might be 
available on other exchanges. The proposal revises and reorganizes 
current NYSE Arca Rule 6.91(a)(2) by replacing current text and adding 
new paragraphs (ii), ``Execution of Electronic Complex Orders During 
Core Trading,'' and (iii), ``Electronic Complex Orders in the 
Consolidated Book.'' \8\ According to the Exchange, the changes to NYSE 
Arca Rules 6.91(a)(2)(ii) and (iii) are designed to describe the 
processing of ECOs during Core Trading in a more concise and logical 
manner, with NYSE Arca Rule 6.91(a)(2)(ii) governing the execution of 
ECOs that are marketable on arrival and NYSE Arca Rule 6.91(a)(2)(iii) 
governing how ECOs would be ranked in the Consolidated Book and execute 
as resting interest on the Consolidated Book.\9\ New NYSE Arca Rule 
6.91(a)(2)(ii) indicates that an incoming marketable ECO would trade 
against the best-priced contra-side interest resting in the 
Consolidated Book, consistent with NYSE Arca's price/time priority 
model.\10\ If the best-priced contra-side interest is an ECO resting on 
the Consolidated Book, the incoming ECO would trade with the resting 
ECO on arrival.\11\ If the best-priced contra side interest that can 
execute with the incoming ECO in full (or in a permissible ratio) is in 
the leg markets, the incoming ECO would trade with individual quotes 
and orders in the leg markets.\12\
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    \8\ The title of NYSE Arca Rule 6.91(a)(2)(ii) remains 
unchanged, except for the addition of the work ``Electronic'' prior 
to ``Complex Orders.'' NYSE Arca Rule 6.1A(a)(3) defines Core 
Trading Hours as ``the regular trading hours for business set forth 
in the rules of the primary markets underlying those option classes 
listed on the Exchange; provided, however, that transactions may be 
effected on the Exchange until the regular time set for the normal 
close of trading in the primary markets with respect to equity 
option classes and ETF option classes, and 15 minutes after the 
regular time set for the normal close of trading in the primary 
markets with respect to index option classes, or such other hours as 
may be determined by the Exchange from time to time.''
    \9\ See Notice, 81 FR at 87094-87095. The proposal also amends 
NYSE Arca Rule 6.91(a) to add a defined term, ``leg markets,'' to 
refer to individual quotes and orders in the Consolidated Book. In 
addition, the proposal revises NYSE Arca Rule 6.91(a)(2) to add the 
word ``strategy'' following the term ``complex order,'' and to add 
references to ``Electronic'' Complex Orders to the titles of NYSE 
Arca Rules 6.91(a)(2)(i) and (ii). The proposal adds to the preamble 
of NYSE Arca Rule 6.91 a defined term, ``System,'' to refer to the 
NYSE Arca System, and uses this new term throughout the rule text. 
See Notice, 81 FR at 87094.
    \10\ See Notice, 81 FR at 87095. NYSE Arca Rule 6.91(a)(2)(ii) 
states that ``The CME will accept an incoming marketable Electronic 
Complex Order and automatically execute it against the best-priced 
contra-side interest resting in the Consolidated Book. If, at a 
price, the leg markets can execute against an incoming Electronic 
Complex Order in full (or in a permissible ratio), the leg markets 
will have first priority at that price and will trade with the 
incoming Electronic Complex Order pursuant to Rule 6.76A before 
Electronic Complex Orders resting in the Consolidated Book can trade 
at that price.''
    \11\ See Notice, 81 FR at 87095.
    \12\ See id.
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    New NYSE Arca Rule 6.91(a)(2)(iii), which incorporates existing 
paragraphs (a)(2)(ii)(C) and (D) and renumbers them as (iii)(A) and 
(B), addresses incoming ECOs that are not marketable. Incoming ECOs 
that are not marketable are routed to the Consolidated Book.\13\ The 
proposal adds language to NYSE Arca Rule 6.91(a)(2)(iii)(A) to indicate 
that an ECO or portion of an ECO that is not executed on arrival will 
be ranked in the Consolidated Book, and that any new orders and quotes 
entered into the Consolidated Book that can execute against an ECO will 
be executed against such new orders or quotes according to NYSE Arca 
Rule 6.91(a)(2)((ii), rather than ``according to (ii) above,'' as 
provided in the current rule.\14\
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    \13\ See Notice, 81 FR at 87095.
    \14\ See Notice, 81 FR at 87095.
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Electronic Complex Order Auction Rules

    Because NYSE Arca proposes to make extensive changes to the 
description of the Complex Order Auction (``COA'') process in NYSE Arca 
Rule 6.91(c), the proposal deletes existing NYSE Arca Rule 6.91(c), 
``Electronic Complex Order Auction (``COA'') Process,'' in its entirety 
and replaces it with new NYSE Arca Rule 6.91(c), which, according to 
the Exchange, is designed to describe the COA process more clearly, 
accurately, and logically.\15\ New NYSE Arca Rule 6.91(c) indicates 
that, upon entry into the System, an ECO may be executed immediately in 
full, or in a permissible ratio, as provided in NYSE Arca Rule 
6.91(a)(2), or may be subject to a COA.\16\ This provision language

[[Page 12871]]

modifies the existing rule by acknowledging that an incoming ECO could 
execute immediately. New NYSE Arca Rule 6.91(c)(1) defines a ``COA-
eligible order'' to mean an ECO that is entered in a class designated 
by the Exchange and is (i) designated by the OTP Holder as COA-
eligible; and (ii) received during Core Trading Hours.\17\ New NYSE 
Arca Rule 6.91(c)(1) preserves existing provisions in current NYSE Arca 
Rule 6.91(c)(1) and (2) that allow NYSE Arca to determine COA 
eligibility on a class-by-class basis and require an OTP Holder to 
provide direction that an auction be initiated.\18\ The proposal 
eliminates from the new definition of COA-eligible order several 
features of ECOs that are included in the current definition of COA-
eligible order, but that, according to the Exchange, are not 
determinative of COA eligibility on NYSE Arca, including the ``size, 
number of series, and complex order origin types (i.e., Customers, 
broker-dealers that are not Market-Makers or specialists on an options 
exchange, and/or Market-Makers or specialists on an options 
exchange).'' \19\
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    \15\ See Notice, 81 FR at 87095.
    \16\ Current NYSE Arca Rule 6.91(c) states that ``Upon entry 
into the System, eligible Electronic Complex Orders may be subject 
to an automated request for responses (``RFR'') auction.''
    \17\ Current NYSE Arca Rule 6.91(c)(1) defines COA-eligible 
order as ``an Electronic Complex Order that, as determined by the 
Exchange on a class-by-class basis, is eligible for a COA 
considering the order's marketability (defined as a number of ticks 
away from the current market), size, number of series, and complex 
order origin types (i.e., Customers, broker-dealers that are not 
Market Makers or specialists on an options exchange, and/or Market 
Makers or specialists on an options exchange). Electronic Complex 
Orders processed through a COA may be executed without consideration 
to prices of the same complex orders that might be available on 
other exchanges.''
    \18\ See Notice, 81 FR at 87095-06. NYSE Arca currently allows 
COA-eligible orders to be entered in every class. See Amendment No. 
1.
    \19\ See id.
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    New NYSE Arca Rule 6.91(c)(2) provides that, upon entry into the 
System, a COA-eligible order will trade immediately, in full or in a 
permissible ratio, with any ECOs resting in the Consolidated Book that 
are priced better than the contra-side Complex BBO.\20\ Any portion of 
a COA-eligible order that does not trade immediately upon entry into 
the System may start a COA.\21\ Such a COA-eligible order will start a 
COA, provided that the limit price of the COA-eligible order to buy 
(sell) is: (i) Higher (lower) than the best-priced, same side interest 
in both the leg markets and any ECOs resting in the Consolidated Book; 
and (ii) within a given number of ticks away from the current, contra-
side market, as determined by NYSE Arca.\22\ NYSE Arca notes that, 
because a COA-eligible order may be a certain number of ticks away from 
the current contra-side market, it is possible that a COA could be 
initiated even if the limit price of the COA-eligible order is not at 
or within the NYSE Arca best bid/offer for each leg of the order.\23\ 
NYSE Arca notes, however, that a COA-eligible order must execute at a 
price that is at or within the NYSE Arca best bid/offer for each leg of 
the order, consistent with NYSE Arca Rule 6.91(a)(2).\24\
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    \20\ The ``Complex BBO'' is ``the BBO for a given complex order 
strategy as derived from the best bid on OX and the best offer on OX 
for each individual component series of a Complex Order.'' See NYSE 
Arca Rule 6.1A(2)(b). OX is NYSE Arca's electronic order delivery, 
execution and reporting system for designated option issues through 
which orders and quotes of Users are consolidated for execution and/
or display. See NYSE Arca Rule 6.1A(a)(13).
    \21\ See new NYSE Arca Rule 6.91(c)(3).
    \22\ See new NYSE Arca Rule 6.91(c)(3) and Amendment No. 2.
    \23\ See Amendment No. 2.
    \24\ See id.
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    New NYSE Arca Rule 6.91(c)(3) provides that NYSE Arca will initiate 
a COA by sending a request for response (``RFR) message to all OTP 
Holders that subscribe to RFR messages. RFR messages will identify the 
component series, the size and side of the market of the order and any 
contingencies.\25\ These provisions are consistent with current NYSE 
Arca Rule 6.91(c)(2).\26\ New NYSE Arca Rule 6.91(c)(3) further 
provides that only one COA may be conducted at a time for any given 
complex order strategy. NYSE Arca believes that this provision can be 
inferred from current NYSE Arca Rule 6.91(c)(8), which describes the 
impact of COA-eligible orders that arrive during a COA.\27\ Finally, 
new NYSE Arca Rule 6.91(c)(3) states that, at the time the COA is 
initiated, NYSE Arca will record the Complex BBO (the ``initial Complex 
BBO'') for purposes of determining whether the COA should end early 
pursuant to new NYSE Arca Rule 6.91(c)(6).\28\ As discussed more fully 
below, NYSE Arca believes that the use of the initial Complex BBO 
ensures that the COA respects the leg markets and the principles of 
price/time priority.\29\
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    \25\ See new NYSE Arca Rule 6.91(c)(3).
    \26\ Current NYSE Arca Rule 6.91(c)(2) states ``Upon receipt of 
a COA-eligible order, and the direction from the entering OTP Holder 
that an auction be initiated, the Exchange will send an RFR message 
to all OTP Holders who subscribe to RFR messages. RFR messages will 
identify the component series, the size and side of the market of 
the order and any contingencies.''
    \27\ See Notice, 81 FR at 87096. In particular, the Commission 
notes that current NYSE Arca Rule 6.91(c)(8) states that incoming 
COA-eligible orders received during the Response Time Interval that 
are one same side of the market and priced better than the 
initiating order will cause the auction to end.
    \28\ See note 20, supra (defining ``Complex BBO'').
    \29\ See Notice, 81 FR at 87096.
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    New NYSE Arca Rule 6.91(c)(4) defines the ``Response Time 
Interval'' (``RTI'') as the period of time during which RFR Responses 
may be entered. The rule further provides that NYSE Arca will determine 
the length of the RTI, provided, however, that the duration will not be 
less than 500 milliseconds and will not exceed one second. These 
provisions are consistent with current NYSE Arca Rule 6.91(c)(3), 
except that the new language indicating that the RTI ``will not be less 
than 500 milliseconds'' corrects a typographical error in the current 
rule text, which states that the duration of the RTI ``shall be less 
than 500 milliseconds.'' \30\ Finally, new NYSE Arca Rule 6.91(c)(3) 
indicates that, at the end of the RTI, the COA-eligible order will be 
allocated pursuant to new NYSE Arca Rule 6.91(c)(7).
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    \30\ Current NYSE Arca Rules 6.91(c)(3) states: ``The `Response 
Time Interval' means the period of time during which responses to 
the RFR may be entered. The Exchange will determine the length of 
the Response Time Interval; provided, however, that the duration 
shall be less than 500 milliseconds and shall not exceed one (1) 
second.''
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    New NYSE Arca Rule 6.91(c)(5), which describes the characteristics 
of RFR Responses, retains some provisions of current NYSE Arca Rules 
6.91 6.91(c)(4) and (c)(7) and modifies other aspects of those 
rules.\31\ New NYSE Arca Rule 6.91(c)(5) retains the following 
provisions in current NYSE Arca Rules 6.91(c)(4) and (7): any OTP 
Holder may submit RFR Responses during the RTI; \32\ RFR Responses are 
ECOs with a time-in-force contingency for the duration of the COA and 
will expire at the end of the COA; \33\ RFR

[[Page 12872]]

Responses may be submitted in $0.01 increments and may be modified 
during the RTI; \34\ RFR Responses must be on the opposite side of the 
COA-eligible order, while RFR Responses on the same side as the COA-
eligible order will be rejected; \35\ and RFR Responses will not be 
ranked or displayed in the Consolidated Book.\36\ New NYSE Arca Rule 
6.91(c)(5)(A) adds new detail by indicating that an RFR Response must 
specify the price, size, and side of the market. Current NYSE Arca Rule 
6.91(c)(7) states that RFR Response may not be withdrawn prior to the 
end of the RTI. New NYSE Arca Rule 6.91(c)(5)(C), however, indicates 
that RFR Responses may be cancelled during the RTI, which is consistent 
with NYSE Arca's current functionality.\37\
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    \31\ Current NYSE Arca Rule 6.91(c)(4) provides: ``Any OTP 
Holder may submit responses to the RFR message (``RFR Responses'') 
during the Response Time Interval. RFR Responses may be submitted in 
$.01 increments. RFR Responses must be on the opposite side of the 
COA-eligible order; any same-side RFR Responses will be rejected by 
the Exchange.'' Current NYSE Arca Rule 6.91(c)(7), ``Firm Quote 
Requirement for COA-eligible Orders,'' provides: ``RFR Responses can 
be modified but may not be withdrawn at any time prior to the end of 
the Response Time Interval. At the end of the Response Time 
Interval, RFR Responses are firm with respect to the COA-eligible 
order and RFR Responses that exceed the size of a COA-eligible order 
are also Firm with respect to other incoming COA-eligible orders 
that are received during the Response Time Interval. Any RFR 
Responses not accepted in whole or in a permissible ratio will 
expire at the end of the Response Time Interval. RFR Responses will 
not be ranked or displayed in the Consolidated Book.'' NYSE Arca 
believes that the firm quote provisions of current NYSE Arca Rule 
6.91(c)(7) are unnecessary because new NYSE Arca Rule 6.91(c)(5)(C) 
indicates that RFR Response will expire at the end of the COA, thus 
making clear when RFR Responses are ``firm.'' See Notice, 81 FR at 
87097.
    \32\ OTP Holders also may submit RFR Responses on behalf of 
Customers. See Amendment No. 1.
    \33\ See NYSE Arca Rules 6.91(c)(5)(A) and (C).
    \34\ See NYSE Arca Rules 6.91(c)(5)(A) and (C).
    \35\ See NYSE Arca Rule 6.91(c)(5)(B).
    \36\ See NYSE Arca Rule 6.91(c)(5)(C).
    \37\ See Notice, 81 FR at 87097. NYSE Arca notes that other 
orders also may be cancelled. See id.
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Impact of Incoming Trading Interest on the COA Process

    New NYSE Arca Rules 6.91(c)(6)(A) and (B) replace existing NYSE 
Arca Rule 6.91(c)(8), and new NYSE Arca Rule 6.91(c)(6)(C) replaces 
existing NYSE Arca Rule 6.91(c)(9). The new rules introduce and 
incorporate the concept of the initial Complex BBO--the BBO for a given 
complex order strategy derived from the best bid (``BB'') and best 
offer (``BO'') on NYSE Arca's OX system for each individual component 
series of a complex order as recorded at the start of the RTI--as a 
benchmark against which incoming interest is measured to determine 
whether a COA should end early.\38\ New NYSE Arca Rules 6.91(c)(6)(A) 
and (B) addresses the impact on the COA of incoming ECOs and COA-
eligible orders. New NYSE Arca Rule 6.91(c)(6)(C) addresses the impact 
of leg market updates on the COA. New NYSE Arca Rule 6.91(c)(6)(B) 
provides that when a COA ends early, or at the end of the RTI, the 
initiating COA-eligible order will execute pursuant to new NYSE Arca 
Rule 6.91(c)(7) ahead of any interest that arrived during the COA.
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    \38\ See Notice, 81 FR at 87097 and new NYSE Arca Rule 
6.91(c)(3)(iii). See also note 20, supra.
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    New NYSE Arca Rule 6.91(c)(A)(i) provides that incoming opposite-
side ECOs or COA-eligible orders that lock or cross the initial Complex 
BBO will cause the COA to end early. If the incoming ECO or COA-
eligible order is also executable against the limit price of the 
initiating COA-eligible order, it will be ranked with RFR Responses to 
execute with the COA-eligible order pursuant to new NYSE Arca Rule 
6.91(c)(7).\39\ NYSE Arca believes that ending the COA early under 
these circumstances would allow an initiating COA-eligible order to 
execute (ahead of the incoming order) against any RFR Responses or ECOs 
received during the RTI until that point, while preserving the priority 
of the incoming order to trade with the resting leg markets.\40\ NYSE 
Arca also states that early conclusion of the COA would avoid 
disturbing priority in the Consolidated Book and allow the Exchange to 
appropriately handle the incoming orders.\41\
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    \39\ See NYSE Arca Rule 6.91(c)(6)(A)(i).
    \40\ See Notice, 81 FR at 87098.
    \41\ See id.
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    New NYSE Arca Rule 6.91(c)(A)(ii) provides that incoming opposite-
side ECOs or COA-eligible orders that are executable against the limit 
price of the COA-eligible order, but do not lock or cross the initial 
Complex BBO, will not cause the COA to end early and will be ranked 
with RFR Responses to execute with the COA-eligible order pursuant to 
NYSE Arca Rule 6.91(c)(7). NYSE Arca Rule 6.91(c)(6)(A)(iii) provides 
that incoming opposite-side ECOs or COA-eligible orders that are either 
not executable on arrival against the limit price of the initiating 
COA-eligible order or do not lock or cross the initial Complex BBO will 
not cause the COA to end early.
    New NYSE Arca Rules 6.91(c)(6)(A)(iv) and (v) describe the 
treatment of incoming opposite-side ECOs and COA-eligible orders that 
do not execute with the initiating COA-eligible order or were not 
executable on arrival. An incoming opposite-side ECO will trade 
pursuant to NYSE Arca Rule 6.91(a)(2)(ii) or (iii).\42\ An incoming 
opposite-side COA-eligible order(s) will initiate subsequent COA(s) in 
price-time priority.\43\
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    \42\ See new NYSE Arca Rule 6.91(c)(6)(A)(iv). NYSE Arca notes 
that this provision is consistent with current NYSE Arca Rule 
6.91(c)(8)(A), but provides additional detail regarding the ability 
for any balance of the incoming opposite-side ECO to trade with the 
best-priced resting contra-side interest before, or instead of, 
being ranked in the Consolidated Book. See Notice, 81 FR at 87098. 
Current NYSE Arca Rule 6.91(c)(8)(A) states, in part, that the 
remaining balance of an opposite-side incoming ECO will be placed in 
the Consolidated Book and ranked as described in NYSE Arca Rule 
6.91(a)(1).
    \43\ See new NYSE Arca Rule 6.91(c)(6)(A)(v).
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    New NYSE Arca Rule 6.91(c)(6)(B)(i) indicates that an incoming ECO 
or COA-eligible order on the same side of the market as the initiating 
COA-eligible order that is priced higher (lower) than the initiating 
COA-eligible order to buy (sell) will cause the COA to end early.\44\ 
In addition, new NYSE Arca Rule 6.91(c)(6)(B)(ii) states that an 
incoming same-side ECO or COA-eligible order that is priced equal to or 
lower (higher) than the initiating COA-eligible order to buy (sell), 
and that also locks or crosses the contra-side initial Complex BBO, 
will cause the COA to end early. NYSE Arca believes that ending the COA 
early under the circumstances would ensure that the COA interacts 
seamlessly with the Consolidated Book, and would allow the COA-eligible 
order to execute (ahead of the incoming order) against any RFR 
Responses or ECOs received during the RTI until that point, while 
preserving the priority of the incoming order to trade with the resting 
leg markets.\45\ According to the Exchange, new NYSE Arca Rule 
6.91(c)(6)(B)(ii) helps to correct an inaccuracy in current NYSE Arca 
Rules 6.91(c)(8)(B) and (C), which indicate that incoming same-side 
COA-eligible orders received during the RTI that are priced equal to or 
worse than the initiating COA-eligible order will join the COA.\46\ 
NYSE Arca states that incoming same-side equal-priced or worse priced 
COA-eligible orders or ECOs would not execute during the COA in 
progress, as the current rules suggest, but could trade with RFR 
Responses or ECOs that do not execute in the COA and, if any balance 
remains, would initiate a new COA.\47\
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    \44\ Current NYSE Arca Rule 6.91(c)(8)(D) also provides that an 
incoming same-side, better-priced COA-eligible order will cause the 
COA to end.
    \45\ See Notice, 81 FR at 87099.
    \46\ Current NYSE Arca Rule 6.91(c)(8)(B) states: ``Incoming 
COA-eligible orders received during the response time interval for 
the original COA-eligible order that are on the same side of the 
market, that are priced equal to the initiating order, will join the 
COA. A message with the updated size will be published. The new 
order(s) will be ranked and executed with the initiating COA-
eligible order in price time order. Any remaining balance of either 
the initiating COA-eligible order and/or the incoming Electronic 
Complex order(s) will be placed in the Consolidated Book and ranked 
as described in (a)(1) above.'' Current NYSE Arca Rule 6.91(c)(8)(C) 
states: ``Incoming COA-eligible orders received during the Response 
Time Interval for the original COA-eligible order that are on the 
same side of the market, that are priced worse than the initiating 
order, will join the COA. The new order(s) will be ranked and 
executed with the initiating COA-eligible order in price time order. 
Any remaining balance of either the initiating COA-eligible order 
and/or the incoming Electronic Complex order(s) will be placed in 
the Consolidated Book and ranked as described in (a)(1) above.''
    \47\ See Notice, 81 FR at 87099.
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    New NYSE Arca Rule 6.91(c)(6)(B)(iii) states that an incoming same-
side ECO or COA-eligible order that is priced equal to, or lower 
(higher) than the initiating COA-eligible order to buy (sell), but does 
not lock or cross the contra-side initial Complex BBO, will not cause 
the COA to end early.

[[Page 12873]]

    New NYSE Arca Rules 6.91(c)(6)(B)(iii), (iv), and (v) further 
describe the treatment of incoming same-side COA-eligible orders or 
ECOs received during the RTI. An incoming ECO or COA-eligible order 
that caused a COA to end early, if executable, will trade against any 
RFR Responses and/or ECOs received during the RTI that did not trade 
with the initiating COA-eligible order.\48\ Any incoming same-side ECO, 
or the remaining balance of such an ECO, that did not trade against any 
remaining RFR Responses or ECOs will trade pursuant to new NYSE Arca 
Rule 6.91(a)(2)(ii) or (iii).\49\ The remaining balance of any incoming 
COA-eligible order(s) that does not trade against any remaining RFR 
Responses or ECOs will initiate new COA(s) in price-time priority.\50\
---------------------------------------------------------------------------

    \48\ See new NYSE Arca Rule 6.91(c)(6)(B)(iv).
    \49\ See new NYSE Arca Rule 6.91(c)(6)(B)(v).
    \50\ See new NYSE Arca Rule 6.91(c)(6)(B)(vi).
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    New NYSE Arca Rule 6.91(c)(6)(C)(i) provides that updates to the 
leg markets that cause the same-side Complex BBO to lock or cross any 
RFR Response(s) and/or ECOs received during the RTI, or ECOs resting in 
the Consolidated Book, will cause the COA to end early.\51\ In 
addition, updates to the leg markets that cause the contra-side Complex 
BBO to lock or cross the same-side initial Complex BBO will cause the 
COA to end early.\52\ In contrast, updates to the leg markets that 
cause the same-side Complex BBO to be priced higher (lower) than the 
COA-eligible order to buy (sell), but do not lock or cross any RFR 
Response(s) and/or Electronic Complex Order(s) received during the RTI, 
or ECOs resting in the Consolidated Book, will not cause the COA to end 
early.\53\ Updates to the leg markets that cause the contra-side 
Complex BB (BO) to improve (i.e., become higher (lower), but do not 
lock or cross the same-side initial Complex BBO, will not cause the COA 
to end early.\54\ NYSE Arca believes that new NYSE Arca Rules 
6.91(c)(6)(C)(i)-(iv) respect the COA process while maintaining the 
priority of orders and quotes on the Consolidated Book as they 
update.\55\ NYSE Arca notes that new NYSE Arca Rule 6.91(c)(6)(C) is 
based on current NYSE Arca Rules 6.91(c)(9)(A) and (B).\56\ NYSE Arca 
states that the new rule provides additional clarity by indicating on 
which side the leg markets have updated.\57\
---------------------------------------------------------------------------

    \51\ See Amendment No. 2. Current NYSE Arca Rule 6.91(c)(9)(A) 
similarly provides that leg market interest that causes the derived 
Complex Best Bid/Offer to be better than the COA-eligible order and 
to cross the best-priced RFR Response will cause the auction to end.
    \52\ See NYSE Arca Rule 6.91(c)(6)(C)(iii).
    \53\ See NYSE Arca Rule 6.91(c)(6)(C)(ii) and Amendment No. 2.
    \54\ See NYSE Arca Rule 6.91(c)(6)(C)(iv).
    \55\ See Notice, 81 FR at 87100.
    \56\ Current NYSE Arca Rule 6.91(c)(9)(A) provides: ``Individual 
orders and quotes that are entered into the leg markets that cause 
the derived Complex Best Bid/Offer to be better than the COA-
eligible order and to cross the best priced RFR Response will cause 
the auction to terminate, and individual orders and quotes in the 
leg markets will be allocated pursuant to (a)(2)(i) above and 
matched against Electronic Complex Orders and RFR Responses in price 
time priority pursuant to (6) above. The initiating COA-eligible 
order will be matched and executed against any remaining unexecuted 
Electronic Complex Orders and RFR Responses pursuant to (6) above.'' 
Current NYSE Arca Rule 6.91(c)(9)(B) provides: ``Individual orders 
and quotes that are entered into the leg markets that cause the 
derived Complex Best Bid/Offer to cross the price of the COA-
eligible order will cause the auction to terminate, and individual 
orders and quotes in the leg markets will be allocated pursuant to 
(a)(2)(i) above and matched against Electronic Complex Orders and 
RFR Responses in price time priority pursuant to (6) above.''
    \57\ See Notice, 81 FR at 87100.
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    New NYSE Arca Rule 6.91(c)(7), which describes the allocation of 
COA-eligible orders at the conclusion of a COA, will replace current 
NYSE Arca Rule 6.91(c)(6) in its entirety.\58\ NYSE Arca acknowledges 
that current NYSE Arca Rule 6.91(c), which refers to affording priority 
to Customer ECOs, does not reflect NYSE Arca's price/time allocation 
model.\59\ New NYSE Arca Rule 6.91(c)(7)(A) provides that RFR Responses 
and ECOs to buy (sell) that are priced higher (lower) than the initial 
Complex BBO will be eligible to trade first with the COA-eligible 
order, beginning with the highest (lowest) at each price point, on a 
Size Pro Rata basis, as defined in NYSE Arca Rule 6.75(f)(6).\60\ After 
COA allocations pursuant to NYSE Arca Rule 6.91(c)(7)(A), the COA-
eligible order will trade with best-priced contra-side interest 
pursuant to NYSE Arca Rule 6.91(a)(2)(ii) or (iii).\61\ Thus, after the 
COA-eligible order trades with price-improving interest received during 
the COA, any remainder of the COA-eligible order will follow NYSE 
Arca's regular trading rules for an incoming ECO.\62\ Any unexecuted 
portion of the COA-eligible order will be ranked in the Consolidated 
Book.\63\
---------------------------------------------------------------------------

    \58\ See Notice, 81 FR at 87100.
    \59\ See id. and Amendment No. 1. Current NYSE Arca Rule 
6.91(c)(6)(B) provides: ``Customer Electronic Complex Orders resting 
in the Consolidated Book before, or that are received during, the 
Response Time Interval and Customer RFR Responses shall, 
collectively have second priority to trade against a COA-eligible 
order. The allocation of a COA-eligible order against the Customer 
Electronic Complex Orders resting in the Consolidated Book, Customer 
Electronic Complex Orders received during the Response Time 
Interval, and Customer RFR Responses shall be on a Size Pro Rata 
basis as defined in Rule 6.75(f)(6).'' Current NYSE Arca Rule 
6.91(c)(6)(C) provides: ``Non- Customer Electronic Complex Orders 
resting in the Consolidated Book, non-Customer Electronic Complex 
Orders placed in the Consolidated Book during the Response Time 
Interval, and non-Customer RFR Responses will collectively have 
third priority to trade against a COA-eligible order. The allocation 
of COA-eligible orders against these contra sided orders and RFR 
Responses shall be on a Size Pro Rata basis as defined in Rule 
6.75(f)(6).''
    \60\ In contract, current NYSE Arca Rule 6.91(c)(6)(A) provides: 
``Individual orders and quotes in the leg markets resting in the 
Consolidated Book prior to the initiation of a COA will have first 
priority to trade against a COA-eligible order, provided the COA-
eligible order can be executed in full (or in a permissible ratio) 
by the orders and quotes in the Consolidated Book. The allocation of 
orders or quotes residing in the Consolidated Book that execute 
against a COA-eligible order shall be done pursuant to NYSE Arca 
Rule 6.76A.''
    \61\ See new NYSE Arca Rule 6.91(c)(7)(B).
    \62\ See Notice, 81 FR at 87100.
    \63\ See new NYSE Arca Rule 6.91(c)(7).
---------------------------------------------------------------------------

III. Discussion and Commission Findings

    After careful review of the proposed rule change, as modified by 
Amendment Nos. 1 and 2, the Commission finds that the proposed rule 
change, as amended, is consistent with the requirements of the Act and 
the rules and regulations thereunder applicable to a national 
securities exchange.\64\ In particular, the Commission finds that the 
proposed rule change, as modified by Amendment Nos. 1 and 2, is 
consistent with Section 6(b)(5) of the Act,\65\ which requires, among 
other things, that the rules of a national securities exchange be 
designed to prevent fraudulent and manipulative acts and practices, to 
promote just and equitable principles of trade, 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.
---------------------------------------------------------------------------

    \64\ In approving this proposed rule change, the Commission 
notes that it has considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
    \65\ 15 U.S.C. 78(b)(5).
---------------------------------------------------------------------------

Execution of Complex Orders During Core Trading Hours

    NYSE Arca Rule 6.91(a)(2) currently provides that ECOs submitted to 
NYSE Arca may be executed without consideration of prices of the same 
complex order that might be available on other exchanges. The proposal 
revises NYSE Arca Rule 6.91(a)(2) to state that ECOs submitted to the 
System may be executed without consideration not only of the prices of 
the same complex order strategy that might be available on other 
exchanges, but also of the prices of other single-legged orders that 
might be available on other exchanges. The Commission believes that 
expanding NYSE Arca Rule

[[Page 12874]]

6.91(a)(2) to include single-legged orders on other exchanges is 
consistent with the rules of other options exchanges that allow complex 
orders to be executed without consideration of the prices that might be 
available on other options exchanges trading the same contracts.\66\ In 
addition, the Commission notes that this change is consistent with the 
Options Order Protection and Locked/Crossed Markets Plan, which excepts 
transactions effected as part of a ``complex trade'' from the 
requirement that exchanges establish, maintain, and enforce written 
policies and procedures reasonably designed to prevent trade-
throughs.\67\
---------------------------------------------------------------------------

    \66\ See, e.g., ISE Rule 722(b)(3) (stating that complex orders 
may be executed without consideration of the prices that might be 
available on other options exchanges trading the same contracts); 
and Phlx Rules 1098(e)(i)(B) and (f)(iii) (providing that COLA-
eligible orders and complex orders in the CBOOK will be executed 
without consideration of any prices that might be available on other 
exchanges trading the same contracts).
    \67\ See Options Order Protection and Locked/Crossed Markets 
Plan, Section V(b)(viii) (available at http://www.optionsclearing.com/components/docs/clearing/services/options_order_protection_plan.pdf). The proposal also revises NYSE 
Arca Rule 6.91(a) to add the defined terms ``System'' to refer to 
the NYSE Arca System and ``leg markets'' to refer to individual 
quotes and orders in the Consolidated Book. The Commission believes 
that adding these defined terms to NYSE Arca Rule 6.91 could help to 
enhance the clarity and readability of the rule.
---------------------------------------------------------------------------

    The Commission believes that the proposal to add new NYSE Arca 
Rules 6.91(a)(2)(ii) and (iii), and the accompanying changes to delete 
certain existing rule text, will benefit market participants by more 
clearly describing, respectively, the treatment of incoming marketable 
ECOs (which are executed immediately) and incoming non-marketable ECOs 
(which are routed to the Consolidated Book) during Core Trading Hours. 
In particular, new NYSE Arca Rule 6.91(a)(2)(ii) specifies that an 
incoming marketable ECO would trade against the best-priced contra-side 
interest resting in the Consolidated Book.\68\ New NYSE Arca Rule 
6.91(a)(2)(ii) further provides that if, at a price, the leg markets 
can execute against an incoming ECO in full (or in a permissible 
ratio), the leg markets will have first priority at that price and will 
trade with the incoming ECO pursuant to NYSE Arca Rule 6.76A before 
ECOs resting in the Consolidated Book can trade at that price. The 
Commission believes that new NYSE Arca Rule 6.91(a)(2)(ii) is 
consistent with current NYSE Arca Rules 6.91(a)(2)(ii)(A) and (B).\69\ 
NYSE Arca notes that current NYSE Arca Rule 6.91(a)(2)(ii)(A) indicates 
that the leg markets have priority over same-priced resting ECOs, and 
current NYSE Arca Rule 6.91(a)(2)(ii)(B) indicates that an incoming ECO 
would trade with resting leg market interest if there are no better-
priced ECOs.\70\
---------------------------------------------------------------------------

    \68\ NYSE Arca notes that this is consistent with the Exchange's 
price/time priority model. See Notice, 81 FR at 87095 and Amendment 
No. 1.
    \69\ Current NYSE Arca Rule 6.91(a)(2)(ii)(A) states that ``The 
CME will accept an incoming Electronic Complex Order and will 
automatically execute it against Electronic Complex Orders in the 
Consolidated Book; provided, however, that if individual orders or 
quotes residing in the Consolidated Book can execute the incoming 
Electronic Complex Order in full (or in a permissible ratio) at the 
same total or net debit or credit as an Electronic Complex Order in 
the Consolidated Book, the individual orders or quotes will have 
priority. The allocation of incoming orders or quotes or those 
residing in the Consolidated Book that execute against an Electronic 
Complex Order shall be done pursuant to NYSE Arca Rule 6.76A.'' 
Current NYSE Arca Rule 6.91(a)(2)(ii)(B) states that ``If an 
Electronic Complex Order in the CME is not marketable against 
another Electronic Complex Order is will automatically execute 
against individual orders or quotes residing in the Consolidated 
Book, provided the Electronic Complex Order can be executed in full 
(or in a permissible ratio) by the orders in the Consolidated Book. 
The allocation of incoming orders or quotes or those residing in the 
Consolidated Book that execute against an Electronic Complex Order 
shall be done pursuant to NYSE Arca Rule 6.76A.''
    \70\ See Notice, 81 FR at 87095.
---------------------------------------------------------------------------

    The Commission believes that new NYSE Arca Rule 6.91(a)(2)(iii)(A) 
adds clarifying detail to NYSE Arca's rules by indicating that an ECO 
or portion of an ECO that is not executed on arrival will be ranked in 
the Consolidated Book, thereby providing market participants with more 
precise information concerning NYSE Arca's handling of these 
orders.\71\
---------------------------------------------------------------------------

    \71\ Current NYSE Arca Rule 6.91(a)(2)(ii)(C) provides that ``If 
an Electronic Complex Order is being held in the Consolidated Book, 
the CME will monitor the bids and offers in the leg markets, and if 
a new order(s) or quote(s) entered into the Consolidated Book can 
execute the Electronic Complex Order in full (or in a permissible 
ratio), the Electronic Complex Order will be executed according to 
(ii) above.''
---------------------------------------------------------------------------

Changes Related to the COA Process

    The Commission believes that the introductory language in new NYSE 
Arca Rule 6.91(c) is similar to the text of current NYSE Arca Rule 
6.91(c), but provides additional clarity by indicating that an incoming 
ECO could execute immediately against interest resting in the 
Consolidate Book pursuant to NYSE Arca Rule 6.91(a)(2), or be subject 
to a COA.\72\ he Commission believes that the new definition of COA-
eligible order in new NYSE Arca Rule 6.91(c)(1) will make clear that an 
ECO will be COA-eligible only if it is submitted during Core Trading 
Hours.\73\ The Commission also believes that not restricting COA 
eligibility based on an order's size, number of series, or order origin 
type could benefit investors by helping to make more orders eligible 
for a COA and, therefore, able to receive potential price improvement 
during a COA.
---------------------------------------------------------------------------

    \72\ See note 16, supra.
    \73\ As noted above, the requirement in new NYSE Arca Rule 
6.91(c)(1)(i) that an OTP Holder designate the order as COA-eligible 
is consistent with current NYSE Arca Rule 6.91(c)(2), which 
provides, in part, that NYSE Arca will initiate an auction for a 
COA-eligible order upon direction from the entering OTP Holder that 
an auction be initiated.
---------------------------------------------------------------------------

    New NYSE Arca Rule 6.91(c)(2) provides that, upon entry into the 
System, a COA-eligible order will trade immediately, in full or in a 
permissible ratio, with any ECOs resting in the Consolidated Book that 
are priced better than the contra-side Complex BBO. NYSE Arca believes 
that the immediate price improvement opportunity for an incoming COA-
eligible order from ECOs resting in the Consolidated Book obviates the 
need to start a COA.\74\ The Commission believes that, under these 
circumstances, executing a COA-eligible order against resting interest 
that is priced better than the contra-side Complex BBO will provide the 
COA-eligible order with an immediate execution at an improved price, 
and could benefit both the sender of the COA-eligible order and the 
sender of the resting better-priced ECO.
---------------------------------------------------------------------------

    \74\ See Notice, 81 FR at 87096.
---------------------------------------------------------------------------

    The Commission believes that new NYSE Arca Rule 6.91(c)(3)(i) could 
enhance competition by encouraging market participants to submit 
aggressively priced COA-eligible orders, because only COA-eligible 
orders priced better than the same-side leg market and ECO interest 
would be able to initiate a COA. The Commission believes that new NYSE 
Arca Rule 6.91(c)(3)(ii) will provide NYSE Arca with flexibility to 
determine when the price of a COA-eligible order, based on the number 
of ticks away from the current contra-side market, warrants the 
initiation of a COA. The Commission believes that permitting only one 
COA at a time for any complex order strategy will help to provide for 
the orderly processing of trading interest on NYSE Arca. The Commission 
notes that although a COA could be initiated even if the limit price of 
the COA-eligible order is not at or within the NYSE Arca best bid/offer 
for each leg of the order, the COA-eligible order must execute at a 
price that is at or within the NYSE Arca best bid/offer for each leg of 
the order, consistent with NYSE Arca Rule 6.91(a)(2).\75\
---------------------------------------------------------------------------

    \75\ See Amendment No. 2.
---------------------------------------------------------------------------

    As noted above,\76\ the definition of RTI in new NYSE Arca Rule 
6.91(c)(4) corrects a typographical error in the current rule text with 
respect to the

[[Page 12875]]

duration of the RTI. The Commission believes that the new rule text, 
which indicates that the duration of the RTI ``will not be less than 
500 milliseconds and will not exceed one (1) second,'' will benefit 
market investors by assuring that the new rule accurately conveys the 
potential duration of the RTI.
---------------------------------------------------------------------------

    \76\ See note 30, supra, and accompanying text.
---------------------------------------------------------------------------

    As discussed more fully above, new NYSE Arca Rule 6.91(c)(5), which 
describes the characteristics of RFR Responses, retains features of the 
current provisions addressing RFR Responses,\77\ but adds new detail by 
indicating that an RFR Response must specify the price, size, and side 
of the market.\78\ The Commission believes that this change will make 
clear to market participants the information that they must include in 
an RFR Response. In addition, new NYSE Arca Rule 6.91(c)(5)(C) 
indicates that RFR Response may be cancelled during the RTI, replacing 
language in current NYSE Arca Rule 6.91(c)(7) which states that RFR 
Responses may not be withdrawn prior to the end of the RTI. The 
Commission believes that new NYSE Arca Rule 6.91(c)(5)(C) will correct 
an inaccuracy in NYSE Arca's current rules and make clear to OTP 
Holders that they may cancel their RFR Responses during the RTI. The 
Commission notes that another options exchange also permits the 
withdrawal of RFR Responses during the RTI.\79\
---------------------------------------------------------------------------

    \77\ See notes 31-37, supra, and accompanying text.
    \78\ See new NYSE Arca Rule 6.91(c)(5)(A).
    \79\ See CBOE Rule 6.53C(d)(vii) (stating that RFR Responses 
represent non-firm interest that can be modified or withdrawn at any 
time prior to the end of the RTI).
---------------------------------------------------------------------------

Impact of Incoming Trading Interest on the COA Process

    New NYSE Arca Rule 6.91(c)(6)(A)(i) provides that incoming 
opposite-side ECOs or COA-eligible orders that lock or cross the 
initial Complex BBO will cause the COA to end early.\80\ NYSE Arca 
believes that ending the COA early under these circumstances will allow 
an initiating COA-eligible order to execute, ahead of the incoming 
order, against RFR Responses or ECOs received during the RTI until that 
point, while preserving the priority of the incoming order to trade 
with the resting leg markets.\81\ NYSE Arca also believes that the 
early conclusion of the COA would avoid disturbing the priority in the 
Consolidated Book.\82\ The Commission believes that ending the COA 
early when an incoming contra-side ECO or COA-eligible order locks or 
crosses the initial Complex BBO will allow NYSE Arca to maximize order 
executions and provide for the orderly processing of trading interest 
on NYSE Arca by allowing the COA-eligible order to execute against 
trading interest received during the RTI, including the order that 
caused the COA to end early, while preserving the ability of the 
resting leg market orders that comprise the initial Complex BBO to 
trade with the incoming interest that locked or crossed the initial 
Complex BBO.
---------------------------------------------------------------------------

    \80\ If the incoming opposite-side ECO or COA-eligible order is 
also executable against the limit price of the initiating COA-
eligible order, it will be ranked with RFR Responses to execute with 
the COA-eligible order. See new NYSE Arca Rule 6.91(c)(6)(A)(i).
    \81\ See Notice, 81 FR at 87098. If no RFRs are received during 
the RTI, the COA-eligible order will execute against the best-priced 
contra-side interest, including the order that caused the COA to 
terminate early. See Amendment No. 1.
    \82\ See Notice, 81 FR at 87098.
---------------------------------------------------------------------------

    New NYSE Arca Rule 6.91(c)(6)(A)(ii) provides that incoming 
opposite-side ECO or COA-eligible orders that are executable against 
the limit price of the COA-eligible order, but do not lock or cross the 
initial Complex BBO, will not cause the COA to end early and will be 
ranked with RFR Responses to execute with the COA-eligible order 
pursuant to NYSE Arca Rule 6.91(c)(7). The Commission believes that 
allowing the COA to continue under these circumstances could provide 
the potential for the COA-eligible order to receive price improvement 
as the auction continues. The Commission notes that, in this case, the 
incoming contra-side interest does not raise leg market priority 
concerns that would require an early termination of the COA because the 
incoming contra-side interest does not lock or cross the initial 
Complex BBO.
    NYSE Arca Rule 6.91(c)(6)(A)(iii) provides that incoming opposite-
side ECOs or COA-eligible orders that are either not executable on 
arrival against the limit price of the initiating COA-eligible order or 
do not lock or cross the initial Complex BBO will not cause the COA to 
end early. The Commission believes that because the incoming contra-
side interest does not lock or cross the initial Complex BBO, it is not 
necessary to end the COA early to protect the priority of interest in 
the leg market.
    New NYSE Arca Rules 6.91(c)(6)(A)(iv) and (v) describe the 
treatment of incoming opposite-side ECOs and COA-eligible orders that 
did not execute with the initiating COA-eligible order or were not 
executable on arrival. Such an incoming opposite-side ECO would trade 
pursuant to NYSE Arca Rule 6.91(a)(2)(ii) or (iii), and an incoming 
opposite-side COA-eligible order would initiate a subsequent COA. The 
Commission believes that allowing these incoming ECOs and COA-eligible 
orders to trade with interest resting in the Consolidated Book, or to 
initiate a new COA, as applicable, will allow NYSE Arca to provide 
additional execution opportunities for these orders. In addition, the 
Commission believes that new NYSE Arca Rules 6.91(c)(6)(A)(iv) and (v) 
will enhance the transparency of NYSE Arca's rules by providing 
additional detail regarding the treatment of incoming opposite-side 
ECOs and COA-eligible orders that did not trade with the initiating 
COA-eligible order or were not executable on arrival.
    New NYSE Arca Rule 6.91(c)(6)(B) states that when a COA ends early, 
or at the end of the RTI, the initiating COA-eligible order will 
execute pursuant to new NYSE Arca Rule 6.91(c)(7) ahead of any interest 
that arrived during the COA. The Commission believes that this 
provision establishes the priority of the initiating COA-eligible order 
to trade before trading interest that arrives during the auction. The 
Commission notes that the rules of another options exchange similarly 
establish the priority of the auctioned order to trade prior to 
interest that arrives during the auction.\83\
---------------------------------------------------------------------------

    \83\ See Phlx Rule 1098(e)(viii)(B) (stating, in part, with 
respect to the Phlx's Complex Order Live Auction (``COLA''): 
``Incoming Complex Orders that were received during the COLA Timer 
for the same Complex Order Strategy as the COLA-eligible order that 
are on the same side of the market will join the COLA. The original 
COLA-eligible order has priority at all price points (i.e., multiple 
COLA Sweep Prices) over the incoming Complex Order(s), regardless of 
the price of the incoming Complex Order. The incoming Complex Order 
shall not be eligible for execution against interest on the opposite 
side of the market from the COLA-eligible order until the COLA-
eligible order is executed to the fullest extent possible'').
---------------------------------------------------------------------------

    New NYSE Arca Rule 6.91(c)(6)(B)(i) indicates that an incoming ECO 
or COA-eligible order on the same side of the market as the initiating 
COA-eligible order that is priced higher (lower) than the initiating 
COA-eligible order to buy (sell) will cause the COA to end early.\84\ 
The Commission notes that this is consistent with current NYSE Arca 
Rule 6.91(c)(8)(D), which states that incoming same-side COA-eligible 
orders that are priced better than the COA-eligible order will cause 
the auction to end. The Commission believes that ending the COA early 
under these circumstances provides a means to maximize execution 
opportunities by allowing the COA-eligible order to execute against 
interest received during the auction and

[[Page 12876]]

allowing the incoming better-priced ECO or COA-eligible order to trade 
with interest resting in the Consolidated Book (in the case of an ECO), 
or initiate a new auction (in the case of a COA-eligible order).
---------------------------------------------------------------------------

    \84\ The Commission notes that current NYSE Arca Rule 
6.91(c)(8)(D) also provides that an incoming same-side, better-
priced COA-eligible order will cause the COA to end.
---------------------------------------------------------------------------

    New NYSE Arca Rule 6.91(c)(6)(B)(ii) states that an incoming same-
side ECO or COA-eligible order that is priced equal to or lower 
(higher) than the initiating COA-eligible order to buy (sell), and that 
also locks or crosses the contra-side initial Complex BBO, will cause 
the COA to end early. NYSE Arca states that ending the COA early under 
these circumstances will allow the COA-eligible order to execute, ahead 
of the incoming order, against RFR Responses or ECOs received during 
the RTI until the point, while preserving the priority of the incoming 
order to trade with the resting leg markets.\85\ The Commission 
believes that ending the COA early under these circumstances is 
designed to maximize execution opportunities and provide for the 
orderly processing of trading interest on NYSE Arca by allowing the 
COA-eligible order to execute against trading interest received during 
the RTI, while preserving the ability of the resting leg market orders 
that comprise the initial Complex BBO to trade with the incoming 
interest that locked or crossed the initial Complex BBO.
---------------------------------------------------------------------------

    \85\ See Notice, 81 FR at 87099.
---------------------------------------------------------------------------

    New NYSE Arca Rule 6.91(c)(6)(B)(iii) states that an incoming same-
side ECO or COA-eligible order that is priced equal to, or lower 
(higher) than the initiating COA-eligible order to buy (sell), but does 
not lock or cross the contra-side initial Complex BBO, will not cause 
the COA to end early. The Commission believes that, under these 
circumstances, the incoming same-side interest does not raise leg 
market priority concerns that would require an early termination of the 
COA because the incoming interest does not lock or cross the contra-
side initial Complex BBO.
    New NYSE Arca Rules 6.91(c)(6)(B)(iv), (v), and (vi) further 
describe the treatment of incoming same-side COA-eligible orders or 
ECOs received during the RTI. An incoming same-side ECO or COA-eligible 
order that caused a COA to end early, if executable, will trade against 
any RFR Responses and/or ECOs received during the RTI that did not 
trade with the initiating COA-eligible order.\86\ Any incoming same-
side ECO, or the remaining balance of such an ECO, that did not trade 
against any remaining RFR Responses or ECOs will trade pursuant to new 
NYSE Arca Rule 6.91(a)(2)(ii) or (iii).\87\ The remaining balance of 
any incoming COA-eligible order(s) that does not trade against any 
remaining RFR Responses or ECOs will initiate new COA(s) in price-time 
priority.\88\ The Commission believes that these provisions could 
benefit investors by potentially maximizing the execution opportunities 
for incoming same-side orders by specifying that these orders may 
execute against remaining RFR Responses or ECOs, execute against 
interest resting in the Consolidated Book, or initiate a new COA.
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    \86\ See new NYSE Arca Rule 6.91(c)(6)(B)(iv).
    \87\ See new NYSE Arca Rule 6.91(c)(6)(B)(v).
    \88\ See new NYSE Arca Rule 6.91(c)(6)(B)(vi).
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    The Commission believes that new NYSE Arca Rule 6.91(c)(6)(C) will 
provide greater clarity and specificity regarding the impact of leg 
market updates on the COA. The Commission believes that providing for 
an early end to the COA when the leg market updates cause the same-side 
Complex BBO to lock or cross RFR Responses or ECOs received during the 
RTI, or ECOs resting in the Consolidated Book,\89\ or cause the contra-
side Complex BBO to lock or cross the same-side initial Complex 
BBO,\90\ will allow the COA-eligible order to execute against interest 
received during the auction and permit the updated leg markets to 
execute against available trading interest, thereby maximizing 
execution opportunities for trading interest in the COA and in the leg 
markets, and providing for the orderly processing of trading interest 
on NYSE Arca. The Commission believes that allowing the COA to continue 
when leg market updates do not result in an execution opportunity--
i.e., when leg market updates cause the same-side Complex BBO to be 
priced higher (lower) than the COA-eligible order to buy (sell), but do 
not lock or cross any RFR Responses or ECOs received during the RTI, or 
ECOs resting in the Consolidated Book,\91\ or when leg market updates 
cause the contra-side Complex BB (BO) to improve, but do not lock or 
cross the same-side initial Complex BBO \92\--will allow for the 
submission of additional trading interest that might result in an 
execution or price improvement for the COA-eligible order.
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    \89\ See NYSE Arca Rule 6.91(c)(6)(C)(i).
    \90\ See NYSE Arca Rule 6.91(c)(6)(C)(iii).
    \91\ See NYSE Arca Rule 6.91(c)(6)(C)(ii) and Amendment No. 2.
    \92\ See NYSE Arca Rule 6.91(c)(6)(C)(iv).
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    New NYSE Arca Rule 6.91(c)(7), which describes the allocation of 
COA-eligible orders at the conclusion of a COA, will replace current 
NYSE Arca Rule 6.91(c)(6) in its entirety.\93\ NYSE Arca acknowledges 
that current NYSE Arca Rules 6.91(c)(6)(B) and (C), which refer to 
affording priority to Customer ECOs, are not consistent with NYSE/
Arca's price/time priority model.\94\ The Commission believes that new 
NYSE Arca Rule 6.91(c)(7)(A) protects leg market interest resting in 
the Consolidated Book at the beginning of the COA by providing that the 
COA-eligible order will be eligible to trade first with RFR Responses 
and ECOs priced better than the initial Complex BBO. New NYSE Arca Rule 
6.91(c)(7)(B) indicates that a COA-eligible order will trade with best-
priced contra-side interest pursuant to NYSE Arca Rule 6.91(a)(2)(ii) 
or (iii) after allocations pursuant to NYSE Arca Rule 6.91(c)(7)(A). 
NYSE Arca Rule 6.91(c)(7) states that any unexecuted portion of a COA-
eligible order will be ranked in the Consolidated Book. The Commission 
believes that these provisions establish additional execution 
opportunities for a COA-eligible order, or portion of a COA-eligible 
order, that does not execute during the COA, and provide clarity 
regarding the handling of these orders.
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    \93\ See Notice, 81 FR at 87100.
    \94\ See id. and Amendment No. 1.
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IV. Solicitation of Comments on Amendment Nos. 1 and 2

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether Amendment Nos. 1 
and 2 to the proposed rule change are 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-2016-149 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-2016-149. 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 Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements

[[Page 12877]]

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 Web site 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; the Commission does not edit 
personal identifying information from submissions. You should submit 
only information that you wish to make available publicly. All 
submissions should refer to File Number SR-NYSEArca-2016-149 and should 
be submitted on or before March 28, 2017.

V. Accelerated Approval of the Proposed Rule Change, as Modified by 
Amendment Nos. 1 and 2

    The Commission finds good cause to approve the proposed rule 
change, as modified by Amendment Nos. 1 and 2, prior to the 30th day 
after the date of publication of notice of the amended proposal in the 
Federal Register. Amendment No. 1 makes several changes that further 
clarify the operation of NYSE Arca Rule 6.91. In particular, Amendment 
No. 1 revises NYSE Arca Rule 6.91(a)(ii) to delete an incorrect cross-
reference to NYSE Arca Rule 6.76A; adds a cross-reference to NYSE Arca 
Rule 6.91(a)(2) to NYSE Arca Rule 6.91(c); revises NYSE Arca Rule 
6.91(c)(3)(ii) to indicate that NYSE Arca determines the number of 
ticks away from the current, contra-side market for a COA-eligible 
order; amends NYSE Arca Rule 6.91(c)(3)(iii) to indicate that a COA-
eligible order will reside on the Consolidated Book until it meets the 
requirements for initiating a COA; revises NYSE Arca Rules 
6.91(c)(6)(A)(iv), 6.91(c)(6)(B)(v), and 6.91(c)(7)(B) to indicate that 
complex orders could trade pursuant to NYSE Arca Rule 6.91(c)(iii); 
amends NYSE Arca Rule 6.91(c)(6)(B) to indicate that when a COA ends 
early, or at the end of the RTI, the initiating COA-eligible order will 
execute pursuant to NYSE Arca Rule 6.91(c)(7) ahead of interest that 
arrived during the COA; amends NYSE Arca Rule 6.91(c)(7) to indicate 
that when a COA ends early, or at the end of the RTI, the COA-eligible 
order will be executed against the contra-side interest received during 
the COA. Amendment No. 1 also states that: NYSE Arca currently allows 
COA-eligible orders to be entered in every class; OTP Holders may 
submit RFR Responses on behalf of customers; a COA-eligible order would 
execute against the best-priced contra-side interest, including an 
order that caused the COA to end early, if no RFRs were received during 
the RTI; and the proposal removes references to Customer ECO priority, 
which is not NYSE Arca's allocation model, and instead reflects NYSE 
Arca's price/time priority model. NYSE Arca believes that there is good 
cause for the Commission to accelerate the approval of Amendment No. 1 
because the proposed changes in Amendment No. 1 are designed to improve 
NYSE Arca Rule 6.91 by adding more specificity and transparency. NYSE 
Arca notes that Amendment No. 1 clarifies and amplifies certain aspects 
of the original filing, including how ECOs and COA-eligible orders are 
handled on NYSE Arca, and how this functionality is consistent with 
NYSE Arca's price/time priority model.
    Amendment No. 2 revises proposed NYSE Rule 6.91(c)(3) to delete 
proposed paragraph (iii), which would have required that the limit 
price of a COA-eligible order be at or within the NYSE Arca best bid/
offer for each leg of the order to initiate a COA. NYSE Arca states 
that, because a COA-eligible order may be a certain number of ticks 
away from the current market, it is possible that a COA could be 
initiated even if the limit price of the COA-eligible order is not at 
or within the NYSE Arca best bid/offer for each leg of the order. NYSE 
Arca notes, however, that a COA-eligible order must execute at a price 
that is at or within the NYSE Arca best bid/offer for each leg of the 
order, consistent with NYSE Arca Rule 6.91(a)(2). In addition, 
Amendment No. 2 revises proposed NYSE Arca Rule 6.91(c)(6)(C)(i) to 
indicate that any updates to the leg markets that cause the same-side 
Complex BBO to lock or cross ECOs resting in the Consolidated Book will 
cause the COA to end early. NYSE Arca states that providing for the 
early termination of the COA under these circumstances will allow a 
COA-eligible order to execute against RFR Responses or ECOs received 
during the RTI until that point, while preserving the priority of the 
updated leg markets to trade with the ECOs resting in the Consolidated 
Book. Amendment No. 2 also revises proposed NYSE Arca Rule 
6.91(c)(6)(C)(ii) to provide that updates to the leg markets that cause 
the same-side BBO to be priced higher (lower) than the COA-eligible 
order to buy (sell), but do not lock or cross ECOs resting in the 
Consolidated Book, will not cause the COA to end early. NYSE Arca 
states that accelerated approval of Amendment No. 2 will allow NYSE 
Arca to implement the changes proposed in Amendment No. 2 at the same 
time that the filing goes into effect, which would improve the rule by 
adding more specificity and transparency. NYSE Arca believes that the 
filing, as amended, clarifies how ECOs and COA-eligible orders are 
handled on NYSE Arca, both during Core Trading Hours and when there is 
a COA in progress.
    As described above, Amendment No. 1 removes an incorrect cross-
reference and adds several clarifying details to the proposal, thereby 
providing additional information concerning the manner in which NYSE 
Arca processes ECOs. Amendment No. 2 helps to assure the accuracy of 
the proposed rules by removing a provision that indicated, incorrectly, 
that the limit price of a COA-eligible order would have to be 
executable at a price at or within the NYSE Arca best bid/offer for 
each leg of the order to initiate a COA, and by adding references to 
ECOs resting in the Consolidated Book to NYSE Arca Rules 
6.91(c)(6)(C)(i) and (ii) to provide a more complete description of the 
circumstances under which leg market updates would, or would not, cause 
a COA to end early. The Commission believes that Amendment Nos. 1 and 2 
provide additional details and make corrections to the text of the 
proposed rules, thereby helping to assure the accuracy of the proposed 
rules. The Commission also believes that the changes in Amendment Nos. 
1 and 2 do not introduce material, new, or novel concepts. Accordingly, 
the Commission finds good cause, pursuant to Section 19(b)(2) of the 
Act,\95\ to approve the proposed rule change, as modified by Amendment 
Nos. 1 and 2, on an accelerated basis.
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    \95\ 15 U.S.C. 78s(b)(2).
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VI. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\96\ that the proposed rule change (File No. SR-NYSEArca-2016-149), 
as modified by Amendment Nos. 1 and 2, is approved on an accelerated 
basis.
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    \96\ 15 U.S.C. 78s(b)(2).

[[Page 12878]]

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    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\97\
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    \97\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-04352 Filed 3-6-17; 8:45 am]
 BILLING CODE 8011-01-P