
[Federal Register Volume 82, Number 186 (Wednesday, September 27, 2017)]
[Notices]
[Pages 45085-45094]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-20628]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-81676; File No. SR-NYSEAMER-2017-15]


Self-Regulatory Organizations; NYSE American LLC; Notice of 
Filing of Proposed Rule Change Amending Rule 980NY (Electronic Complex 
Order Trading) To Clarify the Priority of Electronic Complex Orders and 
To Modify Aspects of Its Complex Order Auction Process

September 21, 2017.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby 
given that, on September 8, 2017, NYSE American LLC (the ``Exchange'' 
or ``NYSE American'') filed with the Securities and Exchange Commission 
(the ``Commission'') the proposed rule change as described in Items I, 
II, and III below, which Items have been prepared by the self-
regulatory organization. The Commission is publishing this notice to 
solicit comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C.78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend Rule 980NY(Electronic Complex Order 
Trading) to clarify the priority of Electronic Complex Orders and to 
modify aspects of its Complex Order Auction Process.
    The proposed rule change is available on the Exchange's Web site 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.

[[Page 45086]]

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

1. Purpose
    The Exchange proposes to amend Rule 980NY to clarify the priority 
of Electronic Complex Orders (``ECO'') \4\ and to modify aspects of its 
Complex Order Auction (``COA'') Process.\5\
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    \4\ Per Rule 980NY, ``an `Electronic Complex Order' means any 
Complex Order as defined in Rule 900.3NY(e) that is entered into the 
System.'' Rule 900.3NY defines Complex Order as ``any order 
involving the simultaneous purchase and/or sale of two or more 
different option series in the same underlying security, for the 
same account, in a ratio that is equal to or greater than one-to-
three (.333) and less than or equal to three-to-one (3.00) and for 
the purpose of executing a particular investment strategy.''
    \5\ The Exchange notes that the proposed modifications to its 
COA are materially identical to changes recently approved on NYSE 
Arca Inc. (``NYSE Arca''), except that the Exchange's proposed 
changes account for the Exchange's Customer priority rules, whereas 
NYSE Arca's approved COA rules incorporate NYSE Arca's price-time 
priority rules. See Securities Exchange Act Release No. 80138 (March 
1, 2017), 82 FR 12869 (March 7, 2017) (order granting accelerated 
approval of proposed rule change, as modified by Amendment Nos. 1 
and 2, to amend NYSE Arca Rule 6.91) (the ``NYSE Arca Approval 
Order'').
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    Rule 980NY sets forth how the Exchange conducts trading of ECOs in 
its Complex Matching Engine (``CME''). The Exchange proposes to 
streamline the rule text describing the execution of ECOs during Core 
Trading Hours \6\ to provide specificity and transparency regarding 
such order processing, without modifying the substance of such 
processing. The Exchange also proposes to amend the rules describing 
how ECOs that are eligible for a COA Process are executed and allocated 
to clarify the description of current functionality and to provide 
additional detail regarding order processing. The Exchange also 
proposes amendments to Rule 980NY to clarify and add transparency to 
the description of the COA Process, as described below.
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    \6\ Core Trading Hours are the regular trading hours for 
business set forth in the rules of the primary markets underlying 
those option classes listed on the Exchange. See Rule 900.2NY(15).
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Execution of ECOs During Core Trading Hours
    The Exchange proposes to streamline its description of the priority 
of ECOs during Core Trading Hours, which the Exchange believes would 
add specificity and transparency to Exchange rules. Every ECO, upon 
entry to the System, is routed to the CME for possible execution 
against other ECOs or against individual quotes and orders residing in 
the Consolidated Book (``leg markets'').\7\ In general, the Exchange 
affords Customer orders priority over same-priced non-Customer orders 
received by the Exchange. The Exchange ranks and allocates Customer 
orders at the same price in time priority and, after all Customer 
orders are executed at a price, non-Customer orders at the same price 
are allocated on a pro rata basis.\8\ Similarly, the Exchange affords 
Customer ECOs priority over non-Customer ECOs with the same total net 
debit or credit. The Exchange ranks Customer ECOs with the same total 
or net debit or credit based on the time of entry of such Customer 
ECOs, and then ranks non-Customer ECOs at the same total net debit or 
credit based on the time of entry of such non-Customer ECOs.\9\
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    \7\ See Rule 980NY(a). The Exchange proposes to define ``leg 
markets'' in reference to individual quotes and orders in the 
Consolidated Book as used throughout the rule text and also proposes 
to capitalize the defined term ``System''. See proposed Rule 
980NY(a); see also Rule 900.2NY(48) (defining the term System (or 
Exchange System) as ``the Exchange'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. Market Makers must submit quotes to the System in their 
appointed classes electronically'').
    \8\ See Rule 964NY(b)(2)(A) (also providing that ``if there is 
more than one highest bid for a Customer account or more than one 
lowest offer for a Customer account, then such bids or offers, 
respectively, will be ranked based on time priority''); and Rule 
964NY(b)(3) (setting forth pro rata allocation method).
    \9\ See Rule 980NY(b). The Exchange proposes a non-substantive 
amendment to add the term ``Electronic'' so that the rule text would 
read, ``Priority of Electronic Complex Orders in the Consolidated 
Book.''
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    Paragraph (c) to the Rule sets forth how ECOs are executed, 
including that ECOs submitted to the System may be executed without 
consideration of prices of the same complex order that might be 
available on other exchanges.\10\ The Exchange proposes to specify that 
ECOs may be executed without regard to prices of ``either single-legged 
or the same complex order strategy'' that might be available on other 
exchanges, which adds specificity and transparency to Exchange 
rules.\11\ The Exchange also proposes to amend Rule 980NY(c) by re-
numbering the rule text. As described in more detail below, proposed 
Rule 980NY(c)(ii) would set forth how ECOs that are marketable on 
arrival would be executed and proposed Rule 980NY(c)(iii) would set 
forth how ECOs that are not executed on arrival would be ranked and 
executed on the Consolidated Book.
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    \10\ See Rule 980NY(c). The Rule also provides that ``[n]o leg 
of a [ECO] will be executed at a price outside the Exchange's best 
bid/offer for that leg.'' See id.
    \11\ See proposed Rule 980NY(c). Rule 980NY(c)(i) sets forth how 
ECOs are executed at the Open. The Exchange proposes a non-
substantive amendment to add the term ``Electronic'' so that the 
rule text would read, ``Execution of Electronic Complex Orders at 
the Open.''
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    Rule 980NY(c)(ii) sets forth how ECOs are executed during Core 
Trading. Paragraph (c)(ii)(A) currently provides that the CME will 
accept an incoming marketable ECO and will automatically execute the 
ECO giving first priority to ECOs in the Consolidated Book or, if not 
marketable against another ECO, the incoming ECO will trade against 
individual orders or quotes residing in the Consolidated Book, provided 
it can be executed in full (or in a permissible ratio) by the leg 
markets.\12\ Because Customer orders have priority, Rule 
980NY(c)(ii)(A) further provides that ``[n]otwithstanding the 
foregoing, if individual Customer orders residing in the Consolidated 
Book can execute the incoming [ECO] in full (or in a permissible ratio) 
at the same total or net debit or credit as an [ECO] in the 
Consolidated Book, the individual Customer orders will have priority.'' 
\13\ In other words, the leg markets have first priority to trade 
against the incoming ECO if (i) there are no better priced ECOs in the 
Consolidated Book, (ii) the leg markets can trade in full or 
permissible ratio against an ECO and (iii) each leg contains Customer 
interest. Further, the current rule provides that leg markets that 
trade against an ECO, per Rule 980NY(c)(ii), are allocated pursuant to 
Rule 964NY.\14\
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    \12\ See Rule 980NY(c)(ii)(A). The Exchange notes that when an 
ECO trades against individual quotes and orders in the leg markets 
this is commonly referred to as ``legging out.''
    \13\ Id.
    \14\ Id. See Rule 964NY(b)(2)(A) (Display, Priority and Order 
Allocation--Trading Systems) (also providing that ``if there is more 
than one highest bid for a Customer account or more than one lowest 
offer for a Customer account, then such bids or offers, 
respectively, will be ranked based on time priority'').
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    The Exchange proposes to revise the rule text describing execution 
of ECOs during Core Trading Hours in a manner that the Exchange 
believes would promote transparency regarding the processing of ECOs. 
The proposed rule text is not intended to change how the Exchange 
currently processes ECOs, which is described in the current rule, but 
rather to specify the order processing in a more logical manner. 
Specifically, the Exchange proposes to delete current paragraph 
(c)(ii)(A) of the Rule and replace it with proposed new paragraph 
(c)(ii).
    Proposed Rule 980NY(c)(ii) would provide that the CME would accept 
an incoming marketable ECO and automatically execute it against the 
best-priced contra-side interest resting in the Consolidated Book.\15\
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    \15\ See Rule 980NY(c)(ii)(A).

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[[Page 45087]]

    The proposed rule text would further specify that if, at a price, 
all the leg markets can trade against an incoming ECO in full (or in a 
permissible ratio), and each leg includes Customer interest, the leg 
markets would have first priority at that price to trade with the 
incoming ECO pursuant to Rule 964NY(b), to be followed by resting ECOs 
in price/time priority.\16\ In this case, both Customer and non-
Customer orders and quotes in the leg markets at that price would trade 
against the incoming ECO.\17\ This proposed text, therefore, describes 
how an incoming marketable ECO would be allocated if resting ECOs and 
leg markets in the Consolidated Book are at the same price, i.e., the 
priority of same-priced interest in the Consolidated Book.
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    \16\ See id. See also Rule 980NY(b).
    \17\ See proposed Rule 980NY(ii) (sic) (also providing that the 
allocation of the orders or quotes in the leg markets would be 
allocated against the ECO in accordance with Rule 964NY(b)).
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    As is currently the case, following any executions against the 
best-priced resting ECOs and/or against the leg markets, at a price, 
the ECO would then trade with ECOs resting in the Consolidated 
Book.\18\ The Exchange believes that the proposed rule text provides 
clarity regarding processing of ECOs, and in particular, under what 
circumstances the leg markets would have first priority to execute 
against an incoming marketable ECO.
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    \18\ See id.
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    To distinguish the treatment during Core Trading of incoming 
marketable ECOs (that are immediately executed) from ECOs that are not 
marketable (and thus routed to the Consolidated Book), the Exchange 
proposes to renumber current Rule 980NY(c)(ii)(B) and (C), as proposed 
Rule 980NY(c)(iii)(A) and (B), under the new heading ``Electronic 
Complex Orders in the Consolidated Book.'' The Exchange also proposes 
language in Rule 980NY(c)(iii)(A) to make clear that an ECO, or portion 
thereof, that is not executed on arrival will be ranked in the 
Consolidated Book and that any incoming orders and quotes that can 
trade with a resting ECO would execute ``according to (c)(ii) above.'' 
\19\ Finally, the Exchange proposes to clarify that orders that trade 
against ECOs in the Consolidated Book would be allocated pursuant to 
paragraph (b) of Rule 964NY (Priority and Allocation Procedures for 
Orders and Quotes with Size).\20\ The Exchange believes that the 
proposed additional heading and re-numbering of the rule text provides 
clarity regarding the treatment of non-marketable--as opposed to 
marketable--ECOs, without altering the functionality described in rule.
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    \19\ See proposed Rule 980NY(c)(iii)(A). Consistent with the 
proposed change to define ``leg markets'' in Rule 980NY(a), the 
Exchange proposes to replace ``bids and offers in the leg markets'' 
with ``leg markets'' in the proposed Rule. See id.
    \20\ See proposed Rule 980NY(c)(iii)(B).
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Proposed Modifications to the Description of the COA Process
    The Exchange proposes to modify its description of the COA Process 
and the execution of COA-eligible orders, which the Exchange believes 
would provide additional specificity and transparency to Exchange 
rules.\21\ The Exchange is not proposing to modify the functionality of 
COA. Because of the number of modifications that the Exchange proposes 
to current paragraph (e), the Exchange proposes to delete paragraph (e) 
of the Rule in its entirety and replace it with new Rule 980NY(e), 
which the Exchange believes more clearly, accurately and logically 
describes the COA Process. Proposed Rules 980NY(e)(1)-(7) would 
describe the COA Process.
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    \21\ To the extent that the proposed streamlined rule text 
mirrors existing language, the Exchange cites the relevant section 
of both the proposed and existing rule. See also NYSE Arca Approval 
Order, supra note 5 (the proposed modifications to the COA mirror 
recently approved changes on the NYSE Arca options exchange).
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Execution of COA-Eligible Orders, Initiation of COAs and RFR Responses
    Proposed Rule 980NY(e) would provide that, upon entry into the 
System, ECOs may be immediately executed, in full (or in a permissible 
ratio) as provided in proposed paragraph (c)(ii), or may be subject to 
a COA as described in the Rule. This rule text is based on current Rule 
980NY(e), which provides that COA-eligible orders, upon entry into the 
System, ``may be subject to an automated request for responses 
(``RFR'') auction.'' \22\ The current rule text is silent as to the 
factors involved in whether and when an incoming COA-eligible order may 
trigger a COA. As discussed below, proposed Rules 980NY(e)(2) and 
(e)(3) would address when an incoming COA-eligible order would trigger 
a COA.
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    \22\ The Exchange describes the Request for Response or ``RFR'' 
in connection with a COA in new paragraph (e)(3) to Rule 980NY.
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    Proposed Rule 980NY(e)(1) would define the term ``COA-eligible 
order'' to mean an ECO that is entered in a class designated by the 
Exchange and is:
    (i) Designated by the ATP Holder as COA-eligible; and
    (ii) received during Core Trading Hours.\23\
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    \23\ See proposed Rule 980NY(e)(1).
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    The proposed definition is based, in part, on the current Rule, 
which provides that whether an order is COA-eligible ``would be 
determined by the Exchange on a class-by-class basis'' \24\ and that 
the ATP Holder must provide direction that an auction be initiated.\25\ 
The Exchange believes that explicitly stating that an ECO would be COA-
eligible only if received during Core Trading Hours would add clarity 
and transparency. The Exchange proposes to eliminate from the current 
definition (set forth in Rule 980NY(e)(1)) features of ECOs that are 
not determinative of COA eligibility on the Exchange, such as 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).'' The Exchange is also not including language from current 
Rule 980NY(e)(1) that provides that ECOs ``processed through the COA 
Process may be executed without consideration to prices of the same 
complex orders that might be available on other exchanges,'' as 
paragraph (c) of the Rule includes this provision. Finally, the 
Exchange proposes to remove an ECO's ``marketability (defined as a 
number of ticks away from the current market)'' as a requirement for 
COA-eligibility and to instead include this requirement in proposed 
paragraph (e)(3) regarding whether a COA-eligible order would actually 
trigger (as opposed to be eligible to trigger) a COA, as discussed 
below.
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    \24\ See Rule 980NY(e)(1). At this time, the Exchange allows 
COA-eligible orders to be entered in every class.
    \25\ See Rule 980NY(e)(2) (requiring that an ATP Holder mark an 
ECO for auction in order for a COA to be conducted).
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    Proposed Rule 980NY(e)(2) would add new rule text describing the 
``Immediate Execution of COA-eligible orders.'' The proposed text would 
clearly state that, upon entry of a COA-eligible order into the System, 
it would 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 and, if not all legs include Customer 
interest, with any ECOs resting in the Consolidated Book priced equal 
to the contra-side Complex BBO.\26\ The proposed paragraph would 
further specify that any portion of the COA-eligible order that does 
not trade immediately upon entry may start a

[[Page 45088]]

COA, subject to the conditions set forth in proposed paragraph (e)(3).
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    \26\ See Rule 900.2NY(7)(b) (defining Complex BBO as ``the BBO 
for a given complex order strategy as derived from the best bid on 
OX and best offer on OX for each individual component series of a 
Complex Order'').
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    The Exchange believes that the proposed rule text promotes 
transparency regarding when a COA-eligible order would receive an 
immediate execution (i.e., when it can receive price improvement from 
resting ECOs) versus being subject to a COA. The immediate price 
improvement opportunity for an incoming COA-eligible order from resting 
ECOs in the Consolidated Book may obviate the need to start a COA, 
which is why incoming orders first trade against price-improving 
interest in the Consolidated Book before initiating a COA.
    Proposed Rule 980NY(e)(3) would specify the conditions required for 
the ``Initiation of a COA'' and, if those conditions are met, how a COA 
would be initiated. As proposed, and consistent with current 
functionality, for any portion of a COA-eligible order not executed 
immediately under proposed Rule 980NY(e)(2), the Exchange would 
initiate a COA based on the limit price of the COA-eligible order and 
the ``marketability'' of the order as discussed below.
     First, as set forth in proposed Rule 980NY(e)(3)(i), the 
limit price of the COA-eligible order to buy (sell) would have to be 
higher (lower) than the best-priced, same-side interest in both the leg 
markets and any ECOs resting in the Consolidated Book. In other words, 
the limit price of the COA-eligible order would have to improve the 
current same-side market.
     Second, as set forth in proposed Rule 980NY(e)(3)(ii), the 
COA-eligible order would have to be priced within a given number of 
ticks away from the current, contra-side market, as determined by the 
Exchange. This concept is based on current Rule 980NY(e)(1), which 
defines the ``marketability'' of a COA-eligible order as being ``a 
number of ticks away from the current market.'' Because a COA-eligible 
order may be a certain number of ticks away from the current market, a 
COA could be initiated even if the limit price of the COA-eligible 
order is not at or within the Exchange best bid/offer for each leg of 
the order. However, a COA-eligible order must trade at a price that is 
at or within the Exchange best bid/offer for each leg of the order, 
consistent with Rule 980NY(c) regarding the execution of ECOs in 
general.
    The Exchange also proposes to make clear that a COA-eligible order 
would reside on the Consolidated Book until it meets the requirements 
of proposed paragraph (e)(3)(i)-(ii) and can initiate a COA.\27\ 
Proposed Rule 980NY(e)(3) further provides that the Exchange would 
initiate a COA by sending a Request for Response (``RFR'') message to 
all ATP Holders that subscribe to RFR messages.\28\ This requirement is 
based on the first sentence of current Rule 980NY(e)(2). Proposed Rule 
980NY(e)(3) would further provide that RFR messages would identify the 
component series, the size and side of the market of the order and any 
contingencies, which is based on the second sentence of current Rule 
980NY(e)(2) without any changes. In addition, proposed Rule 980NY(e)(3) 
would include new rule text to specify that only one COA may be 
conducted at a time in any given complex order strategy, which is not 
explicitly stated in the current rule.\29\ Finally, proposed Rule 
980NY(e)(3) would specify that, at the time the COA is initiated, the 
Exchange would record the Complex BBO (the ``initial Complex BBO'') for 
purposes of determining whether the COA should end early pursuant to 
proposed paragraph (e)(6) of this Rule (discussed below). This is new 
rule text that is consistent with current functionality that ensures 
the COA respects the leg markets as well as principles of price/time 
priority.\30\
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    \27\ See proposed Rule 980NY(e)(3).
    \28\ See id.
    \29\ The Exchange believes this can be inferred from the text 
describing the impact of COA-eligible orders that arrive during a 
COA in progress. See, e.g., Rule 980NY(e)(8). Proposed Rule 
980NY(e)(6), described below, provides specificity of when a COA may 
terminate early and when a subsequent COA may be initiated.
    \30\ See proposed Rule 980NY(c)(ii) (leg markets have priority 
at a price).
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    Proposed Rule 980NY(e)(4) would define the term Response Time 
Interval (``RTI'') as the period of time during which responses to the 
RFR may be entered. As further proposed, the Exchange would determine 
the length of the RTI; provided, however, that the duration would not 
be less than 500 milliseconds and would not exceed one (1) second. This 
rule text is based on current Rule 980NY(e)(3) insofar as it defines 
the RTI and the duration of the RTI, with the non-substantive 
modification to replace reference to ``shall'' with reference to 
``will.''
    Proposed Rule 980NY(e)(4) would also include new rule text 
providing that, at the end of the RTI, the COA-eligible order would be 
allocated pursuant to proposed Rule 980NY(e)(7), which describes the 
allocation of COA-eligible orders (hereinafter ``COA Order 
Allocation'') (described below). This proposed new rule text is based 
in part on current Rule 980NY(e)(5), which provides that at the 
expiration of the RTI, COA-eligible orders may be executed, in whole or 
in part, pursuant to Rule 980NY(e)(6) (Execution of COA-eligible 
orders). The proposed rule text refers instead to Rule 980NY(e)(7), 
which incorporates the order allocation concepts currently set forth in 
Rule 980NY(e)(6). The proposed change is intended to add clarity and 
transparency to the COA Process.
    Proposed Rule 980NY(e)(5) would provide that any ATP Holder may 
submit responses to the RFR message (``RFR Responses'') during the 
RTI.\31\ This rule text is based on the first sentence of current Rule 
980NY(e)(4) without any changes. Proposed Rule 980NY(e)(5)(A)-(C) would 
provide additional specificity regarding RFR Responses.
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    \31\ ATPs Holders can submit RFR Responses on behalf of 
Customers.
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     Proposed Rule 980NY(e)(5)(A) would provide that RFR 
Responses are ECOs that have a time-in-force contingency for the 
duration of the COA, must specify the price, size, and side of the 
market, and may be submitted in $0.01 increments. This rule text is 
based in part on the first sentence of Rule 980NY(e)(4), which provides 
that RFR Responses may be submitted in $.01 increments. Proposed Rule 
980NY(e)(5)(A) is based in part on the second to last sentence of 
current Rule 980NY(e)(7), which provides that RFR Responses expire at 
the end of the RTI, which is the same in substance as saying that an 
RFR Response has a time-in-force condition for the duration of the COA. 
The Exchange believes its proposed rule text is more accurate because 
it states that RFR Responses are valid for the duration of the COA, as 
opposed to the RTI, the latter being the period during which COA 
interest (including RFR Responses and incoming ECOs) is received and 
the former being the overall COA Process that allocates COA-eligible 
orders with the best-priced auction interest, including RFR Responses.
     Proposed Rule 980NY(e)(5)(B) would provide that RFR 
Responses must be on the opposite side of the COA-eligible order and 
any RFR Responses on the same side of the COA-eligible order would be 
rejected. This proposed rule text is based on the last sentence of 
current Rule 980NY(e)(4), which provides that RFR Responses must be on 
the opposite side of the COA-eligible order and any same-side RFR 
responses would be rejected by the Exchange, without any substantive 
changes.
     Proposed Rule 980NY(e)(5)(C) would provide that RFR 
Responses may be modified or cancelled during the RTI,

[[Page 45089]]

would not be ranked or displayed in the Consolidated Book, and would 
expire at the end of the COA. The proposed text stating that RFR 
Responses may be modified or cancelled during the RTI is new rule text 
based in part on current Rule 980NY(e)(7), which provides that RFR 
Responses can be modified but may not be withdrawn at any time prior to 
the end of the RTI. The Exchange proposes to specify that an RFR 
Response may be modified or cancelled during the RTI, which is current 
functionality. The proposed text stating that RFR Responses expire at 
the end of the COA make clear when RFR Responses are ``firm'' and thus 
obviate the need for current Rule 980NY(e)(7).\32\ The proposed text of 
Rule 980NY(e)(5)(C) stating that RFR Responses would not be ranked or 
displayed in the Consolidated Book is based on the last sentence of 
current Rule 980NY(e)(7) without any changes.
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    \32\ Rule 980NY(e)(7) sets forth the Firm Quote Requirements for 
COA-eligible orders.
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    The Exchange believes that the proposed Rules 980NY(e)(5), which 
reorganizes information from existing rule text and adds language to 
describe the requisite characteristics and behavior of an RFR Response, 
adds clarity and transparency to Exchange rules, including that, like 
all orders, an RFR Response may be modified or cancelled prior to the 
end of the RTI. The Exchange believes that specifying that RFR Reponses 
are good for the duration of the COA and may trade with interest 
received during the COA before expiring would encourage participation 
in the COA and would maximize the number of contracts traded.
Impact of ECOs, COA-Eligible Orders and Updated Leg Markets on COA in 
Progress
    Proposed Rule 980NY(e)(6) would describe the impact of ECOs, COA-
eligible orders, and updates to the leg markets that arrived during an 
RTI of a COA. This proposed rule text would replace current Rule 
980NY(e)(8). The Exchange believes that, because proposed Rule 
980NY(e)(6) would establish what happens to a COA (i.e., whether it 
will end early) before the COA-eligible order is allocated, it would be 
more logical to describe these processes before the rule describes how 
COA-eligible orders are allocated, which would be set forth in proposed 
Rule 980NY(c)(7). In addition, the Exchange proposes to add headings 
(see proposed Rule 980NY(e)(6)(A)-(C)) to make clear which type of 
incoming interest is being described.
    Proposed Rule 980NY(e)(6)(A) would describe the impact on a COA of 
incoming ECOs or COA-eligible orders on the opposite-side of the market 
as the initiating COA-eligible order. The current rule addresses the 
impact of opposite-side, incoming ECOs on a COA,\33\ but does not 
address the impact of opposite-side incoming COA-eligible orders. 
Accordingly, proposed paragraph (A) of Rule 980NY(e)(6) would be new 
rule text. The Exchange notes that the impact of an incoming COA-
eligible order mirrors that of an incoming ECO in the scenarios covered 
in proposed Rules 980NY(e)(6)(A)(i)-(iii) (discussed below), which adds 
internal consistency and specificity to Exchange rules.\34\
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    \33\ See Rule 980NY(e)(8)(A) (providing that ``[i]ncoming 
Electronic Complex orders received during the Response Time Interval 
that are on the opposite side of the market and marketable against 
the limit price of the initiating COA-eligible order will be ranked 
and executed in price time with RFR Responses by account type (as 
described in (6) above). Any remaining balance of either the 
initiating COA-eligible order or the incoming Electronic Complex 
order will be placed in the Consolidated Book and ranked as 
described in (b) above'').
    \34\ The different treatment of the balance of the incoming 
order, depending on whether it is an ECO or a COA-eligible order is 
covered in proposed rules Rule 980NY(e)(6)(A)(iv) and (v), 
respectively.
---------------------------------------------------------------------------

     Proposed Rule 980NY(e)(6)(A)(i) would provide that 
incoming ECOs or COA-eligible orders that lock or cross the initial 
Complex BBO would cause the COA to end early. The concept of the 
initial Complex BBO as a benchmark against which incoming opposite-side 
interest would be measured is new rule text, but is consistent with 
current functionality. As noted above (see supra note 26), the initial 
Complex BBO is the BBO for a given complex order strategy as derived 
from the Best Bid (``BB'') and Best Offer (``BO'') for each individual 
component series of a Complex Order as recorded at the start of the 
RTI. Proposed Rule 980NY(e)(6)(A)(i) would further provide that if such 
incoming ECO or COA-eligible order is also executable against the limit 
price of the initiating COA-eligible order, it would be ranked with RFR 
Responses to trade with the initiating COA-eligible order. The Exchange 
believes that addressing this scenario would better enable market 
participants to understand how their ECOs, including COA-eligible 
orders, may be treated, and the proposed change therefore is designed 
to add clarity and transparency to Exchange rules.
    The proposed rule text relating to how an incoming opposite-side 
ECO or COA-eligible order would be processed is based on current Rule 
980NY(e)(8)(A), which provides that incoming ECOs received during the 
RTI ``that are on the opposite side of the market and marketable 
against the limit price of the initiating COA-eligible order will be 
ranked and executed in price time with RFR Responses.'' \35\ The 
proposed rule text would also include opposite-side COA-eligible 
orders.\36\ The proposed rule text also does not include reference to 
``account type,'' or ``price time,'' as the COA-eligible order would 
interact with the best-priced contra-side interest received during the 
RTI, per proposed paragraph (e)(7) of this Rule.\37\
---------------------------------------------------------------------------

    \35\ See Rule 980NY(e)(8)(A).
    \36\ See proposed Rule 980NY(e)(6)(A)(i).
    \37\ See id. See proposed Rule 980NY(e)(7). See also discussion 
of ``COA Order Allocation'' below.
---------------------------------------------------------------------------

     Proposed Rule 980NY(e)(6)(A)(ii) would provide that 
incoming ECOs or COA-eligible orders that are executable against the 
limit price of the initiating COA-eligible order, but do not lock or 
cross the initial Complex BBO, would not cause the COA to end early and 
would be ranked with RFR Responses to trade with the initiating COA-
eligible order. This proposed paragraph specifies that the COA would 
continue uninterrupted by such incoming orders because such interest 
does not impact priority (because the incoming order isn't priced 
better than the leg markets at the start of the COA). The incoming 
order, however, would be eligible to participate in the COA. This 
proposed text would be new rule text, which reflects current 
functionality that is based on the principles set forth in current Rule 
980NY(e)(8)(A).
     Proposed Rule 980NY(e)(6)(A)(iii) would provide that 
incoming 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 would not cause the COA to 
end early. Per this proposed paragraph, the COA would proceed 
uninterrupted as the incoming interest does not trigger priority 
concerns (i.e., does not lock or cross the initial Complex BBO) nor can 
the interest participate in the COA (i.e., because it is not executable 
against the initiating COA-eligible order). This would be new rule 
text, which reflects current functionality.
     Proposed Rule 980NY(e)(6)(A)(iv) would provide that any 
incoming ECO(s), or the balance thereof, that was not executed with the 
initiating COA-eligible order or was not executable on arrival would 
trade pursuant to proposed paragraph (c)(ii) or (iii) of this Rule 
(i.e., Core Trading Allocation). This proposed rule text is based on 
the last sentence of current Rule

[[Page 45090]]

980NY(e)(8)(A), regarding ECOs, but provides additional detail 
regarding the ability for any balance on the incoming ECO to trade with 
the best-priced, resting contra-side interest before (or instead of) 
being ranked in the Consolidated Book, which is consistent with the 
Exchange's processing of incoming ECOs.
     Proposed Rule 980NY(e)(6)(A)(v) would provide that any 
incoming COA-eligible order(s), or the balance thereof, that was not 
executed with the initiating COA-eligible order or was not executable 
on arrival would initiate subsequent COA(s) in price-time priority. 
Because the treatment of opposite-side COA-eligible orders is not 
described in the current rule, this would be new rule text. Unlike the 
treatment of incoming opposite-side ECOs--where any remaining balance 
of the ECOs would be subject to Core Trading Allocation or would be 
posted to the Consolidated Book after trading with the initiating COA-
eligible order--any balance of the incoming contra-side COA-eligible 
order that does not trade with the initiating COA-eligible order would 
initiate a new COA.
    The Exchange believes that proposed Rule 980NY(e)(6)(A)(i)-(v) 
would provide additional specificity regarding the impact of opposite-
side ECOs or COA-eligible orders on the COA Process, which adds 
transparency to Exchange rules. Specifically, the Exchange believes 
that providing for a COA to terminate early when an incoming order 
locks or crosses the initial Complex BBO, as proposed, would allow an 
initiating COA-eligible order to trade (ahead of the incoming order) 
against any RFR Responses or ECOs received during the RTI up until that 
point, while preserving the priority of the incoming order to trade 
with the resting leg markets. If no RFRs had been received during the 
RTI, the initiating COA-eligible order would trade against the best-
priced, contra side interest, including the order the caused the COA to 
terminate early. The Exchange believes that early conclusion of the COA 
would avoid disturbing priority in the Consolidated Book and would 
allow the Exchange to appropriately handle incoming orders. The 
proposed rule text is consistent with the processing of ECOs during 
Core Trading and ensures that the leg markets respect the COA as well 
as principles of price/time priority.\38\ Moreover, the Exchange 
believes that the proposed impact of incoming COA-eligible orders 
aligns with the treatment of incoming ECOs, which adds internal 
consistency to Exchange rules, and affords additional opportunities for 
price improvement to the initiating COA-eligible order, which may trade 
with the opposite-side order(s).
---------------------------------------------------------------------------

    \38\ See proposed Rule 980NY(c)(ii) (leg markets have priority 
at a price).
---------------------------------------------------------------------------

    The Exchange proposes to process any remaining balance of COA-
eligible orders differently from any balance of the incoming ECO 
because an ECO would either trade against resting interest or be ranked 
with ECOs in the Consolidated Book, whereas any balance of a COA-
eligible order would initiate a new COA. The Exchange believes that 
this proposed rule text, which is consistent with current 
functionality, maximizes the execution opportunities to the incoming 
order(s), as these orders may trade with interest received in the 
(initiating) COA; and, for the incoming COA-eligible order, the 
potential for additional price improvement in a subsequent COA.
    Proposed Rule 980NY(e)(6)(B) would describe the impact of incoming 
ECOs or COA-eligible orders on the same side of the market as the 
initiating COA-eligible order on a COA. The current rule addresses the 
impact of same-side, incoming COA-eligible orders on a COA,\39\ but 
does not address the impact of same-side ECOs. Accordingly, the 
inclusion of ECOs in the proposed rule would be new text. The impact of 
an incoming ECO mirrors that of an incoming COA-eligible order in the 
scenarios covered in proposed Rule (e)(6)(B)(i)-(iv) (discussed below), 
which adds internal consistency and specificity to Exchange rules.\40\ 
Proposed Rule 980NY(e)(6)(B) would make clear that regardless of 
whether a COA ends early or at the end of the (uninterrupted) RTI, the 
initiating COA-eligible order would be executed pursuant to paragraph 
(e)(7) of this Rule ahead of any interest that arrived during the 
COA.\41\
---------------------------------------------------------------------------

    \39\ See Rule 980NY(e)(8)(B)-(C) (addressing the impact of same-
side incoming COA-eligible orders on a COA).
    \40\ The Exchange notes that the different treatment of the 
balance of the incoming order, depending on whether it is an ECO or 
a COA-eligible order, is covered in proposed paragraphs (v) and 
(vi), respectively, of Rule 980NY(e)(6)(B).
    \41\ See proposed Rule 980NY(e)(6)(B).
---------------------------------------------------------------------------

     Proposed Rule 980NY(e)(6)(B)(i) would provide that 
incoming ECOs or COA-eligible orders that are priced better than the 
initiating COA-eligible order would cause the COA to end.\42\ This 
proposed rule text is based in part on current Rule 980NY(e)(8)(D), 
which provides that better-priced incoming COA-eligible orders that 
arrive during the RTI will cause a COA to end.\43\
---------------------------------------------------------------------------

    \42\ An incoming ECO or COA-eligible order priced ``better 
than'' the COA-eligible order means it is priced higher (lower) than 
the initiating COA-eligible order to buy (sell). See proposed Rule 
980NY(e)(6)(B)(ii).
    \43\ See Rule 980NY(e)(8)(D) (providing, in part, that 
``[i]ncoming COA-eligible orders received during the Response Time 
Interval for the original COA-eligible order that are on the same 
side of the market and that are priced better than the initiating 
order will cause the auction to end'').
---------------------------------------------------------------------------

     Proposed Rule 980NY(e)(6)(B)(ii) would provide that an 
incoming ECO or COA-eligible order that is priced equal to or worse 
than the initiating COA-eligible order,\44\ and also locks or crosses 
the contra-side initial Complex BBO, would cause the COA to end early. 
The proposed rule is based in part on current Rules 980NY(e)(8)(B) and 
(C), which describe how the Exchange processes COA-eligible orders that 
are received during a COA that are on the same side of the market of 
the initiating COA and priced equal to or worse than the initiating 
COA.\45\ However, the current rule does not specify that a COA would 
terminate early when an incoming ECO locks or crosses the contra-side 
initial Complex BBO. Therefore, the inclusion of ECOs would be new rule 
text.
---------------------------------------------------------------------------

    \44\ An incoming ECO or COA-eligible order priced ``worse than'' 
the COA-eligible order means it is priced lower (higher) than the 
initiating COA-eligible order to buy (sell). See proposed Rule 
980NY(e)(6)(B)(ii).
    \45\ See Rule 980NY(e)(8)(B)-(C), supra note 39.
---------------------------------------------------------------------------

     Proposed Rule 980NY(e)(6)(B)(iii) would provide that 
incoming ECOs or COA-eligible orders that are priced equal to or worse 
than the initiating COA-eligible order,\46\ but do not lock or cross 
the contra-side Complex BBO, would not cause the COA to end early. 
Proposed Rule 980NY(e)(6)(B)(i) is based on current Rules 
980NY(e)(8)(B) and (C), which describe how the Exchange processes COA-
eligible orders that are received during a COA that are on the same 
side of the market as the initiating COA-eligible order and priced 
equal to or worse than the initiating COA-eligible order. However, the 
current rule does not address whether the incoming orders lock or cross 
the contra-side initial Complex BBO. The Exchange believes the 
additional detail promotes internal consistency regarding how the COA 
process and how it intersects with the price/time priority of the 
initial Complex BBO.
---------------------------------------------------------------------------

    \46\ An incoming ECO or COA-eligible order priced ``worse than'' 
the COA-eligible order means it is priced lower (higher) than the 
initiating COA-eligible order to buy (sell). See proposed Rule 
980NY(e)(6)(B)(iii).
---------------------------------------------------------------------------

    The Exchange notes that current Rules 980NY(e)(8)(B) and (C) state 
that an incoming same-side COA-eligible order (priced equal to or worse 
than the initiating order) joins a COA in progress and is executed in 
price/time with the

[[Page 45091]]

COA-eligible order, with any balance placed in the Consolidated Book 
pursuant to paragraph (b).\47\ The proposed rule text would clarify how 
such incoming COA-eligible orders would be processed. Specifically, the 
Exchange proposes to clarify how such incoming COA-eligible orders (as 
well as ECOs) would be processed, including any remaining balance 
thereof, in proposed paragraphs (e)(6)(B)(iv)-(vi) of the Rule, 
discussed below.\48\
---------------------------------------------------------------------------

    \47\ See Rule 980NY(e)(8)(B) and (C) (providing, in part, that 
``[i]ncoming COA-eligible orders received during the [RTI] for the 
original COA-eligible order that are on the same side of the market, 
that are priced [equal to or worse] than the initiating order, will 
join the COA'').
    \48\ See, e.g., proposed Rule 980NY(e)(6)(B)(iv),(vi) (providing 
that, rather than joining the COA, these incoming COA-eligible 
orders may trade with RFR Responses or ECOs that don't execute in 
the COA and, if any balance remains still, would initiate a new 
COA--but would not execute during the COA in progress as the current 
rule suggests).
---------------------------------------------------------------------------

     Proposed Rule 980NY(e)(6)(B)(iv) would provide that any 
incoming ECO or COA-eligible order that caused a COA to end early, if 
executable, would trade against any RFR Responses or ECOs that did not 
trade with the initiating COA-eligible order. This proposed paragraph 
reflects current functionality and is based on current Rule 
980NY(e)(8)(D) inasmuch as it addresses incoming same-side COA-eligible 
orders that cause the COA to end early.
     Proposed Rule 980NY(e)(6)(B)(v) would provide that 
incoming ECOs, or any remaining balance per proposed paragraph (iv) 
above, that do not trade against any remaining RFR Responses or ECOs 
received during the RTI would trade pursuant to Core Trading 
Allocation, pursuant to paragraph (c)(ii) or (iii) of this Rule. This 
proposed rule text is consistent with the treatment of the balance of 
incoming same-side ECOs set forth in current Rule 980NY(e)(8)(A)-(C), 
with the added detail that the ECO would first be subject to Core 
Trading Allocation pursuant to proposed Rule 980NY(c)(ii) before being 
ranked in the Consolidated Book.
     Proposed Rule 980NY(e)(6)(B)(vi) would provide that the 
remaining balance of any incoming COA-eligible order(s) that does not 
trade against any remaining RFR Responses or ECOs received during the 
RTI would initiate new COA(s) in price-time priority. This proposed 
rule text is based in part on current Rule 980NY(e)(8)(D), which 
provides that any unexecuted portion of the incoming COA-eligible would 
initiate a new COA.\49\
---------------------------------------------------------------------------

    \49\ See Rule 980NY(e)(8)(D) (providing, in part, that ``[t]he 
COA-eligible order that caused the auction to end will if 
marketable, initiate another COA''). See supra note 47 (noting 
inaccuracy in current rule, which provides that incoming COA-
eligible orders would execute during the COA in progress).
---------------------------------------------------------------------------

    The Exchange believes that proposed Rules 980NY(e)(6)(B)(i)-(vi) 
would provide greater specificity regarding the impact of arriving 
same-side COA-eligible orders and ECOs on a COA, which adds internal 
consistency, clarity and transparency to Exchange rules. Specifically, 
the Exchange believes that providing for a COA to terminate early under 
the circumstances specified in proposed Rules 980NY(e)(6)(B)(i) and 
(ii) would allow a COA-eligible order to trade (ahead of the incoming 
order) against any RFR Responses or ECOs received during the RTI up 
until that point, while preserving the priority of the incoming order 
to trade with the resting leg markets. The Exchange believes that early 
conclusion in this circumstance would ensure that the COA interacts 
seamlessly with the Consolidated Book so as not to disturb the priority 
of orders on the Book.
    The proposed rule text is consistent with the processing of ECOs 
during Core Trading and ensures that the COA respects the leg markets 
as well as principles of price/time priority.\50\ In addition, the 
proposed rule would provide greater specificity that the incoming COA-
eligible order or ECO would, if executable, trade against any remaining 
RFR Responses and/or ECOs received during the RTI, which allows the 
incoming orders opportunities for price improvement. The proposed rule 
would also make clear that any remaining balance of the incoming COA-
eligible order would then initiate a new COA. The Exchange believes 
that these proposed changes maximize the execution opportunities to the 
incoming order(s), with potential price improvement, as these orders 
may trade with interest received in the (original) COA; and, for the 
incoming COA-eligible order, the potential for additional price 
improvement in a subsequent COA.
---------------------------------------------------------------------------

    \50\ See proposed Rule 980NY(c)(ii) (leg markets have priority 
at a price).
---------------------------------------------------------------------------

    Proposed Rule 980NY(e)(6)(C): Would describe the impact of new 
individual quotes or orders (i.e., updates to the leg markets) during 
the RTI on the same or opposite side of the initiating COA-eligible 
order. In each event described below, regardless of whether the COA 
ends early, the COA-eligible order would trade pursuant to proposed 
Rule 980NY(e)(7) (described below). In addition, consistent with Core 
Trading Allocation, the updated leg markets would trade pursuant to 
proposed paragraph (c)(ii) of this Rule.\51\
---------------------------------------------------------------------------

    \51\ See proposed Rule 980NY(e)(6)(C).
---------------------------------------------------------------------------

     Proposed Rule 980NY(e)(6)(C)(i) would provide that updates 
to the leg markets that would cause the same-side Complex BBO to lock 
or cross any RFR Response(s) and/or ECO(s) received during the RTI, or 
any ECOs resting in the Consolidated Book, would cause the COA to end 
early. The Exchange believes that providing for a COA to terminate 
early when the leg markets update in this manner would allow a COA-
eligible order to trade against any RFR Responses or ECOs received 
during the RTI up until that point, while preserving the priority of 
the updated leg markets to trade with any eligible contra-side 
interest, including any ECOs resting in the Consolidated Book.
     Proposed Rule 980NY(e)(6)(C)(ii) would provide that 
updates to the leg markets that would cause the same-side Complex BBO 
to be priced better than the COA-eligible order,\52\ but do not lock or 
cross any RFR Responses and/or ECOs received during the RTI or any ECOs 
resting in the Consolidated Book would not cause the COA to end early.
---------------------------------------------------------------------------

    \52\ Individual orders and quotes cause the same-side Complex 
BBO to be ``better'' than the COA-eligible order if they cause the 
Complex BBO to be higher (lower) than the COA-eligible order to buy 
(sell). See proposed Rule 980NY(e)(6)(C)(i).
---------------------------------------------------------------------------

     Proposed Rule 980NY(e)(6)(C)(iii) would provide that 
updates to the leg markets that would cause the contra-side Complex BBO 
to lock or cross the same-side initial Complex BBO would cause the COA 
to end early.
     Proposed Rule 980NY(e)(6)(C)(iv) would provide that 
updates to the leg markets that would cause the contra-side Complex BB 
(BO) to improve (i.e., become higher (lower)), but not lock or cross 
the same-side initial Complex BBO, would not cause the COA to end 
early.
    The Exchange believes that proposed paragraphs (e)(6)(C)(i)-(iv) of 
Rule 980NY respect the COA process, while at the same time ensuring a 
fair and orderly market by maintaining the priority of quotes and 
orders on the Consolidated Book as they update. The proposed rule is 
based in part on Rule

[[Page 45092]]

980NY(e)(9)(A) \53\ and (B),\54\ which address the impact of updates to 
the leg markets on a COA. However, the current rule text does not 
specify on which side of the market the leg markets have updated. The 
Exchange proposes to include this detail in the new rule text for 
additional clarity and transparency. In addition, the current rule text 
uses the term ``derived Complex BBO,'' which is not a defined term. In 
the proposed rule, the Exchange proposes to use the term Complex BBO, 
which is a defined term.\55\ The Exchange further believes this 
proposed rule text promotes transparency and clarity to Exchange rules.
---------------------------------------------------------------------------

    \53\ See Rule 980NY(e)(9)(A) (providing that ``[i]ndividual 
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 (c)(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''). The Exchange also notes that proposed Rule 
980NY(e)(6)(C)(i) clarifies that the Complex BBO in question is the 
same-side Complex BBO, as the current rule text is silent in this 
regard, which adds clarity and transparency to Exchange rules.
    \54\ See Rule 980NY(e)(9)(B) (providing that ``[i]ndividual 
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 
(c)(i) above and matched against Electronic Complex Orders and RFR 
Responses in price time priority pursuant to (6) above.''). The 
Exchange also notes that proposed paragraph (e)(6)(C)(ii) clarifies 
that the Complex BBO in question is the contra-side Complex BBO, as 
the current rule text is silent in this regard, which adds clarity 
and transparency to Exchange rules.
    \55\ See supra note 26. The Exchange notes that the word 
``derived'' is no longer needed as it is encompassed in the 
definition of Complex BBO. See id.
---------------------------------------------------------------------------

COA Order Allocation
    Current Rules 980NY(e)(6)(A)-(D) set forth how a COA-eligible order 
trades against same-priced contra-side interest (i.e., at the same net 
price) after trading against any better-priced contra-side interest. In 
short, current Rule 980NY(e)(6) provides that COA-eligible orders will 
be executed against the best priced contra-side interest. The rule 
further provides that at the same net price, the order will be 
allocated as provided for in Rules 980NY(e)(6)(A)-(D). Current Rule 
980NY(e)(6)(A) provides that individual orders and quotes in the leg 
markets resting in the Consolidated Book prior to the initiation of a 
COA 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), on a price/time basis pursuant to Rule 964NY.\56\ Current Rules 
980NY(e)(6)(B) and (C) provide that Customer ECOs resting in the 
Consolidated Book before, or that are received during, the RTI, and 
Customer RFR Responses shall, collectively have second priority to 
trade against a COA-eligible order followed by resting non-Customer 
ECOs, those received during the RTI, and non-Customer RFR Responses, 
which would have third priority.\57\ Pursuant to the current Rule, the 
allocation of a COA-eligible order against these Customer and non-
Customer ECOs and RFR Responses shall be on a Size Pro Rata basis as 
defined in Rule 964NY(b)(3).\58\ Finally, current Rule 980NY(e)(6)(D) 
provides that individual orders and quotes in the leg markets that 
cause the derived Complex BBO to be improved during the COA and match 
the best RFR Response and/or ECOs received during the RTI will be 
filled after ECOs and RFR Responses at the same net price pursuant to 
Rule 964NY.\59\
---------------------------------------------------------------------------

    \56\ See Rule 980NY(e)(6)(A).
    \57\ See Rule 980NY(e)(6)(B) and (C).
    \58\ See id.
    \59\ See Rule 980NY(e)(6)(D).
---------------------------------------------------------------------------

    The Exchange proposes to clarify and update the rule text 
describing the priority and allocation of COA-eligible orders during 
the COA process to remove references to Customer ECO priority, which is 
not the Exchange's allocation model, and instead reflect the Exchange's 
price-time priority model in proposed Rule 980NY(e)(7), under the 
heading ``Allocation of COA-Eligible Orders,'' which would replace 
current paragraph (e)(6) in its entirety. Proposed Rule 980NY(e)(7) 
would provide that when a COA ends early, or at the end of the RTI, a 
COA-eligible order would be executed against contra-side interest 
received during the COA as provided for in proposed Rules 
980NY(e)(7)(A) and (B), and any unexecuted portion of the COA-eligible 
order would be ranked in the Consolidated Book pursuant to proposed 
Rule 980NY(b).
     Proposed Rule 980NY(e)(7)(A) would provide that RFR 
Responses and ECOs priced better than \60\ the initial Complex BBO 
would 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 pursuant to Rule 964NY(b)(3). This proposed rule text is based in 
part on current Rule 980NY(e)(6), which provides that COA-eligible 
orders would be executed against the best priced contra side interest 
(which in this case, would be ECOs and RFR Responses) and current Rule 
980NY(e)(6)(C), which provides that ECOs and RFR Responses are 
allocated on a Size Pro Rata basis. The Exchange believes this proposed 
change streamlines how the allocation process works, and clarifies that 
if ECOs and RFR Responses are the best-priced interest, they would 
trade with the incoming COA-eligible order on a Size Pro Rata basis.
---------------------------------------------------------------------------

    \60\ To qualify as ``better than,'' RFR Responses and ECOs to 
buy (sell) would need to be priced higher (lower) than the initial 
Complex BBO. See proposed Rule 980NY(e)(7)(A).
---------------------------------------------------------------------------

     Proposed Rule 980NY(e)(7)(B) provides that after COA 
allocations pursuant to paragraph (e)(7)(A) of this Rule, the COA-
eligible order would trade with the best-priced contra-side interest 
pursuant to paragraph (c)(ii) or (iii) above. In other words, once the 
COA-eligible order has traded with any ECOs or RFR Responses priced 
better than the initial Complex BBO (i.e., any price-improving interest 
to arrive during the RTI), the initiating COA-eligible order would 
follow regular allocation rules for an incoming marketable ECO. The 
Exchange believes this change makes clear that a COA-eligible order 
would only trade against the leg markets after any auction allocations 
have been made. This rule text is based in part on current Rule 
980NY(e)(6)(A), which provides that if the COA-eligible order can be 
executed in full (or a permissible ratio) by the orders and quotes in 
the Consolidated Book, they will be allocated pursuant to Rule 964NY. 
Because this allocation is identical to how a regular marketable ECO 
would be allocated, the Exchange believes it would streamline the rule 
to provide a cross reference to proposed Rule 980NY(c)(ii) instead of 
Rule 964NY.
Commentary .02 to Rule 980NY
    Finally, consistent with the foregoing proposed changes regarding 
priority of ECOs during Core Trading and during a COA, the Exchange 
proposes to modify Commentary .02 to the Rule, which also addresses the 
priority of ECOs. The current Commentary .02 provides, in relevant 
part, that ``when executing an [ECO] the price of at least one leg of 
the order must'' trade at a better price as specified in subparagraphs 
(i) and (ii). The Exchange proposes to make clear that requisite price 
improvement on at least one leg of the ECO applies ``where all legs 
that comprise the complex order contain Customer interest.'' \61\ 
Similarly,

[[Page 45093]]

the Exchange also proposes to modify sub-paragraph (ii) of Commentary 
.02 by replacing ``the'' with ``all'' to clarify that, if the class has 
been designated as eligible for COA, an incoming COA-eligible order 
must ``trade at a price that is better than the corresponding price of 
all customer bids or offers in the Consolidated Book for the same 
series, by at least one cent ($.01).'' \62\ The Exchange believes these 
changes regarding the priority of ECOs add clarity and internal 
consistency to Exchange rules.
---------------------------------------------------------------------------

    \61\ See proposed Commentary .02 to Rule 980NY (providing, in 
relevant part, that ``when executing an [ECO] where all legs that 
comprise the complex order contain Customer interest, the price of 
at least one leg of the order must . . .''). The Exchange also 
proposes to correct a typo by replacing the semi-colon that appears 
at the end of this clause with a colon.
    \62\ See proposed Commentary .02(ii) to Rule 980NY; see also 
Commentary .02(i) to Rule 980NY (which similarly provides that ECOs 
must ``trade at a price that is better than the corresponding price 
of all customer bids or offers in the Consolidated Book for the same 
series, by at least one standard trading increment as defined in 
Rule 960NY'' (emphasis added).
---------------------------------------------------------------------------

2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b)(5) of the Securities Exchange Act of 1934 (the ``Act''),\63\ which 
requires the rules of an exchange 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.
---------------------------------------------------------------------------

    \63\ 15 U.S.C. 78f(b).
---------------------------------------------------------------------------

    Overall, the Exchange is proposing various changes that would 
promote just and equitable principles of trade, because ECOs, including 
COA-eligible orders, would be handled in a fair and orderly manner, as 
described above. The various modifications and clarifications, many of 
which are consistent with current functionality are intended to improve 
the rule overall by adding more specificity and transparency. The 
Exchange believes that the proposed rule changes would promote just and 
equitable principles of trade as well as protect investors and the 
public interest by making more clear how ECOs and COA-eligible orders 
are handled on the Exchange, both during Core Trading Hours and when 
there is a COA in progress. In particular, the proposed changes are 
intended to help ensure a fair and orderly market by maintaining price/
priority of incoming ECOs (including COA-eligible orders) and updated 
leg markets. Similarly, the proposed changes are designed to promote 
just and equitable principles by seeking to execute as much interest as 
possible at the best possible price(s).
Execution of ECOs During Core Trading Hours
    The Exchange believes that the proposed rule changes regarding Core 
Trading Order Allocation, which do not alter the substance of the rule 
but instead condense and streamline the rule text, would remove 
impediments to and perfect the mechanism of a free and open market and 
a national market system because the proposed changes are designed to 
protect investors and the public interest by making the Exchange's 
rules more clear, concise, transparent and internally consistent, which 
enhances the overall comprehensibility to investors without altering 
the operation of the rule. Specifically, the Exchange believes that, 
although it does not alter the substance of the rule, the proposed rule 
text regarding Core Trading Order Allocation provides additional 
specificity regarding processing of ECOs against same-priced contra-
side interest and, in particular, under what circumstances the leg 
markets would have first priority to execute against an incoming 
marketable ECO. The Exchange believes this additional transparency, 
which makes the rule clearer and more complete for market participants, 
would encourage additional ECOs to be directed to the Exchange.
Proposed Modifications to COA Process
    Overall, the Exchange believes that the proposed changes to the COA 
Process maximize execution opportunities for the initiating COA-
eligible Order, RFR Responses and ECOs entered during the COA, and the 
leg markets at the best possible price consistent with the principles 
of price/time priority, which would remove impediments to and perfect 
the mechanism of a free and open market and a national market system 
because the proposed changes are designed to protect investors and the 
public interest.
Execution of COA-Eligible Orders, Initiation of COAs and RFR Responses
    In particular, the proposed rule text promotes transparency 
regarding the definition of what constitutes a COA-eligible order and 
the circumstances under which an arriving COA-eligible order would 
receive an immediate execution (i.e., when it can receive price 
improvement from resting ECOs) versus being subject to a COA. The 
proposed rule text is not intended to change how the Exchange currently 
processes ECOs, but rather to provide clarity regarding the processing 
of COA-eligible orders and whether such orders are subject to a COA. 
Specifically, the proposed changes would help ensure a fair and orderly 
market because this information adds clarity and transparency to the 
COA process and would allow market participants to be more informed 
about the COA process. Moreover, the proposed change maximizes the 
opportunities for price improvement for the entire COA-eligible order 
as it would first trade against any price-improving interest in the 
Consolidated Book, and, if any residual interest remains, the order 
would be subject to a COA. Further, the Exchange believes that the 
proposed rule text regarding the requisite characteristics and behavior 
of an RFR Response adds clarity and transparency to Exchange rules, 
including that, like all orders, an RFR Response may be modified or 
cancelled prior to the end of the RTI, which promotes just and 
equitable principles of trade. In addition, the Exchange believes that 
specifying that RFR Reponses are valid for the duration of the COA 
would encourage participation in the COA and would maximize the number 
of contracts traded, which benefits all market participants and 
protects investors and the investing public.
Impact of ECOs, COA-Eligible Orders and Updated Leg Markets on COA in 
Progress
    Regarding interest that arrives during a COA in progress, the 
Exchange believes that the proposed rule text provides clarity 
regarding the impact of opposite- and same-side ECOs or COA-eligible 
orders on the COA Process, which promotes transparency and adds clarity 
to Exchange rules. Moreover, the Exchange notes that because the COA is 
intended to operate seamlessly with the Consolidated Book, the proposed 
changes would promote just and equitable principles of trade by 
providing price-improvement opportunities for COA-eligible orders while 
at the same time providing an opportunity for such orders to interact 
with orders or quotes received during the RTI, including incoming ECOs. 
In addition, the Exchange believes that this practice of honoring the 
updated leg markets would help ensure a fair and orderly market by 
maintaining the priority of quotes and orders on the Consolidated Book 
as they update. The Exchange believes that the proposed changes to the 
COA would increase the number of options orders that are provided with 
the opportunity to receive price improvement.
    The Exchange also believes that the proposed modification regarding 
when the balance of an initiating (or incoming) COA-eligible order 
would

[[Page 45094]]

initiate a new COA (as opposed to being posted to the Consolidated 
Book) is likewise consistent with the Act because it would remove 
impediments to and perfect the mechanism of a free and open market and 
a national market system clarifying the rule text to the benefit of 
market participants, particularly those interested in submitting COA-
eligible orders. In addition, the proposed changes also promote 
additional transparency and internal consistency in Exchange rules. The 
Exchange believes that, as proposed, COA Order Allocation maximizes 
price discovery and liquidity while employing price priority, which 
benefits all market participants.
COA Order Allocation
    The Exchange believes that the proposed rule changes, which clarify 
the priority and order allocation and processing of COA-eligible orders 
would remove impediments to and perfect the mechanism of a free and 
open market and a national market system because the proposed changes 
are designed to protect investors and the public interest by making the 
Exchange's rules more clear, concise, transparent and internally 
consistent, which enhances the overall comprehensibility to investors 
without altering the operation of the rule. For example, the Exchange 
believes that the revised rule text describing the execution of COA-
Eligible orders provides clarity regarding the allocation of COA-
eligible orders against any RFR Responses or incoming ECOs and makes 
clear that a COA-eligible order would only execute against the leg 
markets after any auction allocations have been made. The Exchange also 
believes that the proposed changes would conform to the Exchange's 
price/time priority model and reduce the potential for investor 
confusion.
Non-Substantive Changes
    The Exchange believes that the proposed non-substantive, technical 
changes, including updated cross references that conform rule text to 
proposed changes, promotes just and equitable principles of trade, 
fosters cooperation and coordination among persons engaged in 
facilitating securities transactions, and removes impediments to and 
perfects the mechanism of a free and open market by ensuring that 
members, regulators and the public can more easily navigate the 
Exchange's rulebook and better understand the defined terms used by the 
Exchange.

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. To the contrary, the 
Exchange believes that the proposed changes would encourage increased 
submission of ECOs, as well as increased participation in COAs, which 
will add liquidity to the Exchange to the benefit all market 
participants and is therefore pro-competitive. The proposal does not 
impose an intra-market burden on competition, because these changes 
make the rule clearer and more complete for all participants. Nor does 
the proposal impose a burden on competition among the options 
exchanges, because of the vigorous competition for order flow among the 
options exchanges. To the extent that market participants disagree with 
the particular approach taken by the Exchange herein, market 
participants can easily and readily direct complex order flow to 
competing venues.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    No written comments were solicited or received with respect to the 
proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Within 45 days of the date of publication of this notice in the 
Federal Register or up to 90 days (i) as the Commission may designate 
if it finds such longer period to be appropriate and publishes its 
reasons for so finding or (ii) as to which the self-regulatory 
organization consents, the Commission will:
    (A) By order approve or disapprove the proposed rule change, or
    (B) institute proceedings to determine whether the proposed rule 
change should be disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-NYSEAMER-2017-15 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-NYSEAMER-2017-15. 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 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-NYSEAMER-2017-15 and should 
be submitted on or before October 18, 2017.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\64\
Eduardo A. Aleman,
Assistant Secretary.
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    \64\ 17 CFR 200.30-3(a)(12).
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[FR Doc. 2017-20628 Filed 9-26-17; 8:45 am]
 BILLING CODE 8011-01-P


