
[Federal Register Volume 83, Number 238 (Wednesday, December 12, 2018)]
[Notices]
[Pages 63919-63922]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-26833]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-84737; File No. SR-NYSEArca-2018-74]


Self-Regulatory Organizations; NYSE Arca, Inc.; Order Approving a 
Proposed Rule Change, as Modified by Amendment No. 1, To Amend Rules 
6.62-O and 6.37A-O To Add New Order Types and Quotation Designations

December 6, 2018.

I. Introduction

    On October 5, 2018, NYSE Arca, Inc. (``Exchange'' or ``NYSE Arca'') 
filed with the Securities and Exchange Commission (``Commission'') 
pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ a proposed rule change to 
amend NYSE Arca Rules 6.62-O (Certain Types of Orders Defined) and 
6.37A-O (Market Maker Quotations) to add new order types and quotation 
designations. The proposed rule change was published for comment in the 
Federal Register on October 24, 2018.\3\ On December 4, 2018, the 
Exchange filed Amendment No. 1 to the proposed rule change.\4\ The 
Commission received no comment letters on the proposed rule change. 
This order approves the proposed rule change, as modified by Amendment 
No. 1.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 84451 (October 18, 
2018), 83 FR 53692 (``Notice'').
    \4\ In Amendment No. 1, the Exchange made technical corrections 
to cross references in the proposed rule text. Because Amendment No. 
1 does not materially alter the substance of the proposed rule 
change or raise unique or novel regulatory issues, it is not subject 
to notice and comment. The amendment is available at: https://www.sec.gov/comments/sr-nysearca-2018-74/srnysearca201874.htm.
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II. Description of the Proposal, as Modified by Amendment No. 1

A. Order Types

    Currently, Rule 6.62-O sets forth the order types available on the 
Exchange, including Liquidity Adding Orders (each an ``ALO'') and PNP 
(Post No Preference) Orders, both of which provide market participants 
control over how their orders interact with contra-side liquidity. 
Specifically, an ALO is a

[[Page 63920]]

Limit Order that is rejected if it is marketable against the NBBO on 
arrival.\5\ A PNP Order is a Limit Order that is eligible to interact 
solely with interest on the Exchange, will not route, and will cancel 
if it locks or crosses the NBBO.\6\ The Exchange proposes to amend Rule 
6.62-O to add two order types that build on the existing ALO and PNP 
Order functionality to allow for repricing (rather than cancellation or 
rejection of orders) under certain circumstances.
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    \5\ See Rule 6.62-O(t) (providing that ``a Liquidity Adding 
Order is a Limit Order which is to be accepted only if it is not 
executable at the time of receipt. Orders with the liquidity adding 
instruction will not be routed if marketable against the NBBO, but 
will be rejected. Liquidity adding orders may only be entered as a 
Day Order''). The Exchange proposes to modify paragraph (t) of this 
Rule to define Liquidity Adding Orders as ``ALOs'' and make 
conforming changes to the Rule. See proposed Rule 6.62-O(t). The 
Exchange also proposes to modify the Rule to reflect that ``[a]n ALO 
or RALO, as defined in paragraph (t)(1) of this Rule, will be 
rejected if entered outside of Core Trading Hours or during a 
trading halt or, if resting, will be cancelled in the event of a 
trading halt.'' See id.
    \6\ See Rule 6.62-O(p) (providing that a PNP Order ``is a Limit 
Order to buy or sell that is to be executed in whole or in part on 
the Exchange, and the portion not so executed is to be ranked in the 
Consolidated Book, without routing any portion of the order to 
another market center; provided, however, the Exchange shall cancel 
a PNP Order that would lock or cross the NBBO''). The Exchange 
proposes to capitalize the ``Market Center'' as used in paragraph 
(p) of the Rule, which is a defined term in Rule 6.1A-O(6). See 
proposed Rule 6.62-O(p).
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1. Repricing ALO (``RALO'')
    The Exchange proposes to provide market participants the ability to 
send in ALOs designated as RALO.\7\ As proposed, a RALO will be 
repriced (rather than be rejected) if it would either trade as the 
liquidity taker or display at a price that locks or crosses any 
interest on the Exchange or the NBBO.\8\ Specifically, an incoming RALO 
to buy (sell) that would trade with any displayed or undisplayed sell 
(buy) interest on the Consolidated Book will be displayed at a price 
one minimum price variation (``MPV'') below (above) such sell (buy) 
interest.\9\ An incoming RALO to buy (sell) that is not marketable 
against interest in the Consolidated Book but that would lock or cross 
the NBO (NBB) will be displayed at a price that is one MPV below 
(above) the NBO (NBB).\10\ If the sell (buy) interest in the 
Consolidated Book or NBO (NBB) moves up (down), the display price of 
the RALO to buy (sell) and the undisplayed price at which it is 
eligible to trade will be continuously adjusted, up (down) to the 
RALO's limit price.\11\
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    \7\ See proposed Rule 6.62-O(t)(1). The Exchange also proposes 
that a RALO that is designated as a Reserve Order will be rejected. 
See id.
    \8\ See id.
    \9\ See proposed Rule 6.62-O(t)(1)(A).
    \10\ See id.
    \11\ See id.
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    A resting RALO to buy (sell) that is displayed one MPV below 
(above) interest on the Consolidated Book would be eligible to trade at 
its display price.\12\ A resting RALO to buy (sell) that is displayed 
at a price one MPV below (above) the NBO (NBB) would be eligible to 
trade at the NBO (NBB); provided, however, that if the NBO (NBB) 
updates to lock or cross the RALO's display price, such RALO will trade 
at its display price in time priority behind other eligible interest 
already displayed at that price.\13\ Each time there is an update to 
the price of the RALO, the Exchange will rank the RALO by time priority 
behind other eligible interest already at that price.\14\ If multiple 
RALOs simultaneously reprice to the same price at which they are 
eligible to trade, the RALOs will be prioritized based on the time of 
original order entry.\15\ Furthermore, an incoming RALO will be 
cancelled if its limit price to buy (sell) is more than a configurable 
number of MPVs above (below) the initial display price (on arrival), 
after first trading with eligible interest, if any.\16\ The Exchange 
will determine the configurable number of MPVs, which will be announced 
by Trader Update.\17\
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    \12\ See proposed Rule 6.62-O(t)(1)(A)(i).
    \13\ See proposed Rule 6.62-O(t)(1)(A)(ii).
    \14\ See proposed Rule 6.62-O(t)(1)(A)(iii).
    \15\ See id.
    \16\ See proposed Rule 6.62-O(t)(1)(B).
    \17\ See id.
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2. Repricing PNP Order (``RPNP'')
    The Exchange proposes to provide market participants the ability to 
send in PNP Orders designated as RPNP.\18\ As proposed, a RPNP is a PNP 
Order that will be repriced instead of cancelled after trading with 
interest in the Consolidated Book, if it would lock or cross the 
NBBO.\19\ Specifically, a RPNP to buy (sell) that would lock or cross 
the NBO (NBB) will be displayed at a price one MPV below (above) the 
NBO (NBB).\20\ If the NBO (NBB) moves up (down), the display price of 
the RPNP to buy (sell) and the undisplayed price at which it is 
eligible to trade will be continuously adjusted, up (down) to the limit 
price of the RPNP.\21\
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    \18\ See proposed Rule 6.62-O(p)(1). The Exchange proposes that 
a RPNP received during pre-open or a trading halt will be treated as 
a PNP Order (i.e., as a Limit Order and will not reprice) for 
purposes of participating in opening auctions or re-opening 
auctions. See proposed Rule 6.62-O(p). A RPNP may only be entered as 
a Day Order and a RPNP that is designated as a Reserve Order will be 
rejected. See proposed Rule 6.62-O(p)(1).
    \19\ See id.
    \20\ See proposed Rule 6.62-O (p)(1)(A).
    \21\ See id.
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    A RPNP to buy (sell) that is displayed at a price one MPV below 
(above) the NBO (NBB) will trade at the NBO (NBB); provided, however, 
that if the NBO (NBB) updates to lock or cross the RPNP's display 
price, such RPNP will trade at its display price in time priority 
behind other eligible interest already displayed at that price.\22\ 
Each time there is an update to the price of the RPNP, the Exchange 
will rank the RPNP by time priority behind other eligible interest 
already at that price.\23\ If multiple RPNPs simultaneously reprice to 
the same price at which they are eligible to trade, the RPNPs will be 
prioritized based on the time of original order entry.\24\ Similar to 
the proposed RALO, an incoming RPNP will be cancelled if its limit 
price to buy (sell) is more than a configurable number of MPVs above 
(below) the initial display price (on arrival), after first trading 
with eligible interest, if any. The Exchange will determine the 
configurable number of MPVs, which will be announced by Trader Update.
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    \22\ See proposed Rule 6.62-O(p)(1)(A)(i).
    \23\ See proposed Rule 6.62-O(p)(1)(A)(ii).
    \24\ See id.
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B. Quotation Designations

    Currently, Rule 6.37A-O(a) defines Market Maker quotes, including 
quotations designated as Market Maker--Light Only (``MMLO''), and 
specifies how such quotes are processed when a series is open for 
trading. The Exchange proposes to amend Rule 6.37A-O(a) to add two new 
quote designations to provide Market Makers with the same functionality 
for their quotations as are proposed for orders designated as RALO and 
RPNP entered on the Exchange.\25\
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    \25\ See Notice, supra note 3, at 53695. The Exchange represents 
that the proposed quotation designations would function similar to 
the proposed RALO and RPNP. See id.
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1. Market Maker--Add Liquidity Only Quotation (``MMALO'')
    The Exchange proposes to provide Market Makers the ability to 
designate quotations as MMALO.\26\ An incoming or resting MMALO will 
never trade as the liquidity taker or display at a price that locks or 
crosses any interest on the Exchange or the NBBO.\27\ Instead of

[[Page 63921]]

trading, an MMALO will be repriced based on contra-side interest 
pursuant to proposed Rule 6.37A-O(a)(4)(A).\28\ Specifically, an 
incoming MMALO to buy (sell) that would trade with any sell (buy) 
interest on the Consolidated Book will be displayed at a price one MPV 
below (above) such sell (buy) interest.\29\ An incoming MMALO to buy 
(sell) that is not marketable against interest in the Consolidated Book 
but that would lock or cross the NBO (NBB) will be displayed at a price 
that is one MPV below (above) the NBO (NBB).\30\ If the sell (buy) 
interest in the Consolidated Book or NBO (NBB) moves up (down), the 
display price of the MMALO to buy (sell) and the undisplayed price at 
which it is eligible to trade will be continuously adjusted, up (down) 
to the MMALO's limit price.\31\
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    \26\ See proposed Rule 6.37A-O(a)(3)(B) and (a)(4)(A)(i). The 
Exchange proposes to delete a reference to MMLO in paragraph (a)(4) 
and proposes to separately describe the treatment of the various 
quote types when a series is open for trading. See proposed Rule 
6.37A-O(a)(4).
    \27\ Because incoming quotations, other than an MMALO, would 
immediately ``trade with contra-side interest in the Consolidated 
Book at prices that do not trade through interest on another Market 
Center,'' the Exchange proposes to modify the rule to carve out 
incoming MMALOs. See proposed Rule 6.37A-O(a)(4)(A). The Exchange 
also proposes to replace references to ``another Market Center'' 
with ``the NBBO'' to add clarity and consistency to the Rule. See 
id. See also proposed Rule 6.37A-O(a)(4)(C)(i),(D)(i)-(ii).
    \28\ See proposed Rule 6.37A-O(a)(3)(B).
    \29\ See proposed Rule 6.37A-O(a)(4)(A)(i).
    \30\ See id.
    \31\ See id.
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    Similar to the proposed RALO, a resting MMALO to buy (sell) that is 
displayed one MPV below (above) interest on the Consolidated Book will 
trade at its display price.\32\ A resting MMALO to buy (sell) that is 
displayed at a price one MPV below (above) the NBO (NBB) will trade at 
the NBO (NBB); provided, however, that if the NBO (NBB) updates to lock 
or cross the MMALO's display price, such MMALO will trade at its 
display price in time priority behind other eligible interest already 
displayed at that price.\33\ Each time there is an update to the 
MMALO's price, the Exchange will rank the MMALO by time priority behind 
other eligible interest already at that price.\34\ If multiple MMALOs 
simultaneously reprice to the same price at which they are eligible to 
trade, the MMALOs will be prioritized based on the time of original 
order entry.\35\
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    \32\ See proposed Rule 6.37A-O(a)(4)(A)(i)(a).
    \33\ See proposed Rule 6.37A-O(a)(4)(A)(i)(b).
    \34\ See proposed Rule 6.37A-O(a)(4)(A)(i)(c).
    \35\ See id.
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    To incorporate MMALO (and MMRP discussed below) into existing rule 
text, the Exchange proposes to amend Rule 6.37A-O by re-organizing and 
re-numbering related rule text regarding the treatment of untraded 
incoming quotations. Specifically, the Exchange proposes to provide 
that ``[a]ny untraded quantity of an incoming quotation will be added 
to the Consolidated Book, except in the circumstances specified below, 
which result in the remaining balance being cancelled,'' \36\ including 
when the incoming quotation ``is not designated as MMALO or MMRP'' and 
locks or crosses the NBBO and when it is designated as MMLO and locks 
or crosses undisplayed interest.\37\ Similarly, the Exchange proposes 
to modify Rule 6.37A-O(a)(4) to provide that an incoming quotation that 
locks or crosses the NBBO would be rejected, so long as ``it is not 
designated as MMALO or MMRP'' and cannot trade with interest in the 
Consolidated Book at prices that do not trade through the NBBO.\38\
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    \36\ See proposed Rule 6.37A-O(a)(4)(C).
    \37\ See proposed Rule 6.37A-O(a)(4)(C)(i) and (ii).
    \38\ See proposed Rule 6.37A-O(a)(4)(D)(i).
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    An incoming quotation will be rejected, and the Exchange will 
cancel the Market Maker's current quotation on the same side of the 
market, if it is designated as MMALO, and has a limit price to buy 
(sell) that is more than a configurable number of MPVs above (below) 
the initial display price of the MMALO.\39\ The Exchange will determine 
the configurable number of MPVs, which will be announced by Trader 
Update.
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    \39\ See proposed Rule 6.37A-O(a)(4)(D)(iii). The Exchange notes 
that incoming MMALOs that fail the MPV check are rejected while 
similarly-priced RALOs would be accepted and then cancelled. See 
Notice, supra note 3, at 53696, n.24. The Exchange also proposes to 
re-locate rule text that is currently at the end of this provision 
to the beginning, such that the Rules states that ``[a]n incoming 
quotation will be rejected, and the Exchange will cancel the Market 
Maker's current quotation on the same side of the market, if:''. See 
proposed Rule 6.37A-O(a)(4)(D).
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2. Market Maker--Repricing Quotation (``MMRP'')
    The Exchange proposes to provide Market Makers the ability to 
designate quotations as MMRP.\40\ An incoming or resting quotation 
designated as MMRP will never display at a price that locks or crosses 
the NBBO.\41\ Instead, after trading with interest in the Consolidated 
Book, an incoming MMRP to buy (sell) that locks or crosses the NBO 
(NBB) will be displayed at a price that is one MPV below (above) the 
NBO (NBB).\42\ If the NBO (NBB) moves up (down), the display price of 
the MMRP to buy (sell) and the undisplayed price at which it is 
eligible to trade would be continuously adjusted, up (down) to the 
MMRP's limit price.\43\
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    \40\ See proposed Rule 6.37A-O(a)(3)(C) and (a)(4)(B).
    \41\ See proposed Rule 6.37A-O(a)(3)(C).
    \42\ See proposed Rule 6.37A-O(a)(4)(B).
    \43\ See id.
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    Similar to the proposed RPNP, an MMRP to buy (sell) that is 
displayed at a price one MPV below (above) the NBO (NBB) will trade at 
the NBO (NBB); provided, however, that if the NBO (NBB) updates to lock 
or cross the MMRP's display price, such MMRP will trade at its display 
price in time priority behind other eligible interest already displayed 
at that price.\44\ Each time there is an update to the price of the 
MMRP, the Exchange will rank the MMRP by time priority behind other 
eligible interest already at that price.\45\ If multiple MMRPs 
simultaneously reprice to the same price at which they are eligible to 
trade, the MMRPs will be prioritized based on the time of original 
order entry.\46\
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    \44\ See proposed Rule 6.37A-O(a)(4)(B)(i).
    \45\ See proposed Rule 6.37A-O(a)(4)(B)(ii).
    \46\ See id.
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    An incoming MMRP that has a limit price more than a configurable 
number of MPVs above (below) the initial display price (on arrival) 
will first trade with marketable interest in the Consolidated Book up 
(down) to the NBO (NBB) and any remaining balance will be 
cancelled.\47\ Similarly, the Exchange will reject an incoming MMRP 
that does not trade (i.e., because there is no marketable interest in 
the Consolidated Book) and has a limit price to buy (sell) that is more 
than a configurable number of MPVs above (below) the initial display 
price (on arrival) of the MMRP.\48\ The Exchange will determine the 
configurable number of MPVs, which will be announced by Trader 
Update.\49\
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    \47\ See proposed Rule 6.37A-O(a)(4)(C)(iii).
    \48\ See proposed Rule 6.37A-O(a)(4)(D). The Exchange notes that 
incoming MMRPs that fail the MPV check are rejected while similarly-
priced RPNPs would be accepted and then cancelled. See Notice, supra 
note 3, at 53696, n.32.
    \49\ Because the MMRP is cancelled, the Exchange would also 
cancel the opposite-side quote for that Market Maker. See proposed 
Rule 6.37A-O(a)(4)(C) (providing, ``[w]hen such quantity of an 
incoming quotation is cancelled, the Exchange will also cancel the 
Market Maker's current quotation on the opposite side of the 
market'').
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    When a series is not open for trading (i.e., during pre-open or a 
trading halt), a Market Maker may submit an MMRP, which will be 
eligible to participate in the opening auction and re-opening auction, 
as applicable, at the limit price of the MMRP.\50\ All resting 
quotations will be cancelled in the event of a trading halt.\51\
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    \50\ See proposed Rule 6.37A-O(a)(5).
    \51\ See id.
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    To reflect the proposed quotation designations in Rule 6.37A-O, the 
Exchange proposes to re-organize paragraph (a) of the Rule by re-
locating rule text stating that ``a quotation will

[[Page 63922]]

not route'' from existing paragraph (a)(3)(D) to paragraph (a)(2); 
adding new paragraph (a)(3) to provide that ``[a] Market Maker may 
designate a quote as follows''; and re-numbering the remainder of the 
paragraph to account for such changes.\52\ In addition, the Exchange 
proposes to renumber the description of an MMLO as paragraph (a)(3)(A), 
and amend the rule text to provide that on arrival, a quotation 
designated MMLO will trade with displayed interest in the Consolidated 
Book only.\53\ Once resting, the MMLO designation no longer applies and 
such quotation is eligible to trade with displayed and undisplayed 
interest.\54\
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    \52\ See proposed Rule 6.37A-O(a)(2)-(3).
    \53\ See proposed Rule 6.37A-O(a)(3)(A).
    \54\ See id.
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Implementation
    The Exchange states that it will announce by Trader Update the 
implementation date of the proposed rule change within 90 days of the 
effective date of this proposed rule change.\55\
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    \55\ See Notice, supra note 3, at 53697.
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III. Discussion and Commission's Findings

    After careful review, the Commission finds that the proposed rule 
change, as modified by Amendment No. 1, is consistent with the 
requirements of the Act,\56\ and the rules and regulations thereunder 
applicable to a national securities exchange.\57\ In particular, the 
Commission finds that the proposed rule change is consistent with 
Section 6(b)(5) of the Act,\58\ which requires, among other things, 
that the rules of a national securities exchange be designed to promote 
just and equitable principles of trade, to foster cooperation and 
coordination with persons engaged in regulating transactions in 
securities, to remove impediments to and perfect the mechanism of a 
free and open market and a national market system and, in general, to 
protect investors and the public interest, and not be designed to 
permit unfair discrimination between customers, issuers, brokers, or 
dealers.
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    \56\ 15 U.S.C. 78(f).
    \57\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. See 15 U.S.C. 78c(f).
    \58\ 15 U.S.C. 78f(b)(5).
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    The Commission believes that by providing market participants with 
two new order types that build on the existing ALO and PNP Order 
functionality to allow for repricing instead of cancellation or 
rejection of orders under certain circumstances, the proposed rule 
change could give market participants greater flexibility and control 
over the circumstances under which their orders interact with contra 
side-interest on the Exchange. By increasing the opportunities for 
execution at multiple price points and encouraging the provision of 
greater displayed liquidity to the market, the proposal is reasonably 
designed to facilitate the mechanism of price discovery. The Commission 
also believes that ranking a repriced RALO or repriced RPNP behind 
other interest already eligible to trade at a price, as well as ranking 
such orders that simultaneously reprice to the same price by time of 
original order entry, is reasonably designed to preserve the principles 
of priority and therefore promote just and equitable principles of 
trade. Finally, the Commission notes other options exchanges offer 
similar order types as proposed by the Exchange.\59\
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    \59\ See Notice, supra note 3, at 53697, n.39 (citing Nasdaq 
Options Market Chapter VI Trading Systems, Sec. 1(e)(11) and Nasdaq 
PHLX LLC Rule 1080(m)(iv)(A)).
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    The Commission notes that the proposal to add the two new quotation 
designations is designed to provide Market Makers with the same 
functionality for their quotations as are proposed for orders entered 
on the Exchange. The proposed quotation designations are similar to how 
the proposed RALO and RPNP will function and may enable Market Makers 
to exert greater control over how their quotes would interact with 
contra-side liquidity, while affording additional opportunities to 
provide liquidity to the market. The Commission notes that, absent the 
proposed repricing functionality associated with the MMALO and MMRP, a 
Market Maker quote that locks or crosses interest on the Exchange or an 
away market will reject or cancel. In the case of MMALOs, the proposal 
is reasonably designed to promote the display of liquidity because such 
quotations would be displayed at the next-best aggressive price instead 
of being cancelled. The Commission believes that the proposal will also 
ensure that an MMALO will always add liquidity as maker, rather than 
remove liquidity as taker, while ensuring that MMALOs priced too far 
through the contra-side interest on the Exchange or the NBBO will be 
rejected. As such, the proposed MMALO could assist Market Makers in 
maintaining a fair and orderly market and encourage Market Makers to 
provide displayed liquidity to the market, thus contributing to price 
discovery. In the case of MMRPs, the proposal may afford Market Makers 
more certainty when providing liquidity, while ensuring that MMRPs 
priced too far through the contra-side NBBO will cancel or reject after 
trading with any eligible interest on the Exchange. The Commission 
believes that ranking the repriced MMALO or repriced MMRP by time 
priority behind other interest already available to trade at a price 
preserves principles of priority and therefore would promote just and 
equitable principles of trade.
    Further, the Commission believes that the proposed quotation 
designations are reasonably designed to provide Market Makers with a 
greater level of determinism, in terms of managing their exposure, and 
thus could encourage more aggressive liquidity provision, resulting in 
more trading opportunities and tighter spreads. This may help improve 
the mechanism of price discovery. Moreover, the Commission notes that 
other options exchanges have adopted quote types designed to strengthen 
market making.\60\
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    \60\ See Notice, supra note 3, at 53698, n.45 (citing Miami 
International Securities Exchange, LLC Rule 515(d) and BOX Options 
Exchange LLC IM-8050-3).
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    For the reasons discussed above, the Commission believes that the 
proposed rule change, as modified by Amendment No. 1, is consistent 
with the Act.

IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\61\ that the proposed rule change (SR-NYSEArca-2018-74), as 
modified by Amendment No. 1, be, and it hereby is, approved.
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    \61\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\62\
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    \62\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-26833 Filed 12-11-18; 8:45 am]
 BILLING CODE 8011-01-P


