[Federal Register Volume 85, Number 84 (Thursday, April 30, 2020)]
[Notices]
[Pages 24069-24072]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-09129]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-88737; File No. SR-NYSEArca-2020-31]


Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
of Proposed Rule Change, as Modified by Amendment No. 2, To Modify Rule 
6.60-O Regarding the Treatment of Orders Subject to Trade Collar 
Protection

April 24, 2020.

    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 April 9, 2020, NYSE Arca, Inc. (``NYSE Arca'' or the 
``Exchange'') 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. On April 22, 2020, the Exchange filed Amendment No. 1 to 
the proposed rule change. On April 23, 2020, the Exchange withdrew 
Amendment No. 1 and filed Amendment No. 2 to the proposed rule change, 
which superseded and replaced the proposed rule change in its entirety. 
The Commission is publishing this notice to solicit comments on the 
proposed rule change, as modified by Amendment No. 2, 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 modify 6.60-O (Price Protection--Orders) 
regarding the treatment of orders subject to Trade Collar Protection. 
This Amendment No. 2 supersedes Amendment No. 1 and the original filing 
(SR-NYSEArca-2020-31) in its entirety. The proposed change is available 
on the Exchange's website at www.nyse.com, at the principal office of 
the Exchange, and at the Commission's Public Reference Room.

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

    In its filing with the Commission, the self-regulatory organization 
included statements concerning the purpose of, and basis for, the 
proposed rule change and discussed any comments it received

[[Page 24070]]

on the proposed rule change. The text of those statements may be 
examined at the places specified in Item IV below. The Exchange has 
prepared summaries, set forth in sections A, B, and C below, of the 
most significant parts of such statements.

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

1. Purpose
    The Exchange proposes to modify Rule 6.60-O(a) regarding the 
treatment of orders subject to Trade Collar Protection.
    The Exchange has in place various price check features, including 
Trade Collar Protection, that are designed to help maintain a fair and 
orderly market.\4\ The Exchange proposes to modify its rule regarding 
Trading Collars (i.e., Rule 6.60-O(a) or the ``Rule'') to modify 
functionality and to adopt an enhancement to the operation of the 
Trading Collars.
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    \4\ Per Rule 6.60-O(a)(2), Trading Collars are determined by the 
Exchange on a class-by-class basis and, unless announced otherwise 
via Trader Update, are the same value as the bid-ask differential 
guidelines established pursuant to Rule 6.37-O(b)(4). Per Rule 6.60-
O(a)(3), Trade Collar Protection does not apply to quotes or to 
order types that have contingencies, namely, IOC, NOW, AON and FOK 
orders.
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Overview of Trading Collar Functionality
    Trading Collars mitigate the risks associated with orders sweeping 
through multiple price points (including during extreme market 
volatility) and resulting in executions at prices that are potentially 
erroneous (i.e., because they are away from the last sale price or best 
bid or offer). By applying Trading Collars to incoming orders, the 
Exchange provides an opportunity to attract additional liquidity at 
tighter spreads and it ``collars'' affected orders at successive price 
points until the bid and offer are equal to the bid-ask differential 
guideline for that option, i.e., equal to the Trading Collar. 
Similarly, by applying Trading Collars to partially executed orders, 
the Exchange prevents the balance of such orders from executing away 
from the prevailing market after exhausting interest at or near the top 
of book on arrival.
    The Exchange applies Trade Collar Protection to incoming Market 
Orders and marketable Limit Orders (collectively, ``Marketable 
Orders''; and each a ``collared order'') if the width of the NBBO is 
greater than one Trading Collar.\5\ The Exchange applies Trade Collar 
Protection to the balance of Marketable Orders to buy (sell) that would 
execute at a price that exceeds the NBO (NBB) plus one Trading 
Collar.\6\ Incoming collared orders are assigned a collar execution 
price \7\ and are eligible to trade against contra-side interest priced 
equal to its collar execution price or at prices within one Trading 
Collar above (for buy orders) or below (for sell orders) the collar 
execution price (the ``Collar Range'').\8\
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    \5\ See Rule 6.60-O(a)(1)(A) (under the heading ``Types of 
collared orders'') and (a)(1)(A)(i),(ii).
    \6\ See Rule 6.60-O(a)(1)(A)(ii).
    \7\ The collar execution price depends upon the order type 
(Market or Limit) and whether (when the order arrives) the Exchange 
is already in receipt of another order being collared. See e.g., 
Rule 6.60-O(a)(4)(A)-(C).
    \8\ See Rule 6.60-O(a)(4)(D).
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    The display price of a collared order is determined once such order 
has traded with any contra-side interest within the Collar Range. 
Pursuant to Rule 6.60-O(a)(5), a Market Order that does not trade on 
arrival is displayed at its collar execution price; whereas the display 
price of the balance of a partially executed Marketable Order collared 
pursuant to paragraph (a)(1)(B) of the Rule, depends upon eligible 
contra-side interest.\9\ Specifically, per paragraph (a)(5)(A) of the 
Rule, if the collared order has traded against all contra-side interest 
within the Collar Range, the order would be displayed at the most 
recent execution price.\10\ If, however, there is contra-side interest 
priced within one Trading Collar of the most recent execution price, 
per paragraph (a)(5)(B) of the Rule, the order to buy (sell) would be 
displayed at the higher (lower) of its assigned collar execution price 
or the best execution price of the order that is both within the Collar 
Range and at least one Trading Collar away from the best priced contra-
side trading interest (i.e., lowest sell interest for collared buy 
orders/highest buy interest for collared sell orders).\11\
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    \9\ See Rule 6.60-O(a)(5).
    \10\ See Rule 6.60-O(a)(5)(A).
    \11\ See Rule 6.60-O(a)(5)(B).
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    The Rule also enumerates circumstances under which a collared order 
may be repriced as a result of certain updates to market interest.\12\ 
Relevant to this filing is that a collared order to buy (sell) would 
``be assigned a new collar execution price one Trading Collar above 
(below) the current displayed price of the collared order and processed 
at the updated price consistent with paragraphs (a)(4)(D) and (a)(5) 
above,'' after the ``expiration of one second and absent an update to 
the NBBO'' (the ``One-Second Collar Reprice Provision'').\13\
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    \12\ See Rule 6.60-O(a)(6)(A)-(C).
    \13\ See Rule 6.60-O(a)(6)(C). The Exchange notes, however, that 
``if the collared order is a Market Order to sell that has reached 
$0.00, it will not be assigned a new collar execution price but will 
be posted in the Consolidated Book at its MPV (e.g., $0.01 or 
$0.05).'' See id
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Proposed Modifications to Trading Collar Functionality
    The Exchange proposes to make a number of changes to the Trading 
Collar functionality that would simplify its operation and would 
provide order senders more certainty about the handling of orders 
submitted to the Exchange.
    First, the Exchange proposes to modify the treatment of incoming 
Market Orders received when the width of the NBBO is greater than one 
Trading Collar (i.e., a ``wide market'') and there is an existing 
contra-side collared order. Currently, an incoming market order would 
immediately execute against the contra-side collared order, which may 
result in a bad fill for the order sender. As proposed, the Exchange 
would reject Market Orders to buy (sell) received in a wide market if 
there is already a collared Marketable Order to sell (buy).\14\ In 
other words, if there is a collared Marketable Order on one side of the 
market (e.g., buy), and then, during a wide market, the Exchange 
receives a Market Order on the other side of the market (e.g., sell), 
it would reject that later-arriving sell Market Order thereby 
preventing the execution of the order at a potentially erroneous price.
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    \14\ See proposed Rule 6.60-O(a)(1)(B) (under heading, 
``Condition preventing collaring of incoming order'').
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    The Exchange believes this proposed change would allow the collared 
order to continue to seek liquidity while providing the latter-
arriving, contra-side order protection from execution in a wide market. 
The Exchange believes that rejecting the second Market Order rather 
than collaring it while there is already a collared order on the 
contra-side would provide greater opportunity for the collared order to 
receive execution opportunities.
    Second, the Exchange proposes to modify the Trading Collar to adopt 
a single standard for the display price of Marketable Orders. As 
described above, currently the display price of a collared Marketable 
Order could be based on either the available contra-side trading 
interest within (or outside of) one Trading Collar or the Collar Range 
of the collared order. Instead, the Exchange proposes to amend the 
operation of the collar so that the display price would be

[[Page 24071]]

the last execution price of the collared order. To effect this change, 
the Exchange proposes to amend Rule 6.60-O(a)(5) to provide that 
``[a]fter trading against all available interest within the Collar 
Range, the Marketable Order to buy (sell) that is subject to Trade 
Collar Protection pursuant to paragraph (a)(1)(B) above will display at 
its current collar execution price,'' signaling the most recent 
indications of market interest to buy (sell).\15\ The rule would 
continue to provide that each collared order is displayed at the 
Minimum Price Variation (``MPV'') for the option, pursuant to Rule 
6.72-O (Trading Differentials).\16\ The Exchange believes this proposed 
rule change would simplify the method of selecting the display price 
(i.e., the current collar execution price) thereby enabling investors 
to gauge market interest, and would also provide additional clarity to 
the operation of the functionality and provide more certainty for order 
senders.
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    \15\ Because the modified rule text would cover ``[a] Market 
Order that does not trade on arrival,'' the Exchange proposes to 
delete this sentence. See proposed Rule 6.60-O(a)(5).
    \16\ See id. (providing that ``[c]ollared orders are displayed 
at the MPV for the option, pursuant to Rule 9.72-O (Trading 
Differentials)'').
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    Third, the Exchange proposes to clarify the One-Second Collar 
Reprice Provision to define the circumstances that qualify for an 
``Expiration'' under this section of the Rule. This current Rule is 
silent as to the impact of any portion of the collared order routing to 
an away market as well as which side of the NBBO needs to update during 
the one- second time period. To provide additional detail, the Exchange 
proposes to modify the first sentence of the One-Second Collar Reprice 
Provision to delete the clause ``upon the expiration of one second and 
absent an update to the NBBO'' and replace it with rule text providing 
that ``a collared order is subject to expiration if it displays without 
executing, routing, or repricing and there is no update to the same-
side NBBO price for a period of at least one second'' and to define 
such occurrences as an Expiration.\17\ The proposed modification makes 
clear that any such routing or same-side NBBO updates would restart the 
one-second timer for repricing purposes. Collared orders subject to 
conditions that qualify as a proposed Expiration would be repriced as 
set forth in current Rule.\18\ The Exchange believes adding this 
information to the Rule would add transparency, clarity and internal 
consistency to Exchange rules.
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    \17\ See proposed Rule 6.60-O(a)(6)(C).
    \18\ See Rule 6.60-O(a)(6)(C).
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    Finally, in connection with the concept of an Expiration, the 
Exchange proposes to add a new paragraph that places a limit on the 
collaring of Market Orders. Specifically, as proposed, ``[a] Market 
Order that is collared will cancel after it is subject to a specified 
number of Expirations, to be determined by the Exchange and announced 
by Trader Update.'' \19\ The Exchange believes this would simplify the 
operation of the functionality and provide more certainty for order 
senders.
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    \19\ See proposed Rule 6.60-O(a)(6)(C)(i).
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Implementation
    The Exchange will announce the implementation of this rule change 
in a Trader Update to be published no later than 60 days following the 
approval date of this rule.
2. Statutory Basis
    The proposed rule change is consistent with Section 6(b) \20\ of 
the Act, in general, and furthers the objectives of Section 
6(b)(5),\21\ in particular, in that it is designed to prevent 
fraudulent and manipulative acts and practices, to promote just and 
equitable principles of trade, to foster cooperation and coordination 
with persons engaged in facilitating transactions in securities, and to 
remove impediments to and perfect the mechanisms of a free and open 
market and a national market system.
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    \20\ 15 U.S.C. 78f(b).
    \21\ 15 U.S.C. 78f(b)(5).
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    Overall, the proposed changes to the Trading Collar functionality 
would promote just and equitable principles of trade as well as protect 
investors and the public interest because collared orders would 
continue to be handled in a fair and orderly manner, as described 
above.
    The proposed modifications and clarifications would remove 
impediments to and perfect the mechanism of a free and open market and 
a national market system by simplifying the Trading Collar 
functionality by rejecting incoming Market Orders received in a wide 
market when a contra-side order is already being collared and 
standardizing the selection of the display price, defining the concept 
of an Expiration, and placing a limit on the number of Expirations that 
a collared Market Order endures before being canceled back to the order 
sender.
    The Exchange believes the proposal to reject incoming Market Orders 
when there is a contra-side collared order would allow the collared 
order to continue to seek liquidity while providing the latter-
arriving, contra-side order protection from execution in a wide 
market--which could be indicative of unstable market conditions or 
market dislocation thereby helping to remove impediments to and perfect 
the mechanism of a free and open market and a national market system. 
The Exchange believes that rejecting the second order (i.e., the Market 
Order) rather than collaring it while there is already a collared order 
on the contra-side would provide greater opportunity for the collared 
order to receive execution opportunities, which would help remove 
impediments to and perfect the mechanism of a free and open market and 
a national market system.
    The Exchange believes that the proposal to streamline the manner in 
which it selects the display price of a collared order (i.e., the 
current collar execution price) would provide order senders with more 
certainty as to the handling of their orders as well as enable them to 
gauge indications of market interest. The current selection of the 
display price is dependent upon various factors and results in the 
collared order being displayed a one of three potential prices: the 
most recent execution price, the best execution price, or the collar 
execution price. Thus, the proposed simplified standard for selecting 
the display price would help to remove impediments to and perfect the 
mechanism of a free and open market and a national market system.
    The Exchange also believes that the concept of an Expiration and 
the accompanying change to limit the number of Expirations per collared 
Market Order would improve the operation of the Trading Collar 
functionality because cancelling back Market Orders that have persisted 
for a certain number of Expirations, which could be indicative of 
unstable market conditions, should provide order senders more certainty 
of the handling of such orders and help avoid such orders receiving bad 
executions in times of market dislocation. Thus, this proposal would 
help remove impediments to and perfect the mechanism of a free and open 
market and a national market system.
    Finally, the Exchange believes that the proposed rule would remove 
impediments to and perfect the mechanism of a free and open market by 
clarifying and enhancing the operation of the Trading Collar 
functionality--which is designed to mitigate the risk of orders 
sweeping through multiple price points and executing at potentially

[[Page 24072]]

erroneous prices--as the proposed rule would continue to protect 
investors from receiving bad executions away from prevailing market 
prices. The Exchange notes that Trading Collar functionality is not new 
or novel and is available on other options exchanges.\22\ Thus, this 
proposal would foster cooperation and coordination with persons engaged 
in facilitating transactions in securities, and remove impediments to 
and perfect the mechanism of a free and open market and a national 
market system.
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    \22\ See, e.g., NASDAQ Options Market (``NOM'') and NASDAQ OMX 
BX (``BX''), Options 3, Section 15 (Risk Protections) (b)(1), 
Acceptable Trade Range (setting forth the risk protection feature 
for quotes and orders, which prevents executions (partial or 
otherwise) of orders beyond an ``acceptable trade range'' (as 
calculated by the exchange) and when an order (or quote) reaches the 
limits of the ``acceptable trade range'', it posts for a period not 
to exceed one second and recalculated a new ``acceptable trade 
range'').
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Technical Changes
    The Exchange notes that the proposed technical changes to the text 
regarding the selection of the display price would provide clarity and 
transparency to Exchange rules and would remove impediments to, and 
perfect the mechanism of, a free and open market and a national market 
system by making the Exchange rules easier to navigate and comprehend.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that this proposed rule change would 
impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act. Instead, the Exchange believes 
the proposal provides modifications and enhancements to the Trading 
Collars that provide market participants with protection from anomalous 
executions. Thus, the Exchange does not believe the proposal creates 
any significant impact on competition.
    The proposed enhancements to the Trading Collars would streamline 
the operation of the Trading Collars thereby further protecting 
investors against the execution of orders at erroneous prices. As such, 
the proposal does not impose any burden on competition. To the 
contrary, the Exchange believes that the proposed clarifications and 
enhancements may foster more competition. Specifically, the Exchange 
notes that it operates in a highly competitive market in which market 
participants can readily favor competing venues. The Exchange's 
proposed rule change would enhance its ability to compete with other 
exchanges that already offer similar trading collar functionality by 
eliminating complexity while at the same time maintaining the core 
functionality.\23\ Thus, the Exchange believes that this type of 
competition amongst exchanges is beneficial to the market place as a 
whole as it can result in enhanced processes, functionality, and 
technologies. The Exchange further believes that because the proposed 
rule change would be applicable to all OTP Holders it would not impose 
any burden on intra-market competition that is not necessary or 
appropriate in furtherance of the purposes of the Act.
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    \23\ See id.
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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, as modified by Amendment No. 2, is consistent with the Act. 
Comments may be submitted by any of the following methods:

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-NYSEArca-2020-31 on the subject line.

Paper Comments

     Send paper comments in triplicate to: Secretary, 
Securities and Exchange Commission, 100 F Street NE, Washington, DC 
20549-1090.

    All submissions should refer to File Number SR-NYSEArca-2020-31. 
This file number should be included on the subject line if email is 
used. To help the Commission process and review your comments more 
efficiently, please use only one method. The Commission will post all 
comments on the Commission's internet website (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, 
all written statements with respect to the proposed rule change that 
are filed with the Commission, and all written communications relating 
to the proposed rule change between the Commission and any person, 
other than those that may be withheld from the public in accordance 
with the provisions of 5 U.S.C. 552, will be available for website 
viewing and printing in the Commission's Public Reference Room, 100 F 
Street NE, Washington, DC 20549 on official business days between the 
hours of 10:00 a.m. and 3:00 p.m. Copies of the filing also will be 
available for inspection and copying at the principal office of the 
Exchange. All comments received will be posted without change. Persons 
submitting comments are cautioned that we do not redact or edit 
personal identifying information from comment submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File Number SR-NYSEArca-2020-31 and should 
be submitted on or before May 21, 2020.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\24\
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    \24\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-09129 Filed 4-29-20; 8:45 am]
 BILLING CODE 8011-01-P


