[Federal Register Volume 85, Number 112 (Wednesday, June 10, 2020)]
[Notices]
[Pages 35459-35460]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-12515]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-89008; File No. SR-NYSEArca-2020-31]


Self-Regulatory Organizations; NYSE Arca, Inc.; Order Approving a 
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

June 4, 2020.

I. Introduction

    On April 9, 2020, NYSE Arca, Inc. (``NYSE Arca'' or the 
``Exchange'') filed with the Securities and Exchange Commission (the 
``Commission''), pursuant to Section 19(b)(1) \1\ of the Securities 
Exchange Act of 1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ a 
proposed rule change to modify Exchange Rule 6.60-O regarding the 
treatment of orders subject to Trade Collar Protection. The Exchange 
submitted Amendment No. 2, which superseded and replaced the proposed 
rule change, on April 23, 2020.\4\ The proposed rule change was 
published for comment in the Federal Register on April 30, 2020.\5\ The 
Commission received no comments on the proposal. This order approves 
the proposed rule change, as modified by Amendment No. 2.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
    \4\ Amendment No. 2 is available at https://www.sec.gov/comments/sr-nysearca-2020-31/srnysearca202031-7238141-217098.pdf. 
The Exchange submitted Amendment No. 1 on April 22, 2020, and 
withdrew it on April 23, 2020.
    \5\ Securities Exchange Act Release No. 88737 (April 24, 2020), 
85 FR 24069 (``Notice'').
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II. Description of the Proposal, as Modified by Amendment No. 2

    The Exchange states that it proposes changes to Rule 6.60-O(a) to 
modify functionality and to adopt enhancements to the operation of the 
Trading Collars.\6\ The Exchange applies Trade Collar Protection to 
incoming market orders and marketable limit orders (each a ``collared 
order'' and, collectively, ``Marketable Orders'') if the width of the 
NBBO is greater than one Trading Collar. As described more fully in the 
Notice, the Exchange states that 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.\7\ According to 
the Exchange, 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).\8\ 
Similarly, by applying Trading Collars to partially executed orders, 
the Exchange states that it 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.\9\
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    \6\ See Notice, supra note 5, 85 FR at 24070. ``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). See Rule 6.60(a)(2).
    \7\ See Notice, supra note 5, 85 FR at 24070.
    \8\ See id.
    \9\ See id.
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    Accordingly, the Exchange proposes to modify the treatment of 
incoming market orders 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 an existing contra-side collared order in a 
wide market.\10\ The Exchange proposes to reject a market order to buy 
(sell) received in a wide market if there is already a collared 
Marketable Order to sell (buy).\11\ The Exchange states that the 
proposed rule change would prevent the execution of the market order at 
a potential erroneous price and provide the collared order greater 
opportunity to receive execution.\12\
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    \10\ See Rule 6.60-O(a)(1)(A).
    \11\ See proposed Rule 6.60-O(a)(1)(B).
    \12\ See Notice, supra note 5, 85 FR at 24070.
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    The Exchange also proposes to amend the operation of the Trading 
Collar so

[[Page 35460]]

that the display price would be the last execution price of the 
collared order.\13\ 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 \14\ of the collared order.\15\ The Exchange states that 
the 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, by using a single 
standard to determine the display price, provide more certainty for 
order senders.\16\
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    \13\ See proposed Rule 6.60-O(a)(5).
    \14\ A ``Collar Range'' is within one Trading Collar above (for 
buy orders) or below (for sell orders) the collar execution price. 
See Rule 6.60-O(a)(4)(D).
    \15\ See Rule 6.60-O(a)(5)(A)-(B).
    \16\ See Notice, supra note 5, 85 FR at 24071.
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    Currently, 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 after the expiration of one second and absent an update to the 
NBBO.\17\ The Exchange states that the 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.\18\ Accordingly, the Exchange proposes to define an 
``Expiration'' as when a collared order 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.\19\ The Exchange states that 
the proposed modification makes clear that any such routing or same-
side NBBO updates would restart the one-second timer for repricing 
purposes, and that collared orders subject to conditions that qualify 
as a proposed Expiration would be repriced as set forth in Rule 6.60-
O(a)(6)(C).\20\ Relatedly, the Exchange proposes to add a new paragraph 
that provides that 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.\21\
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    \17\ See Rule 6.60-O(a)(6)(C).
    \18\ See id.
    \19\ See proposed Rule 6.60-O(a)(6)(C).
    \20\ See Notice, supra note 5, 85 FR at 24071.
    \21\ See proposed Rule 6.60-O(a)(6)(C)(i).
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    Finally, the Exchange states that it will announce the 
implementation of the proposed rule change in a Trader Update to be 
published no later than 60 days following a Commission approval.\22\
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    \22\ See Notice, supra note 5, 85 FR at 24071.
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III. Discussion and Commission Findings

    After careful review, the Commission finds that the proposed rule 
change, as modified by Amendment No. 2, is consistent with the 
requirements of the Act and the rules and regulations thereunder 
applicable to a national securities exchange.\23\ In particular, the 
Commission finds that the proposed rule change, as modified by 
Amendment No. 2, is consistent with Section 6(b)(5) of the Act,\24\ 
which requires, among other things, that the rules of a national 
securities exchange be designed to prevent fraudulent and manipulative 
acts and practices, to promote just and equitable principles of trade, 
to remove impediments to and perfect the mechanism of a free and open 
market and a national market system, and, in general, to protect 
investors and the public interest.
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    \23\ In approving this proposal, the Commission has considered 
the proposed rule's impact on efficiency, competition, and capital 
formation. See 15 U.S.C. 78c(f).
    \24\ 15 U.S.C. 78f(b)(5).
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    The Commission notes that the Exchange believes that 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.\25\ The Exchange also believes 
that rejecting the incoming market order rather than collaring it while 
there is a collared order on the contra-side would provide greater 
execution opportunities for the collared order.\26\
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    \25\ See Notice, supra note 5, 85 FR at 24071.
    \26\ See id.
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    In addition, the Exchange believes that the proposal to select the 
display price of a collared order based on the current collar execution 
price would provide order senders with more certainty and enable them 
to gauge indications of market interest.\27\
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    \27\ See id.
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    The Commission notes that the Exchange believes that the proposed 
definition of ``Expiration'' and the proposal to limit the number of 
Expirations per collared market order would improve the operation of 
the Trading Collar functionality because canceling 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.\28\
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    \28\ See id.
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    In addition, the Commission notes that the Exchange states that the 
proposed rule modifications to the Trading Collar functionality are 
similar to functionality available on other options exchanges.\29\
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    \29\ Specifically, the Exchange compares the Trading Collar 
functionality, as proposed, with NASDAQ Options Market and NASDAQ 
OMX BX, Options 3, Section 15 (Risk Protections) (b)(1), Acceptable 
Trade Range. The Exchange states that these exchanges provide a 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 that 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''. See id. 85 FR at 24072.
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    The Commission believes that the operation of the Trade Collar 
Protection mechanism set forth in the proposal is consistent with the 
Act. In addition, the Commission believes that the proposed changes 
should provide more certainty for investors with respect to how their 
orders will be handled on the Exchange. Accordingly, the Commission 
believes that the proposal is reasonably designed to help prevent 
fraudulent and manipulative acts and practices, promote just and 
equitable principles of trade, remove impediments to and perfect the 
mechanism of a free and open market and a national market system, and, 
in general, protect investors and the public interest.

IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\30\ that the proposed rule change (SR-NYSEArca-2020-31), as 
modified by Amendment No. 2, be, and it hereby is, approved.
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    \30\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\31\
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    \31\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-12515 Filed 6-9-20; 8:45 am]
 BILLING CODE 8011-01-P


