[Federal Register Volume 85, Number 239 (Friday, December 11, 2020)]
[Notices]
[Pages 80196-80199]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-27203]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-90584; File No. SR-NYSEAMER-2020-64]


Self-Regulatory Organizations; NYSE American LLC; Notice of 
Filing of Amendment No. 1 and Order Granting Accelerated Approval of a 
Proposed Rule Change, as Modified by Amendment No. 1, to Modify Rule 
971.1NY Regarding Customer Best Execution Auctions to Provide Optional 
All-or-None Functionality for Larger-Sized Orders

December 7, 2020.

I. Introduction

    On August 19, 2020, NYSE American LLC (``NYSE American'' or the 
``Exchange'') 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 modify Rules 971.1NY and 971.2NY regarding the 
Exchange's Customer Best Execution auction (``CUBE Auction'' or 
``Auction'') to provide optional all-or-none (``AON'') functionality 
for larger-sized orders. The proposed rule change was published for 
comment in the Federal Register on September 8, 2020.\3\ On October 14, 
2020, pursuant to Section 19(b)(2) of the Act,\4\ the Commission 
extended the time period within which to approve the proposed rule 
change, disapprove the proposed rule change, or institute proceedings 
to determine whether to approve or disapprove the proposed rule change, 
to December 7, 2020.\5\ The Commission has received no comments on the 
proposed rule change. On November 24, 2020, the Exchange filed 
Amendment No. 1 to the proposed rule change, which replaced and 
superseded the proposed rule change in its entirety.\6\ The Commission 
is publishing this notice to solicit comments on the proposed rule 
change, as modified by Amendment No. 1, from interested persons, and is 
approving the proposed rule change, as modified by Amendment No. 1, on 
an accelerated basis.
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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. 89723 (September 1, 
2020), 85 FR 55562 (September 8, 2020).
    \4\ 15 U.S.C. 78s(b)(2).
    \5\ See Securities Exchange Act Release No. 90178 (October 14, 
2020), 85 FR 66645 (October 20, 2020).
    \6\ In Amendment No. 1, the Exchange modified the proposal with 
regard to the outcomes of the proposed new CUBE Auction 
functionality, as proposed for larger-sized orders, in certain 
situations where Customer interest at the stop price is resting on 
the Exchange's book before, or arrives during, the Auction. See 
infra notes 15-18 and accompanying text for a description of these 
outcomes under the proposal as amended. See also Exhibit 4 of 
Amendment No. 1 showing the changes made by the amendment to the 
text of Commentary .05 to Rule 971.1NY as originally proposed. In 
Amendment No. 1 the Exchange also deleted proposed new Commentary 
.04 to Rule 971.2NY, which would have provided for optional 
functionality for larger-sized orders in the Exchange's CUBE Auction 
for Complex Orders paralleling the similar functionality for Single-
Leg CUBE Auctions proposed in new Commentary .05 to Rule 971.1NY, 
and made other, clarifying revisions in its discussion of the 
purpose of the proposal.
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II. Description of the Proposed Rule Change

    In Amendment No. 1, the Exchange proposes to expand its electronic 
crossing mechanism--the CUBE Auction--to provide optional AON \7\

[[Page 80197]]

functionality for ATP Holders to execute larger-sized orders (i.e., 500 
or more contracts) in the Single-Leg CUBE Auction.\8\ The Exchange 
seeks to expand the CUBE Auction functionality in a manner consistent 
with similar price-improvement mechanisms for larger-sized orders 
already available on other options exchanges.\9\ As such, the Exchange 
believes that its proposal would allow it to compete with other options 
exchanges for such larger-sized orders and would benefit market 
participants who are already familiar with such price-improvement 
mechanisms.
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    \7\ An All-or-None Order or AON Order is a ``Market or Limit 
Order that is to be executed on the Exchange in its entirety or not 
at all.'' See Rule 900.3NY(d)(4).
    \8\ See proposed Rules 971.1NY, Commentary .05. Capitalized 
terms have the same meaning as the defined terms in Rule 971.1NY.
    \9\ The Exchange cites as an example the Solicitation Auction 
Mechanism (``SAM'' or ``SAM Auction'') of the Cboe Exchange, Inc. 
(``Cboe''), governed by Cboe Rule 5.39, described by the Exchange as 
an electronic crossing mechanism for single-leg paired orders of 500 
or more contracts, which the Cboe system automatically treats as 
All-Or-None, where the solicited contra order(s) trades entirely 
with the agency order at the stop price unless, in the aggregate, 
the agency order can be filled entirely by responses to the auction 
at improved prices or, if there are Priority Customer orders at the 
stop price, by such Priority Customer orders alone or in combination 
with responses to the auction at the stop price or improved prices. 
If there are Priority Customer orders at the stop price but 
insufficient size of such orders alone or when aggregated with 
responses at the stop price or better prices to fill the agency 
order, both the agency order and solicited contra order(s) will be 
cancelled. The Exchange notes that Cboe's affiliated exchanges 
similarly offer such auction mechanism for larger-sized orders. See, 
e.g., Cboe EDGX Exchange, Inc. (``Cboe EDGX'') Rules 21.21 (SAM). 
The Exchange also notes that similar mechanisms are available on 
other options exchanges. See, e.g., Nasdaq ISE LLC (``ISE''), 
Options 3, Section 11(d) (setting forth its Solicited Order 
Mechanism).
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    According to the Exchange, the CUBE Auction operates seamlessly 
with the Consolidated Book--while still affording CUBE Orders an 
opportunity to receive price improvement.\10\ The Exchange states that 
the proposal to expand the current CUBE Auction functionality by 
providing an additional (optional) method for market participants to 
effect larger-sized orders in the CUBE Auction would likewise operate 
seamlessly with the Consolidated Book. The Exchange believes that its 
proposal would encourage ATP Holders to compete vigorously to provide 
the opportunity for price improvement for larger-sized orders in a 
competitive auction process, which may lead to enhanced liquidity and 
tighter markets.
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    \10\ See Rule 900.2NY(14) (defining Consolidated Book (or 
``Book'') and providing that all quotes and orders ``that are 
entered into the Book will be ranked and maintained in accordance 
with the rules of priority as provided in Rule 964NY''). Rule 964NY 
(Display, Priority and Order Allocation--Trading Systems) dictates 
the priority of quotes and orders.
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Proposed AON Single-Leg CUBE functionality

    The Exchange proposes to add new Commentary .05 to Rule 971.1NY to 
provide that a CUBE Order of at least 500 contracts would execute in 
full at the single stop price against the Contra Order, except under 
specified circumstances (the ``AON CUBE Order'').\11\ As further 
proposed, a Contra Order would not be permitted to guarantee an AON 
CUBE Order for auto-match or an auto-match limit, which features are 
otherwise available in a Single-Leg CUBE Auction.\12\
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    \11\ See proposed Commentary .05, Rule 971.1NY. See Rule 
971.1NY(c)(1)(A) (setting forth parameters for single stop price). 
An AON CUBE Order would be rejected for the same reasons as a CUBE 
Order (see Rule 971.1NY(b)(2)-(10)), except that the minimum size 
for an AON CUBE Order is 500 contracts, as opposed to one contract, 
as set forth in Rule 971.1NY(b)(8).
    \12\ See proposed Commentary .05, Rule 971.1NY. See also Rule 
971.1NY(c)(1)(B)-(C) (regarding parameters for auto-match and auto-
match limit price).
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    The initiating price and permissible range of executions for a 
proposed AON CUBE Order would be determined in the same manner as for a 
standard CUBE Order.\13\ An AON CUBE Order Auction would also be 
subject to the same early end events as a Single-Leg CUBE Order.\14\
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    \13\ An AON CUBE Order and its paired Contra Order would be 
rejected if it failed to meet the pricing parameters. See Rule 
971.1NY(b) (regarding auction eligibility requirements).
    \14\ See Rule 971.1NY(c)(4) (setting forth the type of interest 
that causes the early end to a Single-Leg CUBE Auction).
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    As proposed, an AON CUBE Order would not execute with the Contra 
Order if the entire AON CUBE Order could be satisfied in full by 
certain eligible contra-side interest. Specifically, the Exchange 
proposes that paragraph (a) to Commentary .05 to Rule 971.1NY would 
provide that:

    (a) The Contra Order would not receive any allocation and will 
be cancelled if (i) RFR Responses to sell (buy) at prices lower 
(higher) than the stop price can satisfy the full quantity of the 
AON CUBE Order or (ii) there is Customer interest to sell (buy) at 
the stop price that on its own, or when aggregated with RFR 
Responses to sell (buy) at the stop price or prices lower (higher) 
than the stop price, can satisfy the full quantity of the AON CUBE 
Order. In either such case, the RFR Responses will be allocated as 
provided for in paragraphs (c)(5)(A) and (c)(5)(B)(i) of this Rule, 
as applicable.\15\
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    \15\ See proposed Commentary .05, Rule 971.1NY(a).

    Thus, as noted by the Exchange, if there is price-improving contra-
side interest that can satisfy the AON condition of the Auction, the 
AON CUBE Order would execute in full against those price-improving RFR 
Responses and the Contra Order would cancel. Or, absent such price-
improving interest, if there is Customer interest equal to the stop 
price that on its own, or when combined with equal- or better-priced 
RFR Responses that can satisfy the AON condition of the Auction, the 
AON CUBE Order would execute in full against such interest and the 
Contra Order would cancel. Under either scenario, the AON CUBE Order 
would be allocated against contra-side interest at the best price(s) 
pursuant to the Exchange's priority rules.\16\
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    \16\ See Rule 971.1NY (c)(5)(A) (providing Customer interest 
first priority to trade with the CUBE Order, pursuant to the size 
pro rata algorithm set forth in Rule 964NY(b)(3) at each price 
point) and (c)(5)(B)(i) (providing that, second to Customer 
interest, RFR Responses priced below (above) the stop price, 
beginning with the lowest (highest) price within the range of 
permissible executions will execute with the CUBE Order, pursuant to 
the size pro rata algorithm set forth in Rule 964NY(b)(3) at each 
price point).
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    As further proposed, both the AON CUBE Order and Contra Order would 
be cancelled, i.e., the Auction would be cancelled, if there is contra-
side Customer interest at the stop price and such interest on its own 
or when combined with RFR Responses (at the stop price or better) is 
insufficient to satisfy the entire AON CUBE Order. To effect this 
result, the Exchange proposes that paragraph (b) to Commentary .05 to 
Rule 971.1NY would provide that:

    (b) T he AON CUBE Order and Contra Order will both be cancelled 
if there is Customer interest to sell (buy) at the stop price and 
such interest, either on its own or when aggregated with RFR 
Responses to sell (buy) at the stop price or prices lower (higher) 
than the stop price, is insufficient to satisfy the full quantity of 
the AON CUBE Order.\17\
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    \17\ See proposed Commentary .05, Rule 971.1NY(b).

    Thus, as proposed, if there is contra-side Customer interest at the 
stop price, but there is not enough size (considering the Customer 
interest and all RFR Responses at the stop price or better) to satisfy 
the entire AON CUBE Order, then both the AON CUBE Order and the Contra 
Order would be cancelled. The Exchange believes that this proposal is 
consistent with the terms of how AON orders function generally without 
violating the Exchange's general priority rules.\18\ With respect to 
allocation, the Exchange notes that the proposed functionality differs 
from the allocation of a standard Single-Leg CUBE Order in that the 
Contra Order is not guaranteed

[[Page 80198]]

a minimum allocation at the stop price. Instead, given the AON nature 
of the functionality, the Contra Order either trades with the entire 
AON CUBE Order or not at all.\19\ The Exchange's proposal also is 
consistent with the AON nature of similar mechanisms on other options 
exchanges.\20\
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    \18\ See Rule 964NY (regarding order ranking and priority).
    \19\ See Rule 971.1NY(c)(5)(B)(i)(b) (providing that, ``if there 
is sufficient size of the CUBE Order still available after executing 
at better prices or against Customer interest, the Contra Order 
shall receive additional contracts required to achieve an allocation 
of the greater of 40% of the original CUBE Order size or one 
contract (or the greater of 50% of the original CUBE Order size or 
one contract if there is only one RFR Response)'').
    \20\ See supra note 9 (regarding Cboe's SAM functionality for 
larger-sized paired orders designated as AON).
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    With the exception of differences to the minimum size and 
allocation described in proposed Commentary .05 to Rule 971.1NY, an AON 
CUBE Order would otherwise be subject to Rule 971.1NY with respect to 
all other aspects of the CUBE Auction functionality.\21\
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    \21\ See proposed Commentary .05, Rule 971.1NY.
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Implementation

    The Exchange states that it will announce the implementation date 
of the proposed rule change in a Trader Update following the approval 
of this proposed rule change.

III. Discussion and Commission 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 and the rules and regulations thereunder 
applicable to national securities exchanges.\22\ In particular, the 
Commission finds that the proposed rule change, as modified by 
Amendment No. 1, is consistent with Section 6(b)(5) of the Act,\23\ 
which requires that the rules of an exchange be designed, among other 
things, 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 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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    \22\ 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).
    \23\ 17 U.S.C. 78f(b)(5).
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    The Commission believes that approving the Exchange's proposal, as 
amended, to provide optional AON functionality for larger-sized orders 
may allow for greater flexibility in executing large-sized orders and 
could provide additional opportunities for such orders to receive price 
improvement over the NBBO, in the interest of perfecting the mechanism 
of free and open markets. The Commission further believes that the 
proposal, as amended, includes appropriate conditions to protect the 
priority of public customer orders on the Exchange, and is thereby 
consistent with the protection of investors and the public interest, 
because it assures that public customers who have taken the risk of 
placing limit orders on the Exchange have a fair opportunity to 
participate in transactions taking place on the Exchange. The 
Commission notes that the proposed rules providing this protection are 
similar to the rules of other exchanges with similar functionality and 
believes that they raise no novel issues.\24\ Based on the foregoing, 
the Commission finds that the proposed rule change is consistent with 
the Act.
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    \24\ See supra note 9 and see also Rules of the Miami 
International Securities Exchange, LLC at Rule 515A(b).
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IV. Solicitation of Comments on Amendments No. 1

    Interested persons are invited to submit written data, views, and 
arguments concerning whether Amendments No. 1 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-2020-64 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-2020-64. 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 this filing will also 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-NYSEAMER-2020-
64 and should be submitted on or before January 4, 2021.

V. Accelerated Approval of the Proposed Rule Change, as Modified by 
Amendment No. 1

    The Commission finds good cause to approve the proposed rule 
change, as modified by Amendment No. 1, prior to the thirtieth day 
after the date of publication of Amendment No. 1 in the Federal 
Register. In Amendment No. 1, the Exchange modified the proposal with 
respect to the outcomes of AON CUBE Auctions for larger-sized orders in 
certain cases where there is Customer interest on the Exchange's 
book.\25\ In doing so, the Exchange aligned the outcomes of the Auction 
with the outcomes of similar mechanisms on other exchanges, affording 
appropriate protections for the priority of Customer interest,\26\ 
which the Commission has found to be consistent with the Act.\27\ 
Accordingly, the Commission finds good cause, pursuant to Section 
19(b)(2) of the Act,\28\ to approve the proposed rule change, as 
modified by Amendment No. 1, on an accelerated basis.
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    \25\ See supra note 6.
    \26\ See supra note 9
    \27\ In the other changes made by Amendment No. 1, the Exchange 
exercised its discretion not to propose an AON CUBE Auction for 
Complex Orders at this time, and enhanced the clarity of its 
proposal.
    \28\ 15 U.S.C. 78s(b)(2).
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VI. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\29\ that the proposed rule change SR-NYSEAMER-

[[Page 80199]]

2020-64, as modified by Amendment No. 1 be, and hereby is, approved.
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    \29\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\30\
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    \30\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-27203 Filed 12-10-20; 8:45 am]
BILLING CODE 8011-01-P


