[Federal Register Volume 86, Number 24 (Monday, February 8, 2021)]
[Notices]
[Pages 8659-8662]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-02465]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-91039; File No. SR-NYSEAMER-2021-05]


Self-Regulatory Organizations; NYSE American LLC; Notice of 
Filing of Proposed Rule Change To Amend Rule 970NY and Rule 970.1NY To 
Eliminate the Use of Dark Series on the Exchange

February 2, 2021.
    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 January 26, 2021, NYSE American LLC (``NYSE American'' 
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. 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 970NY (Firm Quotes) and Rule 
970.1NY (Quote Mitigation) to eliminate the use of dark series on the 
Exchange. The proposed rule 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 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 purpose of this rule change is to eliminate the exclusion of 
inactive or ``dark'' series (as described below) from the requirements 
of Rule 970NY (Firm Quotes). In addition, the Exchange proposes to 
delete Rule 970.1NY (Quote Mitigation) in its entirety.
    Rule 970NY describes the obligations of the Exchange to collect, 
process and make available to quotation vendors the best bid and best 
offer for each option series that is a reported security.\4\ However, 
under Rule 970.1NY, the only quote messages that the Exchange sends to 
Options Price Reporting Authority (``OPRA'') are quotes for ``active'' 
series, which are defined as any series that: (i) Has traded on any 
options exchange in the previous 14 calendar days; (ii) is solely 
listed on the Exchange; (iii) has been trading ten days or less; or 
(iv) is a series in which the Exchange has an order.\5\ Any options 
series that falls outside of the above categories of ``active'' series 
are deemed inactive or ``dark'' series. As such, under Rule 970.1NY, 
the Exchange still accepts quotes from ATP Holders in these series; 
however, such quotes are not disseminated to OPRA. The Exchange 
proposes to modify Rule 970NY and to delete Rule 970.1NY to eliminate 
the use of ``dark'' series.
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    \4\ See Rule 970.10NY.
    \5\ A series may be considered ``active'' on an intraday basis 
if: (i) the series trades at any options exchange; (ii) the Exchange 
receives an order in the series; or (iii) the Exchange receives a 
request for quote from a Customer in that series.'' See Rule 
970.1NY.
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    By way of background, Rules 970NY and 970.1NY were adopted over a 
decade ago in conformance with the NYSE Arca Rule 6.86-O in connection 
with the Penny Pilot Program, which has since been made permanent.\6\ 
In 2007, when NYSE Arca Rule 6.86-O was adopted, there were five 
options exchanges and an industry-wide concern about ``capacity issues 
related

[[Page 8660]]

to excessive quoting rates.'' \7\ However, since that time, 11 new 
exchanges launched, resulting in a total 16 options exchanges. With the 
increase in the number of exchanges, and associated quote traffic, OPRA 
capacity has been increased without issue.
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    \6\ See Securities Exchange Act Release Nos. 59142 (December 22, 
2008), 73 FR 80494, 80501 (December 31, 2008) (notice citing fact 
that Rules 970NY and 970.1NY copy the NYSE Arca quote mitigation 
rule); 59472 (February 29, 2009), 74 FR 9843 (March 6, 2009) (order 
approving adoption of Rules 970NY and 970.1NY) See also Securities 
Exchange Act Release Nos. 88532 (April 1, 2020), 85 FR 19545 (April 
7, 2020) (File No. 4-443) (order approving Amendment No. 5 to the 
Plan for the Purpose of Developing and Implementing Procedures to 
Facilitate the Listing and Trading of Standardized Options); 55162 
(January 24, 2007), 72 FR 4738 (February 1, 2007) (SR-Amex-2006-106) 
(approval of Penny Pilot Program and original quote mitigation 
strategy).
    \7\ See Securities Exchange Act Release No. 54590 (October 12, 
2006), 71 FR 61525, 61527 (October 18, 2006) (SR-NYSEArca-2006-73) 
(notice regarding adoption of NYSE Arca Rule) (``Arca Notice''). For 
example, in 2006-2007, OPRA had the capacity to process 360,000 
message per second and, at its peak message rate, the Exchange 
accounted for 15% of OPRA capacity, sending 55, 248 message per 
second for active series.
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    As discussed further below, the Exchange believes that OPRA has the 
capacity to accommodate any increase in quote traffic from the Exchange 
arising from the publication of quotes in ``dark series.'' As an OPRA 
participant, the Exchange makes capacity requests to OPRA. 
Notwithstanding Rule 970.1NY, when the Exchange makes capacity requests 
to OPRA, it has always factored the total quote traffic it receives 
from Market Makers, including quotes in dark series.\8\ In other words, 
the Exchange presumes that all series will be active and therefore 
requests capacity to accommodate sending quotes for all series to OPRA. 
As such, the Exchange does not believe the proposed rule change would 
impact or change its capacity requests to OPRA. Nor would it change the 
total amount of capacity needed at OPRA to accommodate quotes in dark 
series from the Exchange because those series have already been 
factored into the Exchange's capacity requests to OPRA. Similarly, 
because OPRA publishes quote capacity information to the market (which 
already incorporates capacity planning that includes quotes in dark 
series that would be disseminated to OPRA), market participants 
(including data vendors and subscribers) have the opportunity to 
prepare for and make any necessary accommodations for anticipated quote 
traffic. Accordingly, the elimination of the Exchange's suppression of 
quotes in dark series should not impact market participants or 
downstream users that consume Exchange or OPRA data. Thus, the Exchange 
believes that this proposal would not impact its capacity requests to 
OPRA nor would it impact market participants or downstream consumers of 
OPRA data.
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    \8\ OPRA has delegated certain functions pertaining to planning 
the capacity of the OPRA System to an Independent System Capacity 
Advisor (``ISCA'') that ``may provide less than all of the capacity 
that has been requested if it determines (a) that the capacity 
requests of one or more of the parties are unreasonable, or (b) that 
it is not reasonable to develop or maintain a System that has 
capacity sufficient to satisfy the requests of the parties.'' See 
the OPRA Capacity Guidelines, at p. 1, available here, https://assets.website-files.com/5ba40927ac854d8c97bc92d7/5bf419b52de21fff3e88107f_capacity_guidelines.pdf. The Exchange has 
never been informed by the ISCA that the capacity it has requested 
cannot be met for any reason, including because the ISCA had deemed 
the request to be unreasonable. Thus, the Exchange believes that any 
increase in quote traffic that might be sent to OPRA as a result of 
the current proposal should not impact any other exchange's capacity 
at OPRA.
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    The Exchange also believes that the proposed discontinuation of its 
suppression of quotes in dark series would increase transparency and 
enhance price discovery. Specifically, as proposed, all Market Maker 
quotes (including in ``inactive series'' under the current Rule) would 
be displayed and reflected in the market to the benefit of all market 
participants who would be on notice of such liquidity. The Exchange 
also notes that, over the years, certain market participants have 
expressed confusion regarding what quotes are being published and which 
are being suppressed. Therefore, the Exchange believes that the 
proposal would remove the element of potential confusion among market 
participants by publishing all quotes (not just those in active series) 
in the disseminated quote feed.
    Importantly, since the adoption of Rule 970.1NY, the Exchange has 
implemented the following measures that serve as additional safeguards 
against excessive quoting:

--Monitoring: The Exchange actively monitors the quotation activity 
of its Market Makers. When the Exchange detects that a Market Maker 
is disseminating an unusual number of quotes, the Exchange contacts 
that Market Maker and alerts it to such activity. Such monitoring 
may reveal that the Market Maker may have internal system issues or 
has incorrectly set system parameters that were not immediately 
apparent. Alerting a Market Maker to the heightened levels of 
activity will usually result in a change that reduces the number of 
quotes sent to the Exchange by the Market Maker.
--Codification of select provisions of the Options Listing 
Procedures Plan (``OLPP'') in Rule 903A.\9\ The OLPP is a national 
market system plan that, among other things, sets forth procedures 
governing the listing of new options series. From the OLPP, the 
Exchange incorporated in Rule 903A ``applied uniform standards to 
the range of options series exercise (or strike) prices available 
for trading on the [Exchange] as a quote mitigation strategy.'' \10\ 
In approving the OLPP provisions, subsequently incorporated in Rule 
903A, the Commission indicated that ``adopting uniform standards to 
the range of options series exercise (or strike) prices available 
for trading on the [Exchange] should reduce the number of option 
series available for trading, and thus should reduce increases in 
the options quote message traffic because market participants will 
not be submitting quotes in those series.'' \11\ The Exchange 
believes that adherence to the OLPP standard for strike listings has 
contributed to the decline of the number of strikes listed, which 
has in turn, reduced the amount of quotes in ``dark series.'' that 
were held back from OPRA. \12\
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    \9\ See Securities Exchange Act Release No. 61978 (April 23, 
2010), 75 FR 22886 (April 30, 2010) (SR-NYSEAmex-2010-3). See also 
OLPP, available at, http://www.theocc.com/clearing/industry-services/olpp.jsp.
    \10\ Rule 903A codified Amendment No. 3 to the OLPP. See 
Securities Exchange Act Release No. 60531 (August 19, 2009), 74 FR 
43173 (File No. 4-443). See also Rule 903A.
    \11\ Id., 74 FR at 43174.
    \12\ When NYSE Arca adopted its quote mitigation rule, which the 
Exchange copied, it estimated that deployment of the rule would 
reduce its quote traffic by 20-30%. See supra note 7, Arca Notice, 
71 FR at 61527. In actuality, the rule has resulted in a reduction 
of approximately 10% of quote message traffic to OPRA. The Exchange 
believes this disparity was a result of the number of ``inactive'' 
series being much lower than anticipated because of increased 
competition and quoting activity as well as limitations on 
proliferation of unnecessary strikes, per the OLPP.
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--Refined Market Maker Quoting Obligations: One year after adopting 
select provisions of the OLPP, the Exchange refined the quoting 
obligations applicable to Market Makers as a quote mitigation 
strategy.\13\ Specifically, the Exchange adopted Commentary .01 to 
Rule 925.1NY, which states that Specialists' and Market Makers' 
continuous quoting obligations ``shall not apply to Market Makers 
with respect to adjusted option series, and series with a time to 
expiration of nine months or greater, for options on equities and 
Exchange Traded Fund Shares, and series with a time to expiration of 
twelve months or greater for Index options.'' \14\ Because there are 
no Market Maker quoting obligations associated with adjusted options 
series, there is a reduction in quote traffic that is sent to OPRA. 
Indeed, in approving the text of Commentary .01 to Rule 925.1NY, the 
Commission noted, ``. . . the Exchange's proposal would reduce the 
burden on market makers to submit continuous quotes that the 
Exchange may not submit to OPRA.'' \15\
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    \13\ See Securities Exchange Act Release No. 65572 (October 14, 
2011), 76 FR 65310 (October 20, 2011) (NYSEAmex-2011-61). See also 
Commentary .01 to Rule 925.1NY.
    \14\ An ``adjusted series'' is ``an option series wherein, as a 
result of a corporate action by the issuer of the underlying 
security, one option contract in the series represents the delivery 
of other than 100 shares of underlying stock or Exchange-Traded Fund 
Shares.'' See Commentary .01 to Rule 925.1NY.
    \15\ See supra note 13, 76 FR at 65311.

    The Exchange believes that these quote mitigation strategies would 
allow the Exchange to continue to effectively mitigate quote message 
traffic.
    In connection with the foregoing, the Exchange proposes to amend 
paragraphs (b)(1) and (b)(2) of Rule 970NY to delete references to the 
``Quote Mitigation

[[Page 8661]]

Plan,'' which refer to the plan set forth in Rule 970.1NY. In addition, 
the Exchange proposes to delete Rule 970.1NY in its entirety.
Implementation
    The Exchange will announce the implementation date of the proposed 
rule change in a Trader Update within 60 days of rule approval.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Securities Exchange Act of 1934 (the ``Act''),\16\ in 
general, and furthers the objectives of Section 6(b)(5) of the Act,\17\ 
in particular, in that it is 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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    \16\ 15 U.S.C. 78f(b).
    \17\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes that the proposed elimination of Rule 970.1NY 
(and references to quote mitigation in Rule 970NY) would promote just 
and equitable principles of trade, as well as serve to remove 
impediments to and perfect the mechanism of a free and open market 
because the Exchange's systems capacity is more than sufficient to 
accommodate any increase in quote traffic to OPRA as a result of the 
proposed rule change. First, the Exchange believes that the proposed 
elimination of Rule 970.1NY would promote just and equitable principles 
of trade, as well as serve to remove impediments to and perfect the 
mechanism of a free and open market because the proposed change would 
increase transparency and enhance price discovery. Specifically, as 
proposed, all Market Maker quotes (including those in ``inactive 
series'' under the current Rule) would be displayed and reflected in 
the market to the benefit of all market participants who would be on 
notice of such liquidity. The Exchange also believes that the proposal 
would remove the element of potential confusion among market 
participants by publishing all quotes (not just those in active series) 
in the disseminated quote feed.
    In addition, the proposed change would promote just and equitable 
principles of trade, as well as serve to remove impediments to and 
perfect the mechanism of a free and open market because the Exchange's 
capacity requests already presume that all series are active. Hence, 
the Exchange believes that the existing capacity planning at OPRA 
already factors in quotes in dark series being lit and therefore does 
not believe that the elimination of this rule (and any resulting 
increase in quote traffic) would have a negative impact on capacity.
    The Exchange further believes that the existing quote mitigation 
strategies (i.e., monitoring of quoting activity, codification of the 
OLPP, and refined Market Maker quoting obligations) employed by the 
Exchange serve to reduce the potential for excessive quoting and 
therefore reduce quote traffic.
    Importantly, the circumstances giving rise to the NYSE Arca rule 
that the Exchange copied--industry-wide concern about ``capacity issues 
related to excessive quoting rates''--has subsided given that OPRA 
capacity has increased exponentially over the last decade coincident 
with the influx of new options exchanges. In addition, the proposed 
increase in quote traffic as a result of this proposal is minimal and 
therefore unlikely to adversely impact the flow of message traffic and/
or harm downstream consumers of OPRA data. As noted above, the increase 
in quotes message traffic in dark series is already considered in the 
Exchange's capacity requests to OPRA and already published to 
downstream users of OPRA data. As such, the Exchange believes the 
proposed change would not impede the protection of investors and the 
public interest.
    Thus, the Exchange believes there is sufficient capacity at OPRA to 
accommodate any additional quote traffic that will result from 
elimination of dark series. The Exchange therefore believes that its 
proposal will not impact the protection of investors and the public 
interest.
    Finally, as discussed above, the Exchange does not anticipate that 
its proposal would negatively impact systems capacity. However, to the 
extent it does, the Exchange has analyzed its capacity and represents 
that it and the OPRA have the necessary systems capacity to handle any 
incremental additional traffic associated with this proposed rule 
change.

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. Specifically, as discussed 
above, the Exchange believes that any increase in quote traffic that 
might be sent to OPRA as a result of the proposed rule change would be 
minimal and should not impact any other exchange's capacity at OPRA. 
The Exchange likewise believes that there would be no adverse impact on 
any downstream consumers of OPRA data given that any increase in quote 
traffic would be minimal and has already been included in the 
Exchange's capacity planning requests to OPRA.
    Intramarket Competition. The elimination of ``dark series'' would 
increase intra market competition and improve quote quality, because 
prices and sizes of all Exchange quotations would be sent to OPRA to be 
published and updated. At present, Market Makers cannot ``see'' the 
internal best bid and offer in a dark series, nor can they improve upon 
the displayed market to establish price/time priority. This proposal to 
publish the quotes in inactive series will enhance intramarket 
competition because Market Makers will be able to submit more 
competitive quotes.
    Intermarket Competition. For reasons similar to those described in 
the Intramarket Competition section, eliminating the use of dark series 
and publishing to OPRA the Exchange's previously unpublished quotes on 
such series would increase competition between markets, because NYSE 
American's quotes would now be visible and included in the calculation 
of the NBBO. Including all NYSE American quotes in the NBBO (including 
those in dark series), an options participant will know if an order 
should be sent to NYSE American to get the best price. Market Makers 
that use a strategy to ``match'' the NBBO will now need to factor NYSE 
American quotes into their calculations.

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

[[Page 8662]]

    (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-2021-05 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-2021-05. 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-NYSEAMER-2021-05 and should be submitted 
on or before March 1, 2021.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\18\
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    \18\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-02465 Filed 2-5-21; 8:45 am]
BILLING CODE 8011-01-P


