[Federal Register Volume 86, Number 89 (Tuesday, May 11, 2021)]
[Notices]
[Pages 25913-25915]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-09888]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-91780; File No. SR-NYSEArca-2021-09]


Self-Regulatory Organizations; NYSE Arca, Inc.; Order Granting 
Approval of a Proposed Rule Change, as Modified by Amendment No. 1, To 
Amend NYSE Arca Rule 6.86-O To Eliminate the Use of Dark Series on the 
Exchange

May 5, 2021.

I. Introduction

    On January 26, 2021, NYSE Arca, Inc. (``NYSE Arca'' 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 amend NYSE Arca Rule 6.86-O to eliminate the 
use of ``dark'' series on the Exchange. The proposed rule change was 
published for comment in the Federal Register on February 5, 2021.\3\ 
On March 18, 2021, pursuant to Section 19(b)(2) of the Act,\4\ the 
Commission designated a longer 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.\5\ On April 27, 2021, the Exchange filed Amendment No. 1 
to the proposed rule change.\6\ The Commission received no

[[Page 25914]]

comment letters on the proposal. This order approves the proposed rule 
change, as modified by Amendment No. 1.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 91038 (February 1, 
2021), 86 FR 8416 (``Notice'').
    \4\ 15 U.S.C. 78s(b)(2).
    \5\ See Securities Exchange Act Release No. 91354, 86 FR 15764 
(March 24, 2021). The Commission designated May 6, 2021, as the date 
by which it should approve, disapprove, or institute proceedings to 
determine whether to approve or disapprove the proposed rule change.
    \6\ In Amendment No. 1, the Exchange provided data that showed 
that during the eighteen (18) trading days between March 1, 2021 and 
March 24, 2021, quotes in dark series accounted for 2.43% of NYSE 
Arca quotes and 1.99% of NYSE American, LLC (``NYSE American'') 
quotes, and quotes in dark series averaged 0.174% on NYSE Arca and 
0.190% on NYSE American when compared to the total OPRA disseminated 
quotes during the same period. The Exchange also stated that on 
March 4, 2021 and March 5, 2021, OPRA processed the most messages in 
its history and provided data that shows that on March 4th, quotes 
in dark series from NYSE Arca and NYSE American combined for 0.5095% 
compared to OPRA message traffic. On March 5th, quotes in dark 
series from NYSE Arca and NYSE American combined for 0.2562% when 
compared to OPRA quote volume. The Exchange concluded that 
eliminating the suppression of quotes in dark series would result in 
a de minimis increase in quotes sent by NYSE Arca and NYSE American 
to OPRA and have essentially no impact on messaging at an industry 
level. Because Amendment No. 1 to the proposed rule change does not 
materially alter the substance of the proposed rule change, 
Amendment No. 1 is not subject to notice and comment. Amendment No. 
1 is available at: https://www.sec.gov/comments/sr-nysearca-2021-09/srnysearca202109.htm.
---------------------------------------------------------------------------

II. Description of the Proposed Rule Change, as Modified by Amendment 
No. 1

    Currently, NYSE Arca Rule 6.86-O (``Firm Quotes'') requires 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 unless the series is subject to an approved quote mitigation 
plan.\7\ Pursuant to the quote mitigation plan set forth in Commentary 
.03 to NYSE Arca Rule 6.86-O, the Exchange only disseminates quotes in 
``active'' series.\8\ A series is considered active if the series: (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.\9\ In 
addition, 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.\10\ Any options 
series that does not meet the definition of an active series is deemed 
be an inactive or ``dark'' series. Consequently, under the Exchange's 
current rules, although the Exchange accepts quotes from OTP Holders in 
all series, the only quote messages the Exchange disseminates to the 
Options Price Reporting Authority (``OPRA'') are quotes for active 
series.\11\ The Exchange proposes to delete Commentary .03 to Rule 
6.86-O. Therefore, the proposed rule change would eliminate the 
distinction between active and dark series, and thus require quotes in 
all series to be disseminated to OPRA.\12\
---------------------------------------------------------------------------

    \7\ See NYSE Arca Rule 6.86-O(b)(1).
    \8\ The quote mitigation plan set forth in Commentary .03 to 
NYSE Arca Rule 6.86 was adopted in 2006 in connection with the Penny 
Pilot Program, a program which was subsequently approved on a 
permanent basis in 2020. See Notice, supra note 3, at 8416.
    \9\ See Commentary, .03 to NYSE Arca Rule 6.86-O.
    \10\ See Commentary .03 to NYSE Arca Rule 6.86-O.
    \11\ See Notice, supra note 3, at 8416. See also Amendment No. 
1, supra note 6 (providing data to support the Exchange's conclusion 
that eliminating the suppression of quotes in dark series would 
result in a de minimis increase in quotes sent by NYSE Arca and NYSE 
American to OPRA and would have essentially no impact on messaging 
at an industry level).
    \12\ See Notice, supra note 3, at 8416.
---------------------------------------------------------------------------

III. Discussion and Commission Findings

    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 a national securities 
exchange.\13\ 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,\14\ 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 
regulating and facilitating 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.
---------------------------------------------------------------------------

    \13\ In approving this proposed rule change, as modified by 
Amendment No.1, the Commission has considered the proposed rule's 
impact on efficiency, competition, and capital formation. See 15 
U.S.C. 78c(f).
    \14\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    In support of its proposal, the Exchange states the proposed rule 
change would increase transparency, enhance price discovery, and 
alleviate potential confusion among market participants regarding what 
quotes are being published in the disseminated quote feed and what 
quotes are being suppressed.\15\ According to the Exchange, 
discontinuing the use of the quote mitigation plan set forth in 
Commentary .03 to NYSE Arca Rule 6.86-O would result in all Market 
Maker quotes (including those currently being suppressed because they 
are considered inactive) being displayed and reflected in the market, 
benefitting market participants by providing notice of such liquidity 
and removing the element of potential confusion.\16\
---------------------------------------------------------------------------

    \15\ See Notice, supra note 3, at 8417 (stating that ``over the 
years, certain market participants have expressed confusion 
regarding what quotes are being published and which are being 
suppressed'').
    \16\ See Notice, supra note 3, at 8417.
---------------------------------------------------------------------------

    Further, the Exchange states the proposed rule change would not 
change the amount of capacity needed at OPRA to accommodate the 
inclusion of quotes in dark series because the Exchange already 
includes such quotes in the Exchange's current capacity planning 
requests to OPRA.\17\ According to the Exchange, the proposal would not 
impact market participants or downstream users that consume Exchange or 
OPRA data because the quote capacity information OPRA currently 
publishes already reflects quotes in dark series because they are part 
of the Exchange's current capacity request.\18\ Thus, according to the 
Exchange, market participants (including data vendors and subscribers) 
currently have the opportunity to prepare for and make necessary 
accommodations for anticipated quote traffic (including quotes in dark 
series).\19\ Further, the Exchange anticipates that the proposed 
increase in quote message traffic due to the dissemination of quotes in 
inactive series is likely to be minimal and therefore unlikely to 
impact the flow of message traffic and/or harm downstream consumers of 
OPRA data.\20\ In support of this assertion, the Exchange states that 
on the two trading days that OPRA processed the most messages in its 
history (March 4, 2021 and March 5, 2021), quotes in dark series from 
NYSE Arca and NYSE American combined were only 0.5095% and 0.2562%, 
respectively, compared to OPRA message traffic.\21\ Finally, the 
Exchange states its additional existing quote mitigation strategies are 
sufficient to continue to mitigate quote traffic.\22\
---------------------------------------------------------------------------

    \17\ See Notice, supra note 3, at 8416-17. The Exchange 
represents that it has always factored the total quote traffic it 
receives from Market Makers, including quotes in dark series, when 
making its capacity requests to OPRA. Specifically, the Exchange 
``presumes that all series will be active and therefore requests 
capacity to accommodate sending quotes in all series to OPRA.'' Id. 
at 8416.
    \18\ See Notice, supra note 3, at 8417.
    \19\ See id.
    \20\ See id. at 8418. See also Amendment No.1, supra note 6.
    \21\ See Amendment No.1, supra note 6.
    \22\ See Notice, supra note 3, at 8417-18 (discussing three 
quote mitigation strategies the exchange currently employs to reduce 
the potential for excessive quoting and to reduce quote traffic).
---------------------------------------------------------------------------

    The Commission believes that eliminating the exclusion of inactive 
or dark series from the requirements of NYSE Arca Rule 6.86-O should 
increase transparency and may enhance opportunities for price 
discovery. Publishing all quotes (not just those in active series) in 
the disseminated quote feed may benefit market participants because it 
will provide notice of additional liquidity. Further, because the 
Exchange currently includes Market Maker quotes in inactive series in 
its capacity planning request to OPRA \23\ and because publication of 
dark quotes from both the Exchange and NYSE American combined would 
result in a percentage increase in OPRA disseminated quotes that is de 
minimis

[[Page 25915]]

according to the Exchange's data,\24\ the Commission believes that 
dissemination of these quotes as part of the Exchange's quote feed to 
OPRA is not likely to negatively impact systems capacity. In addition, 
the Exchange has existing additional quote mitigation strategies that 
also serve to reduce the potential for excessive quoting.\25\
---------------------------------------------------------------------------

    \23\ See id. at 8418.
    \24\ See Amendment No.1, supra note 6. In addition, the Exchange 
states that there is sufficient capacity at OPRA to accommodate any 
additional quote traffic that will result from the elimination of 
dark series. See Notice, supra note 3, at 8416-17. The Exchange 
further notes that it does not believe its proposal will impact any 
other exchange's capacity at OPRA. See id. at 8416 n.9.
    \25\ See Notice, supra note 3, at 8416-17.
---------------------------------------------------------------------------

    Accordingly, for the reasons set forth above, the Commission finds 
that the proposed rule change, as modified by Amendment No.1, is 
consistent with Section 6(b)(5) of the Act \26\ and the rules and 
regulations thereunder applicable to a national securities exchange.
---------------------------------------------------------------------------

    \26\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\27\ that the proposed rule change (SR-NYSEArca-2021-09), as 
modified by Amendment No. 1, hereby is approved.
---------------------------------------------------------------------------

    \27\ 15 U.S.C. 78s(b)(2).
    \28\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\28\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-09888 Filed 5-10-21; 8:45 am]
BILLING CODE 8011-01-P


