[Federal Register Volume 86, Number 151 (Tuesday, August 10, 2021)]
[Notices]
[Pages 43704-43717]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-16967]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-92563; File No. SR-NYSEARCA-2021-68]


Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
of Proposed Rule Change New Rule 6.91P-O

August 4, 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 July 23, 2021, 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. 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 new Rule 6.91P-O (Electronic Complex Order 
Trading) to reflect the implementation of the Exchange's Pillar trading 
technology on its options market and to make conforming amendments to 
Rule 6.47A-O (Order Exposure Requirements--OX). 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 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.

[[Page 43705]]

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

1. Purpose
Background
    The Exchange plans to transition its options trading platform to 
its Pillar technology platform. The Exchange's and its national 
securities exchange affiliates' \4\ (together with the Exchange, the 
``NYSE Exchanges'') cash equity markets are currently operating on 
Pillar. For this transition, the Exchange proposes to use the same 
Pillar technology already in operation for its cash equity market. In 
doing so, the Exchange will be able to offer not only common 
specifications for connecting to both of its cash equity and equity 
options markets, but also common trading functions. The Exchange plans 
to roll out the new technology platform over a period of time based on 
a range of symbols, anticipated for the fourth quarter of 2021.
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    \4\ The Exchange's national securities exchange affiliates are 
the New York Stock Exchange LLC (``NYSE''), NYSE American LLC 
(``NYSE American''), NYSE National, Inc. (``NYSE National''), and 
NYSE Chicago, Inc. (``NYSE Chicago'').
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    In this regard, the Exchange recently filed a proposal to add new 
rules to reflect how options, particularly single-leg options, would 
trade on the Exchange once Pillar is implemented.\5\ The current 
proposal sets forth how Electronic Complex Orders \6\ would trade on 
the Exchange once Pillar is implemented. As noted in the Single-Leg 
Pillar Filing, as the Exchange transitions to Pillar, certain rules 
would continue to be applicable to symbols trading on the current 
trading platform, but would not be applicable to symbols that have 
transitioned to trading on Pillar.\7\ Consistent with the Single-Leg 
Pillar Filing, proposed Rule 6.91P-O would have the same number as the 
current Electronic Complex Order Trading rule, but with the modifier 
``P'' appended to the rule number. Current Rule 6.91-O, governing 
Electronic Complex Order Trading, would remain unchanged and continue 
to apply to any trading in symbols on the current system. Proposed Rule 
6.91P-O would govern Electronic Complex Orders for trading in options 
symbols migrated to the Pillar platform.
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    \5\ See Securities Exchange Act Release No. 92304 (June 30, 
2021), 86 FR 36440 (July 9, 2021) (SR-NYSEArca-2021-047) (``Single-
Leg Pillar Filing'').
    \6\ The term ``Electronic Complex Order'' is currently defined 
in the preamble to Rule 6.91-O to mean any Complex Order, as defined 
in Rule 6.62-O(e) or any Stock/Option Order or Stock/Complex Order 
as defined in Rule 6.62-O(h) that is entered into the NYSE Arca 
System (the ``System'').
    \7\ See Single-Leg Pillar Filing (providing that, once a symbol 
is trading on the Pillar trading platform, a rule with the same 
number as a rule with a ``P'' modifier would no longer be operative 
for that symbol and the Exchange would announce by Trader Update 
when symbols are trading on the Pillar trading platform).
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    Similar to the Single-Leg Pillar Filing, proposed Rule 6.91P-O 
would (1) use Pillar terminology that is based on Exchange Rule 7-E 
Pillar terminology governing cash equity trading; and (2) introduce new 
functionality for Electronic Complex Order trading.
    Finally, as discussed in the Single-Leg Pillar Filing, the Exchange 
will announce by Trader Update when symbols are trading on the Pillar 
trading platform. The Exchange intends to transition Electronic Complex 
Order trading on Pillar at the same time that single-leg trading is 
transitioned to Pillar.
Proposed Rule 6.91P-O: Electronic Complex Order Trading
    Current Rule 6.91-O (Electronic Complex Order Trading) specifies 
how the Exchange processes Electronic Complex Orders submitted to the 
Exchange. The Exchange proposes new Rule 6.91P-O to establish how such 
orders would be processed after the transition to Pillar. To promote 
clarity and transparency, the Exchange proposes to add a preamble to 
current Rule 6.91-O specifying that it would not be applicable to 
trading on Pillar.
    As discussed in greater detail below, the Exchange is not proposing 
fundamentally different functionality regarding how Electronic Complex 
Orders would trade on Pillar than is currently available on the 
Exchange. However, with Pillar, the Exchange would introduce certain 
new or updated functionality available for options trading on the 
Pillar platform and use Pillar terminology.
    Definitions. Proposed Rule 6.91P-O(a) would set forth the 
definitions applicable to trading on Pillar under the new rule.
     Proposed Rule 6.91P-O(a)(1) would define the term 
``Electronic Complex Order'' or ``ECO'' to mean a Complex Order as 
defined in proposed Rule 6.62P-O(f) or a Stock/Option Order or Stock/
Complex Order as defined in proposed Rule 6.62P-O(h)(6)(A), (B), 
respectively, that would be submitted electronically to the 
Exchange.\8\ This proposed definition is based on the preamble to Rule 
6.91-O without any substantive differences, except that reference to 
the ``NYSE Arca System'' would be replaced with the term ``Exchange'' 
and cross-references have been updated to reflect rules proposed in the 
Single-Leg Pillar Filing.
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    \8\ The proposed definitions of Complex Order, Stock/Option 
Order and Stock/Complex Order under Pillar are set forth in proposed 
Rules 6.62P-O(f), (h)(6)(A), and (h)(6)(B), as described in the 
Single-Leg Pillar Filing, and are substantially identical to the 
current definitions.
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     Proposed Rule 6.91P-O(a)(2) would define the term ``ECO 
Order Instruction'' to mean a request to cancel, cancel and replace, or 
modify an ECO. As described further below, this concept relates to 
order processing when a series opens or reopens for trading and is 
based on the term ``order instruction'' as used in Rule 7.35-E(g) and 
proposed to be used in Rules 6.64P-O(e) and (f), which (similarly) 
would define an ``order instruction'' for options as a request to 
cancel, cancel and replace, or modify an order or quote.\9\
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    \9\ See Single-Leg Pillar Filing (describing proposed opening 
Auction Process rule per Rule 6.64P-O).
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     Proposed Rule 6.91P-O(a)(3) would define the term ``leg'' 
or ``leg market'' to mean each of the component option series that 
comprise an ECO. This definition is consistent with the concept of leg 
markets as used in current Rule 6.91-O(a), which defines legs as 
individual orders and quotes in the Consolidated Book. The Exchange 
believes the proposed definition would add clarity regarding how the 
terms ``leg'' and ``leg market'' would be used in connection with ECO 
trading on Pillar.
     Proposed Rule 6.91P-O(a)(4) would define the term 
``Complex NBBO'' to mean the derived national best bid and derived 
national best offer for a complex strategy calculated using the NBB and 
NBO for each component leg of a complex strategy. This definition is 
based on current Rule 6.1A-O(a)(2)(b), without any substantive 
differences.
     Proposed Rule 6.91P-O(a)(5) would define the term 
``Complex strategy'' to mean a particular combination of leg components 
and their ratios to one another. The proposed definition would further 
provide that new complex strategies can be created when the Exchange 
receives either a request to create a new complex strategy or an ECO 
with a new complex strategy. This proposed definition is new and is 
consistent with how this concept is defined on other options exchanges 
and would promote clarity and transparency.\10\
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    \10\ See, e.g., Cboe Exchange Inc. (``Cboe'') Rule 5.33(a) 
(defining ``complex strategy'' as ``a particular combination of 
components and their ratios to one another'' and further providing 
that ``[n]ew complex strategies can be created as the result of the 
receipt of a complex instrument creation request or complex order 
for a complex strategy that is not currently in the System''); MIAX 
Options Exchange (``MIAX'') Rule 518(a)(6) (same).

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[[Page 43706]]

     Proposed Rule 6.91P-O(a)(6) would define the term ``DBBO'' 
to address situations where it is necessary to derive a (theoretical) 
bid or offer for a particular complex strategy. As proposed, ``DBBO'' 
would mean the derived best bid (``DBB'') and derived best offer 
(``DBO'') for a complex strategy calculated using the Exchange BBO \11\ 
for each leg (or the Away Market NBBO \12\ for a leg if there is no 
Exchange BBO), provided that the bid (offer) price used to calculate 
the DBBO would never be lower (higher) than the greater of $0.05 or 5% 
below (above) the Away Market NBB (NBO). The proposed definition would 
also provide that the DBBO would be updated as the Exchange's 
calculation of the Exchange BBO or Away Market NBBO, as applicable, is 
likewise updated.
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    \11\ The term BBO when used with respect to options traded on 
the Exchange would mean ``the best displayed bid or best displayed 
offer on the Exchange.'' See Single-Leg Pillar Filing (defining BBO 
in proposed Rule 1.1, which definition is substantially identical to 
the current definition of BBO in Rule 6.1A-O(a)(2)(a)).
    \12\ In the Single-Leg Pillar Filing, the Exchange proposes that 
the (new) term ``Away Market NBBO'' would refer to a calculation of 
the NBBO that excludes the Exchange's BBO. See Single-Leg Pillar 
Filing (defining Away Market NBBO in proposed Rule 1.1).
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    Proposed Rule 6.91P-O(a)(6)(A) would provide further detail about 
how the DBBO would be derived in the absence of an Exchange BB (BO) or 
Away Market NBB (NBO) for a given leg. As proposed, in such 
circumstances, the bid (offer) price used to calculate the DBBO would 
be the offer (bid) price for that leg minus (plus) ``one collar 
value,'' which would be (i) $0.25 where the best offer (bid) is priced 
$1.00 or lower; or (ii) the lower of $2.50 or 25% where the best offer 
(bid) is priced above $1.00, provided however that, per proposed Rule 
6.91P-O(a)(6)(A)(i), if the best offer is equal to or less than one 
collar value, the best bid price used to calculate the DBBO for that 
leg would be $0.01.
    This proposed definition is new and is based, in part, on the 
current definition of Complex BBO set forth in Rule 6.1A-O(a)(2)(b), as 
well as on how this concept is defined on other options exchanges, 
including on NYSE American.\13\ The Exchange believes that the 
additional detail about how the DBBO would be calculated in the absence 
of an Exchange BBO and/or Away Market NBBO would promote clarity and 
transparency. In addition, the Exchange believes that it is appropriate 
to require that the DBBO be calculated within a certain amount of the 
Away Market NBBO as an additional protection against ECOs being 
executed on the Exchange at prices away from the current market.
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    \13\ See, e.g., NYSE American Rule 900.2NY(7)(b) (providing that 
the Derived BBO ``is calculated using the BBO from the Consolidated 
Book for each of the options series comprising a given complex order 
strategy''); Cboe Rule 5.33(a) (defining ``Synthetic Bed Bid or 
Offer and SBBO'' for complex orders as ``the best bid and offer on 
the Exchange for a complex strategy calculated using'' the ``BBO for 
each component (or the NBBO for a component if the BBO for that 
component is not available) of a complex strategy from the Simple 
Book'').
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    Proposed Rule 6.91P-O(a)(7) would define ``Complex Order Auction'' 
or ``COA'' to mean an auction of an ECO as set forth in proposed Rule 
6.91P-O(f) (discussed below). This definition is based on the title of 
paragraph (c) of current Rule 6.91-O, which sets forth the COA Process 
for ECOs without any substantive differences. Proposed Rule 6.91P-
O(a)(7) would also state that the terms defined in paragraphs 
(a)(7)(A)-(D) would be used for purposes of a COA.
    Proposed Rule 6.91P-O(a)(7)(A) would define a ``COA Order'' to mean 
an ECO that is designated by the OTP Holder as eligible to initiate a 
COA. This definition is based on the definition of a ``COA-eligible 
order'' as set forth in current Rule 6.91-O(c)(1) and (c)(1)(i), with a 
difference that the proposed definition would not require that an 
option class be designated as COA-eligible because all option classes 
that trade on Pillar would be COA-eligible.
    Proposed Rule 6.91P-O(a)(7)(B) would define the term ``Request for 
Response'' or ``RFR'' to refer to the message disseminated to the 
Exchange's proprietary complex data feed announcing that the Exchange 
has received a COA Order and that a COA has begun. As further proposed, 
the definition would provide that each RFR message would identify the 
component series, the price, and the size and side of the market of the 
COA Order. This definition is based on the description of RFR in Rule 
6.91-O(c)(3) without any substantive differences. The Exchange proposes 
a clarifying difference to make clear that RFR messages would be sent 
over the Exchange's proprietary complex data feed, which is based on 
current functionality.
    Proposed Rule 6.91P-O(a)(7)(C) would define the term ``RFR 
Response'' to mean any ECO received during the Response Time Interval 
(defined below) that is in the same complex strategy, on the opposite 
side of the market of the COA Order that initiated the COA, and 
marketable against the COA Order.\14\ This definition is based in part 
on the description of RFR Responses in Rule 6.91-O(c)(5). However, 
unlike the current definition, an RFR Response would not have a time-
in-force contingency for the duration of the COA. Instead, the Exchange 
would consider any ECOs received during the Response Time Interval 
(defined below) that are marketable against the COA Order as an RFR 
Response. As described below, the Exchange proposes to define 
separately the term ``ECO GTX Order,'' which would be more akin to the 
current definition of RFR Response. In addition, the proposed 
definition omits the current rule description that an RFR Response may 
be entered in $0.01 increments or that such responses may be modified 
or cancelled because these features are applicable to all ECOs and 
therefore not necessary to separately state in connection with RFR 
Responses.
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    \14\ The term ``marketable'' is defined in proposed Rule 1.1 of 
the Single-Leg Pillar Filing.
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    Proposed Rule 6.91P-O(a)(7)(D) would define the term ``Response 
Time Interval'' to mean the period of time during which RFR Responses 
for a COA may be entered and would provide that the Exchange would 
determine and announce by Trader Update the length of the Response Time 
Interval; provided, however, that the duration of the Response Time 
Interval would not be less than 100 milliseconds and would not exceed 
one (1) second. This definition is based in part on the description of 
Response Time Interval in Rule 6.91-O(c)(4), with a difference that the 
Exchange proposes to reduce the minimum time from 500 milliseconds to 
100 milliseconds. While other option exchanges do not establish a 
minimum duration for a COA, the Exchange notes that the proposed 100 
milliseconds minimum is consistent the minimum auction length for 
electronic-paired auctions on NYSE American.\15\
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    \15\ See e.g., Cboe Rule 5.33(d)(3) (providing that Cboe 
``determines the duration of the Response Time Interval on a class-
by-class basis, which may not exceed 3000 milliseconds''); NYSE 
American Rule 971.1NY(c)(2)(B) (providing that for a Customer Best 
Execution Auction ``[t]he minimum/maximum parameters for the 
Response Time Interval will be no less than 100 milliseconds and no 
more than one (1) second'').
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    Types of ECOs. Proposed Rule 6.91P-O(b) would set forth the types 
of ECOs that would trade on Pillar. Proposed Rule 6.91P-O(b)(1) would 
provide that ECOs may be entered as Limit Orders or Limit Orders 
designated as Complex Only Orders. This proposed text is based on 
current Rule 6.91-O(b)(1), with a difference to provide that the 
Exchange would offer Complex Only Orders on Pillar. Complex Only Orders

[[Page 43707]]

(as described below) are based in part on existing functionality for 
PNP Plus orders, which likewise may trade only with other Electronic 
Complex Orders, with updated functionality available on Pillar.\16\ The 
Exchange proposes to rename this order type in a manner consistent with 
similar order types available on other options exchanges and therefore 
this proposed order type is not new or novel.\17\
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    \16\ See Rule 6.62-O(y) (describing PNP Plus orders as ECOs that 
may only trade with other ECOs, but which will continuously be 
repriced if locking or crossing the Complex BBO).
    \17\ Other options exchanges likewise offer Complex Orders that 
trade only with Complex Orders. See, e.g., Cboe Rule 5.33(a) 
(defining ``Complex Only'' order as an ECO ``designate[ ] to execute 
only against complex orders in the COB and not Leg into the Simple 
Book'').
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     Proposed Rule 6.91P-O(b)(1)(A) would set forth the details 
of a Complex Only Order. As proposed, an ECO designated as a Complex 
Only Order would trade solely with ECOs and would not trade with the 
leg markets; provided that, if there is displayed Customer interest on 
all legs of the Complex Only Order, such order would not trade below 
(above) one penny ($0.01) times the smallest leg ratio inside the DBB 
(DBO) containing Customer interest, which requirement ensures that a 
Complex Only Order would price improve at least a portion of the 
displayed leg markets. In such case, a Complex Only Order would remain 
on the Consolidated Book until it can trade with another ECO at this 
improved price. As noted above, the Complex Only Order type is based in 
part on existing PNP Plus order functionality, with updated 
functionality based on Pillar. Specifically, the Exchange would no 
longer reprice a resting Complex Only Order and instead would restrict 
it from trading until it can trade at a price at or inside the DBBO, as 
described below.
     Proposed Rule 6.91P-O(b)(2) would set forth the time-in-
force contingencies available to ECOs, which would be Day, IOC, FOK, or 
GTC, as those terms are defined in the Single-Leg Pillar Filing in 
proposed Rule 6.62P-O(b), and GTX (per proposed Rule 6.91P-O(b)(2)(B) 
as described below). The proposed text is based on current Rules 6.91-
O(b)(2) and (3), except that it adds GTX (as described below). The 
proposed text also omits AON because the Exchange would not offer AONs 
for ECO trading on Pillar.
     Proposed Rule 6.91P-O(b)(2)(A) would provide that an ECO 
designated as IOC or FOK would be rejected if entered during a pre-open 
state,\18\ which is consistent with the time-in-force of the order 
(because they could not be traded when a complex strategy is not open 
for trading) as well as with current functionality.
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    \18\ The term ``pre-open state'' is defined in proposed Rule 
6.64P-O(a)(10), as described in the Single-Leg Pillar Filing, to 
mean ``the period before a series is opened or reopened.''
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     Proposed Rule 6.91P-O(b)(2)(B) would provide that an ECO 
designated as GTX would be defined as an ``ECO GTX Order'' and would 
have the following features: It would not be displayed; it may be 
entered only during the Response Time Interval of a COA; it must be on 
the opposite side of the market as the COA Order; and it must specify 
the price, size, and side of the market. As further proposed, ECO GTX 
Orders may be modified or cancelled during the Response Time Interval 
and any remaining size that does not trade with the COA Order would be 
cancelled at the end of the COA. This definition is based on the 
description of an RFR Response in current Rule 6.91-O(c)(5)(A)--(C), 
which likewise are not displayed and expire at the end of the COA.
    Priority and Pricing of ECOs. Proposed Rule 6.91P-O(c) would set 
forth how ECOs would be prioritized and priced under Pillar. As 
proposed, an ECO received by the Exchange that is not immediately 
executed (or cancelled) would be ranked in the Consolidated Book 
according to price-time priority based on the total net price and the 
time of entry of the order. This proposed rule is based on Rule 6.91-
O(a)(1), without any substantive differences. The Exchange proposes a 
non-substantive difference to refer simply to a ``net price'' rather 
than a ``net debit or credit price,'' which streamlined terminology is 
consistent with the use of the term ``net price'' on other options 
exchanges.\19\
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    \19\ See, e.g., Cboe Rule 5.33(f)(2) (setting forth parameters 
for the ``net price'' of complex orders traded on Cboe); Nasdaq ISE, 
LLC (``Nasdaq ISE''), Options 3, Section 14(c) (providing, in 
relevant part, that ``[c]omplex strategies will not be executed at 
prices inferior to the best net price achievable from the best ISE 
bids and offers for the individual legs'').
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    Proposed Rule 6.91P-O(c) would further provide that, unless 
otherwise specified in this Rule, ECOs would be processed as follows:
     Proposed Rule 6.91P-O(c)(1) would provide that when 
trading with the leg markets:
    [cir] An ECO must trade at or within the greater of $0.05 or 5% 
higher (lower) than the Away Market NBO (NBB) (see proposed Rule 6.91P-
O(c)(1)(A)). This would be new under Pillar and operate as an 
additional protection against ECOs being executed on the Exchange at 
prices away from the current market.
    [cir] An ECO would trade at the prices of the leg markets (see 
proposed Rule 6.91P-O(c)(1)(B)). This proposed rule would make clear 
that when trading with the leg markets, the components of the ECO would 
trade at the prices of the leg markets, which is consistent with 
current functionality. For example, if there is sell interest in a leg 
market at $1.00, and a leg of an ECO to buy could trade up to $1.05, 
the ECO would trade with such leg market at $1.00. This would result in 
the ECO receiving price improvement and is consistent with the ECO 
trading as the aggressing order.
     Proposed Rule 6.91P-O(c)(2) would provide that when 
trading with another ECO, an ECO must trade at a price at or within the 
DBBO and no leg of an ECO may trade at a price of zero. This provision 
is based in part on current Rule 6.91-O(a)(2), which provides that no 
leg of an ECO will be executed outside of the Exchange BBO, and adds 
detail about other limitations on executions based on the DBBO. This 
proposed rule, which ensures that ECOs would never trade through 
interest in the leg markets, is consistent with current functionality 
and adds clarity and transparency to the proposed Rule. This proposed 
rule is also consistent with how ECOs are processed on other options 
exchanges.\20\
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    \20\ See, e.g., Cboe Rule 5.33(f)(2) (setting forth 
substantially identical execution parameters for complex orders 
executed on Cboe, including that complex orders may not execute at a 
net price that would cause any component of the complex strategy to 
be executed at a price of zero, or worse than or equal to the Cboe 
SBBO when there is a Priority Customer at the SBBO, or would cause 
any component of the complex strategy to be executed at a price 
worse than the individual component prices on the Simple Book).
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     Proposed Rule 6.91P-O(c)(3) would provide that an ECO may 
trade without consideration of prices of the same complex strategy 
available on other exchanges, which is based on the same text as 
contained in current Rule 6.91-O(a)(2) without any substantive 
differences.
     Proposed Rule 6.91P-O(c)(4) would provide that an ECO may 
trade in one cent ($0.01) increments regardless of the MPV otherwise 
applicable to any leg of the complex strategy, which is based on 
current Rule 6.91-O, Commentary .01 without any substantive 
differences.
    Execution of ECOs at the Open (or Reopening after a Trading Halt). 
Current Rule 6.91-O(a)(2)(i) sets forth how ECOs are executed upon 
opening or reopening of trading. Proposed Rule 6.91P-O(d) would set 
forth details about how ECOs would be executed at the open or reopen 
following a trading halt.
    With the transition to Pillar, the Exchange proposes new 
functionality

[[Page 43708]]

regarding the ``ECO Opening Auction Process'' on the Exchange, which 
would be applicable both to openings and reopenings following a trading 
halt. The Exchange proposes to incorporate into the ECO Opening Auction 
Process certain functionality currently available on the Exchange's 
cash equity platform, which the Exchange has similarly proposed to 
include in the Auction Process for single-leg options.\21\ Accordingly, 
proposed Rule 6.91P-O(d) would use Pillar terminology relating to 
auctions that is based in part on Pillar terminology set forth in Rule 
7.35-E for cash equity trading and in part on proposed Rule 6.64P-O for 
single-leg options.
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    \21\ See Single-Leg Pillar Filing (describing proposed opening 
Auction Process rule per Rule 6.64P-O).
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     Proposed Rule 6.91P-O(d)(1) would set forth the conditions 
required for the commencement of an ECO Opening Auction Process. 
Specifically, as proposed, the Exchange would initiate an ECO Opening 
Auction Process for a complex strategy only if all legs of the complex 
strategy have opened or reopened for trading, which text is based on 
current Rule 6.91-O(a)(2)(i)(A) without any substantive differences. 
Proposed Rule 6.91P-O(d)(1)(A)-(C) would set forth conditions that 
would prevent the opening of a complex strategy, as follows:
    [cir] Any leg of the complex strategy has no BO or NBO;
    [cir] The bid and offer prices used to calculate the DBBO for the 
complex strategy are locking or crossing; or
    [cir] All legs of the complex strategy include displayed Customer 
interest and the width of the DBBO is less than or equal to one penny 
($0.01) times the smallest leg ratio.
    The proposal to detail these conditions for opening are consistent 
with current functionality. The Exchange believes that this added 
detail would add clarity and transparency to Exchange rules and would 
promote a fair and orderly ECO Opening Auction Process.
     Proposed Rule 6.91P-O(d)(2) would provide that any ECOs in 
a complex strategy with prices that lock or cross one another would be 
eligible to trade in the ECO Opening Auction Process. This proposed 
rule is based on current Rule 6.91-O(a)(2)(i)(B), which provides than 
an opening process will be used if there are ECOs that ``are marketable 
against each other.'' The Exchange proposes a difference in Pillar not 
to require that such ECOs be ``priced within the Complex NBBO'' because 
the proposed ECO Opening Auction Process under Pillar would instead 
rely on the DBBO (as described below).
    Proposed Rule 6.91P-O(d)(2)(A) would provide that an ECO received 
during a pre-open state would not participate in the Auction Process 
for the leg markets pursuant to proposed Rule 6.64P-O, which is based 
on the same text (in the second sentence) of current Rule 6.91-
O(a)(2)(i)(A) without any substantive differences.
    Proposed Rule 6.91P-O(d)(2)(B) would provide that a complex 
strategy created intra-day when all leg markets are open would not be 
subject to an ECO Opening Auction Process and would instead trade 
pursuant to paragraph (e) of the proposed Rule (discussed below) 
regarding the handling of ECOs during Core Trading Hours.
    Proposed Rule 6.91P-O(d)(2)(C) would provide that the ECO Opening 
Auction Process would be used to reopen trading in ECOs after a trading 
halt. This proposed rule is based in part on current Rule 6.64-O(d) and 
makes clear that the ECO Opening Auction Process would be applicable to 
reopenings.
     Proposed Rule 6.91P-O(d)(3) would describe each aspect of 
the ECO Opening Auction Process. First, proposed Rule 6.91P-O(d)(3)(A) 
would describe the ``ECO Auction Collars,'' which terminology would be 
new for ECO trading and is based on the term ``Auction Collars'' used 
in Rule 7.35-E for trading cash equity securities as well as in 
proposed Rule 6.64P-O(a)(2) for single-leg options trading.\22\
---------------------------------------------------------------------------

    \22\ See Single-Leg Pillar Filing (defining Auction Collars in 
proposed Rule 6.64P-O(a)(2)).
---------------------------------------------------------------------------

    As proposed, the upper (lower) price of an ECO Auction Collar for a 
complex strategy would be the DBO (DBB); provided, however, that if 
there is displayed Customer interest on all legs of a complex strategy, 
the upper (lower) price of an ECO Auction Collar would be one penny 
($0.01) times the smallest leg ratio inside the DBO (DBB) containing 
Customer interest. This new functionality on Pillar would ensure that 
ECOs trade within the DBBO and thus avoid trading through displayed 
Customer interest in the leg markets, which the Exchange believes is 
consistent with fair and orderly markets and investor protection.
     Next, proposed Rule 6.91P-O(d)(3)(B) would describe the 
``ECO Auction Price.'' As proposed, the ECO Auction Price would be the 
price at which the maximum volume of ECOs can be traded in an ECO 
Opening Auction, subject to the proposed ECO Auction Collar. As further 
proposed, if there is more than one price at which the maximum volume 
of ECOs can be traded within the ECO Auction Collar, the ECO Auction 
Price would be the price closest to the midpoint of the ECO Auction 
Collar, or, if the midpoint falls within such prices, the ECO Auction 
Price would be the midpoint, provided that the ECO Auction Price would 
not be lower (higher) than the highest (lowest) price of an ECO to buy 
(sell) that is eligible to trade in the ECO Opening Auction Process. 
The concept of an ECO Auction Price is based in part on the concept of 
``single market clearing price'' set forth in current Rule 6.91-
O(a)(2)(i)(B). For Pillar, the Exchange proposes to determine the ECO 
Auction Price in a manner that is based in part on how an Indicative 
Match Price is determined for trading of cash equity securities, as set 
forth in on Rule 7.35-E(a)(8)(A), and how the Exchange proposes to 
determine the price for Auctions on Pillar for single-leg options 
trading.\23\
---------------------------------------------------------------------------

    \23\ See Single-Leg Pillar Filing (describing proposed Rule 
6.64P-O(a)(7)).
---------------------------------------------------------------------------

    Finally, as proposed, if the ECO Auction Price would be a sub-penny 
price, it would be rounded to the nearest whole penny, which text is 
based on current Rule 6.91-O(a)(2)(i)(B), with a difference that the 
current rule refers to the midpoint of the Complex NBBO (which could be 
a sub-penny price) as opposed to referring to the ECO Auction Price, 
which would be a new Pillar term for trading ECOs.
    Proposed Rule 6.91P-O(d)(3)(B)(i) would provide that an ECO to buy 
(sell) with a limit price at or above (below) the upper (lower) ECO 
Auction Collar would be included in the ECO Auction Price calculation 
at the price of the upper (lower) ECO Auction Collar, but ranked for 
participation in the ECO Opening (or Reopening) Auction Process in 
price-time priority based on its limit price. This proposed text is 
based in part on current Rule 6.91-O(a)(2)(i)(B). The proposed rule is 
also based on how the Exchange processes auctions for cash equity 
trading, as described in Rules 7.35-E(a)(10)(B) and (a)(6) and how the 
Exchange proposes to process Auctions on Pillar for single-leg options 
trading.\24\
---------------------------------------------------------------------------

    \24\ See Single-Leg Pillar Filing (describing proposed Rules 
6.64P-O(a)(7)(B)(i) and 6.64P-O(b)).
---------------------------------------------------------------------------

    Proposed Rule 6.91P-O(d)(3)(B)(ii) would provide that locking and 
crossing ECOs in a complex strategy would trade at the ECO Auction 
Price. As further proposed, if there are no locking or crossing ECOs in 
a complex strategy at or within the ECO Auction Collars, the Exchange 
would open the complex strategy without a trade. This proposed

[[Page 43709]]

text would be new and is based in part on proposed Rule 6.64P-
O(d)(2)(B) for single-leg options, which describes when an option 
series could open without a trade.\25\
---------------------------------------------------------------------------

    \25\ See Single-Leg Pillar Filing (describing proposed Rule 
6.64P-O(d)(2)(B).
---------------------------------------------------------------------------

     Proposed Rule 6.91P-O(d)(4) would describe the ``ECO Order 
Processing during ECO Opening Auction Process.'' Because the Exchange 
would be using the same Pillar auction functionality for ECO trading 
that is used for its cash equity market and that the Exchange is 
proposing for single-leg options trading, the Exchange proposes to 
apply existing Pillar auction functionality regarding how to process 
ECOs that may be received during the period when an ECO Auction Process 
is ongoing.
    Accordingly, as proposed, new ECOs and ECO Order Instructions (as 
defined in proposed Rule 6.91P-O(a)(2), described above) that are 
received when the Exchange is conducting the ECO Opening Auction 
Process for the complex strategy would be accepted but would not be 
processed until after the conclusion of this process. As further 
proposed, when the Exchange is conducting the ECO Opening Auction 
Process, ECO Order Instructions would be processed as follows:
    [cir] Proposed Rule 6.91P-O(d)(4)(A) would provide that an ECO 
Order Instruction received during the ECO Opening Auction Process would 
not be processed until after this process concludes if it relates to an 
ECO that was received before the process begins and that any subsequent 
ECO Order Instructions relating to such ECO would be rejected.
    [cir] Proposed Rule 6.91P-O(d)(4)(B) would provide that an ECO 
Order Instruction received during the ECO Opening Auction Process would 
be processed on arrival if it relates to an order that was received 
during this process.
    Proposed Rule 6.91P-O(d)(4) and sub-paragraphs (A) and (B) are 
based on both current Rule 7.35-E(g) and its sub-paragraphs (1) and (2) 
and proposed Rule 6.64P-O(e) and its sub-paragraphs (1) and (2) (as 
described in the Single-Leg Pillar Filing) with differences only to 
reference the proposed defined term ECO Order Instruction and to refer 
to the ECO Opening Auction Process. The Exchange believes that the 
proposed rule text would provide transparency regarding how ECO Order 
Instructions that arrived during the ECO Opening Auction Process would 
be processed.
    Proposed Rule 6.91P-O(d)(5) would describe the ``Transition to 
continuous trading'' after the ECO Opening Auction Process. As 
proposed, after the ECO Opening Auction, ECOs would be subject to ECO 
Price Protection, per proposed Rule 6.91P-O(g)(2) (as described below) 
and, if eligible to trade, would trade as follows:
    [cir] Proposed Rule 6.91P-O(d)(5)(A) would provide that an ECO 
received before the complex strategy was opened that did not trade in 
whole in the ECO Opening Auction Process and that is locking or 
crossing other ECOs or leg markets in the Consolidated Book would trade 
pursuant to proposed Rule 6.91P-O(e) (discussed below) regarding the 
handling of ECOs during Core Trading Hours. This provision is based on 
the (last sentence) of current Rule 6.91-O(a)(2)(i)(B) and (C), with 
non-substantive differences to use Pillar terminology.
    [cir] Proposed Rule 6.91P-O(d)(5)(B) would provide that any ECO 
received during the ECO Opening Auction Process would be processed in 
time sequence relative to one another based on original entry time. 
This proposed rule is based on both current functionality and how the 
Exchange proposes to process orders in an option series that were 
received during an Auction Processing Period, as described in the 
Single-Leg Pillar Filing for proposed Rule 6.64P-O(a)(5).
    Execution of ECOs During Core Trading Hours. Proposed Rule 6.91P-
O(e) would describe how ECOs would be processed during Core Trading 
Hours.
    Proposed Rule 6.91P-O(e)(1) would provide that once a complex 
strategy is open for trading, an ECO received by the Exchange would 
trade with the best-priced contra-side interest as follows:
     Proposed Rule 6.91P-O(e)(1)(A) would provide that if, at a 
price, the incoming ECO would be eligible to trade with the leg markets 
(e.g., not a Complex Only Order), the leg markets would have first 
priority at that price and would trade with the incoming ECO pursuant 
to proposed Rule 6.76AP-O before such incoming ECO would trade with 
contra-side ECOs resting in the Consolidated Book at that price. This 
proposed text is based on current Rule 6.91-O(a)(2)(ii) without any 
substantive differences.
     Proposed Rule 6.91P-O(e)(1)(B) would provide that an ECO 
would not trade with orders in the leg markets designated as AON or 
with an MTS modifier. This proposed text would be new and is based in 
part on existing functionality and reflects the Exchange's proposed new 
MTS modifier for orders in the leg markets.\26\ The Exchange believes 
that this proposed rule would add clarity and transparency that ECOs 
would not trade with orders that have conditional instructions.
---------------------------------------------------------------------------

    \26\ See Single-Leg Pillar Filing (describing Minimum Trade Size 
or MTS Modifier in proposed Rule 6.62P-O(i)(3)(B)).
---------------------------------------------------------------------------

     Proposed Rule 6.91P-O(e)(1)(C) would provide that an ECO 
(that is not designated as a Complex Only Order) would be eligible to 
trade with the leg markets (in full or in a permissible ratio), subject 
to certain enumerated exceptions set forth in proposed Rule 6.91P-
O(e)(1)(C)(i)-(iii). Specifically, ECOs with any one of the following 
complex strategies would be ineligible to trade with the leg markets 
and would be processed as a Complex Only Order:
    [cir] A complex strategy with more than five legs;
    [cir] a complex strategy with two legs and both legs are buying or 
both legs are selling, and both legs are calls or both legs are puts; 
or
    [cir] a complex strategy with three or more legs and all legs are 
buying or all legs are selling.
    The proposal to restrict ECOs with more than five legs from trading 
with the leg markets (and being treated as Complex Only Orders), per 
proposed Rule 6.91P-O(e)(1)(C)(i), would be new functionality under 
Pillar and is designed to help Market Makers manage risk. The Exchange 
currently requires Market Makers to utilize certain risk controls for 
quoting to help mitigate risk particularly during periods of market 
volatility, and would require Market Makers to continue to use risk 
controls on Pillar.\27\ Because the execution of a multi-legged ECO is 
a single transaction, comprising discrete legs that must all trade 
simultaneously, allowing ECOs with more than five legs to trade with 
the leg markets may allow a multi-legged transaction to occur before a 
Market Maker's risk settings would be triggered. This proposed 
limitation is designed to prevent such multi-legged transactions, which 
would help ensure that Market Makers continue to provide liquidity and 
do not trade above their established risk tolerance levels. The 
Exchange notes that this restriction is consistent with similar limits

[[Page 43710]]

established on other options exchanges.\28\
---------------------------------------------------------------------------

    \27\ See Single-Leg Pillar Filing (describing the activity-based 
controls with updated functionality under Pillar that Market Makers 
would be required to use to manage risk in connection with their 
quotes, per proposed Rule 6.40P-O(a)(3) and (b)(2)). The proposed 
Pillar risk controls are substantively identical to the existing 
risk controls set forth in Rules 6.40-O(b)(2), (c)(2) and (d)(2) and 
Commentary .04 to Rule 6.40-O.
    \28\ See e.g., Cboe Rule 5.33(g) (providing the ECOs may be 
restricted from trading with the leg markets if such ECO has more 
than a maximum number of legs, which maximum the Exchange determines 
on a class-by-class basis and may be two, three, or four).
---------------------------------------------------------------------------

    Proposed Rule 6.91P-O(e)(1)(C)(ii)-(iii), which treats ECOs with 
certain complex strategies as Complex Only Orders, is based in part on 
current Rule 6.91-O(b)(4)(i)-(ii), with a difference that currently, 
such so-called ``directional strategies'' are rejected. The proposed 
handling under Pillar would be less restrictive than the current rule 
because such strategies would not be rejected and is consistent with 
the treatment of such complex strategies on other options 
exchanges.\29\ As with the proposal to restrict ECOs with more than 
five legs trading with the leg markets, this proposed restriction is 
also designed to ensure that Market Maker risk settings would not be 
bypassed. Because ECOs with directional strategies are typically geared 
towards an aggressive directional capture of volatility, such ECOs can 
represent significantly more risk than trading any one of the legs in 
isolation. As such, because Market Maker risk settings are only 
triggered after the entire ECO package has traded, the Exchange 
believes this proposed rule change would help ensure fair and orderly 
markets by preventing such orders trading with the leg markets, which 
would minimize risk to Market Makers.
---------------------------------------------------------------------------

    \29\ See, e.g., Nasdaq ISE Options 3, Section 14(d)(3)(A)-(B) 
(proving that ECOs with these complex strategies may trade only with 
other ECOs).
---------------------------------------------------------------------------

    Proposed Rule 6.91P-O(e)(2) would provide that any ECO or portion 
thereof that does not trade immediately when it is received by the 
Exchange and that is designated either Day or GTC would be ranked in 
the Consolidated Book pursuant to proposed paragraph (c) of this Rule 
(regarding the priority of ECOs), which is based on current Rule 6.91-
O(a)(2)(iii), except that it adds details regarding the time-in-force 
modifier of the ECO, which adds clarity and transparency to the 
proposed Rule. As further proposed, the Exchange would evaluate trading 
opportunities for a resting ECO when the leg markets comprising a 
complex strategy update, provided that during periods of high message 
volumes, such evaluation may be reduced to no less than ten times per 
one (1) second. The Exchange believes that this proposed rule promotes 
transparency of the frequency with which the Exchange would be 
evaluating the leg markets for updates.
    Proposed Rule 6.91P-O(e)(3) would provide that ECOs that trade with 
the leg markets would be allocated pursuant to Rule 6.76AP-O. This 
proposed rule is based in part on current Rule 6.91-O(a)(2)(iii) 
without any substantive differences.
    Execution of ECOs During a COA. Proposed Rule 6.91P-O(f) would 
describe how ECOs would trade during a COA. The COA Process is 
currently described in Rule 6.91-O(c). Under Pillar, the Exchange 
proposes to simplify the COA process, including by relying on the 
current DBBO for pricing, allowing a COA Order to initiate a COA only 
on arrival, and streamlining the rule text describing the circumstances 
that would cause an early end to a COA.
    As proposed, a COA Order received when a complex strategy is open 
for trading would initiate a COA only on arrival, subject to proposed 
Rule 6.91P-O(f)(1) (described below). As further proposed, a COA Order 
would be rejected if entered during a pre-open state or if entered 
during Core Trading Hours with a time-in-force of FOK or GTX. This 
proposed order handling is based in part on current Rule 6.91-
O(c)(1)(ii), which requires that COA Orders be submitted during Core 
Trading Hours. The proposed rejection of such orders during a pre-open 
state would be new under Pillar and is consistent with the Exchange's 
proposed functionality that a COA Order would initiate a COA only on 
arrival. In addition, the proposal would clarify that COA Orders 
designated as FOK or GTX would be rejected, even if submitted during 
Core Trading Hours, is based on current functionality and this addition 
would add further detail and clarification to the rule text. Finally, 
as further proposed, only one COA may be conducted at a time in a 
complex strategy, which is identical to text in current Rule 6.91-
O(c)(3).
    Proposed Rule 6.91P-O(f)(1) would describe the conditions required 
for the ``Initiation of a COA.'' As proposed, to initiate a COA, the 
limit price of the COA Order to buy (sell) must be higher (lower) than 
the best-priced, same-side ECOs resting on the Consolidated Book and 
equal to or higher (lower) than the midpoint of the DBBO. This proposed 
text is based in part on current Rule 6.91-O(c)(3)(i), with a 
difference to add a new ``midpoint of the DBBO'' requirement, which is 
designed to facilitate price improvement opportunities for the COA 
Order. As further proposed, a COA Order that does not satisfy these 
pricing parameters would not initiate a COA and would be processed as 
an ECO. This would be new under Pillar, as current Rule 6.91-O(c)(3) 
allows an order designated for COA to reside on the Consolidated Book 
unless or until such order meets the requisite pricing conditions to 
initiate a COA. The Exchange believes this proposed change would 
simplify the COA process.
    Finally, as proposed, once a COA is initiated, the Exchange would 
disseminate a Request for Response message, the Response Time Interval 
would begin and, during such interval, the Exchange would accept RFR 
Responses, including GTX ECO Orders. This proposed text is based on 
current functionality set forth in Rule 6.91-O(c), with non-substantive 
differences to use Pillar terminology, including using the new Pillar 
term for GTX ECO Orders.
    Proposed Rule 6.91P-O(f)(2) would describe the ``Pricing of a 
COA.'' As proposed, a COA Order to buy (sell) would initiate a COA at 
its limit price, unless its limit price locks or crosses the DBO (DBB), 
in which case it would initiate a COA at a price equal to one penny 
($0.01) times the smallest leg ratio inside the DBO (DBB) (the ``COA 
initiation price''). This proposed functionality utilizes the new 
concept of a DBBO, is consistent with current functionality (that 
relies on substantively similar concept of Complex BBO), and ensures 
(consistent with current functionality) that interest on the leg 
markets maintain priority.
     Proposed Rule 6.91P-O(f)(2)(A) would provide that prior to 
initiating a COA, a COA Order to buy (sell) would trade with any ECO to 
sell (buy) that is priced equal to or below (above) one penny ($0.01) 
times the smallest leg ratio inside the DBO (DBB) (i.e., priced better 
than the leg markets) and any unexecuted portion of such COA Order 
would initiate a COA. This proposed rule is based on current Rule 6.91-
O(a)(2) with a difference to use the Pillar concept of DBBO rather than 
refer to the contra-side Complex BBO.
     Proposed Rule 6.91P-O(f)(2)(B) would provide that a COA 
Order would not be eligible to trade with the leg markets until after 
the COA ends, which added detail, while not explicitly stated in the 
current rule, is consistent with current functionality described in 
Rules 6.91-O(c)(7)(A) and (B) that only RFR Responses (i.e., GTX 
orders) and ECOs will be allocated in a COA and that the COA Order 
would not trade with the leg markets until after the COA allocations.
     Proposed Rule 6.91P-O(f)(3) would set forth the conditions 
that would result in the ``Early End to a COA'' (i.e., a COA ending 
prior to the expiration of the Response Time Interval). Currently, as 
described in Rule 6.91-O(c)(3), the Exchange takes a snapshot of the

[[Page 43711]]

Complex BBO at the start of a COA and uses that snapshot as the basis 
for determining whether to end a COA early. Under Pillar, the Exchange 
would no longer use a snapshot of the Complex BBO as the basis for 
determining whether to end a COA early but would instead rely on the 
DBBO (not initial snapshot), which is updated as market conditions 
change (including during the Response Time Interval).\30\ The Exchange 
proposes a COA would end early under the following conditions:
---------------------------------------------------------------------------

    \30\ As discussed infra regarding proposed Rule 6.91P-O(a)(6) 
and the definition of the Derived BBO, ``the DBBO would be updated 
as the Exchange's calculation of the Exchange BBO or Away Market 
NBBO, as applicable, is likewise updated'').
---------------------------------------------------------------------------

    [cir] Proposed Rule 6.91P-O(f)(3)(A) would provide that a COA would 
end early if the Exchange receives an incoming ECO or COA Order to buy 
(sell) in the same complex strategy that is priced higher (lower) than 
the initiating COA Order to buy (sell), which proposed text is based on 
current Rule 6.91-O(c)(6)(B)(i) without any substantive differences.
    [cir] Proposed Rule 6.91P-O(f)(3)(B) would provide that a COA would 
end early if the Exchange receives an RFR Response that crosses the 
same-side DBBO, which proposed text is based on current Rule 6.91-
O(c)(6)(A)(i), except (as noted above) it refers to the DBBO rather 
than the ``initial Complex BBO.''
    [cir] Proposed Rule 6.91P-O(f)(3)(C) would provide that a COA would 
end early if the leg markets update causing the same-side DBBO to lock 
or cross (i) any RFR Response(s) or (ii) if no RFR Responses have been 
received, the best-priced, contra-side ECOs. This proposed rule is 
based in part on current Rule 6.91-O(c)(6)(C)(i), with differences to 
use Pillar terminology.
    [cir] Proposed Rule 6.91P-O(f)(3)(D) would provide that a COA would 
end early if the leg markets update causing the contra-side DBBO to 
lock or cross the COA initiation price. This proposed rule is based in 
part on current Rule 6.91-O(c)(6)(C)(ii), except that it would refer to 
the DBBO and the COA initiation price, which would be new concepts 
under Pillar.
     Proposed Rule 6.91P-O(f)(4) would set forth the 
``Allocation of COA Orders'' after a COA either ends early or after the 
expiration of the Response Time Interval. Current Rule 6.91-O(c)(7)(A) 
sets forth that the COA-eligible orders are allocated against the best-
priced interest received in the COA at each price on a ``Size Pro-Rata 
Basis,'' as that concept is defined in Rule 6.75-O(f)(6). Under Pillar, 
the allocation of the COA Order would be based on price-time priority, 
which would align the allocation of ECOs in a COA with standard 
processing of ECOs.
    Proposed Rule 6.91P-O(f)(4)(A) would provide that RFR Responses to 
sell (buy) would trade in price-time priority with a COA Order to buy 
(sell); provided, however, that if there is displayed Customer interest 
on all legs of the DBB (DBO), RFR Responses to sell (buy) would not 
trade below (above) one penny ($0.01) times the smallest leg ratio 
inside the DBB (DBO). This proposed rule would ensure that the COA 
Order would not trade at a worse price than the leg markets and would 
price improve at least a portion of the interest in the leg markets. 
The proposed text is based in part on current Rule 6.91-O(c)(7)(A) 
insofar as it ensures that the COA Order would trade with the best-
priced RFR Responses received in the COA and differs substantively 
because, as discussed above, the COA Order would trade with RFR 
Responses in price-time priority (and not Size Pro Rata).
    Proposed Rule 6.91P-O(f)(4)(B) would provide that after COA 
allocations pursuant to paragraph (f)(4)(A) of this proposed Rule, any 
unexecuted balance of a COA Order (including COA Orders designated as 
IOC) would be eligible to trade with any contra-side interest, 
including the leg markets unless the COA Order is designated or treated 
as a Complex Only Order. This proposed text is based on existing 
functionality and makes explicit that a COA Order would trade solely 
with complex interest (and not the leg markets) during a COA. This 
proposed rule is designed to provide clarity and transparency that the 
remaining balance of a COA Order would be eligible to trade with the 
leg markets after the COA ends.
    Proposed Rule 6.91P-O(f)(4)(C) would provide that after a COA Order 
trades pursuant to proposed Rule 6.91P-O(f)(4)(B), any unexecuted 
balance of a COA Order would be processed as an ECO pursuant to 
paragraph (e) of this Rule. The proposed text is based on current Rule 
6.91-O(c)(7)(B) without any substantive differences.
    Proposed Rule 6.91P-O(f)(5) would set forth ``Prohibited Conduct 
related to COAs,'' and is based on current Commentary .04 to Rule 6.91-
O without any substantive differences, and would provide that a pattern 
or practice of submitting unrelated orders that cause a COA to conclude 
early would be deemed conduct inconsistent with just and equitable 
principles of trade and that dissemination of information related to 
COA Orders to third parties would also be deemed as conduct 
inconsistent with just and equitable principles of trade.
    ECO Risk Checks. Proposed Rule 6.91P-O(g) would describe the ``ECO 
Risk Checks,'' which are designed to help OTP Holders and OTP Firms to 
effectively manage risk when trading ECOs. Current Commentaries .03, 
.05, and .06 of Rule 6.91-O set forth the existing risk checks for 
ECOs. With the transition to Pillar, the Exchange proposes to modify 
and enhance its existing risk checks for ECOs, as follows:
     Proposed Rule 6.91P-O(g)(1) would set forth the ``Complex 
Strategy Limit.'' As proposed, the Exchange would establish a limit on 
the maximum number of new complex strategies that may be requested to 
be created per MPID, which limit would be announced by Trader 
Update.\31\ As further proposed, when an MPID reaches the limit on the 
maximum number of new complex strategies, the Exchange would reject all 
requests to create new complex strategies from that MPID for the rest 
of the trading day. In addition, and notwithstanding the established 
Complex Strategy Limit, the Exchange proposes that it may reject a 
request to create a new complex strategy from any MPID whenever the 
Exchange determines it is necessary in the interests of a fair and 
orderly market.
---------------------------------------------------------------------------

    \31\ The Exchange has proposed to add the definition of MPID to 
proposed Rule 1.1, which would refer to ``the identification 
number(s) assigned to the orders and quotes of a single ETP Holder, 
OTP Holder, or OTP Firm for the execution and clearing of trades on 
the Exchange by that permit holder. An ETP Holder, OTP Holder, or 
OTP Firm may obtain multiple MPIDs and each such MPID may be 
associated with one or more sub-identifiers of that MPID.'' See 
Single-Leg Pillar Filing.
---------------------------------------------------------------------------

    This is new functionality proposed under Pillar but is conceptually 
similar to the Complex Order Table Cap (the ``Cap''), set forth in 
Commentary .03 to Rule 6.91-O, which Cap (like the Complex Strategy 
Limit) is a system protection tool that enables the Exchange to limit 
the number of complex strategies available on the Exchange, which in 
turn improves the efficiency of the ECO process and helps maintain a 
fair and orderly market. The Exchange also notes that other options 
exchanges likewise impose a limit on new complex order strategies.\32\
---------------------------------------------------------------------------

    \32\ See, e.g., Cboe Rule 5.33 (providing, in its definition of 
``complex strategy'' that Cboe ``may limit the number of new complex 
strategies that may be in the [Cboe] System at a particular time'') 
and MIAX Rule 518(a)(6) (providing, in its definition of ``complex 
strategy'' that MIAX ``may limit the number of new complex 
strategies that may be in the System at a particular time and will 
communicate this limitation to Members via Regulatory Circular'').

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

[[Page 43712]]

     Proposed Rule 6.91P-O(g)(2) would set forth the ECO Price 
Protection. The existing ECO ``Price Protection Filter'' is set forth 
in Commentary .05 to current Rule 6.91-O (the ``ECO Filter''). The 
proposed ``ECO Price Protection'' on Pillar would work similarly to how 
the current ECO price protection mechanism functions on the Exchange 
because an ECO would be rejected if it is priced a specified percentage 
away from the contra-side Complex NBB or NBO.\33\ However, on Pillar, 
the Exchange proposes to use new thresholds and reference prices, which 
would not only simplify the existing price check, but it would also 
align the proposed functionality with the proposed ``Limit Order Price 
Protection'' for single-leg interest, thus adding uniformity to 
Exchange rules.\34\
---------------------------------------------------------------------------

    \33\ As noted above, the Exchange proposes to define the Complex 
NBBO as the derived national best bid and derived national best 
offer for a complex strategy calculated using the NBB and NBO for 
each component leg of a complex strategy. See proposed Rule 6.91P-
O(a)(4).
    \34\ See Single-Leg Pillar Filing (proposed Rule 6.62P(a)(3) 
sets forth the Limit Order Price Protection Filter applicable to 
Limit Orders and quotes).
---------------------------------------------------------------------------

    Proposed Rule 6.91P-O(g)(2)(A) would provide that each trading day, 
an ECO to buy (sell) would be rejected or cancelled (if resting) if it 
is priced a Specified Threshold equal to or above (below) the Reference 
Price (as described below), rounded down to the nearest penny ($0.01), 
subject to proposed paragraphs (g)(2)(A)(i)-(v) of the Rule as 
described below. Because ECO Price Protection would be applied each 
trading day, an ECO designated GTC would be re-evaluated for ECO Price 
Protection on each day that it is eligible to trade and would be 
cancelled if the limit price is equal to or through the Specified 
Threshold. In addition, the rounding feature is based on how Limit 
Order Price Protection is calculated on the Exchange's cash equity 
market if it is not within the MPV for the security, as described in 
the last sentence of Rule 7.31-E(a)(2)(B), and is consistent with the 
proposed operation of the single-leg ``Limit Order Price Protection'' 
functionality for options.\35\
---------------------------------------------------------------------------

    \35\ See id.
---------------------------------------------------------------------------

    [cir] Proposed Rule 6.91P-O(g)(2)(A)(i) would provide that an ECO 
that arrives when a complex strategy is open for trading would be 
evaluated for ECO Price Protection on arrival. The Exchange has 
proposed similar functionality for single-leg options.\36\
---------------------------------------------------------------------------

    \36\ See Single-Leg Pillar Filing (discussion regarding proposed 
Rule 6.62P-O(a)(3)(A)(i)).
---------------------------------------------------------------------------

    [cir] Proposed Rule 6.91P-O(g)(2)(A)(ii) would provide that an ECO 
received during a pre-open state would be evaluated for ECO Price 
Protection after the ECO Opening Auction Process concludes.\37\ The 
Exchange has proposed similar functionality for single-leg options.\38\
---------------------------------------------------------------------------

    \37\ See discussion infra regarding proposed Rule 6.91P-O(d), 
which describes the ECO Opening Auction Process (or Reopening after 
a Trading Halt) as well as the concepts of ECO Auction Collars and 
ECO Auction Price.
    \38\ See Single-Leg Pillar Filing (discussion regarding proposed 
Rule 6.62P-O(a)(3)(A)(ii)).
---------------------------------------------------------------------------

    [cir] Proposed Rule 6.91P-O(g)(2)(A)(iii) would provide that an ECO 
resting on the Consolidated Book before a trading halt would be 
reevaluated for ECO Price Protection after the ECO Opening Auction 
Process concludes. The Exchange has proposed similar functionality for 
single-leg options.\39\
---------------------------------------------------------------------------

    \39\ See Single-Leg Pillar Filing (discussion regarding proposed 
Rule 6.62P-O(a)(3)(A)(iii)).
---------------------------------------------------------------------------

    [cir] Proposed Rule 6.91P-O(g)(2)(A)(iv) would provide that Cross 
Orders (per proposed Rule 6.62P-O(g)) and ECOs entered on the Trading 
Floor would not be subject to ECO Price Protection. The Exchange has 
proposed similar functionality for single-leg options.\40\
---------------------------------------------------------------------------

    \40\ See Single-Leg Pillar Filing (discussion regarding proposed 
Rule 6.62P-O(a)(3)(A) excluding Cross Orders).
---------------------------------------------------------------------------

    [cir] Proposed Rule 6.91P-O(g)(2)(A)(v) would provide that ECO 
Price Protection would not be applied if there is no Reference Price 
for an ECO. The Exchange has proposed similar functionality for single-
leg options.\41\
---------------------------------------------------------------------------

    \41\ See Single-Leg Pillar Filing (discussion regarding proposed 
Rule 6.62P-O(a)(3)(A)).
---------------------------------------------------------------------------

    Proposed Rule 6.91P-O(g)(2)(B) would specify the ``Reference 
Price'' used in connection with the ECO Price Protection. As proposed, 
the Reference Price for calculating ECO Price Protection for an ECO to 
buy (sell) would be the Complex NBO (NBB), provided that, immediately 
following an ECO Opening Auction Process, the Reference Price would be 
the ECO Auction Price or, if none, the Complex NBO (NBB). The Exchange 
believes that adjusting the Reference Price for ECO Price Protection 
immediately following an ECO Opening Auction would ensure that the most 
up-to-date price would be used to assess whether to cancel an ECO that 
was received during a pre-open state, including during a Trading Halt. 
The Exchange notes this functionality is consistent with the proposed 
operation of the Limit Order Price Protection for single-leg 
options.\42\
---------------------------------------------------------------------------

    \42\ See Single-Leg Pillar Filing (discussion regarding proposed 
Rule 6.62P-O(a)(3)(A) describing that the Reference Price for Limit 
Order Price Protection would be adjusted immediately following an 
Auction would ensure that the most up-to-date price would be used to 
assess whether to cancel a Limit Order that was received during a 
pre-open state or would be reevaluated after a Trading Halt 
Auction).
---------------------------------------------------------------------------

    As further proposed, there would be no Reference Price for an ECO 
if there is no NBBO for any leg of such ECO (i.e., the Exchange would 
not calculate a Complex NBB (NBO)), which text is based on current Rule 
6.91-O, Commentary .05(c), except that the proposed rule would not 
reference OPRA because, as further proposed, for purposes of 
determining a Reference Price, the Exchange would not use an adjusted 
NBBO (i.e., such NBBO is implicitly reliant on information from 
OPRA).\43\ The Exchange notes that using an unadjusted NBBO to 
calculate the Reference Price is based on how Limit Order Price 
Protection currently functions on the Exchange's cash equity market, as 
described in Rule 7.31-E(a)(2)(B) and is also consistent with the 
proposed operation of the Limit Order Price Protection for single-leg 
options.\44\
---------------------------------------------------------------------------

    \43\ See Single-Leg Pillar Filing (discussion regarding the 
proposed definition of ``NBBO'' in proposed Rule 1.1 describing that 
the ``NBBO'' for purposes of options trading would mean the national 
best bid or offer and that ``[u]nless otherwise specified, the 
Exchange may adjust its calculation of the NBBO based on information 
about orders it sends to Away Markets, execution reports received 
from those Away Markets, and certain orders received by the 
Exchange.'' The Exchange further proposes that the term ``Away 
Market NBBO'' refers to a calculation of the NBBO that excludes the 
Exchange's BBO'').
    \44\ References to the NBBO, NBB, and NBO in Rule 7.31-E refer 
to using a determination of the national best bid and offer that has 
not been adjusted. See Single-Leg Pillar Filing (describing use of 
unadjusted NBBO for single-leg Limit Order Price Protection in 
proposed Rule 6.62P-O(a)(3)(B)).
---------------------------------------------------------------------------

    Proposed Rule 6.91P-O(g)(2)(C) would set forth the ``Specified 
Threshold'' used in connection with the ECO Price Protection. As 
proposed, the Specified Threshold for calculating ECO Price Protection 
would be $1.00, unless determined otherwise by the Exchange and 
announced to OTP Holders and OTP Firms by Trader Update.
    The Exchange believes that the proposed Specified Threshold of 
$1.00 simplifies how the Reference Price would be calculated as 
compared to the calculations currently specified in Commentary .05 to 
Rule 6.91-O. In addition, consistent with Commentary .05(d), the 
Exchange proposes that the Specified Threshold could change, subject to 
announcing the changes by Trader Update. Providing flexibility in 
Exchange rules regarding how the Specified Threshold would be set is 
consistent with the rules of other options exchanges as well as the 
proposed functionality for the single-leg Limit Order Price Protection 
feature.\45\
---------------------------------------------------------------------------

    \45\ See, e.g., Cboe Rule 5.34(b)(6) (describing the ``Drill-
Through Protection'' and that Cboe ``determines a default buffer 
amount on a class-by-class basis). See Single-Leg Pillar Filing 
(describing use of Trader Update to modify Specified Thresholds in 
proposed Rule 6.62P-O (a)(3)(C)).

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

[[Page 43713]]

     Proposed Rule 6.91P-O(g)(3) would set forth the ``Complex 
Strategy Protections.'' The proposed protections are based on current 
Rule 6.91-O, Commentary .06, which are referred to as the ``Debit/
Credit Reasonability Checks.'' The Exchange believes this name change 
is appropriate because it more accurately conveys that the check 
applies solely to certain complex strategies and because (as discussed 
above), the Exchange proposes to refer simply to a ``net price'' as 
opposed to the ``total net debit or credit price.'' The proposed Pillar 
Complex Strategy Protections would function similarly to the current 
Debit/Credit Reasonability Checks because erroneously priced incoming 
ECOs would be rejected. However, rather than to refer to specified 
debit or credit amounts as a way to determine whether a given strategy 
is erroneously priced, the proposed rule would instead focus on the 
expectation of the order sender and what would result if the ECO were 
not rejected.
    As proposed, to protect an OTP Holder or OTP Firm that sends an ECO 
(each an ``ECO sender'') with the expectation that it would receive (or 
pay) a net premium but has priced the ECO such that the ECO sender 
would instead pay (or receive) a net premium, the Exchange would reject 
any ECO that is comprised of the erroneously-priced complex strategies 
as set forth in proposed Rule 6.91P-O(g)(3)(A)-(C) and described below.
    Proposed Rule 6.91P-O(g)(3)(A) would provide that ``'All buy' or 
`all sell' strategies'' would be rejected as erroneously-priced if it 
is an ECO for a complex strategy where all legs are to buy (sell) and 
it is entered at a price less than one penny ($0.01) times the sum of 
the number of options in the ratio of each leg of such strategy (e.g., 
a complex strategy to buy (sell) 2 calls and buy (sell) 1 put with a 
price less than $0.03). The proposed text is based on Rule 6.91-O, 
Commentary .06(a)(1), with no substantive differences, except that the 
Exchange has streamlined the text and set forth the minimum price 
(i.e., $0.03) for any ``all buy'' or ``all sell'' strategies.
    Proposed Rule 6.91P-O(g)(3)(B) would provide for the rejection of 
erroneously-priced ``Vertical spreads,'' which are defined as complex 
strategies that consists of a leg to sell a call (put) option and a leg 
to buy a call (put) option in the same option class with the same 
expiration but at different strike prices. As proposed, the Exchange 
would reject as erroneously-priced: (i) An ECO for a vertical spread to 
buy a lower (higher) strike call and sell a higher (lower) strike call 
and the ECO sender would receive (pay) a net premium (proposed Rule 
6.91P-O(g)(3)(B)(i)); and (ii) an ECO for a vertical spread to buy a 
higher (lower) strike put and sell a lower (higher) strike put and the 
ECO sender would receive (pay) a net premium (proposed Rule 6.91P-
O(g)(3)(B)(ii)). The proposed strategy protections for vertical spreads 
are based on current Rule 6.91-O, Commentary .06(a)(2), except that, as 
noted above, the proposed Rule is written from the standpoint of the 
expectation of the ECO sender as opposed to reviewing total net debit 
or credit price of the strategy.
    Proposed Rule 6.91P-O(g)(3)(C) would provide for the rejection of 
erroneously-priced ``Calendar spreads,'' which are defined as 
consisting of a leg to sell a call (put) option and a leg to buy a call 
(put) option in the same option class at the same strike price but with 
different expirations. As proposed, the Exchange would reject as 
erroneously-priced: (i) An ECO for a calendar spread to buy a call leg 
with a shorter (longer) expiration while selling a call leg with a 
longer (shorter) expiration and the ECO sender would pay (receive) a 
net premium (proposed Rule 6.91P-O(g)(3)(C)(i)); and (ii) an ECO for a 
calendar spread to buy a put leg with a shorter (longer) expiration 
while selling a put leg with a longer (shorter) expiration and the ECO 
sender would pay (receive) a net premium (proposed Rule 6.91P-
O(g)(3)(C)(ii)). The proposed strategy protections for calendar spreads 
are based on current Rule 6.91-O, Commentary .06(a)(3), except that, as 
noted above, the proposed Rule is written from the standpoint of the 
expectation of the ECO sender as opposed to reviewing the total net 
debit or credit price of the strategy. The Exchange has also not 
retained discretion to disable the strategy protections for calendar 
spreads (as contained in Commentary .06(a)(3)(i) of the current Rule) 
because since adopting this provision in 2017, the Exchange has never 
exercised this discretion and therefore has determined that such 
discretion is no longer needed.
    Proposed Rule 6.91P-O(g)(3)(D) would provide that any ECO that is 
not rejected by the complex strategy protections would still be subject 
to the Price Protection Filter, per paragraph (g)(2) of this Rule, 
which proposed text is based on Rule 6.91-O, Commentary .06(b) without 
any substantive difference.
Rule 6.47A-O: Order Exposure Requirements--OX
    The Exchange also proposes conforming, non-substantive amendments 
to Rule 6.47A-O, regarding order exposure, to add a cross-reference to 
new Pillar Rule 6.91P-O. This proposed amendment would extend the 
exemption from the order exposure requirements to COAs on Pillar.\46\ 
The Exchange also proposes to modify the reference to ``Complex Order 
Auction Process (`COA')'' to simply ``Complex Order Auction (`COA')'' 
(i.e., removing the word Process) consistent with how this concept is 
defined in proposed Rule 6.91P-O(a)(7).
---------------------------------------------------------------------------

    \46\ See proposed Rule 6.47A-O(iii). Consistent with the Single-
Leg Pillar Filing, the Exchange also proposes to replace reference 
to ``OX'' with ``the Exchange.'' See id. (preamble).
---------------------------------------------------------------------------

* * * * *
    As discussed above, because of the technology changes associated 
with the migration to the Pillar trading platform, subject to approval 
of the Single-Leg Pillar Filing as well as this proposed rule change, 
the Exchange will announce by Trader Update when rules with a ``P'' 
modifier will become operative and for which symbols. The Exchange 
believes that keeping existing rules on the rulebook pending the full 
migration of Pillar will reduce confusion because it will ensure that 
the rules governing trading on the Exchange's current system will 
continue to be available pending the full migration to Pillar.
2. Statutory Basis
    The proposed rule change is consistent with Section 6(b) of the 
Securities Exchange Act of 1934 (the ``Act''),\47\ in general, and 
furthers the objectives of Section 6(b)(5),\48\ in particular, because 
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, 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. The Exchange 
believes that proposed Rule 6.91P-O to support electronic complex 
trading on Pillar would remove impediments to and perfect the mechanism 
of a free and open market and a national market system because the 
proposed rule would promote transparency in Exchange rules by using 
consistent terminology governing trading on both the Exchange's cash 
equity and options Pillar trading platforms, thereby ensuring that 
members, regulators, and

[[Page 43714]]

the public can more easily navigate the Exchange's rulebook and better 
understand how options trading is conducted on the Exchange.
---------------------------------------------------------------------------

    \47\ 15 U.S.C. 78f(b).
    \48\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Exchange believes that adding new Rule 6.91P-O with the 
modifier ``P'' to denote that this rule would be operative for the 
Pillar trading platform would remove impediments to and perfect the 
mechanism of a free and open market and a national market system by 
providing transparency of which rules would govern trading once a 
symbol has been migrated to the Pillar platform. The Exchange similarly 
believes that adding a preamble to current Rule 6.91-O stating that it 
would not be applicable to trading on Pillar would remove impediments 
to and perfect the mechanism of a free and open market and a national 
market system because it would promote transparency regarding which 
rules would govern trading on the Exchange during and after the 
transition to Pillar.
    The Exchange believes that incorporating Pillar functionality 
currently available on the Exchange's cash equity market (and recently 
proposed for single-leg options),\49\ for trading of electronic complex 
orders on its options market in proposed Rule 6.91P-O would remove 
impediments to and perfect the mechanism of a free and open market and 
a national market system because the Exchange would be able to offer 
consistent functionality across both its options and cash equity 
trading platforms, adapted as applicable for trading of electronic 
complex orders. Accordingly, with the transition to Pillar, the 
Exchange will be able to offer additional features to its OTP Holders 
and OTP Firms that are currently available only on the Exchange's cash 
equity platform (and recently proposed to be available for single-leg 
options trading). For similar reasons, the Exchange believes that using 
Pillar terminology for the proposed new rule would remove impediments 
to and perfect the mechanism of a free and open market and a national 
market system because it would promote consistency in the Exchange's 
rules across both its options and cash equity platforms.
---------------------------------------------------------------------------

    \49\ See generally the Single-Leg Pillar Filing.
---------------------------------------------------------------------------

Definitions, Types of ECOs and Priority and Pricing of ECOs
    The Exchange believes that the proposed definitions in Rule 6.91P-
O(a) would remove impediments to and perfect the mechanism of a free 
and open market and a national market system because the proposed 
changes are designed to promote clarity and transparency by 
consolidating existing defined terms related to electronic complex 
trading into one section of the proposed rule. The Exchange believes 
that the proposed non-substantive amendments to those terms currently 
defined in Rule 6.91-O would promote clarity and transparency by using 
Pillar terminology. The Exchange further believes consolidating defined 
terms in proposed Rule 6.91P-O(a) would make the proposed rule more 
transparent and easier to navigate.
    The Exchange believes that the proposed new definition of DBBO (and 
related terms of DBB and DBO) would further remove impediments to and 
perfect the mechanism of a free and open market and a national market 
system because it would promote clarity and transparency to market 
participants regarding how the DBBO would be calculated under Pillar. 
The proposed definition is not novel and is based in part on similarly 
defined terms used on NYSE American and Cboe. In addition, the Exchange 
believes that setting forth additional definitions in proposed Rule 
6.91P-O(a), including those that are used on other options exchanges 
(e.g., ``complex strategy'') and clarifying terms (e.g., ``leg'' and 
``leg markets''), would remove impediments to and perfect the mechanism 
of a free and open market and a national market system because it would 
promote clarity and transparency to market participants regarding 
electronic complex trading under Pillar. Finally, the proposed 
definition of ``ECO Order Instruction'' would remove impediments to and 
perfect the mechanism of a free and open market and a national market 
system because it would incorporate for ECOs existing Pillar order 
handling functionality in an auction that is currently available on the 
Exchange's cash equity platform, as described in Rule 7.35-E(g) and is 
proposed for options trading in proposed Rule 6.64P-O(e) and its sub-
paragraphs (1) and (2) (as described in the Single-Leg Pillar Filing). 
The Exchange similarly proposes this functionality for the ECO Opening 
Auction Process, with non-substantive differences only to use an ECO-
specific defined term and to refer to the ECO Opening Auction Process.
    The Exchange believes that the proposed types of ECOs available per 
Rule 6.91P-O(b) would remove impediments to and perfect the mechanism 
of a free and open market and a national market system because it would 
describe the ECOs and time-in-force modifiers that would be available 
on Pillar, as well as specifying additional ECO types. The Exchange is 
not proposing any new ECO order types or time-in-force modifiers on 
Pillar and believes that the non-substantive differences to use Pillar 
terminology to describe the available ECO order types would promote 
transparency and clarity in Exchange rules. The Exchange believes that 
the proposed Complex Only Order is not novel because it is based in 
part on the existing PNP Plus order functionality as both order types 
only interact with other ECOs. The proposed functionality on Pillar is 
also based on how such orders function on other options exchanges.\50\ 
In addition, the proposed ECO GTX Order uses Pillar terminology to 
describe what is referred to as an ``RFR Response'' in the current 
rules, and therefore is not novel.
---------------------------------------------------------------------------

    \50\ See supra note 17 (citing Cboe Rule 5.33(a) regarding 
similar Complex Only order functionality).
---------------------------------------------------------------------------

    The Exchange believes that proposed new Rule 6.91P-O(c), and 
subparagraphs (2), (3), and (4), would remove impediments to and 
perfect the mechanism of a free and open market and a national market 
system because the proposed rules would set forth a price-time priority 
model for Pillar and pricing requirements for ECO trading that are 
substantively the same as the Exchange's current price-time priority 
model and pricing requirements as set forth in Rule 6.91-O(a)(1) and 
Commentaries .01 and .02(i) to Rule 6.91-O. The Exchange believes that 
proposed Rule 6.91P-O(c)(1) and subparagraphs (A) and (B) would remove 
impediments to and perfect the mechanism of a free and open market and 
a national market system because they would promote transparency and 
clarity in Exchange rules regarding how ECOs would trade with the leg 
markets.
Execution of ECOs at the Open (or Reopening After a Trading Halt)
    The Exchange believes that proposed Rule 6.91P-O(d) regarding the 
ECO Opening Auction Process would remove impediments to and perfect the 
mechanism of a free and open market and a national market system 
because the proposed rule maintains the fundamentals of an auction 
process that the Exchange currently uses for ECOs, as described in Rule 
6.91-O(a)(2)(i)(B), while at the same time enhancing the process by 
incorporating Pillar auction functionality that is currently available 
on the Exchange's cash equity platform, as described in Rule 7.35-E as 
well as proposed for single-leg options in proposed Rule 6.64P-O. For 
example, the Exchange proposes to use Pillar functionality to determine 
how to price an ECO Opening Auction Process, as described in proposed 
Rule 6.91P-

[[Page 43715]]

O(d)(3), including using proposed ``ECO Auction Collars'' and an ``ECO 
Auction Price,'' which would promote transparency to market 
participants. The Exchange also proposes to process ECOs received 
during an ECO Opening Auction Process, as described in proposed Rule 
6.91P-O(d)(4), and transition to continuous trading following an ECO 
Opening Auction Process, as described in proposed Rule 6.91P-O(d)(5), 
in a manner similar to how the Exchange's cash equity market processes 
orders that are received during an Auction Processing Period and 
transitions to continuous trading following a cash equity Trading Halt 
Auction, which the Exchange also proposes for single-leg options in 
proposed Rule 6.64P-O. The Exchange believes that using similar 
functionality for different types of auctions would promote consistency 
across the Exchange's options and cash equity trading platforms. 
Because the Exchange would be harnessing Pillar technology to support 
the ECO Opening Auction Process for electronic complex options trading, 
the Exchange believes that structuring proposed Rule 6.91P-O(d) based 
on Rule 7.35-E and proposed Rule 6.64P-O would promote transparency in 
the Exchange's trading rules.
    The Exchange further believes that the proposed Rules 6.91P-O(d)(1) 
and (2), which describe when the Exchange would initiate an ECO Opening 
Auction Process and which ECOs would be eligible to trade in that 
process, would remove impediments to and perfect the mechanism of a 
free and open market and a national market system because they would 
provide clarity and transparency of the conditions required before the 
Exchange would initiate an ECO Opening Auction Process. The Exchange 
further believes that those conditions are not novel and are based on 
existing conditions specified in Rule 6.91-O(a)(2)(i)(A) and (B), with 
additional specificity designed to promote clarity and transparency. 
Accordingly, the Exchange believes that the ECO Opening Auction Process 
for ECOs trading on Pillar would remove impediments to and perfect the 
mechanism of a free and open market and a national market system 
because the proposed process is based on the current opening process, 
including that orders would be matched based on price-time priority at 
a price at which the maximum volume can be traded.
Execution of ECOs During Core Trading Hours
    The Exchange believes that proposed Rule 6.91P-O(e), setting forth 
the execution of ECOs during Core Trading Hours, would remove 
impediments to and perfect the mechanism of a free and open market and 
a national market system because the proposed functionality would 
incorporate the Exchange's existing price-time priority model for 
trading ECOs, including providing that the leg markets would have 
priority at a price. The Exchange believes that it would remove 
impediments to and perfect the mechanism of a free and open market and 
national market system for ECOs not to trade with orders in the leg 
markets designated AON or with an MTS modifier (as described in the 
Single-Leg Pillar Filing), because both orders types are conditional. 
The Exchange further believes that it would remove impediments to and 
perfect the mechanism of a free and open market and a national market 
system for ECOs to trade as Complex Only Orders (rather than be 
rejected as they would under current rules) if they have a complex 
strategy that could result in a Market Maker breaching their 
established risk settings.\51\ This proposed process is also consistent 
with the treatment of similar ECOs on other options markets.\52\ The 
Exchange further believes that it would remove impediments to and 
perfect the mechanism of a free and open market and a national market 
system to specify the frequency with which the Exchange would evaluate 
trading opportunities for an ECO with the leg markets update because it 
would promote clarity and transparency in Exchange rules.
---------------------------------------------------------------------------

    \51\ See discussion infra regarding rationale for proposed Rule 
6.91P-O(e) to restrict certain ECOs from executing as a package and 
bypassing Market Maker risk settings.
    \52\ See supra notes 28 and 29 (citing to Cboe Rule 5.33(g) and 
Nasdaq ISE Options 3, Section 14(d)(3)(A)-(B) regarding similar 
functionality.
---------------------------------------------------------------------------

Execution of ECOs During a COA
    The Exchange believes that proposed Rule 6.91P-O(f), setting forth 
the execution of ECOs during a COA, would remove impediments to and 
perfect the mechanism of a free and open market and a national market 
system and promote just and equitable principles of trade because the 
proposed functionality would both incorporate existing functionality to 
provide that COA Orders would trade solely with other ECOs (and not the 
leg markets) during the auction and that a COA Auction would be 
allocated on price-time priority, which is consistent with the 
Exchange's priority scheme. The Exchange believes the proposed rule 
would add clarity and transparency to OTP Holders and OTP Firms 
utilizing the COA process.
    In addition, the Exchange further believes that the proposed 
changes to the COA process on Pillar that either differ from current 
functionality or that would be new would remove impediments to and 
perfect the mechanism of a free and open market and national market 
system because:
     Requiring that a COA Order initiate a COA on arrival, else 
[sic] be treated as a standard ECO, is new under Pillar and would 
provide OTP Holders and OTP Firms with a higher level of transparency 
and determinism of when a COA Order could initiate a COA.
     Making explicit that COA Orders may only execute with ECOs 
(and not the leg markets) until after the COA ends is designed to make 
clear that ECOs have priority during a COA.
     Streamlining the rule text that would describe the market 
events that would cause an early end to a COA under Pillar would 
simplify the COA process and would provide OTP Holders and OTP Firms 
with a higher level of transparency and determinism regarding the 
handling of COA Orders.
ECO Risk Checks
    The Exchange believes that proposed Rule 6.91P-O(g), setting forth 
ECO Risk Checks, would remove impediments to and perfect the mechanism 
of a free and open market and a national market system and promote just 
and equitable principles of trade because the proposed functionality 
would incorporate existing risk controls, without any substantive 
differences. The Exchange further believes that the proposed changes to 
ECO Risk Checks on Pillar that either differ from current functionality 
or would be new would remove impediments to and perfect the mechanism 
of a free and open market and national market system because:
     The Exchange believes that the new Complex Strategy Limit 
(which is conceptually similar to the Complex Order Table Cap under the 
current Rule) would operate as a system protection tool that enables 
the Exchange to limit the number of complex strategies available on the 
Exchange, which in turn would improve the efficiency of the ECO process 
and helps maintain a fair and orderly market. The proposed limits are 
not novel and are based on limits imposed by other options exchanges on 
new complex order strategies.\53\
---------------------------------------------------------------------------

    \53\ See supra note 32 (citing Cboe Rule 5.33(a) and MIAX Rule 
518(a)(6) regarding each exchange's ability to limit the number of 
new complex strategies in their systems at any particular time).
---------------------------------------------------------------------------

     The proposed ECO Price Protection on Pillar would work 
similarly to how the current ECO price protection

[[Page 43716]]

mechanism functions on the Exchange because an ECO would be rejected if 
it is priced a specified percentage away from the contra-side Complex 
NBB or NBO.\54\ The Exchange believes that the proposed differences on 
Pillar, to use new thresholds and reference prices, would not only 
simplify the existing price check, but it would also align the proposed 
functionality with the proposed ``Limit Order Price Protection'' for 
single-leg interest, thus adding uniformity to Exchange rules.\55\
---------------------------------------------------------------------------

    \54\ As noted above, the Exchange proposes to define the Complex 
NBBO as the derived national best bid and derived national best 
offer for a complex strategy calculated using the NBB and NBO for 
each component leg of a complex strategy. See proposed Rule 6.91P-
O(a)(4).
    \55\ See Single-Leg Pillar Filing (proposed Rule 6.62P(a)(3) 
sets forth the Limit Order Price Protection Filter applicable to 
Limit Orders and quotes).
---------------------------------------------------------------------------

     The proposed Pillar Complex Strategy Protections would 
function similarly to the current Debit/Credit Reasonability Checks 
because erroneously priced incoming ECOs would be rejected. The 
Exchange believes that the non-substantive differences to focus on the 
expectation of the ECO sender and what would result if the ECO were not 
rejected rather than refer to specified debit or credit amounts as a 
way to determine whether a given strategy is erroneously priced would 
remove impediments to and perfect the mechanism of a free and open 
market system because it would promote clarity and transparency in 
Exchange rules.
Rule 6.47A-O
    The Exchange believes that the proposed non-substantive change to 
Rule 6.47A-O to update references to ``COA'' (versus COA Process) and 
``the Exchange,'' to delete reference to ``OX,'' and add the reference 
to Rule 6.91P-O would 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 because the proposed 
conforming changes would add clarity, transparency and consistency to 
the Exchange's rules. The Exchange believes that market participants 
would benefit from the increased clarity, thereby reducing potential 
confusion. Similarly, the Exchange believes that adding a cross-
reference to proposed Rule 6.91P-O would remove impediments to and 
perfect the mechanism of a free and open market and a national market 
system because it would promote clarity and transparency of which 
Pillar rules would be eligible for the exception specified in that 
Rule.

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. The Exchange operates in a 
competitive market and regularly competes with other options exchanges 
for order flow. The Exchange believes that the transition to Pillar for 
trading of ECOs on its options trading platform would promote 
competition among options exchanges by offering a low-latency, 
deterministic trading platform. The proposed rule changes would support 
that inter-market competition by allowing the Exchange to offer 
additional functionality to its OTP Holders and OTP Firms, thereby 
potentially attracting additional order flow to the Exchange. 
Otherwise, the proposed changes are not designed to address any 
competitive issues, but rather to amend the Exchange's rules relating 
to trading of ECOs to support the transition to Pillar. As discussed in 
detail above, with this rule filing, the Exchange is not proposing to 
change its core functionality regarding the treatment of ECOs. Rather, 
the Exchange believes that the proposed rule changes would promote 
consistent use of terminology to support options (both single-leg and 
complex) and cash equity trading on the Exchange, making the Exchange's 
rules easier to navigate. The Exchange does not believe that the 
proposed rule changes would raise any intra-market competition as the 
proposed rule changes would be applicable to all OTP Holders and OTP 
Firms, and reflects the Exchange's existing treatment of ECOs, without 
proposing any material substantive changes.

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 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-2021-68 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-2021-68. 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-2021-68, and

[[Page 43717]]

should be submitted on or before August 31, 2021.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\56\
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    \56\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-16967 Filed 8-9-21; 8:45 am]
BILLING CODE 8011-01-P


