[Federal Register Volume 86, Number 211 (Thursday, November 4, 2021)]
[Notices]
[Pages 60955-60959]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-24014]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-93466; File No. SR-NYSEArca-2021-68]


Self-Regulatory Organizations; NYSE Arca, Inc.; Order Instituting 
Proceedings to Determine Whether to Approve or Disapprove a Proposed 
Rule Change to Adopt New Exchange Rule 6.91P-O

October 29, 2021.

I. Introduction

    On July 23, 2021, NYSE Arca, Inc. (``NYSE Arca'' or the 
``Exchange'') filed with the Securities and Exchange Commission (the 
``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a 
proposed rule change to adopt new Exchange Rule 6.91P-O to govern the 
trading of Electronic Complex Orders (``Electronic Complex Orders'' or 
``ECOs'') on the Exchange's Pillar trading platform and to make 
conforming amendments to Exchange Rule 6.47A-O.\3\ The proposed rule 
change was published for comment in the Federal Register on August 4, 
2021.\4\ On September 20, 2021, pursuant to Section 19(b)(2) of the 
Act,\5\ the Commission designated a longer period within which to 
approve the proposed rule change, disapprove the proposed rule change, 
or institute proceedings to determine whether to approve or disapprove 
the proposed rule change.\6\ The Commission has received no comments 
regarding the proposed rule change. This order institutes proceedings 
pursuant to Section 19(b)(2)(B) of the Act \7\ to determine whether to 
approve or disapprove the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ The proposal defines an Electronic Complex Order or ECO as 
``a Complex Order as defined in Rule 6.62P-O(f) or a Stock/Option 
Order or Stock/Complex Order as defined in Rule 6.62P-O(h)(6)(A), 
(B), respectively, that is submitted electronically to the 
Exchange.'' See proposed Exchange Rule 6.91P-O(a)(1).
    \4\ Securities Exchange Act Release No. 92563 (August 4, 2021), 
86 FR 43704 (August 10, 2021) (File No. SR-NYSEArca-2021-68) 
(``Notice'').
    \5\ 15 U.S.C. 78s(b)(2).
    \6\ See Securities Exchange Act Release No. 93057 (September 20, 
2021), 86 FR 53128 (September 24, 2021). The Commission designated 
November 8, 2021, as the date by which the Commission shall approve 
or disapprove, or institute proceedings to determine whether to 
approve or disapprove, the proposed rule change.
    \7\ 15 U.S.C. 78s(b)(2)(B).
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II. Description of the Proposal

Background

    As described more fully in the Notice, the Exchange plans to 
transition its options trading platform to its Pillar technology 
platform. The cash equity markets of the Exchange and its national 
securities exchange affiliates are currently operating on Pillar.\8\ 
For the transition, the Exchange proposes to use the same Pillar 
technology already in operation for its cash equity market, thereby 
allowing the Exchange to offer common trading functions and common 
specifications for connecting to its cash equity and equity options 
markets. The Exchange plans to roll out the new technology platform 
over a period of time based on a range of symbols.
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    \8\ 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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    The Exchange has filed a proposal (the ``Single-Leg Pillar 
Filing'') to add new rules describing how single-leg options will trade 
on the Exchange once Pillar is implemented.\9\ The current proposal 
describes how ECOs will trade on the Exchange once Pillar is 
implemented. As the Exchange transitions to Pillar, certain rules will 
continue to be applicable to symbols trading on the current trading 
platform, but will not be applicable to symbols that have transitioned 
to trading on Pillar.\10\ Proposed Exchange Rule 6.91P-O, which will 
govern the trading of Electronic Complex Orders in options symbols that 
have migrated to the Pillar platform, will have the same number as the 
current Electronic Complex Order Trading rule, but with the modifier 
``P'' appended to the rule number. Current Exchange Rule 6.91-O will 
remain unchanged and continue to apply to any trading in symbols on the 
current system. The proposed rule will use terminology that is based on 
Exchange Rule 7-E and will introduce new functionality for Electronic 
Complex Order trading. The Exchange intends to transition ECO trading 
on Pillar at the same time it transitions single-leg trading to Pillar.
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    \9\ See Securities Exchange Act Release Nos. 92304 (June 30, 
2021), 86 FR 36440 (July 9, 2021) (notice of filing of File No. SR-
NYSEArca-2021-47). The Commission extended the time for Commission 
action on the Single-Leg Pillar Filing and instituted proceedings to 
determine whether to approve or disapprove that proposal. See 
Securities Exchange Act Release Nos. 92696 (August 18, 2021), 86 FR 
47350 (August 24, 2021) (extending the time for Commission action on 
the Single-Leg Pillar Filing); and 93193 (September 29, 2021), 86 FR 
55926 (October 7, 2021) (order instituting proceedings to determine 
whether to approve or disapprove the Single-Leg Pillar Filing).
    \10\ The Exchange will announce by Trader Update when symbols 
are trading on the Pillar trading platform.
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Proposed Exchange Rule 6.91P-O: Electronic Complex Order Trading

    Exchange Rule 6.91-O describes how the Exchange currently processes 
ECOs submitted to the Exchange. The Exchange proposes new Exchange Rule 
6.91P-O to describe the processing of ECOs after the transition to 
Pillar.
    Definitions. Proposed Exchange Rule 6.91P-O(a) defines terms that 
will apply to the trading of ECOs on Pillar, including the following:
     ``ECO Order Instruction'' will mean a request to cancel, 
cancel and replace, or modify an ECO; \11\
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    \11\ See proposed Exchange Rule 6.91P-O(a)(2).
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     ``leg'' or ``leg market'' will mean each of the component 
option series that comprise an ECO; \12\
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    \12\ See proposed Exchange Rule 6.91P-O(a)(3).
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     ``Complex NBBO'' will 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; \13\
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    \13\ See proposed Exchange Rule 6.91P-O(a)(4).
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     ``Complex strategy'' will mean a particular combination of 
leg components and their ratios to one another. New complex strategies 
can be created when the Exchange receives a request to create a new 
complex strategy or an ECO with a new complex strategy; \14\
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    \14\ See proposed Exchange Rule 6.91P-O(a)(5).
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     ``DBBO'' will mean the derived best bid (``DBB'') and 
derived best offer (``DBO'') for a complex strategy calculated using 
the Exchange BBO \15\ for each leg (or the Away Market NBBO \16\ for a 
leg if there is no Exchange

[[Page 60956]]

BBO), provided that the bid (offer) price used to calculate the DBBO 
will never be lower (higher) than the greater of $0.05 or 5% below 
(above) the Away Market NBB (NBO).\17\ The DBBO will be updated as the 
Exchange's calculation of the Exchange BBO or Away Market NBBO, as 
applicable, is updated.\18\ If there is no Exchange BB (BO) or Away 
Market NBB (NBO) for a leg, the bid (offer) price used to calculate the 
DBBO will be the offer (bid) price for that leg minus (plus) ``one 
collar value,'' which is (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 that 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 will be $0.01; \19\
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    \15\ The term BBO when used with respect to options traded on 
the Exchange will mean ``the best displayed bid or best displayed 
offer on the Exchange.'' See Single-Leg Pillar Filing, proposed 
Exchange Rule 1.1.
    \16\ In the Single-Leg Pillar Filing, the Exchange proposes that 
the term ``Away Market NBBO'' will refer to a calculation of the 
NBBO that excludes the Exchange's BBO. See Single-Leg Pillar Filing 
(defining Away Market NBBO in proposed Exchange Rule 1.1).
    \17\ See proposed Exchange Rule 6.91P-O(a)(6).
    \18\ See id.
    \19\ See proposed Exchange Rule 6.91P-O(a)(6)(A).
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     ``Complex Order Auction'' or ``COA'' will mean an auction 
of an ECO as set forth in proposed Exchange Rule 6.91P-O(f); \20\
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    \20\ See proposed Exchange Rule 6.91P-O(a)(7).
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     ``COA Order'' will mean an ECO that is designated by the 
OTP Holder as eligible to initiate a COA; \21\
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    \21\ See proposed Exchange Rule 6.91P-O(a)(7)(A).
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     ``Request for Response'' or ``RFR'' will mean a 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. 
Each RFR message will identify the component series, the price, and the 
size and side of the market of the COA Order; \22\
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    \22\ See proposed Exchange Rule 6.91P-O(a)(7)(B).
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     ``RFR Response'' will mean any ECO received during the 
Response Time Interval 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.\23\ The Exchange will consider any 
ECOs received during the Response Time Interval (defined below) that 
are marketable against the COA Order as an RFR Response; and
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    \23\ See proposed Exchange Rule 6.91P-O(a)(7)(C). The term 
``marketable'' is defined in proposed Exchange Rule 1.1 of the 
Single-Leg Pillar Filing.
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     ``Response Time Interval'' will mean the period of time 
during which RFR Responses for a COA may be entered. The Exchange will 
determine and announce by Trader Update the length of the Response Time 
Interval. The duration of the Response Time Interval will not be less 
than 100 milliseconds and will not exceed one second.\24\
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    \24\ See proposed Exchange Rule 6.91P-O(a)(7)(D).
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    Types of ECOs. Under the proposal, ECOs may be entered as Limit 
Orders or Limit Orders designated as Complex Only Orders.\25\ An ECO 
designated as a Complex Only Order will trade only with ECOs and will 
not trade with the leg markets.\26\ If there is displayed Customer 
interest on all legs of the Complex Only Order, it will not trade below 
(above) one penny ($0.01) times the smallest leg ratio inside the DBB 
(DBO) containing Customer interest.\27\ Complex Only Orders are based 
in part on existing functionality for PNP Plus orders, which may trade 
only with other Electronic Complex Orders.\28\ ECOs may be designated 
with a time-in-force of Day, IOC, FOK, or GTC, as those terms are 
defined in proposed Exchange Rule 6.62P-O(b), or GTX.\29\
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    \25\ See proposed Exchange Rule 6.91P-O(b)(1).
    \26\ See proposed Exchange Rule 6.91P-O(b)(1)(A).
    \27\ See id.
    \28\ See Exchange 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).
    \29\ See proposed Exchange Rule 6.91P-O(b)(2). Proposed Exchange 
Rule 6.91P-O(b) is included in the Single-Leg Pillar Filing. An ECO 
designated as GTX (``ECO GTX Order'') will not be displayed, may be 
entered only during the Response Time Interval of a COA, must be on 
the opposite side of the COA Order, and must specify the price, 
size, and side of the market. 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 will be cancelled at the end 
of the COA. See proposed Exchange Rule 6.91P-O(b)(2)(B).
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    Priority and Pricing of ECOs. Proposed Exchange Rule 6.91P-O(c) 
describes how ECOs will be prioritized and priced on Pillar. Under the 
proposal, an ECO received by the Exchange that is not executed 
immediately (or cancelled) will 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.\30\ When trading with the leg markets, an 
ECO must trade at or within the greater of $0.05 or 5% higher (lower) 
than the Away Market NBO (NBB).\31\ An ECO will trade at the prices of 
the leg markets.\32\ 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 the leg market at $1.00. 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.\33\ An ECO may trade 
without consideration of prices of the same complex strategy available 
on other exchanges.\34\ In addition, an ECO may trade in $0.01 
increments regardless of the MPV otherwise applicable to any leg of the 
complex strategy.\35\
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    \30\ See proposed Exchange Rule 6.91P-O(c).
    \31\ See proposed Exchange Rule 6.91P-O(c)(1)(A).
    \32\ See proposed Exchange Rule 6.91P-O(c)(1)(B).
    \33\ See Proposed Exchange Rule 6.91P-O(c)(2).
    \34\ See Proposed Exchange Rule 6.91P-O(c)(3).
    \35\ See Proposed Exchange Rule 6.91P-O(c)(4).
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    Execution of ECOs at the Open (or Reopening after a Trading Halt. 
With the transition to Pillar, the Exchange proposes new functionality 
regarding the ECO Opening Auction Process on the Exchange, which will 
apply to both to openings and reopenings following a trading halt. 
Under the proposed rules, the Exchange will initiate an ECO Opening 
Auction Process for a complex strategy only if all legs of the complex 
strategy have opened or reopened for trading.\36\ A complex strategy 
will not be opened if: (A) Any leg of the complex strategy has no BO or 
NBO; (B) the bid and offer prices used to calculate the DBBO for the 
complex strategy are locking or crossing; or (C) 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.\37\ Any ECOs in a complex strategy with prices that lock or 
cross one another will be eligible to trade in the ECO Opening Auction 
Process.\38\ An ECO received during a pre-open state will not 
participate in the Auction Process for the leg markets pursuant to 
proposed Exchange Rule 6.64P-O.\39\ A complex strategy created intra-
day when all leg markets are open will not be subject to an ECO Opening 
Auction Process and instead will trade pursuant to proposed Exchange 
Rule 6.91P-O(e) regarding the handling of ECOs during Core Trading 
Hours.\40\ The ECO Opening Auction Process will be used to reopen 
trading in ECOs after a trading halt.\41\
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    \36\ See proposed Exchange Rule 6.91P-O(d)(1).
    \37\ See proposed Exchange Rule 6.91P-O(d)(1)(A)-(C).
    \38\ See proposed Exchange Rule 6.91P-O(d)(2).
    \39\ See proposed Exchange Rule 6.91P-O(d)(2(A).
    \40\ See proposed Exchange Rule 6.91P-O(d)(2)(B).
    \41\ See proposed Exchange Rule 6.91P-O(d)(2)(C).
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    Proposed Exchange Rule 6.91P-O(d)(3) describes the ECO Opening 
Auction Process. Under the proposed rule, locking and crossing ECOs in 
a complex strategy will trade at the ECO Auction Price.\42\ The ECO 
Auction Price will 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.\43\ If there

[[Page 60957]]

are no locking or crossing ECOs in a complex strategy at or within the 
ECO Auction Collars, the Exchange will open the complex strategy 
without a trade.\44\ An ECO to buy (sell) with a limit price at or 
above (below) the upper (lower) ECO Auction Collar will 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.\45\
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    \42\ See proposed Exchange Rule 6.91P-O(d)(3)(B)(ii).
    \43\ See proposed Exchange Rule 6.91P-O(d)(3)(B). 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 will be one penny ($0.01) 
times the smallest leg ratio inside the DBO (DBB) containing 
Customer interest. See proposed Exchange Rule 6.91P-O(d)(3)(A). 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 will 
be the price closest to the midpoint of the ECO Auction Collar, or, 
if the midpoint falls within such prices, the ECO Auction Price will 
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. 
If the ECO Auction Price would be a sub-penny price, it will be 
rounded to the nearest whole penny. See proposed Exchange Rule 
6.91P-O(d)(3)(B).
    \44\ See proposed Exchange Rule 6.91P-O(d)(3)(B)(ii).
    \45\ See proposed Exchange Rule 6.91P-O(d)(3)(B)(i).
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    The Exchange proposes to apply existing Pillar auction 
functionality regarding the processing of ECOs received during the 
period when an ECO Opening Auction Process is ongoing. Under the 
proposal, new ECOs and ECO Order Instructions \46\ that the Exchange 
receives when the Exchange is conducting the ECO Opening Auction 
Process for a complex strategy will be accepted but will not be 
processed until after the conclusion of the process.\47\ An ECO Order 
Instruction received during the ECO Opening Auction Process will not be 
processed until after this process concludes if it relates to an ECO 
that was received before the process begins and any subsequent ECO 
Order Instructions relating to the ECO ill be rejected.\48\ An ECO 
Order Instruction received during the ECO Opening Auction Process will 
be processed on arrival if it relates to an order that was received 
during the opening process.\49\
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    \46\ An ``ECO Order Instruction'' is ``a request to cancel, 
cancel and replace, or modify an ECO.'' See proposed Exchange Rule 
6.91P-O(a)(2).
    \47\ See proposed Exchange Rule 6.91P-O(d)(4).
    \48\ See proposed Exchange Rule 6.91P-O(d)(4)(A).
    \49\ See proposed Exchange Rule 6.91P-O(d)(4)(B).
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    After the ECO Opening Auction, ECOs will be subject to the ECO 
Price Protection in proposed Exchange Rule 6.91P-O(g)(2). 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 will trade 
pursuant to proposed Exchange Rule 6.91P-O(e).\50\ Any ECO received 
during the ECO Opening Auction Process will be processed in time 
sequence relative to one another based on original entry time.\51\
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    \50\ See proposed Exchange Rule 6.91P-O(d)(5)(A).
    \51\ See proposed Exchange Rule 6.91P-O(d)(5)(B).
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    Execution of ECOs During Core Trading Hours. Proposed Exchange Rule 
6.91P-O(e) describes the processing of ECOs during Core Trading Hours. 
Proposed Exchange Rule 6.91P-O(e)(1)(A) provides that if, at a price, 
an incoming ECO would be eligible to trade with the leg markets (e.g., 
the order is not a Complex Only Order), the leg markets will have first 
priority at that price and will trade with the incoming ECO pursuant to 
proposed Exchange Rule 6.76AP-O before the incoming ECO will trade with 
contra-side ECOs resting in the Consolidated Book at that price. An ECO 
will not trade with orders in the leg markets designated as AON or with 
an MTS modifier.\52\ An ECO that is not designated as a Complex Only 
Order will be eligible to trade with the leg markets (in full or in a 
permissible ratio), provided that an ECO will be ineligible to trade 
with the leg markets and will be processed as a Complex Only Order if 
the ECO has a strategy with: (i) More than five legs; (ii) two legs and 
both legs are buying or both legs are selling, and both legs are calls 
or both legs are puts; or (iii) three or more legs and all legs are 
buying or all legs are selling.\53\
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    \52\ See proposed Exchange Rule 6.91P-O(e)(1)(B). See also See 
Single-Leg Pillar Filing (describing Minimum Trade Size or MTS 
Modifier in proposed Exchange Rule 6.62P-O(i)(3)(B)).
    \53\ See proposed Exchange Rule 6.91P-O(e)(1)(C).
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    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 
will be ranked in the Consolidated Book pursuant to proposed Exchange 
Rule 6.91P-O(c).\54\ The Exchange will evaluate trading opportunities 
for a resting ECO when the leg markets comprising a complex strategy 
update, provided that during periods of high message volumes, the 
Exchange may reduce the evaluations to no less than ten times per one 
second.\55\ ECOs that trade with the leg markets will be allocated 
pursuant to Exchange Rule 6.76AP-O.\56\
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    \54\ See proposed Exchange Rule 6.91P-O(e)(2).
    \55\ See id.
    \56\ See proposed Exchange Rule 6.91P-O(e)(3).
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    Execution of ECOs During a COA. A COA Order received when a complex 
strategy is open for trading will initiate a COA only on arrival, 
subject to proposed Exchange Rule 6.91P-O(f)(1).\57\ A COA Order will 
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.\58\ Only one COA 
will be conducted at a time in a complex strategy.\59\
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    \57\ See proposed Exchange Rule 6.91P-O(f).
    \58\ See id.
    \59\ See id.
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    To initiate a COA, the limit price of a 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.\60\ A COA Order that does not satisfy these pricing 
parameters will not initiate a COA and will be processed as an ECO.\61\ 
Once a COA is initiated, the Exchange will disseminate a Request for 
Response message, the Response Time Interval will begin, and the 
Exchange will accept RFR Responses, including GTX ECO Orders.\62\
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    \60\ See proposed Exchange Rule 6.91P-O(f)(1).
    \61\ See id.
    \62\ See id.
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    A COA Order to buy (sell) will initiate a COA at its limit price, 
unless its limit price locks or crosses the DBO (DBB), in which case it 
will 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'').\63\ Prior to initiating a COA, a COA Order to buy (sell) will 
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 will initiate a COA.\64\ A COA Order will not 
be eligible to trade with the leg markets until after the COA ends.\65\
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    \63\ See proposed Exchange Rule 6.91P-O(f)(2).
    \64\ See proposed Exchange Rule 6.91P-O(f)(2)(A).
    \65\ See proposed Exchange Rule 6.91P-O(f)(2)(B).
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    A COA will end prior to the expiration of the Response Time 
Interval if: (A) 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); (B) the Exchange receives 
an RFR Response that crosses the same-side DBBO; (C) 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; or (D) the leg markets update causing the 
contra-side DBBO to lock or cross the COA initiation price.\66\
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    \66\ See proposed Exchange Rule 6.91P-O(f)(3).
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    At the conclusion of a COA, RFR Responses to sell (buy) will trade 
in price-time priority with a COA Order to

[[Page 60958]]

buy (sell).\67\ If there is displayed Customer interest on all legs of 
the DBB (DBO), RFR Responses to sell (buy) will not trade below (above) 
one penny ($0.01) times the smallest leg ratio inside the DBB 
(DBO).\68\ Any unexecuted balance of a COA Order (including those 
designated as IOC) will 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.\69\ Following these allocations, 
any unexecuted balance of a COA Order will be processed as an ECO 
pursuant to proposed Exchange Rule 6.91P-O(e).\70\
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    \67\ See proposed Exchange Rule 6.91P-O(f)(4)(A).
    \68\ See id.
    \69\ See proposed Exchange Rule 6.91P-O(f)(4)(B).
    \70\ See proposed Exchange Rule 6.91P-O(f)(4)(C).
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    A pattern or practice of submitting unrelated orders that cause a 
COA to conclude early will be deemed conduct inconsistent with just and 
equitable principles of trade, as will the dissemination of information 
related to COA Orders to third parties.\71\
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    \71\ See proposed Exchange Rule 6.91P-O(f)(5).
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    ECO Risk Checks. With the transition to Pillar, the Exchange 
proposes to modify and enhance its existing risk checks for ECOs by 
adopting a Complex Strategy Limit, ECO Price Protection, and Complex 
Strategy Protections. Under the proposed Complex Strategy Limit, the 
Exchange will establish a limit on the maximum number of new complex 
strategies that may be requested to be created per MPID.\72\ When an 
MPID reaches the limit on the maximum number of new complex strategies, 
the Exchange will reject all requests to create new complex strategies 
from that MPID for the rest of the trading day.\73\ Notwithstanding the 
established Complex Strategy Limit, the Exchange 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.\74\
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    \72\ The Exchange will announce the limit on the maximum number 
of new complex strategies by Trader Update. See proposed Exchange 
Rule 6.91P-O(g)(1). In the Single-Leg Pillar Filing, the Exchange 
has proposed to amend define MPID to mean ``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.''
    \73\ See proposed Exchange Rule 6.91P-O(g)(1).
    \74\ See id.
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    Under the ECO Price Protection, an ECO to buy (sell) will be 
rejected or cancelled (if resting) if it is priced a Specified 
Threshold \75\ equal to or above (below) the Reference Price, rounded 
down to the nearest penny ($0.01).\76\ An ECO that arrives when a 
complex strategy is open for trading will be evaluated for ECO Price 
Protection on arrival.\77\ An ECO received during a pre-open state will 
be evaluated for ECO Price Protection after the ECO Opening Auction 
Process concludes.\78\ An ECO resting on the Consolidated Book before a 
trading halt will be reevaluated for ECO Price Protection after the ECO 
Opening Auction Process concludes.\79\ Cross Orders and ECOs entered on 
the Trading Floor will not be subject to ECO Price Protection.\80\ ECO 
Price Protection will not be applied if there is no Reference Price for 
an ECO.\81\
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    \75\ The Specified Threshold for calculating ECO Price 
Protection will be $1.00, unless determined otherwise by the 
Exchange and announced to OTP Holders and OTP Firms by Trader 
Update. See proposed Exchange Rule 6.91P-O(g)(2)(C).
    \76\ The Reference Price for calculating ECO Price Protection 
for an ECO to buy (sell) will be the Complex NBO (NBB), provided 
that, immediately following an ECO Opening Auction Process, the 
Reference Price will be the ECO Auction Price or, if none, the 
Complex NBO (NBB). There will be no Reference Price for an ECO if 
there is no NBBO for any leg of such ECO. For purposes of 
determining a Reference Price, the Exchange will not use an adjusted 
NBBO. See proposed Exchange Rule 6.91P-O(g)(2)(B).
    \77\ See proposed Exchange Rule 6.92P-O(g)(2)(A)(i).
    \78\ See proposed Exchange Rule 6.92P-O(g)(2)(A)(ii).
    \79\ See proposed Exchange Rule 6.92P-O(g)(2)(A)(iii).
    \80\ See proposed Exchange Rule 6.92P-O(g)(2)(A)(iv).
    \81\ See proposed Exchange Rule 6.92P-O(g)(2)(A)(v).
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    Under the Complex Strategy Protections, the Exchange will reject 
ECOs that are comprised of certain erroneously-priced complex 
strategies.\82\ The proposed rule states that, to protect an OTP Holder 
or OTP Firm that sends an ECO with the expectation that it will receive 
(or pay) a net premium but has priced the ECO such that the ECO sender 
will instead pay (or receive) a net premium, the Exchange will reject 
any ECO that is comprised of the following erroneously-priced complex 
strategies:
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    \82\ See proposed Exchange Rule 6.91P-O(g)(3), Any ECO that is 
not rejected by the Complex Strategy Protections would still be 
subject to the ECO Price Protection. See proposed Exchange Rule 
6.92P-O(g)(3)(D).
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     ``All buy'' or ``all sell'' strategies. 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) two calls and buy (sell) one put with a price 
less than $0.03); \83\
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    \83\ See proposed Exchange Rule 6.92P-O(g)(3)(A).
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     Vertical spreads. A vertical spread complex strategy 
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 follows: (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; (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; \84\ and
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    \84\ See proposed Exchange Rule 6.92P-O(g)(3)(B).
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     Calendar spreads. A calendar spread consists 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 follows: (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; (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.\85\
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    \85\ See proposed Exchange Rule 6.92P-O(g)(3)(C).
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Rule 6.47A-O: Order Exposure Requirements--OX

    The Exchange also proposes conforming, non-substantive amendments 
to Exchange Rule 6.47A-O, regarding order exposure, to add a cross-
reference to new Exchange Pillar Rule 6.91P-O. This proposed amendment 
wwill extend the exemption from the order exposure requirements to COAs 
on Pillar.\86\ The Exchange also proposes to modify the reference to 
``Complex Order Auction Process (`COA')'' to simply ``Complex Order 
Auction (`COA'),'' consistent with the way this concept is defined in 
proposed Exchange Rule 6.91P-O(a)(7).
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    \86\ See proposed Exchange Rule 6.47A-O(iii). Consistent with 
the Single-Leg Pillar Filing, the Exchange also proposes to replace 
reference to ``OX'' with ``the Exchange.''
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    As described more fully in the Notice, the Exchange believes that 
the proposal will promote clarity and transparency regarding the 
trading of ECOs on Pillar. The Exchange states that the proposed price-
time priority model for Pillar and the pricing requirements for ECO 
trading are substantively the same as the Exchange's current price-time 
priority model and pricing requirements. In addition, the Exchange 
states that the proposed ECO auction process maintains the fundamentals 
of an auction process that the Exchange currently uses for ECOs while 
enhancing the process by incorporating Pillar auction functionality 
that is

[[Page 60959]]

currently available on the Exchange's cash equity platform. The 
Exchange states that the proposed ECO risk checks are similar to 
functionality currently available on the Exchange or on other 
exchanges.

III. Proceedings To Determine Whether To Approve or Disapprove SR-
NYSEArca-2021-68 and Grounds for Disapproval Under Consideration

    The Commission is instituting proceedings pursuant to Section 
19(b)(2)(B) of the Act \87\ to determine whether the proposed rule 
change should be approved or disapproved. Institution of such 
proceedings is appropriate at this time in view of the legal and policy 
issues raised by the proposed rule change. Institution of proceedings 
does not indicate that the Commission has reached any conclusions with 
respect to any of the issues involved. Rather, as described below, the 
Commission seeks and encourages interested persons to provide comments 
on the proposed rule change.
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    \87\ 15 U.S.C. 78s(b)(2)(B).
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    Pursuant to Section 19(b)(2)(B) of the Act,\88\ the Commission is 
providing notice of the grounds for disapproval under consideration. 
The Commission is instituting proceedings to allow for additional 
analysis of the proposed rule change's consistency with Section 6(b)(5) 
of the Act,\89\ which requires, among other things, that the rules of a 
national securities exchange be ``designed to prevent fraudulent and 
manipulative acts and practices, to promote just and equitable 
principles of trade, . . . to remove impediments to and perfect the 
mechanism of a free and open market and a national market system and, 
in general, to protect investors and the public interest,'' \90\ and 
not be designed to permit unfair discrimination between customers, 
issuers, brokers, or dealers.\91\
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    \88\ Id.
    \89\ 15 U.S.C. 78f(b)(5).
    \90\ Id.
    \91\ See id.
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IV. Procedure: Request for Written Comments

    The Commission requests that interested persons provide written 
submissions of their data, views, and arguments with respect to the 
issues identified above, as well as any other concerns they may have 
with the proposal. In particular, the Commission invites the written 
views of interested persons concerning whether the proposed rule change 
is consistent with Section 6(b)(5) or any other provisions of the Act, 
or rules and regulations thereunder. Although there do not appear to be 
any issues relevant to approval or disapproval that would be 
facilitated by an oral presentation of data, views, and arguments, the 
Commission will consider, pursuant to Rule 19b-4 under the Act,\92\ any 
request for an opportunity to make an oral presentation.\93\
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    \92\ 17 CFR 240.19b-4.
    \93\ Section 19(b)(2) of the Act, as amended by the Securities 
Acts Amendments of 1975, Public Law 94-29 (June 4, 1975), grants to 
the Commission flexibility to determine what type of proceeding--
either oral or notice and opportunity for written comments--is 
appropriate for consideration of a particular proposal by a self-
regulatory organization. See Securities Acts Amendments of 1975, 
Senate Comm. on Banking, Housing & Urban Affairs, S. Rep. No. 75, 
94th Cong., 1st Sess. 30 (1975).
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    Interested persons are invited to submit written data, views, and 
arguments regarding whether the proposed rule change should be approved 
or disapproved by November 26, 2021. Any person who wishes to file a 
rebuttal to any other person's submission must file that rebuttal by 
December 9, 2021. The Commission asks that commenters address the 
sufficiency and merit of the Exchange's statements in support of the 
proposal, in addition to any other issues raised by the proposed rule 
change raised under 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 [email protected]. Please include 
File No. 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 No. SR-NYSEArca-2021-68. The 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 No. SR-NYSEArca-2021-68 and should be submitted by 
November 26, 2021. Rebuttal comments should be submitted by December 9, 
2021.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\94\
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    \94\ 17 CFR 200.30-3(a)(12); 17 CFR 200.30-3(a)(57).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-24014 Filed 11-3-21; 8:45 am]
BILLING CODE 8011-01-P


