[Federal Register Volume 87, Number 166 (Monday, August 29, 2022)]
[Notices]
[Pages 52827-52832]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-18501]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-95581; File No. SR-NYSEARCA-2022-31]


Self-Regulatory Organizations; NYSE Arca, Inc.; Order Instituting 
Proceedings To Determine Whether To Approve or Disapprove a Proposed 
Rule Change To Amend Rule 6.64P-O

August 23, 2022.

I. Introduction

    On May 20, 2022, NYSE Arca, Inc. (``Exchange'' or ``NYSE Arca'') 
filed with the Securities and Exchange Commission (``Commission''), 
pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ a proposed rule change to 
modify NYSE Arca Rule 6.64P-O regarding the automated process for both 
opening and reopening trading in a series on the Exchange's Pillar 
trading technology, as described below. The proposed rule change was 
published for comment in the Federal Register on May 27, 2012.\3\ On 
June 24, 2022, pursuant to Section 19(b)(2) of the Act,\4\ the 
Commission extended the time period within which to approve the 
proposed rule change, disapprove the proposed rule change, or institute 
proceedings to determine whether to approve or disapprove the proposed 
change.\5\ The Commission has received

[[Page 52828]]

no comments on the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 94959 (May 23, 
2022), 87 FR 32203 (May 27, 2022) (``Notice'').
    \4\ 15 U.S.C. 78s(b)(2).
    \5\ See Securities Exchange Act Release No. 95150 (Jun. 24, 
2022), 87 FR 39141 (Jun. 30, 2022).
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    This order institutes proceedings under Section 19(b)(2)(B) of the 
Act \6\ to determine whether to approve or disapprove the proposed rule 
change.
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    \6\ 15 U.S.C. 78s(b)(2)(B).
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II. Description of the Proposed Rule Change

    The Exchange proposes to modify NYSE Arca Rule 6.64P-O regarding 
the automated process for both opening and reopening trading in a 
series on the Exchange on Pillar as set forth below.\7\
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    \7\ NYSE Arca Rule 6.64P-O (the ``Pillar Rule'') covers the 
opening and reopening of option series, which process the Exchange 
states is identical on the Pillar trading platform. As such, the 
Exchange states it will refer to the ``opening'' of a series herein. 
The Exchange completed its migration to Pillar on July 28, 2022. See 
NYSE Arca Trader Update, available at https://www.nyse.com/trader-update/history#110000440092.
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Current Pillar Auction Process 8
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    \8\ See Notice, supra note 3, 87 FR at 32204.
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    The Exchange states that NYSE Arca Rule 6.64P-O(d) sets forth the 
Auction Process.\9\ Per NYSE Arca Rule 6.64P-O(d)(1), once the Exchange 
receives the Auction Trigger for a series,\10\ the Auction Process 
begins and the Exchange sends a Rotational Quote \11\ to both OPRA and 
proprietary data feeds indicating that the Exchange is in the process 
of transitioning from a pre-open state to continuous trading for that 
series. Per NYSE Arca Rule 6.64P-O(d)(2), once a Rotational Quote has 
been sent, the Exchange conducts an Auction,\12\ provided ``there is 
both a Legal Width Quote and, if applicable, Market Maker quotes with a 
non-zero offer in the series'' within the Opening Timer(s), per NYSE 
Arca Rule 6.64P-O(d)(3).\13\ The Exchange deems the Legal Width Quote 
requirement satisfied if the Calculated NBBO (described below) for the 
series is uncrossed, contains a non-zero offer, and has a spread that 
does not exceed a maximum differential that is determined by the 
Exchange on a class basis and announced by Trader Update.\14\ The 
Calculated NBBO is comprised of the highest bid and lowest offer among 
all Market Maker quotes and the ABBO during the Auction Process.\15\ A 
Calculated NBBO does not require both Market Maker quotes and ABBO to 
be present, and may be composed of Market Maker quotes only, of the 
ABBO only, or a combination thereof.
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    \9\ ``Auction Process'' refers to the process that begins when 
the Exchange receives an Auction Trigger for a series and ends when 
the Auction is conducted. See NYSE Arca Rule 6.64P-O(a)(5).
    \10\ ``Auction Trigger'' refers to the information disseminated 
by the Primary Market in the underlying security that triggers the 
Auction Process for a series to begin. See NYSE Arca Rule 6.64P-
O(a)(7).
    \11\ ``Rotational Quote'' refers to the highest Market Maker bid 
and lowest Market Maker offer on the Exchange when the Auction 
Process begins and such a Rotational Quote will be updated (for 
price and size) during the Auction Process. See NYSE Arca Rule 
6.64P-O(a)(13).
    \12\ ``Auction'' refers to the opening or reopening of a series 
for trading either with or without a trade. See NYSE Arca Rule 
6.64P-O(a)(1).
    \13\ See NYSE Arca Rule 6.64P-O(d)(2). NYSE Arca Rule 6.64P-
O(d)(3) specifies the parameters of the Opening MMQ Timers, which 
the Exchange states are designed to encourage (but not require) any 
Market Maker(s) assigned to an option series to submit Legal Width 
Quotes in connection with the Auction Process. The Exchange proposes 
a non-substantive change of ``30'' to ``thirty'' regarding the 
Opening MMQ Timer(s), which the Exchange states would add clarity 
and internal consistency to the rule. See Notice, supra note 3, 87 
FR at 32004 n. 4.
    \14\ See NYSE Arca Rule 6.64P-O(a)(10)(A)-(C). The maximum 
spread differential for a given series or class of options may be 
modified by a Trading Official. See NYSE Arca Rule 6.64P-
O(a)(10)(C).
    \15\ See NYSE Arca Rule 6.64P-O(a)(8) (defining Calculated 
NBBO).
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    The Exchange states that, if the foregoing requirements are met 
(i.e., per NYSE Arca Rule 6.64P-O(d)(2)), the Exchange will conduct an 
Auction that will either result in a trade or in a quote depending on 
whether there is (or is not) Matched Volume \16\ that can trade at or 
within the Auction Collars.\17\ If there is Matched Volume that can 
trade at or within the Auction Collars, the Auction will result in a 
trade at the Indicative Match Price.\18\ However, if there is no 
Matched Volume that can trade at or within the Auction Collars, the 
Auction will instead result in a quote and the Exchange transitions to 
continuous trading as set forth in NYSE Arca Rule 6.64P-O(f).\19\
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    \16\ ``Matched Volume'' refers to the number of buy and sell 
contracts that can be matched at the Indicative Match Price, 
excluding IO Orders. See NYSE Arca Rule 6.64P-O(a)(11). An Imbalance 
Offset Order (``IO Order'') is a Limit Order that is to be traded 
only in an Auction. See NYSE Arca Rule 6.62P-O(c)(3).
    \17\ ``Auction Collar'' refers to the price collar thresholds 
for the Indicative Match Price for an Auction, with the upper 
Auction Collar being the offer of the Legal Width Quote and the 
lower Auction Collar being the bid of the Legal Width Quote, 
provided that if the bid of the Legal Width Quote is zero, the lower 
Auction Collar will be one MPV above zero for the series. And, if 
there is no Legal Width Quote, the Auction Collars will be published 
in the Auction Imbalance Information as zero. See NYSE Arca Rule 
6.64P-O(a)(2).
    \18\ See NYSE Arca Rule 6.64P-O(d)(2)(A). ``Indicative Match 
Price'' refers to the price at which the maximum number of contracts 
can be traded in an Auction, including the non-displayed quantity of 
Reserve Orders and excluding IO Orders, subject to the Auction 
Collars. If there is no Legal Width Quote, the Indicative Match 
Price included in the Auction Imbalance Information will be 
calculated without Auction Collars. See NYSE Arca Rule 6.64P-
O(a)(9).
    \19\ See NYSE Arca Rule 6.64P-O(d)(2)(B).
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    Finally, the Exchange states that, per NYSE Arca Rule 6.64P-
O(d)(4), unless otherwise specified by Trader Update, for the first 
ninety seconds of the Auction Process (inclusive of the thirty-second 
Opening MMQ Timer(s)), if there is no Legal Width Quote, the Exchange 
will not conduct an Auction, even if there is Matched Volume, i.e., the 
series will not open. After the first ninety seconds of the Auction 
Process, if there is no Matched Volume and the Calculated NBBO is wider 
than the Legal Width Quote, is not crossed, and does not contain a zero 
offer, the Exchange will first cancel any Market Orders and MOO Orders 
and then transition the option series to continuous trading per NYSE 
Arca Rule 6.64P-O(f).\20\ Thus, per NYSE Arca Rule 6.64P-O(d)(4)(A), if 
after the first ninety seconds of the Auction Process there is Matched 
Volume but the other elements of this provision are satisfied, the 
series will not open and will remain unopened and the Exchange will not 
transition to continuous trading until the earlier of (i) a Legal Width 
Quote is established and an Auction can be conducted; (ii) the series 
can be opened as provided for in paragraph (d)(4)(A); (iii) the series 
is halted; or (iv) the end of Core Trading Hours.\21\ The Exchange 
states that a series that does not meet the requirements of NYSE Arca 
Rule 6.64P-O(d)(4)(A) may thus be delayed in opening until one of the 
conditions set forth in NYSE Arca Rule 6.64P-O(d)(4)(B) occur.
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    \20\ See NYSE Arca Rule 6.64P-O(d)(4)(A).
    \21\ See NYSE Arca Rule 6.64P-O(d)(4)(B).
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Proposed Change to Auction Process 22
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    \22\ See Notice, supra note 3, 87 FR at 32204.
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    The Exchange states that waiting for market conditions to change 
before transitioning to continuous trading per the current Pillar Rule 
may result in missed execution opportunities for eligible interest 
submitted to the Exchange during the pre-open state. The Exchange 
further states that this potential (indefinite) delay is inconsistent 
with the Exchange's intention of providing a timely and efficient 
Auction Process. As such, the Exchange proposes to modify NYSE Arca 
Rule 6.64P-O. In short, the Exchange proposes that after the first 
ninety seconds of the Auction Process, the Exchange would conduct an 
Auction of marketable interest based on the spread of the then-current 
market conditions (i.e., a Calculated NBBO that is uncrossed with a 
non-zero offer), provided that if the Calculated NBBO exceeds the Legal 
Width Quote differential established per NYSE Arca Rule 6.64P-
O(a)(10)(C) the Exchange would cancel any Market Orders or

[[Page 52829]]

MOO Orders before conducting the Auction.
    As further proposed, marketable Limit Orders would trade in the 
Auction bound by the Calculated NBBO (i.e., the highest bid and lowest 
offer among all Market Maker quotes and the ABBO), which executions may 
be earlier and more efficient than afforded under the current Pillar 
Rule. If there is no marketable interest after such cancelation, the 
Exchange would open on a quote.\23\
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    \23\ As described further below, the Exchange states that, 
consistent with NYSE Arca Rule 6.64P-O(d)(2)(B), an Auction 
conducted per proposed NYSE Arca Rule 6.64P-O(d)(4)(A) would open on 
a quote if there is no Matched Volume).
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    The Exchange states that the proposed change to the Pillar Rule 
(the details of which are described below) would promote competitive 
liquidity by allowing series to open at then current market prices and 
would promote a fair and orderly opening process by improving the speed 
and efficiency of the Auction Process without impairing price 
discovery.
    First, the Exchange proposes to codify existing rule text into the 
defined phrase the ``initial Auction Process time period'' in proposed 
NYSE Arca Rule 6.64P-O(a)(5)(i). As proposed, the initial Auction 
Process time period would mean, ``unless otherwise specified by Trader 
Update, the first ninety seconds after the commencement of the Auction 
Process,'' which definition the Exchange states simply codifies (and 
relocates) identical text that appears in the preamble of both 
sentences in NYSE Arca Rule 6.64P-O(d)(4).\24\ The Exchange states that 
this proposed change is non-substantive and would streamline and add 
clarity to the existing rule.\25\
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    \24\ See proposed NYSE Arca Rule 6.64P-O(a)(5)(I). See also NYSE 
Arca Rule 6.64P-O(d)(4) (providing that ``[u]nless otherwise 
specified by Trader Update, for the first ninety seconds of the 
Auction Process . . . .'' and ``[n]inety seconds after the Auction 
Process begins:'').
    \25\ See id. See proposed NYSE Arca Rule 6.64P-O(d)(4)(A) 
(replacing reference to the first ninety-seconds after the Auction 
Process with the proposed definition of the ``initial Auction 
Process time period,'' which the Exchange states would add clarity 
and internal consistency to the Rule, making it easier to navigate 
and comprehend).
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    Next, the Exchange proposes to modify the definition of Legal Width 
Quote, including by leveraging the newly defined ``initial Auction 
Process time period.'' NYSE Arca Rule 6.64P-O(a)(10)(C) provides that, 
to be deemed a Legal Width Quote, the spread of the Calculated NBBO may 
not exceed a maximum differential that is determined by the Exchange on 
a class basis and announced by Trader Update.\26\
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    \26\ See NYSE Arca Rule 6.64P-O(a)(10)(C) (which the Exchanges 
states provides that a Trading Official may establish maximum 
differentials for one or more series or classes of options, which 
differ from those established by the Exchange).
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    The Exchange states that, by rule, the Exchange has discretion to 
establish for each option class the maximum allowable spread of the 
Calculated NBBO within which the Exchange will conduct an Auction, 
provided that the other elements of a Legal Width Quote are met.\27\ 
The Exchange states that nothing in NYSE Arca Rule 6.64P-O(a)(10)(C) 
precludes the Exchange from establishing one set of Calculated NBBO 
spreads for the first ninety seconds of the Auction Process and a 
second (wider) set of Calculated NBBO spreads for any time after the 
first ninety seconds. The Exchange states, however, that, in the 
interest of clarity and for the avoidance of potential confusion, the 
Exchange proposes to expand the definition of Legal Width Quote (rather 
than modify by Trader Update) in the Pillar Rule to provide that 
``after the initial Auction Process time period, the Exchange will not 
impose limits for the maximum differential for the spread between the 
Calculated NBBO.'' \28\
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    \27\ To qualify as a Legal Width Quote, the Calculated NBBO must 
also be uncrossed and must contain a non-zero offer, which 
requirements the Exchange states are not being modified by this rule 
change. See NYSE Arca Rule 6.64P-O(a)(10)(A)-(B).
    \28\ See proposed NYSE Arca Rule 6.64P-O(a)(10)(D).
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    The Exchange states that, although adopting proposed NYSE Arca Rule 
6.64P-O(a)(10)(D) is consistent with its authority under the Pillar 
Rule to determine the maximum allowable Calculated NBBO spread to 
qualify a series as having a Legal Width Quote, the proposed rule 
change would make clear that the Exchange would no longer impose these 
established spread limits (as announced by Trader Notice per NYSE Arca 
Rule 6.64P-O(a)(10)(C)) after the initial Auction Process time period. 
The Exchange states that this rule change would add clarity and 
transparency to the Auction Process to the benefit of all market 
participants.\29\ The Exchange further states that, because the Auction 
Process, including the Auction Collars, the presence of Matched Volume, 
and the determination of the Indicative Match Price, are dependent upon 
a Calculated NBBO that qualifies as a Legal Width Quote, the Exchange 
proposes that any Auction conducted consistent with proposed 6.64P-
O(a)(10)(D) would follow the current Auction Process except as 
described below.\30\
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    \29\ The Exchange states that, similar to the Exchange, other 
options exchanges have rules granting them broad discretion to 
modify the opening parameters for each option series, which 
modifications are disseminated or announced to market participants 
over data feeds or trader notice. See Notice, supra note 3, 87 FR at 
32205 n. 24.
    \30\ See NYSE Arca Rule 6.64P-O(d)(2)(A)-(B) (describing the 
process of opening a series with a trade or a quote depending on 
whether there is Matched Volume).
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    The Exchange proposes to amend NYSE Arca Rule 6.64P-O(d)(4) 
regarding the conduct of an Auction after the conclusion of the initial 
Auction Process time period (i.e., after the first ninety seconds).\31\ 
The Exchange states that, as noted herein, the Pillar functionality 
(per NYSE Arca Rule 6.64P-O(d)(4)(A)) permits a series to open based on 
a ``wide'' Calculated NBBO (that is uncrossed with a non-zero offer), 
but only if there is no Matched Volume, which requirement the Exchange 
states may delay openings and result in missed execution 
opportunities.\32\ To address what the Exchange views as unintended 
potential delay, the Exchange proposes that after the initial Auction 
Process time period and consistent with proposed paragraph (a)(10)(D) 
of this rule (which removes the limit on the maximum allowable 
Calculated NBBO spread), the Exchange would conduct an Auction 
regardless of Matched Volume as long as the Calculated NBBO is not 
crossed, and does not contain a zero offer.\33\ The Exchanges states 
that this proposed functionality would allow marketable Limit Orders to 
execute in the Auction, which may result in certain option series 
opening earlier than are opened under the current rule and increase 
execution opportunities for Limit Orders at then-current market 
prices.\34\
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    \31\ See proposed NYSE Arca Rule 6.64P-O(d)(4) (which the 
Exchange states includes the aforementioned non-substantive change 
to refer to the newly defined ``initial Auction Process time 
period'' rather than the first ninety seconds after the Auction 
Process). The Exchange states it is not altering Auction 
functionality for the initial Auction Process time period. See 
Notice, supra note 3, 87 FR at 32205 n. 26.
    \32\ See proposed NYSE Arca Rule 6.64P-O(d)(4)(B) (setting forth 
the necessary market conditions to open a series that has not opened 
per paragraph (d)(4) of the Pillar Rule). The Exchange states that, 
if the Exchange opens a series per NYSE Arca Rule 6.64P-O(d)(4)(A), 
it first cancels any Market Order or MOO Orders before conducting an 
Auction and transitioning to continuous trading. See Notice, supra 
note 3, 87 FR at 32005 n. 27.
    \33\ See proposed NYSE Arca Rules 6.64P-O(d)(4)(A), 6.64P-
O(a)(10)(D).
    \34\ See proposed NYSE Arca Rules 6.64P-O(d)(4)(A), 6.64P-
O(a)(10)(D). See also NYSE Arca Rule 6.64P-0(a)(9)(A) (providing, in 
relevant part, that ``the Indicative Match Price would not be lower 
(higher) than the highest (lowest) price of a Limit Order to buy 
(sell) ranked Priority 2--Display Orders that is eligible to 
participate in the Auction''). In addition, the Exchange proposes to 
remove as inapplicable the text in current NYSE Arca Rule 6.64P-
O(d)(4)(A) indicating that the ``Auction is not intended to end with 
a trade, but it may result in a trade even if there is no Legal 
Width Quote if orders or quotes arrive during the period when the 
Exchange is evaluating the status of orders and quotes'' as well as 
text indicating that the Exchange would ``transition to continuous 
trading as described in paragraph (f) of this Rule.'' See proposed 
NYSE Arca Rule 6.64P-O(d)(4)(A).

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[[Page 52830]]

    The Exchange states that, although Limit Orders would be eligible 
to execute based on this proposed functionality, whether a Market Order 
or MOO Order may participate in the proposed Auction depends on the 
width of the market at the time of the Auction. Specifically, as 
proposed, if the Calculated NBBO spread is wider than the differential 
established per paragraph (a)(10)(C) of this rule, the Exchange would 
cancel Market Orders and MOO Orders before conducting the Auction, 
which proposed handling the Exchange states is consistent with the 
current Pillar Rule.\35\ Conversely, as proposed, and consistent with 
the current Pillar Rule, Market Orders and MOO Orders are not canceled 
and will participate in an Auction that is based on a Calculated NBBO 
that is less than or equal to the Calculated NBBO spread limit 
established per NYSE Arca Rule 6.64P-O(a)(10)(C).\36\ As further 
proposed, after the cancelation of any Market Orders or MOO Orders as 
applicable, the Auction Process will proceed consistent with paragraph 
(d)(2)(A)-(B) of this rule and the Exchange will execute Matched Volume 
(if any) to the extent possible before transitioning to continuous 
trading.\37\
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    \35\ See NYSE Arca Rule 6.64P-O(d)(4)(A)(i) (providing that 
Market Orders and MOO Orders are cancelled ``[a]ny time a series is 
opened or reopened when there is no Legal Width Quote,'' i.e., when 
the Calculated NBBO exceeds the maximum allowable spread limit set 
forth in NYSE Arca Rule 6.64P-O(a)(10)(C)'').
    \36\ See id. The Exchange states that, to avoid potential 
confusion regarding the distinct handling of Market Orders and MOO 
Orders under proposed NYSE Arca Rule 6.64P-O(d)(4)(A) depending upon 
whether an Auction is conducted based on a Calculated NBBO spread 
that is in compliance with NYSE Arca Rule 6.64P-O(a)(10)(C) or with 
proposed NYSE Arca Rule 6.64P-O(a)(10)(D), the Exchange has 
intentionally avoided reference to the presence of a Legal Width 
Quote in the proposed Rule. See, e.g., proposed NYSE Arca Rule 
6.64P-O(d)(4)(A); Notice, supra note 3, 87 FR at 32206 n. 31.
    \37\ See, e.g., NYSE Arca Rule 6.64P-O(d)(2)(A)-(B) (providing 
that ``[i]f there is Matched Volume that can trade at or within the 
Auction Collars, the Auction will result in a trade at the 
Indicative Match Price'' or, ``[i]f there is no Matched Volume that 
can trade at or within the Auction Collars,'' the Auction will not 
result in a trade and the Exchange will transition to continuous 
trading as described in paragraph (f) of this Rule and the Auction 
will result in a quote'').
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    The Exchange states that, taken together, the proposed changes to 
NYSE Arca Rules 6.64P-O(a)(10)(D) and (d)(4) would allow any series 
that has not opened by the end of the initial Auction Process time 
period the ability to open based on a Legal Width Quote derived from 
then-market conditions. As such, the Exchange proposes to modify NYSE 
Arca Rule 6.64P-O(d)(4)(B) to update the cross-reference from paragraph 
(d)(4)(A) to paragraph (d)(4) and to eliminate as superfluous paragraph 
(d)(4)(B)(ii), which refers to waiting until ``the series can be opened 
as provided for in paragraph (d)(4)(A).'' \38\ The Exchange believes 
these proposed conforming changes are necessary given that the proposed 
changes to 6.64P-O(a)(10)(D) (removing the limit on the Calculated NBBO 
spread to qualify as Legal Width Quote) and (d)(4)(A) (addressing the 
conduct of an Auction after the initial Auction Process time period 
under the expanded definition of Legal Width Quote) render paragraph 
(d)(4)(B)(ii) of the rule unnecessary.
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    \38\ See proposed NYSE Arca Rules 6.64P-O(d)(4)(A)-(B). The 
Exchange also proposes conforming changes to re-number the remaining 
paragraphs in light of the proposed deletion, which the Exchange 
states would add clarity and internal consistency to the rule. See 
Notice, supra note 3, 87 FR at 32006 n. 33.
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    The Exchange states that it is not making any changes to the 
requirements to conduct an Auction during the initial Auction Process 
time period, and that the proposed changes relate solely to those 
series that remain unopened after the conclusion of the initial Auction 
Process time period because the Calculated NBBO spread is too wide. The 
Exchange states that the initial Auction Process time period affords 
market participants sufficient opportunity to absorb available pricing 
information, including Market Makers that are generally responsible for 
pricing the market. The Exchange states that, if the Calculated NBBO 
remains wide by the end of the initial Auction Process time period, the 
Exchange believes it is unlikely to tighten if the Exchange were to 
further delay the opening of a series. The Exchange states it has 
observed that on a typical trading day, in the current system, nearly 
98% of all series are opened by 9:32 a.m. Eastern Time. As such, the 
Exchange states it anticipates that the majority of series would be 
opened within ninety seconds of the Auction Process and would not be 
impacted by the proposed rule change. However, for the minority of 
option series that have not opened within the first ninety seconds, the 
Exchange states that it is necessary and appropriate to allow such 
series to open based on prices consistent with then-current market 
conditions, provided the Calculated NBBO for the series is not crossed, 
and does not contain a zero offer.
    The Exchange states that the proposed modification to the Auction 
Process would continue to protect Market Orders and MOO Orders from 
being executed (by cancelling such orders before conducting the 
proposed Auction) when the Calculated NBBO spread exceeds the spread 
differential established per current NYSE Arca Rule 6.64P-O(a)(10)(C) 
before conducting the proposed Auction. In addition, the Exchange 
states that the proposed modification would allow any eligible Limit 
Orders to be executed in the proposed Auction, bound by the Calculated 
NBBO. According to the Exchange, the Calculated NBBO (even if wide) 
represents the best-priced quotes by Market Makers (which participants 
generally are responsible for pricing the market) and/or the ABBO, the 
presence of which indicates that another market has opened.\39\
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    \39\ The Exchanges states that options exchanges have varying 
opening processes and have made separate determinations on what 
constitutes individual, reasonable opening market widths. The 
Exchange further states that, if other options exchanges opened a 
series with a market width, it is reasonable to open the series for 
trading on the Exchange as well (as orders submitted to other 
exchanges may be trading at those widths). See Notice, supra note 3, 
87 FR at 32206 n. 34.
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    The Exchange further states that, consistent with current 
functionality (and with the approved Pillar Rule), the Exchange would 
not permit any opening transactions to trade through any better-priced 
interest on any Away Market, even it is permitted to do so.\40\ Rather, 
because interest in the Auction would not trade outside of the 
Calculated NBBO (which defines the then-current market for the series), 
any Limit Orders executed in the proposed Auction would, bound by 
Auction collars, would trade at a price that is equal to or better than 
the price(s) available at other exchanges.\41\ Per NYSE Arca Rule

[[Page 52831]]

6.64P-O(f)(3)(A), any interest remaining after such Action is then 
evaluated for potential routing prior to being posted to the 
Consolidated Book. Further, the Exchange states that there are other 
price protections available to limit the risk of executions at a wider 
market price.\42\ Thus, the Exchange believes that the risk of an 
extreme execution based on the Calculated NBBO available after the 
initial Auction Process time period may be mitigated for the 
aforementioned reasons. The Exchange believes that, on balance, the 
benefits to market participants of having the series open earlier 
outweighs this mitigated risk.
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    \40\ The Exchange states that, although the intermarket linkage 
rules exempt from trade-through liability trades occurring during 
the opening process, the Exchange would continue to restrict 
transactions occurring at the open to the NBBO. See, e.g., NYSE Arca 
Rule 6.94-O(b)(2) (exempting from trade-through liability those 
transactions that ``traded through a Protected Quotation being 
disseminated by an Eligible Exchange during a trading rotation''). A 
``Protected Quotation'' is the Best Bid or Best Offer disseminated 
by OPRA and displayed by an Eligible Exchange. See NYSE Arca Rule 
6.92-O(15)-(16). See also Notice, supra note 3, 87 FR at 32206 n. 
35.
    \41\ See, e.g., NYSE Arca Rule 6.64P-O(b)(2)(A) (A) (providing 
that, `[i]f there is Matched Volume that can trade at or within the 
Auction Collars, the Auction will result in a trade at the 
Indicative Match Price); NYSE Arca Rule 6.64-O(a)(3), (9), and (11) 
(defining Auction Collars, Indicative Match Price, and Matched 
Volume, respectively). See also Notice, supra note 3, 87 FR at 32206 
n. 36.
    \42\ See, e.g., NYSE Arca Rule 6.41P-O(a)(1), (b) (regarding the 
Arbitrage Check, which the Exchange states is applied pre-open). The 
Exchange states that the price protection mechanisms it employs 
during continuous trading are based on the NBBO, or Auction Prices 
as applicable; NYSE Arca Rule 6.41P-O(c)(4)(B) (regarding the 
Intrinsic Value Check); NYSE Arca Rule 6.62P-O(a)(4)(A) (regarding 
Limit Order Price Protection); and NYSE Arca Rule 6.62P-O(a)(4)(B) 
(regarding Trading Collars). See also Notice, supra note 3, 87 FR at 
32207 n. 37.
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    Finally, the Exchange also proposes to modify the requirements to 
open a series during the initial Auction Process time period for option 
series with two or more assigned Market Makers, per NYSE Arca Rule 
6.64P-O(d)(3)(C). The Exchange states that, per NYSE Arca Rule 6.64P-
O(3)(C)(i), if there are two or more Market Makers assigned to a 
series, the Exchange will conduct the Auction, without waiting for the 
Opening MMQ Timer to end, as soon as there is both a Legal Width Quote 
and at least two assigned Market Makers have submitted a quote with a 
non-zero offer. Per NYSE Arca Rule 6.64P-O(3)(C)(ii), if at least two 
Market Makers assigned to a series have not submitted a quote with a 
non-zero offer by the end of the Opening MMQ Timer, the Exchange will 
begin a second Opening MMQ Timer. The Exchange proposes to modify these 
provisions to provide that the Exchange would require that at least two 
quotes with non-zero offers be submitted during the Opening MMQ Timer, 
which quotes may be sent by one or more Market Makers.\43\
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    \43\ See proposed NYSE Arca Rule 6.64P-O(d)(2) (providing that 
``[o]nce a Rotational Quote has been sent, the Exchange will conduct 
an Auction when there is both a Legal Width Quote and, if 
applicable, Market Maker quotes with a non-zero offer in the series 
(subject to the Opening MMQ Timer(s) requirements in paragraph 
(d)(3) of this Rule'')) and NYSE Arca Rule 6.64P-O(d)(3)(C)(i) 
(providing that ``[t]he Exchange will conduct the Auction, without 
waiting for the Opening MMQ Timer to end, as soon as there is both a 
Legal Width Quote and at least two quotes with a non-zero offer 
submitted by assigned Market Maker(s)'') and (d)(3)(C)(ii) 
(providing that ``[i]f the Exchange has not received at least two 
quotes with a non-zero offer from any Market Maker(s) assigned to a 
series by the end of the Opening MMQ Timer, the Exchange will begin 
a second Opening MMQ Timer''). See also Notice, supra note 3, 87 FR 
at 32207 n. 38.
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    The Exchange states that the proposed change continues to encourage 
(but not require) Market Makers to participate at the open, which may 
increase the availability of Legal Width Quotes in more series, thereby 
allowing more series to open in a timely manner. The Exchange states 
that expanding the opportunities for each Market Maker to enter the 
market--whether by each Market Maker submitting one quote or a single 
Market Maker submitting two quotes--could result in the depth of 
liquidity that market participants have come to expect in options with 
multiple assigned Market Makers, and a more stable trading environment. 
The Exchange states that the proposed rule change would provide more 
flexibility in terms of how market depth is achieved (i.e., based on 
quotes from a single Market Maker as opposed to two) and may result in 
a more timely and efficient opening process. Further, the Exchange 
states that the proposed change may increase the availability of Legal 
Width Quotes in more series and would add clarity and transparency to 
Exchange rules.

Other Exchange Rules: Proposed Non-Substantive or Clarifying Changes 
44
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    \44\ See Notice, supra note 3, 87 FR at 15.
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    The Exchange also proposes to make several clarifying or non-
substantive changes to certain of its rules. First, the Exchange 
proposes to modify paragraph (c) of NYSE Arca Rule 6.37-O (Obligations 
of Market Makers) regarding ``Unusual Conditions--Auctions'' to add an 
open parenthesis in the cross reference to NYSE Arca Rule 6.64P-
O(a)(10).\45\ The Exchange states that this proposed change would 
correct an inadvertent omission and would add clarity and transparency 
to Exchange rules.
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    \45\ See proposed NYSE Arca Rule 6.37-O(c).
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    Next, the Exchange proposes to correct several cross-references in 
NYSE Arca Rule 6.62P-O (Orders and Modifiers). The Exchange proposes to 
update the reference in NYSE Arca Rule 6.62P-O(e)(3)(C)(ii) regarding 
Day ISO ALO Orders to correctly cross-reference paragraphs (e)(2)(C)-
(F) (rather than to paragraphs (e)(2)(C)-(G)) to cover the processing 
of such ALO Orders once resting.\46\ The Exchange states that the 
proposed change would correct an inadvertent error adding clarity and 
transparency to Exchange rules. Similarly, the Exchange proposes to 
update the reference in NYSE Arca Rule 6.62P-O(h)(6)(B) to correctly 
cross-reference the defined term Complex Order, which is set forth in 
NYSE Arca Rule 6.62P-O(f) (rather than paragraph (e)).\47\ The 
Exchanges states that the proposed change would correct an inadvertent 
error adding clarity and transparency to Exchange rules.
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    \46\ See proposed NYSE Arca Rule 6.62P-O(e)(3)(C)(ii).
    \47\ See proposed NYSE Arca Rule 6.62P-O(h)(6)(B).
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III. Proceedings To Determine Whether To Approve or Disapprove SR-
NYSEARCA-2022-31 and Grounds for Disapproval Under Consideration

    The Commission is instituting proceedings pursuant to Section 
19(b)(2)(B) of the Act \48\ 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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    \48\ 15 U.S.C. 78s(b)(2)(B).
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    Pursuant to Section 19(b)(2)(B) of the Act,\49\ 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 \50\ 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 and not be designed to 
permit unfair discrimination between customers, issuers, brokers, or 
dealers.\51\ As discussed above, the Exchange is proposing to modify 
NYSE Arca Rule 6.64P-O regarding the automated process for both opening 
and reopening trading in a series on the Exchange on Pillar. The 
Commission has concerns about whether the auction process, as currently 
proposed, raises the potential risk of the auction resulting in a trade 
execution at an extreme price and whether the Exchange has in place

[[Page 52832]]

sufficient measures to protect against or mitigate the potential 
execution of investor orders in the auction at such a price.
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    \49\ Id.
    \50\ 15 U.S.C. 78f(b)(5).
    \51\ See id.
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    Under the Commission's Rules of Practice, the ``burden to 
demonstrate that a proposed rule change is consistent with the Exchange 
Act and the rules and regulations thereunder . . . is on the self-
regulatory organization [`SRO'] that proposed the rule change.'' \52\ 
The description of a proposed rule change, its purpose and operation, 
its effect, and a legal analysis of its consistency with applicable 
requirements must all be sufficiently detailed and specific to support 
an affirmative Commission finding,\53\ and any failure of an SRO to 
provide this information may result in the Commission not having 
sufficient basis to make an affirmative finding that a proposed rule 
change is consistent with the Exchange Act and the applicable rule and 
regulations.\54\
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    \52\ Rule 700(b)(3), Commission Rules of Practice, 17 CFR 
201.700(b)(3).
    \53\ See id.
    \54\ See id.
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    For these reasons, the Commission believes it is appropriate to 
institute proceedings pursuant to Section 19(b)(2)(B0 of the Exchange 
Act \55\ to determine whether the proposal should be approved or 
disapproved.
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    \55\ 15 U.S.C. 78s(b)(2)(B).
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IV. Procedure: Request for Written Comments

    The Commission requests that interested persons provide written 
submissions of their views, data, 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 provision of the Act, 
or the 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 views, data, and arguments, the 
Commission will consider, pursuant to Rule 19b-4 under the Act, any 
request for an opportunity to make an oral presentation.\56\
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    \56\ Section 19(b)(2) of the Act grants 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 an SRO. See Securities Act 
Amendments of 1975, Report of the Senate Committee on Banking, 
Housing and Urban Affairs to Accompany S. 249, 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 September 19, 2022. Any person who wishes to file a 
rebuttal to any other person's submission must file that rebuttal by 
October 3, 2022. The Commission asks that commenters address the 
sufficiency of the Exchange's statements in support of the proposal, 
which are set forth in the Notice,\57\ and any other issues raised by 
the proposed rule change under the Act.
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    \57\ See supra note 3.
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    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 Number SR-NYSEARCA-2022-31 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-2022-31. 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-2022-31 and 
should be submitted on or before September 19, 2022. Rebuttal comments 
should be submitted by October 3, 2022.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\58\
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    \58\ 17 CFR 200.30-3(a)(57).
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J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2022-18501 Filed 8-26-22; 8:45 am]
BILLING CODE 8011-01-P


