
[Federal Register Volume 88, Number 150 (Monday, August 7, 2023)]
[Rules and Regulations]
[Pages 52231-52233]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-16717]



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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-98038; File No. SR-NYSEARCA-2023-49]


Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Modify Rule 
6.40P-O

August 1, 2023.

    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on July 27, 2023, NYSE Arca, Inc. (``NYSE Arca'' or the ``Exchange'') 
filed with the Securities and Exchange Commission (``Commission'') the 
proposed rule change as described in Items I and II 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\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to modify Rule 6.40P-O (Pre-Trade and 
Activity-Based Risk Controls) to allow certain order types to be 
excluded from the Activity-Based Risk Controls.
    The proposed rule change is available on the Exchange's website at 
www.nyse.com, at the principal office of the Exchange, and at the 
Commission's Public Reference Room.

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

    In its filing with the Commission, the self-regulatory organization 
included statements concerning the purpose of, and basis for, the 
proposed rule change and discussed any comments it received on the 
proposed rule change. The text of those statements may be examined at 
the places specified in Item IV below. The Exchange has prepared 
summaries, set forth in sections A, B, and C below, of the most 
significant parts of such statements.

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

1. Purpose
    The Exchange proposes to modify Rule 6.40P-O (Pre-Trade and 
Activity-Based Risk Controls) to allow certain order types to be 
excluded from the Activity-Based Risk Controls. Specifically, the 
Exchange proposes to allow OTP Holders and OTP Firms (collectively, 
``OTPs'') \3\ the ability to exclude orders marked as GTX \4\ from 
counting towards the limits established by the Activity-Based Risk 
Controls and to exclude GTX orders from cancellation when an Activity-
Based Risk Limit is breached.\5\
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    \3\ An Options Trading Permit or ``OTP'' is issued by the 
Exchange for effecting approved securities transactions on the 
Exchange. See Rule 1.1. An ``OTP Holder'' is a natural person, in 
good standing, who has been issued an OTP and an ``OTP Firm'' is a 
sole proprietorship, partnership, corporation, limited liability 
company or other organization in good standing that holds an OTP or 
upon whom an individual OTP Holder has conferred trading privileges 
on the Exchange. See id. The Exchange notes that an OTP may be 
acting as a Market Maker, which market participant is subject to 
heightened requirements. See, e.g., Rule 6.37AP-O(b), (c).
    \4\ See supra note 16 (for description of orders marked as GTX).
    \5\ See proposed Rules 6.40P-O(c)(2)(B) and (c)(2)(C)(iii).
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    The Exchange offers OTPs the option of utilizing Activity-Based 
Risk Controls to assist OTPs in managing risk related to submitting 
orders during periods of increased and significant trading activity.\6\ 
OTPs acting as Market Makers must apply one of the Activity-Based Risk 
Controls to all of its orders and quotes, whereas an OTP not acting as 
a Market Maker may, but is not required to, apply one of the Activity-
Based Risk Controls to its orders.\7\ To determine when an Activity-
Based Risk Control has been breached, the Exchange will maintain a 
Trade Counter that will be incremented every time an order (or quote) 
trades, including any leg of a Complex Order, and will aggregate the 
number of contracts traded during each such execution.\8\ When 
designating one of the three Activity-Based Risk Controls, an OTP must 
indicate the action that it would like the Exchange to take if an 
Activity-Based Risk Limit is exceeded.\9\ Currently, the Exchange 
affords OTPs the ability to exclude certain orders from being 
considered by a Trade Counter.\10\ The order types that an OTP may opt 
to exclude are orders designated as IOC or FOK, which order types are 
designed to cancel if not executed on arrival.\11\ In addition, the 
Exchange exempts certain orders from being cancelled or blocked--
specifically Auction-Only orders (submitted solely for the purpose of 
being executed in an opening auction) and GTC Orders, which by their 
terms are meant to eventually execute unless specifically cancelled by 
the order-sender.\12\
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    \6\ See Rule 6.40P-O(a)(3)(A)-(C) (describing the three 
potential Activity-Based Risk Controls: Transaction-Based Risk 
Limit; Volume-Based Risk Limit; and Percentage-Based Risk Limit).
    \7\ See Rule 6.40P-O(c)(2)(A).
    \8\ See Rule 6.40P-O(c)(2)(B).
    \9\ See Rule 6.40P-O(c)(2)(C) (describing the potential 
automated breach actions of Notification Only, Block Only, and 
Cancel and Block).
    \10\ See Rule 6.40P-O(c)(2)(B).
    \11\ See id. See also Rule 6.62P-O(b)(2) (IOC) and (3) (FOK).
    \12\ See Rule 6.40P-O(c)(2)(C)(iii).
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    The Exchange proposes to modify Rule 6.40P-O(c)(2)(B) to add GTX to 
the order types that may be excluded by Trade Counters in tracking 
Activity-Based Risk Controls.\13\ In addition, for OTPs that select the 
automated breach action of ``Cancel and Block,'' the Exchange proposes 
to modify Rule 6.40P-O(c)(2)(C)(iii) to provide OTPs the option of 
instructing the Exchange not to cancel unexecuted GTX orders in the 
event of a breach.\14\
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    \13\ See proposed Rule 6.40P-O(c)(2)(B) (providing, in relevant 
part, that an OTP ``may opt to exclude any orders designated IOC, 
FOK, or GTX from being considered by a Trade Counter.'')
    \14\ See proposed Rule 6.40P-O(c)(2)(C)(iii) (providing, in 
relevant part, that an OTP ``may opt to exclude orders designated as 
GTX from being cancelled.'').
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    An order marked GTX, such as an ECO GTX Order, will cancel after 
executing to the extent possible with a COA Order in a Complex Order 
Auction.\15\ As such, GTX orders are never ranked (as resting interest) 
in the Consolidated Book. Because GTX orders are submitted for the sole 
purposes of executing in a COA or cancelling, the Exchange believes 
providing OTPs the option of exempting these orders from the Activity-
Based Risk Controls would enable these OTPs to exclude GTX orders from 
being counted and avoid potentially triggering their risk settings 
(prematurely), resulting in the cancellation of open orders. Likewise, 
the Exchange believes that allowing OTPs to instruct the Exchange not 
to cancel any unexecuted GTX orders if their risk setting is breached 
would likewise afford such OTPs additional flexibility. This proposed 
handling of GTX orders is consistent with how the Exchange currently 
handles GTX orders per (pre-Pillar) Commentary .01 to Rule 6.40-O (Risk 
Limitation Mechanism).\16\
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    \15\ On the Exchange, an OTP may designate an Electronic Complex 
Order (or ECO) as GTX. See Rule 6.91P-O(b)(2). An ``ECO GTX Order'' 
is an order sent in response to a Complex Order Auction (or COA) and 
such order is not displayed, must be entered 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. Any 
remaining size of an ECO GTX Order that does not trade with the COA 
Order will be cancelled at the end of the COA. See Rule 6.91P-
O(b)(2)(C).
    \16\ See Rule 6.40-O, Commentary .01 (providing, in relevant 
part, that upon the triggering of an established risk limit, the 
Exchange would cancel all open orders and quotes in the affected 
series but would exclude from such cancellation any ``orders entered 
in response to an electronic auction that are valid only for the 
duration of the auction (`GTX')'').

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    The Exchange believes that providing OTPs this additional 
flexibility may encourage more OTPs to utilize the risk settings, which 
benefits all market participants. The Exchange also believes that the 
proposed change would result in risk settings that may be better 
calibrated to suit the needs of certain OTPs (i.e., those that 
routinely utilize GTX orders) and should encourage OTPs to direct 
additional order flow and liquidity to the Exchange.
* * * * *
Implementation
    The Exchange will announce by Trader Update the implementation date 
of the proposed rule change, which implementation will be no later than 
90 days after the effectiveness of this rule change.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Securities Exchange Act of 1934 (the ``Act''),\17\ in 
general, and furthers the objectives of Section 6(b)(5) of the Act,\18\ 
in particular, in that 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 regulating, clearing, settling, processing 
information with respect to, and facilitating transactions in 
securities, to remove impediments to and perfect the mechanism of a 
free and open market and a national market system and, in general, to 
protect investors and the public interest.
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    \17\ 15 U.S.C. 78f(b).
    \18\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes that the proposed rule change removes 
impediments to and perfects the mechanism of a free and open market by 
providing OTPs greater control and flexibility over setting their risk 
tolerance, which may enhance the efficacy of the risk settings. Orders 
marked GTX, including ECO GTX Orders, will cancel after executing to 
the extent possible with a COA Order as part of a Complex Order 
Auction. As such, GTX orders are never ranked (as resting interest) in 
the Consolidated Book. The Exchange believes that certain market 
participants utilize GTX orders to access liquidity on the Exchange. 
Thus, the proposed change is designed to accommodate participants that 
utilize GTX orders in this manner by enabling them to exclude GTX 
orders from being counted and avoid potentially triggering their risk 
settings (prematurely), resulting in the cancellation of open orders. 
In addition, allowing OTPs the option to exclude unexecuted GTX orders 
from being cancelled in the event of a breach would allow OTPs to 
utilize this order type without fear of such orders being cancelled 
before having the opportunity to trade in a Complex Order Auction. As 
noted herein, this proposed handling of GTX orders (i.e., excluding 
such orders from cancellation upon triggering of a risk setting) is 
consistent with how the Exchange currently handles GTX orders per (pre-
Pillar) Commentary .01 to Rule 6.40-O (Risk Limitation Mechanism).
    The Exchange believes that providing OTPs this additional 
flexibility may encourage more OTPs to utilize the risk settings, which 
benefits all market participants. Further, the proposed change would 
promote just and equitable principles of trade because it would result 
in risk settings that may be better calibrated to suit the needs of 
certain OTPs (i.e., those that routinely utilize GTX orders) and should 
encourage OTPs to direct additional order flow and liquidity to the 
Exchange. To the extent additional order flow is submitted to the 
Exchange as a result of the proposed change, all market participants 
stand to benefit from increased trading. The Exchange notes that an OTP 
has the option of utilizing risk settings for all orders submitted to 
the Exchange and, as proposed, would have the additional option of 
excluding from these risk settings any GTX orders in a given options 
class submitted to the Exchange.
    This proposed change, which was specifically requested by some 
OTPs, would foster cooperation and coordination with persons engaged in 
regulating, clearing, settling, and processing information with respect 
to, and facilitating transactions in, securities as it will be 
available to all OTPs and may encourage more OTPs to utilize this 
enhanced functionality to the benefit of all market participants.

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 is proposing a 
market enhancement that would provide OTPs with greater control and 
flexibility over setting their risk tolerance and, potentially, more 
protection over risk exposure. The proposal is structured to offer the 
same enhancement to all OTPs and would not impose a competitive burden 
on any participant. The Exchange does not believe that the proposed 
enhancement to the existing Activity-Based Risk Controls would impose a 
burden on competing options exchanges. Rather, the availability of 
these controls may foster more competition. Specifically, the Exchange 
notes that it operates in a highly competitive market in which market 
participants can readily favor competing venues. When an exchange 
offers enhanced functionality that distinguishes it from the 
competition and participants find it useful, it has been the Exchange's 
experience that competing exchanges will move to adopt similar 
functionality. Thus, the Exchange believes that this type of 
competition amongst exchanges is beneficial to the marketplace as a 
whole as it can result in enhanced processes, functionality, and 
technologies.

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

    Because the foregoing proposed rule change does not: (i) 
significantly affect the protection of investors or the public 
interest; (ii) impose any significant burden on competition; and (iii) 
become operative for 30 days from the date on which it was filed, or 
such shorter time as the Commission may designate, it has become 
effective pursuant to Section 19(b)(3)(A)(iii) of the Act \19\ and Rule 
19b-4(f)(6) thereunder.\20\
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    \19\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \20\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6) 
requires the Exchange to give the Commission written notice of its 
intent to file the proposed rule change, along with a brief 
description and text of the proposed rule change, at least five 
business days prior to the date of filing of the proposed rule 
change, or such shorter time as designated by the Commission. The 
Exchange has satisfied this requirement.
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    A proposed rule change filed under Rule 19b-4(f)(6) \21\ normally 
does not become operative prior to 30 days after the date of the 
filing. However, pursuant to Rule 19b-(f)(6)(iii),\22\ the Commission 
may designate a shorter time if such action is consistent with the 
protection of investors and the public interest. The Exchange has asked 
the Commission to waive the 30-day operative delay so that the proposal 
may become operative immediately upon filing. The

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Commission believes that waiver of the 30-day operative delay is 
consistent with the protection of investors and the public interest 
because the proposed optional functionality may offer OTPs additional 
control and flexibility in utilizing the Exchange's Activity-Based 
Controls and therefore may encourage more OTPs to utilize these risk 
settings for their orders. Further, the Exchange represents that the 
proposed handling of GTX orders is consistent with how the Exchange 
currently handles GTX orders pursuant to Commentary .01 to Rule 6.40-O 
(Risk Limitation Mechanism).\23\ Accordingly, the Commission hereby 
waives the 30-day operative delay and designates the proposal operative 
upon filing.\24\
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    \21\ 17 CFR 240.19b-4(f)(6).
    \22\ 17 CFR 240.19b-4(f)(6)(iii).
    \23\ See supra note 16 and accompanying text.
    \24\ For purposes only of waiving the 30-day operative delay, 
the Commission has considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
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    At any time within 60 days of the filing of such proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act. If the Commission 
takes such action, the Commission shall institute proceedings under 
Section 19(b)(2)(B) \25\ of the Act to determine whether the proposed 
rule change should be approved or disapproved.
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    \25\ 15 U.S.C. 78s(b)(2)(B).
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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 (https://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
file number SR-NYSEARCA-2023-49 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-2023-49. 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 (https://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 
a.m. and 3 p.m. Copies of the filing also will be available for 
inspection and copying at the principal office of the Exchange. Do not 
include personal identifiable information in submissions; you should 
submit only information that you wish to make available publicly. We 
may redact in part or withhold entirely from publication submitted 
material that is obscene or subject to copyright protection. All 
submissions should refer to file number SR-NYSEARCA-2023-49 and should 
be submitted on or before August 28, 2023.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\26\
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    \26\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-16717 Filed 8-4-23; 8:45 am]
BILLING CODE 8011-01-P


