Contingent Cross Orders can be entered into the NYSE Arca System
from on the Floor of the Exchange only by Floor Brokers. Floor
Brokers shall not enter such orders for their own account, the
account of an associated person, or an account with respect to which
it or an associated person thereof exercises investment discretion
(each a `prohibited account'). When executing such orders, Floor
Brokers shall not be subject to NYSE Arca Rule 6.47-O. Floor Brokers
must maintain books and records demonstrating that each Qualified
Contingent Cross Order entered from the Floor was not entered for a
prohibited account. Any Qualified Contingent Cross Order entered
from the Floor that does not have a corresponding record required by
this Commentary .01 shall be deemed to have been entered for a
prohibited account in violation of this Rule.''
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    Proposed Rule 6.62P-O(g)(1)(F) would specify rules governing QCC
Orders entered off-Floor and that OTP Holders must maintain books and
records demonstrating that each such order was so routed. This proposed
rule is based on Commentary .02 to Rule 6.90-O without any substantive
differences.\132\ The Exchange proposes textual differences as compared
to the current Rule that are not designed to change the substance of
the Rule, but instead promote clarity and transparency.
---------------------------------------------------------------------------

    \132\ Commentary .02 to Rule 6.90-O provides: ``With respect to
a Qualified Contingent Cross Order that was routed to the NYSE Arca
System from off of the Floor, OTP Holders must maintain books and
records demonstrating that each such order was routed to the system
from off of the Floor. This provision would not apply to a Qualified
Contingent Cross Order covered by Commentary .01 to this NYSE Arca
Rule 6.90-O (i.e., a Qualified Contingent Cross Order routed to a
Floor Broker for entry into the NYSE Arca System).'' The Exchange
does not propose to include the last sentence of this Commentary in
the proposed Pillar rule because the Exchange does not believe it is
necessary to specify that Floor Brokers that enter orders
electronically are subject to rules relating to electronic order
entry as opposed to rules governing open outcry.
---------------------------------------------------------------------------

    In connection with adding QCC to proposed Rule 6.62P-O, the
Exchange proposes to add the following preamble to Rule 6.90-O: ``This
Rule is not applicable to trading on Pillar.'' This proposed preamble
is designed to promote clarity and transparency in Exchange rules that
Rule 6.90-O would not be applicable to trading on Pillar.
    Orders Available Only in Open Outcry. The Exchange proposes to add
to Rule 6.62P-O(h) orders that are available only in open outcry, most
of which are currently defined in Rule 6.62-O.
    First, proposed Rule 6.62P-O(h)(1) would codify an existing order
type, the Clear-the-Book (``CTB'') Order, which is currently described
only in a Regulatory Bulletin.\133\ The proposed definition would
describe the CTB Order, which would be an order type available in open
outcry that would interface with the Consolidated Book, and therefore
with Pillar. As proposed, a CTB Order would be a Limit IOC Order that
may be entered only by a Floor Broker, contemporaneous with executing
an order in open outcry, that is approved by a Trading Official (the
``TO Approval''). The CTB Order would be eligible to trade only with
contra-side orders and quotes that were resting in the Consolidated
Book prior to the TO Approval. In addition, proposed Rule 6.62P-
O(h)(1)(A)-(C) would provide that:
---------------------------------------------------------------------------

    \133\ See NYSE Arca Options RB-16-04, dated February 19, 2016
(Rules of Priority and Order Protection in Open Outcry), available
here: https://www.nyse.com/publicdocs/nyse/markets/arca-options/rule-interpretations/2016/NYSE%20Arca%20Options%20RB%2016-04.pdf.
---------------------------------------------------------------------------

     A CTB Order to buy (sell) would trade with contra-side
orders and quotes with a display price below (above) the limit price of
the CTB Order (proposed Rule 6.62P-O(h)(1)(A));

     A CTB Order to buy (sell) would trade with contra-side
orders and quotes that have a display price and working price equal to
the limit price of the CTB Order only if there is displayed Customer
sell (buy) interest at that price, in which case, the CTB Order to buy
(sell) would trade with the displayed Customer interest to sell (buy)
and any non-Customer interest to sell (buy) with a working time earlier
than the latest-arriving displayed Customer interest to sell (buy)
(proposed Rule 6.62P-O(h)(1)(B)); and
     Any unexecuted portion of the CTB Order would cancel after
trading with all better-priced interest and eligible same-priced
interest on the Consolidated Book (proposed Rule 6.62P-O(h)(1)(C)).
    Currently, CTB Orders only trade with displayed Customer interest
and any same-priced displayed non-Customer interest ranked ahead of
such interest in time priority, but do not trade with better-priced
displayed non-Customer interest. In Pillar, per Rule 6.62P-O(h)(1)(B),
CTB Orders would trade with displayed non-Customer interest priced
better than the latest-arriving displayed Customer interest (i.e., a
CTB order buying with a $1.00 limit would now trade with any displayed
interest offered at $0.99). Because Floor Brokers have an obligation to
satisfy better-priced interest on the Consolidated Book, the Exchange
believes this proposed change to automate such priority would make it
easier for Floor Brokers to comply with Exchange priority rules. In
addition, the Exchange believes that this proposed change would
increase execution opportunities and achieve the goal of a CTB Order,
which is to clear priority on the Consolidated Book at the time of the
TO Approval.
    In addition, proposed Rule 6.62P-O(h)(1)(D) would codify existing
regulatory responsibilities of Floor Brokers utilizing CTB Orders to
submit such orders in a timely manner after receiving TO Approval and
would also provide that because CTB Orders are non-routable (and thus
ineligible to clear Protected Quotations), Floor Brokers would still be
obligated to route any other eligible orders (i.e., not the CTB Order)
to better-priced interest on Away Markets per Rule 6.94-O.\134\
---------------------------------------------------------------------------

    \134\ See id. at p. 2-3 (describing regulatory responsibilities
related to CTB Orders, including that it is the Floor Broker's
responsibility to comply with the terms of the Options Order
Protection and Locked/Crossed Market Plan, including by sending ISOs
to trade with Protected Quotes).
---------------------------------------------------------------------------

    The Exchange also proposes to include in Rule 6.62P-O additional
open outcry order types that are currently defined in Rule 6.62-O:
     Proposed Rule 6.62P-O(h)(2) would define ``Facilitation
Order'' and is based on the Rule 6.62-O(j) definition of Facilitation
Order without any differences.
     Proposed Rule 6.62P-O(h)(3) would define ``Mid-Point
Crossing Order'' and is based on the Rule 6.62-O(q) definition of Mid-
Point Crossing Order without any differences.
     Proposed Rule 6.62P-O(h)(4) would define ``Not Held
Order'' and is based on the Rule 6.62-O(f) definition of Not Held Order
without any differences.
     Proposed Rule 6.62P-O(h)(5) would define ``Single Stock
Future (``SSF'')/Option Order'' and is based on the Rule 6.62-O(i)
definition of Single Stock Future (``SSF'')/Option Order without any
differences.
     Proposed Rule 6.62P-O(h)(6)(A) would define a ``Stock/
Option Order'' and is based on the Rule 6.62-O(h)(1) definition of
Stock/Option Order without any differences.
     Proposed Rule 6.62P-O(h)(6)(B) and subparagraphs (i) and
(ii) would define a ``Stock/Complex Order'' and is based on the Rule
6.62-O(h)(2) definition of Stock/Complex Order with its sub-paragraphs
without any differences.
    The Exchange proposes that after the transition to Pillar, the
following open outcry order types, which are currently described in
Rule 6.62-O but are not used by Floor Brokers, would not be added to
proposed Rule 6.62P-O governing orders and modifiers: One cancels the
other (OCO) Order and Stock Contingency Order.
    Additional Order Instructions and Modifiers. The Exchange proposes
to specify the additional order instructions and modifiers that would
be available in Pillar in proposed Rule 6.62P-O(i).
    Proactive if Locked/Crossed Modifier. Proposed Rule 6.62P-O(i)(1)
would provide that a Limit Order that is displayed and eligible to
route and designated with a Proactive if Locked/Crossed Modifier would
route to an Away Market if the Away Market locks or crosses the display
price of the order and that if any quantity of the routed order is
returned unexecuted, the order would be displayed in the Consolidated
Book. This would be new functionality for options trading on the
Exchange and is based on the Proactive if Locked/Crossed Modifier
available on the Exchange's cash equity platform, as described in Rule
7.31-E(i)(1) without any differences. The Exchange believes that
offering this as an optional modifier for Limit Orders would provide
OTP Holders and OTP Firms with additional flexibility to designate a
resting displayed order to route if it becomes locked or crossed by an
Away Market.
    Self-Trade Prevention (``STP'') Modifier. Self-Trade Prevention
(``STP'') Modifiers are currently defined in Commentary .01 to Rule
6.76A-O and are available only for Market Maker orders and quotes. On
Pillar, the Exchange proposes to expand the availability of STP to all
orders and quotes to offer this protection to trading interest of all
OTP Holders and OTP Firms, not just Market Makers. The Exchange
believes this expansion is appropriate because it would facilitate
market participants' compliance and risk management by assisting them
in avoiding unintentional wash-sale trading. Because STP Modifiers are
an instruction that can be added to an order or quote, the Exchange
proposes that for Pillar, STP Modifiers would be described in proposed
Rule 6.62P-O(i)(2). This is based on the structure of the Exchange's
cash equity rules, which also describe the STP Modifier in Rule 7.31-
E(i), which is available to all market participants.
    Proposed Rule 6.62P-O(i)(2) would provide that an Aggressing Order
or Aggressing Quote to buy (sell) designated with one of the STP
modifiers in proposed Rule 6.62P-O(i)(2) would be prevented from
trading with a resting order or quote to sell (buy) also designated
with an STP modifier from the same MPID, and, if specified, any sub-
identifier of that MPID and that the STP modifier on the Aggressing
Order or Aggressing Quote would control the interaction between two
orders and/or quotes marked with STP modifiers. In addition, STP would
not be applicable during an Auction or to Cross Orders or when a
Complex Order legs out. This proposed rule text is based on Commentary
.01 to Rule 6.76A with non-substantive differences to use Pillar
terminology.
    Proposed Rule 6.62P-O(i)(2) would further provide that if the
condition for a Limit Order designated FOK, an AON Order, or an
arriving order with an MTS modifier designated under proposed Rule
6.62P-O(i)(3)(B)(i) (described below) cannot be met because of STP
modifiers, such order would either be cancelled or placed on the
Consolidated Book, as applicable. This functionality would be new on
Pillar and reflects that for order types that must trade a specified
quantity (either in full or a specified minimum quantity) and could
trade with multiple contra-side orders to meet that size requirement,
such order types would not be compatible with applying STP, which
examines a one-on-one relationship between two interacting orders. This
proposed rule

text provides clarity that if a condition of an order cannot be met
because of STP modifiers, the order would either cancel (i.e., a Limit
Order designated FOK), or be added to the Consolidated Book (i.e., an
AON Order or an order with an MTS modifier), and then such resting
orders would function as described in Rule 6.62P-O.
    The proposed rule would further provide that Aggressing Orders or
Aggressing Quotes would be processed as follows:
     Proposed Rule 6.62P-O(i)(2)(A) would describe STP Cancel
Newest (``STPN'') and provide that an Aggressing Order or Aggressing
Quote to buy (sell) marked with the STPN modifier would not trade with
resting interest to sell (buy) marked with any STP modifier from the
same MPID; that the Aggressing Order or Aggressing Quote marked with
the STPN modifier would be cancelled; and that the resting order or
quote marked with one of the STP modifiers would remain on the
Consolidated Book. This proposed rule is based on Commentary .01(a) to
Rule 6.76A-O with non-substantive differences to use Pillar
terminology.
     Proposed Rule 6.62P-O(i)(2)(B) would describe STP Cancel
Oldest (``STPO'') and provide that an Aggressing Order or Aggressing
Quote to buy (sell) marked with the STPO modifier would not trade with
resting interest to sell (buy) marked with any STP modifier from the
same MPID; that the resting order or quote marked with the STP modifier
would be cancelled; and that the Aggressing Order or Aggressing Quote
marked with the STPO modifier would be placed on the Consolidated Book.
This proposed rule is based on Commentary .01(b) to Rule 6.76A-O with
non-substantive differences to use Pillar terminology.
     Proposed Rule 6.62P-O(i)(2)(C) would describe STP Cancel
Both (``STPC'') and provide that an Aggressing Order or Aggressing
Quote to buy (sell) marked with the STPC modifier would not trade with
resting interest to sell (buy) marked with any STP modifier from the
same MPID and that the entire size of both orders and/or quotes would
be cancelled. This proposed rule is based on Commentary .01(c) to Rule
6.76A-O with non-substantive differences to use Pillar terminology.
    Minimum Trade Size Modifier. The Exchange proposes to add the
Minimum Trade Size (``MTS'') Modifier, which would be new functionality
for options trading on Pillar that is based on the same functionality
currently available for cash equity securities trading on Pillar, as
described in Rule 7.31-E(i)(3). The Exchange proposes to provide this
modifier for options trading to provide OTP Firms and OTP Holders with
more features with respect to order handling. The proposed MTS Modifier
is similar in concept to both FOK and AON, which are currently
available for options trading. With the MTS Modifier, an OTP Holder or
OTP Firm would have greater flexibility to designate a size smaller
than the entire quantity (which is current FOK and AON functionality)
as a condition for execution. The Exchange notes that the use of an MTS
Modifier is not new or novel to options trading.\135\
---------------------------------------------------------------------------

    \135\ See, e.g., Nasdaq Options 3, Section 7(a)(3)(B)
(describing ``Minimum Quantity Order'' as ``an order that requires
that a specified minimum quantity of contracts be obtained, or the
order is cancelled'').
---------------------------------------------------------------------------

    As with the MTS Modifier for cash equity trading, the proposed MTS
Modifier for options traded on Pillar would be available only for non-
displayed orders. Accordingly, proposed Rule 6.62P-O(i)(3) would
provide that a Limit IOC Order or Non-Displayed Limit Order may be
designated with an MTS Modifier.\136\
---------------------------------------------------------------------------

    \136\ For cash equity trading, the MTS Modifier is also
available for an MPL Order or Tracking Order, which are non-
displayed order types available on the Exchange's cash equity
trading platform that would not be available for options trading on
Pillar. See Rule 7.31-E(i)(3).
---------------------------------------------------------------------------

    Proposed Rule 6.62P-O(i)(3)(A) would provide that the quantity of
the MTS Modifier may be less than the order quantity; however, an order
would be rejected if it has an MTS Modifier quantity that is larger
than the size of the order. This proposed rule is based on Rule 7.31-
E(i)(3)(A) with differences only to reflect that the concept of a round
lot is not applicable for options trading.
    Proposed Rule 6.62P-O(i)(3)(B) would provide that one of the
following instructions must be specified with respect to whether an
order to buy (sell) with an MTS Modifier would trade on arrival with:
(i) Orders or quotes to sell (buy) in the Consolidated Book that in the
aggregate meet such order's MTS; or (ii) only individual order(s) or
quote(s) to sell (buy) in the Consolidated Book that each meets such
order's MTS. This proposed rule is based on Rule 7.31-E(i)(3)(B) and
sub-paragraphs (i) and (ii) with only non-substantive differences to
use options trading terminology (e.g., Consolidated Book instead of
NYSE Arca Book and reference to quotes). Otherwise, the functionality
would be identical on both the options and cash equity trading
platforms.
    Proposed Rule 6.62P-O(i)(3)(C) would provide that an order with an
MTS Modifier that is designated Day or GTC that cannot be executed
immediately on arrival would not trade and would be ranked in the
Consolidated Book. In such case, the order to buy (sell) with an MTS
Modifier to buy (sell) that is ranked in the Consolidated Book would
not be eligible to trade: (i) At a price equal to or above (below) any
orders or quotes to sell (buy) that are displayed at a price equal to
or below (above) the working price of such order with an MTS Modifier;
or (ii) at a price above (below) any orders or quotes to sell (buy)
that are not displayed and that have a working price below (above) the
working price of such order with an MTS Modifier. This proposed rule is
based on Rule 7.31-E(i)(3)(C) and sub-paragraphs (i) and (ii) with only
non-substantive differences to use options trading terminology and to
reflect the availability of the GTC time-in-force modifier for Non-
Displayed Limit Orders. Otherwise, the functionality would be identical
on both the options and cash equity trading platforms.
    Proposed Rule 6.62P-O(i)(3)(D) would provide that an order with an
MTS Modifier that is designated IOC and cannot be immediately executed
would be cancelled. This proposed rule is based on Rule 7.31-E(i)(3)(D)
without any differences and the functionality would be identical on
both the options and cash equity trading platforms.
    Proposed Rule 6.62P-O(i)(3)(E) would provide that a resting order
to buy (sell) with an MTS Modifier would trade with individual orders
and quotes to sell (buy) that each meet the MTS and that (i) if an
Aggressing Order or Aggressing Quote to sell (buy) does not meet the
MTS of the resting order to buy (sell) with an MTS Modifier, that
Aggressing Order or Aggressing Quote would not trade with, and may
trade, through such resting order with an MTS Modifier; and (ii) if a
resting non-displayed order or quote to sell (buy) did not meet the MTS
of a same-priced resting order or quote to buy (sell) with an MTS
Modifier, a subsequently arriving order or quote to sell (buy) that
meets the MTS would trade before such resting non-displayed order or
quote to sell (buy) at that price. This proposed rule is based on Rule
7.31-E(i)(3)(E) and sub-paragraphs (i) and (ii) with only non-
substantive differences to use options trading terminology (i.e.,
refers to an order trading with contra-side quotes). Otherwise, the
proposed functionality would be identical on both the options and cash
equity trading platforms.
    Proposed Rule 6.62P-O(i)(3)(F) would provide that a resting order
with an MTS Modifier would be cancelled if it is traded in part or
reduced in size and the remaining quantity is less than such

order's MTS. This proposed rule is based on Rule 7.31-E(i)(3)(F)
without any differences and the functionality would be identical on
both the options and cash equity trading platforms.
    In connection with proposed Rule 6.62P-O, the Exchange proposes to
add the following preamble to Rule 6.62-O: ``This Rule is not
applicable to trading on Pillar.'' This proposed preamble is designed
to promote clarity and transparency in Exchange rules that Rule 6.62-O
would not be applicable to trading on Pillar.
Proposed Rule 6.37AP-O: Market Maker Quotations
    Current Rule 6.37A-O describes Market Maker quoting obligations,
including defining ``quotations,'' describing the treatment of such
quotations, and specifying Market Maker and LMM quoting obligations.
Proposed Rule 6.37AP-O would set forth Market Maker quoting obligations
under Pillar.
    As with current functionality, on Pillar, the Exchange would
provide Market Makers with the ability to designate bids and offers as
quotations, which is unique to options trading and not applicable to
cash equity trading. Currently, the Exchange offers designated
``quotation'' types to Market Makers, which are described in Rule
6.37A-O(a)(3).\137\ On Pillar, as described above in connection with
proposed Rules 6.62P-O(e)(1) and (2), the Exchange is proposing to
offer quotation functionality for Market Makers that would be
displayed, traded, repriced, or cancelled in the same manner as Non-
Routable Limit Orders and ALO Orders. As such, Market Makers may
designate these two ``order'' types as quotations and, if designated as
a quotation, such bids and offers would be displayed, traded, repriced,
or cancelled as described in proposed Rule 6.62P-O(e)(1) and (2), as
discussed in detail above. In addition, such quotations would be ranked
and executed as described in proposed Rules 6.76P-O and 6.76AP-O,
described above. Moreover, if designated as a quotation, such bids or
offers would be identifiable to the Exchange as ``quotations,'' subject
to the Market Maker and LMM requirements relating to quotations and the
Exchange would be able to monitor a Market Maker's compliance with
quoting obligations because its bids or offers would be designated as
quotations. If a Market Maker does not choose to designate a bid or
offer as a quotation, such bid or offer would be processed as an
``order'' and would not count towards a Market Maker's quoting
obligations.\138\
---------------------------------------------------------------------------

    \137\ As described in Rule 6.37A-O(a)(3)(A)-(C), a Market Maker
may designate a quote as Market Maker-Light Only Quotation
(``MMLO''), Market Maker--Add Liquidity Only Quotation (``MMALO''),
and Market Maker--Repricing Quotation (``MMRP'').
    \138\ For example, a Market Maker could choose to designate a
Non-Routable Limit Order as either a quote or as an order, which is
consistent with current Rule 6.37B-O, which provides that a Market
Maker may enter all order types permitted to be entered by Users
under the Rules to buy or sell options in all classes of options
listed on the Exchange. Accordingly, the functionality set forth in
proposed Rule 6.37AP-O(a)(2) herein is not materially different for
Market Makers because, under current functionality, they can choose
to send as Market Maker orders any order type described in current
Rule 6.62-O, including, for example, RPNP, RALO, PNP-Blind Order,
and PNP Light Order.
---------------------------------------------------------------------------

     Rule 6.37AP-O(a) would be based on current Rule 6.37A-O(a)
and would provide that a Market Maker may send quotations only in the
issues included in its appointment. This functionality would not be
new, and the Exchange proposes one terminology difference from the
current Rule to use the term ``send'' rather than ``enter,'' which is a
stylistic preference that does not alter the functionality.
     Proposed Rule 6.37AP-O(a)(1) would provide that the term
``quote'' or ``quotation'' means ``a bid or offer sent by a Market
Maker that is not sent as an order,'' and that ``[a] quotation sent by
a Market Maker will replace a previously displayed same-side quotation
that was sent from the same order/quote entry port of that Market
Maker.'' \139\ This proposed Rule is similar to current Rule 6.37A-
O(a)(1), which provides that ``[t]he term `quote' or `quotation' means
a bid or offer entered by a Market Maker that updates the Market
Maker's previous bid or offer, if any,'' with two distinctions. First,
the Exchange proposes textual differences to use the terms ``sent'' and
``received'' instead of ``entered,'' which is a stylistic preference
that does not alter the functionality. Second, the Exchange proposes
additional detail (consistent with current functionality) to make clear
that quotations sent by a Market Maker would be replaced, i.e.,
``updated,'' as the term is used in the current rule, when a new same-
side quote is sent via the same order/quote entry port.\140\ Because
LMMs would be Market Makers on Pillar, this functionality would also be
available to LMMs.\141\
---------------------------------------------------------------------------

    \139\ See NYSE Arca Fee Schedule, Port Fees (setting forth fees
for order/quote entry ports, which fees are currently $450 per port
per month for the first forty such ports and $150 per port per month
for each port in excess of forty (i.e., 41 and greater), available
here: https://www.nyse.com/publicdocs/nyse/markets/arca-options/NYSE_Arca_Options_Fee_Schedule.pdf.
    \140\ On the OX system, a Market Maker's same-side quote is
updated when a Market Maker uses the same OTP for quote entry.
Therefore, on the OX system, a Market Maker (not acting as an LMM)
that uses multiple OTPs could have more than one same-side quote in
a series. As discussed supra, because the OX system utilizes a
unique identifier for each LMM to send quotes, under current
functionality, an LMM cannot have more than one same-side quote in
an assigned series. See supra note 60.
    \141\ See proposed Rule 1.1 definition of Market Maker, which
provides that for purposes of Exchange rules, the term Market Maker
includes Lead Market Makers, unless the context otherwise indicates.
---------------------------------------------------------------------------

    The NYSE Arca Fee Schedule makes clear that Market Makers can
obtain upwards of forty ports for quote entry. Thus, the Exchange
believes that establishing when a Market Maker's previously displayed
same-side quotation would be replaced (i.e., when sent via the same
order/quote entry port) would add clarity and transparency to Exchange
rules. In addition, because the Exchange proposes that a Market Maker
may designate Non-Routable Limit Orders or ALO Orders as quotes, the
Exchange proposes a difference from the current Rule to provide that a
quote is a bid or offer not designated as an order.
     Proposed Rule 6.37AP-O(a)(2) would provide that a Market
Maker may designate either a Non-Routable Limit Order or an ALO Order
as a quote and such quotes would be processed as described in proposed
Rule 6.62P-O(e).\142\ The similarities and differences between the
proposed Non-Routable Limit Orders and ALO Orders on Pillar compared to
the existing quote types (i.e., MMLO, MMALO and MMRP) are described in
more detail above.\143\ Because proposed Rule 6.62P-O(e)(1) and (2),
described above, would set forth the treatment of a Non-Routable Limit
Order or an ALO Order designated as a quote, the Exchange is not
proposing to include a (duplicative) section in proposed Rule 6.37AP-O
regarding the treatment of such quotes.
---------------------------------------------------------------------------

    \142\ See discussion supra regarding proposed Rule 6.62P-O(e)(1)
and (2), Non-Routable Limit Order and ALO Orders, respectively,
being available as quote types and how such orders compare to the
existing MMLO, MMRP, and MMALO quotation functionality.
    \143\ The Exchange notes that it is not proposing the
functionality set forth in current Rule 6.37A-O(a)(4)(C) that
provides for the cancellation of a Market Maker's quote on the
opposite side of the market whenever that Market Maker's same-side
quotation is cancelled because such quotation would lock or cross
another options exchange is not designated to reprice (i.e., as an
MMRP). This current functionality is based on a system limitation
that would not exist under Pillar.
---------------------------------------------------------------------------

     Proposed Rule 6.37AP-O(b)-(e) would be substantively
identical to current Rule 6.37A-O(b)-(e) with non-substantive
differences to change the term ``shall'' to ``will,'' which is a

stylistic preference that would add consistency to Exchange rules.
Proposed Commentary .01 to Rule 6.37AP-O would be substantively
identical to Commentary .01 to Rule 6.37A-O, with non-substantive
differences to streamline the rule text.
    The Exchange also proposes a non-substantive change to paragraph
(b) of Rule 6.65A-O (Limit-Up and Limit-Down During Extraordinary
Market Volatility) to correct a cross reference to Market Maker quoting
obligations as set forth in Rule 6.37AP-O(b) and (c). Current Rule
6.65A(b) erroneously cross-references Rule 6.37B-O(b) and (c).
    In connection with proposed Rule 6.37AP-O, the Exchange proposes to
add the following preamble to Rule 6.37A-O: ``This Rule is not
applicable to trading on Pillar.'' This proposed preamble is designed
to promote clarity and transparency in Exchange rules that Rule 6.37A-O
would not be applicable to trading on Pillar.
Proposed Rule 6.40P-O: Pre-Trade and Activity-Based Risk Controls
    For the OX system, current Rule 6.40-O sets forth the activity-
based Risk Limitation Mechanisms for orders and quotes, which are
designed to help OTP Holders and OTP Firms effectively manage risk
during periods of increased and significant trading activity. With the
transition to Pillar, the Exchange proposes to incorporate new risk
control functionality that is based on both existing activity-based
risk controls for options and pre-trade risk controls that are
available on the Exchange's cash equity platform. Proposed Rule 6.40P-O
would describe the activity-based controls with updated functionality
under Pillar and would also describe new optional pre-trade risk
controls that are based on pre-trade risk controls available on the
Exchange's cash equity platform, as described in Rule 7.19-E, with
proposed differences to reference quotes and proposed new Pillar
functionality. The Exchange believes that adding pre-trade risk
controls (together with the enhanced activity-based controls) for
options trading, as described below, would provide greater flexibility
to OTP Holders and OTP Firms in establishing risk controls to align
with their risk tolerance for both orders and quotes.
    Proposed Rule 6.40P-O(a) would set forth the following definitions
that would be used for purposes of the Rule:
     The term ``Entering Firm'' would mean an OTP Holder or OTP
Firm (including those acting as Market Makers) (proposed Rule 6.40P-
O(a)(1)). This proposed definition is based in part on the definition
of ``Entering Firm'' in Rule 7.19-E(a)(1) and the Exchange believes
that the addition of this term would add clarity to the proposed rule
by using a single, defined term to describe which entities, including
Market Makers, could avail themselves of the proposed pre-trade risk
controls.
     The term ``Pre-Trade Risk Controls'' would refer to two
optional limits that an Entering Firm may utilize with respect to its
trading activity on the Exchange (excluding interest represented in
open outcry except CTB Orders (proposed Rule 6.40P-O(a)(2)). These
controls would be the ``Single Order Maximum Notional Value Risk
Limit'' and the ``Single Order Maximum Quantity Risk Limit.'' The
proposed Pre-Trade Controls are based on the substantially identical
risk controls available on the Exchange's cash equity market, as
described in Rules 7.19-E(a)(3) and (4), respectively, but differ in
that the proposed rule would also apply to quotes, which are unique to
options trading, and specifies the exclusion of interest represented in
open outcry, excluding CTB Orders, as well as the treatment of orders
designated GTC, which orders are available for options trading but are
not offered on the Exchange's cash equity market.
    [cir] The term ``Single Order Maximum Notional Value Risk Limit''
would refer to a pre-established maximum dollar amount for a single
order or quote to be applied one time (proposed Rule 6.40P-O(a)(2)(A)).
This definition would also provide that orders designated GTC would be
subject to this pre-trade risk control only once.
    [cir] The term ``Single Order Maximum Quantity Risk Limit'' would
refer to a pre-established maximum number of contracts that may be
included in a single order or quote before it can be traded (proposed
Rule 6.40P-O(a)(2)(B)). This definition would also provide that orders
designated GTC would be subject to this pre-trade risk control only
once.
     The term ``Activity-Based Risk Controls'' would refer to
three activity-based risk limits that an Entering Firm may apply to its
orders and quotes in an options class (excluding those represented in
open outcry except CTB Orders) based on specified thresholds measured
over the course of an Interval (to be defined below) (proposed Rule
6.40P-O(a)(3)). The proposed Activity-Based Risk Controls are based on
the substantially identical risk controls set forth in current Rule
6.40-O(b)-(d), except that on Pillar, a Market Maker's orders and
quotes would be aggregated and applied towards each risk limit (as
opposed to current functionality, where a Market Maker's orders and
quotes are counted separately). The Exchange believes that aggregating
a Market Maker's quotes and orders for purposes of calculating
activity-based risk controls would better reflect the aggregate risk
that a Market Maker has with respect to its quotes and orders. The
proposed rule would also add detail to make clear that orders and
quotes represented in open outcry, except CTB Orders, would not be
subject to these controls, which is consistent with current
functionality.
    [cir] The term ``Transaction-Based Risk Limit'' would refer to a
pre-established limit on the number of an Entering Firm's orders and
quotes executed in a specified class of options per Interval (proposed
Rule 6.40P-O(a)(3)(A)). This risk control is based on the substantially
identical risk control set forth in current Rule 6.40-O(b), with the
difference described above that a Market Maker's orders and quotes
would be aggregated.
    [cir] The term ``Volume-Based Risk Limit'' would refer to a pre-
established limit on the number of contracts of an Entering Firm's
orders and quotes that could be executed in a specified class of
options per Interval (proposed Rule 6.40P-O(a)(3)(B)). This risk
control is based on the substantially identical risk control set forth
in current Rule 6.40-O(c), with the difference described above that a
Market Maker's orders and quotes would be aggregated.
    [cir] The term ``Percentage-Based Risk Limit'' would refer to a
pre-established limit on the percentage of contracts executed in a
specified class of options as measured against the full size of such
Entering Firm's orders and quotes executed per Interval (proposed Rule
6.40P-O(a)(3)(C)). The proposed definition would also provide that to
determine whether an Entering Firm has breached the specified
percentage limit, the Exchange would calculate the percent of each
order or quote in a specified class of option that is executed during
an Interval (each, a ``percentage''), and sum up those percentages. As
further proposed, this definition would state that this risk limit
would be breached if the sum of the percentages exceeds the pre-
established limit. This risk control is based on the substantially
identical risk control set forth in current Rule 6.40-O(d), with the
difference described above that a Market Maker's orders and quotes
would be aggregated.
     The term ``Global Risk Control'' would refer to a pre-
established limit on the number of times an Entering Firm may breach
its Activity-Based Risk Controls per Interval (proposed Rule

6.40P-O(a)(4)). This proposed definition is based on the substantially
identical functionality set forth in current Rule 6.40-O(f).
     The term ``Interval'' would refer to the configurable time
period during which the Exchange would determine if an Activity-Based
Risk Control or the Global Risk Control has been breached (proposed
Rule 6.40P-O(a)(5)). This proposed definition is consistent with
current Rule 6.40-O, which contains references throughout to a ``time
period'' during which the Exchange will determine whether a breach has
occurred. The Exchange believes this proposed definition would add
clarity and transparency to Exchange rules.
    Proposed Rule 6.40P-O(b) would set forth how the Pre-Trade,
Activity-Based and Global Risk Controls could be set or adjusted.
Proposed Rule 6.40P-O(b)(1) would provide that these risk controls may
be set before the beginning of a trading day and may be adjusted during
the trading day. Proposed Rule 6.40P-O(b)(2) would provide that
Entering Firms may set these risk controls at the MPID level or at one
or more sub-IDs associated with that MPID, or both. Proposed Rule
6.40P-O(b) is based on Rule 7.19-E(b)(3)(A)-(B) but differs in that the
proposed rule would incorporate the existing options-based Activity-
Based and Global Risk Controls in addition to the (new for options
trading) Pre-Trade Risk Controls currently available on the Exchange's
cash equity platform. The Exchange notes that the Activity-Based and
Global Risk Controls are unique to the options market and, at this
time, the Exchange's cash equities platform does not offer analogous
controls.
    Proposed Rule 6.40P-O(c) would set forth the Automated Breach
Actions that the Exchange would take if a designated risk limit is
breached. Proposed Rule 6.40P-O(c)(1)(A)(i)-(ii) would set forth the
automated breach actions for the Pre-Trade Risk Controls.
     Proposed Rule 6.40P-O(c)(1)(A)(i) would provide that a
Limit Order or quote that breaches the designated limit of either a
Single Order Maximum Notional Value Risk Limit or Single Order Maximum
Quantity Risk Limit would be rejected.
     Proposed Rule 6.40P-O(c)(1)(A)(ii) would provide that a
Market Order that breaches the designated limit of a Single Order
Maximum Quantity Risk Limit would be rejected. The proposed rule would
also provide that a Market Order that breaches the designated limit of
a Single Order Notional Value Risk Limit would be rejected if the order
arrived during continuous trading or canceled if the order was received
during a pre-open state and the quantity remaining to trade after an
Auction concludes breaches the designated limit.\144\
---------------------------------------------------------------------------

    \144\ The term ``Auction'' is defined in proposed Rule 6.64P-
O(a)(1), described below in the discussion of proposed Rule 6.64P-O,
to mean the opening or reopening of a series for trading either on a
trade or quote.
---------------------------------------------------------------------------

    Proposed Rule 6.40P-O(c)(1)(A)(i)-(ii) is based on Rule 7.19-
E(c)(2) but differs in that it specifies the treatment of Limit Orders
and Market Orders (the latter having different treatment based on when
such orders arrive at the Exchange) and expands application of the
check to include quotes. The Exchange proposes to process Market Orders
differently because, until a series is opened, the Exchange is not able
to calculate the Single Order Notional Value Risk Limit for a Market
Order. Accordingly, this risk limit would be applied only after a
series opens, at which point, a Market Order would be cancelled if it
fails the risk limit.
    Proposed Rule 6.40P-O(c)(2) would set forth the automated breach
actions for the Activity-Based Risk Controls.
     Proposed Rule 6.40P-O(c)(2)(A) would first specify that an
Entering Firm acting as a Market Maker would be required to apply one
of the Activity-Based Risk Controls to all of its orders and quotes;
whereas an Entering Firm that is not acting as a Market Maker would
have the option, but would not be required, to apply one of the
Activity-Based Risk Controls to its orders. The requirement that Market
Makers utilize Activity-Based Risk Controls for all quotes mirrors the
requirements set forth in Rule 6.40-O, Commentary .04(a); however, the
proposed rule differs in that it likewise requires Market Makers to
apply one of the Activity-Based Risk Controls to all of its orders. The
Exchange believes that requiring that both Market Maker quotes and
Market Maker orders be subject to one of the Activity-Based Controls
would enhance Market Makers' ability to assess their total risk
exposure on the Exchange. The proposed optionality of the Activity-
Based Risk controls for orders sent by an Entering Firm not acting as a
Market Maker mirrors current Rule 6.40-O, Commentary .04(b)).
     Proposed Rule 6.40P-O(c)(2)(B) would provide that to
determine when an Activity-Based Risk Control has been breached, the
Exchange would maintain Trade Counters that would be incremented every
time an order or quote trades, including any leg of a Complex Order,
and would aggregate the number of contracts traded during each such
execution. As further proposed, an Entering Firm may opt to exclude any
orders designated IOC or FOK from being considered by a Trade Counter.
This is consistent with existing functionality set forth in Rule 6.40-
O(a) and Commentary .07, with a proposed difference to allow an
Entering Firm to also exclude orders designated FOK, which, like orders
designated IOC, cancel if not executed on arrival and is based on
current functionality.\145\ The Exchange believes that specifying that
orders designated FOK could be excluded from being considered for a
Trade Counter would add granularity and clarity to Exchange rules. In
addition, as noted above, a Market Maker's quotes and orders in a given
option class would be aggregated and therefore the Exchange proposes
that there would not be separate Trade Counters for a Market Maker's
quotes and orders.
---------------------------------------------------------------------------

    \145\ See Securities Exchange Act Release No. 81717 (September
25, 2017), 82 FR 45631 (September 29, 2017) (SR-NYSEArca-2017-96)
(immediately effective filing to exclude IOC Orders from risk
settings because such exclusion, among other things, would result in
risk settings that may be better calibrated to suit the needs of
certain market participants (i.e., those that routinely utilize IOC
orders to access liquidity on the Exchange)).
---------------------------------------------------------------------------

     Proposed Rule 6.40P-O(c)(2)(C) would provide that each
Entering Firm must select one of three Automated Breach Actions for the
Exchange to take should the Entering Firm breach an Activity-Based Risk
Control.
    [cir] ``Notification Only.'' As set forth in proposed Rule 6.40P-
O(c)(2)(C)(i), if this option is selected, the Exchange would continue
to accept new order and quote messages and related instructions and
would not cancel any unexecuted orders or quotes in the Consolidated
Book. With the ``Notification Only'' action, the Exchange would provide
such notifications, but would not take any other automated actions with
respect to new or unexecuted orders. This proposed functionality is not
currently available for options trading, but is available for breach of
the Gross Credit Risk Limit on the Exchange's cash equity platform, as
set forth in Rule 7.19-E(c)(3)(A)(i). The Exchange believes that making
this Automated Breach Action available to Activity-Based Risk Controls,
which are unique to options trading, would provide Entering Firms more
control and flexibility over setting risk tolerance and, as such, over
how Activity-Based Risk Controls are implemented.
    [cir] ``Block Only.'' As set forth in proposed Rule 6.40P-
O(c)(2)(C)(ii), if this option is selected, the Exchange would reject
new order and quote messages and related instructions, provided that
the Exchange would

continue to process instructions from the Entering Firm to cancel one
or more orders or quotes (including Auction-Only Orders) in full. The
proposed rule would also provide that the Exchange would follow any
instructions specified in paragraph (e) of the proposed Rule (and
described below). This proposed functionality is not currently
available for options trading under current Rule 6.40-O, but is
available for breach of the Gross Credit Risk Limit on the Exchange's
cash equity platform, as set forth in Rule 7.19-E(c)(3)(A)(ii). The
Exchange believes that making this Automated Breach Action available to
Activity-Based Risk Controls, which are unique to options trading,
would provide Entering Firms more control and flexibility over setting
risk tolerance and, as such, over how Activity-Based Risk Controls are
implemented.
    [cir] ``Cancel and Block.'' As set forth in proposed Rule 6.40P-
O(c)(2)(C)(iii), if this option is selected, in addition to the Block
Only actions described above, the Exchange would also cancel all
unexecuted orders and quotes in the Consolidated Book other than
Auction-Only Orders and orders designated GTC. This proposed Cancel and
Block functionality is substantially similar to the automated breach
action taken by the Exchange per current Rule 6.40-O(e) and
Commentaries .01 and .02 thereto, except that under the current rules,
this is default (not optional) functionality. Additionally, this
proposed functionality is substantially identical to the Cancel and
Block option set forth in Rule 7.19-E(c)(3)(A)(iii), which is available
for breach of the Gross Credit Risk Limit on the Exchange's cash equity
platform. The Exchange believes that making this Automated Breach
Action available to respond to a breach of Activity-Based Risk
Controls, which are unique to options trading, would provide Entering
Firms more control and flexibility over setting risk tolerance and, as
such, over how Activity-Based Risk Controls are implemented.
     Finally, proposed Rule 6.40P-O(c)(2)(D) would provide that
if an Entering Firm breaches an Activity-Based Risk Control, the
Automated Breach Action selected would be applied to its orders and
quotes in the affected class of options. This proposed action is
consistent with current Rule 6.40-O(e) and Commentaries .01 and .02
thereto, which provide that, upon a breach, the Exchange will cancel
existing and suspend new orders and quotes trading in the affected
class.
    Proposed Rule 6.40P-O(c)(2)(E) would provide that the Exchange
would specify by Trader Update any applicable minimum, maximum and/or
default settings for the Activity-Based Risk Controls, subject to the
following:
     For the Transaction-Based Risk Limit, the minimum setting
would not be less than one and the maximum setting would not be more
than 2,000 (proposed Rule 6.40P-O(c)(2)(E)(i)), which settings are
identical to the Exchange-determined settings provided under current
Rule 6.40-O, Commentary .03.
     For the Volume-Based Risk Limit, the minimum setting would
not be less than one and the maximum setting would not be more than
500,000 (proposed Rule 6.40P-O(c)(2)(E)(ii)), which settings are
identical to the Exchange-determined settings provided under current
Rule 6.40-O, Commentary .03.
     For the Percentage-Based Risk Limit, the minimum setting
would not be less than 50 and the maximum setting would not be more
than 200,000 (proposed Rule 6.40P-O(c)(2)(E)(iii)), which maximum
setting is the same as the minimum Exchange-determined setting set
forth in current Rule 6.40-O, Commentary .03. The Exchange proposes to
increase the minimum setting from less than one (in current rule) to
not be less than 50 to better reflect actual practice, because under
current Rules, there are no OTP Holders or OTP Firms that have set
their Percentage-Based Risk Limits below 50.
    Proposed Rule 6.40P-O(c)(2)(F) would provide that the Exchange
would specify by Trader Update the Interval for the Activity-Based Risk
Controls, subject to the following:
     The Interval would not be less than 100 milliseconds and
would not be greater than 300,000 milliseconds, inclusive of the
duration of any trading halt occurring within that time (proposed Rule
6.40P-O(c)(2)(F)(i)), which minimum setting is identical to the
Exchange-determined minimum set forth in current Rule 6.40-O,
Commentary .03. Although the current rule does not include a maximum
time period, the Exchange proposes to include a maximum allowable
Interval to promote clarity in Exchange rules of the longest time an
Interval could be.
     For transactions occurring in the Core Open Auction, per
Rule 6.64P-O, the applicable time period would be the lesser of (i) the
time between the Core Open Auction of a series and the initial
transaction or (ii) the Interval (proposed Rule 6.40P-O(c)(2)(F)(ii)),
which proposed time period is identical to the timing provided under
current Rule 6.40-O, Commentary .03.
    Proposed Rule 6.40P-O(c)(3) would set forth the automated breach
actions for the Global Risk Controls set by an Entering Firm.
     Proposed Rule 6.40P-O(c)(3)(A) would provide that if the
Global Risk Control limit is breached, the Exchange would Cancel and
Block, per proposed Rule 6.40P-O(c)(2)(C)(iii), which proposed
functionality is substantively the same as the functionality provided
under current Rule 6.40-O, Commentaries .01 (regarding cancellation of
existing orders) and .02 (regarding block/rejection of new orders).
     Proposed Rule 6.40P-O(c)(3)(B) would provide that if an
Entering Firm breaches the Global Risk Control, the Automated Breach
Action would be applied to all orders and quotes of the Entering Firm
in all classes of options regardless of which class(es) of options
caused the underlying breach of Activity-Based Risk Controls, which
proposed functionality is substantively the same as the functionality
provided (in the last sentence) of current Rule 6.40-O, Commentary .02
in the event of a breach of current Rule 6.40-O(f) (i.e., breach of
global risk setting).
     Proposed Rule 6.40P-O(c)(3)(C) would provide that the
Exchange would specify by Trader Update any applicable minimum, maximum
and/or default settings for the Global Risk Controls, provided that the
minimum setting would not be less than 25 and the maximum setting would
not be more than 100. These proposed settings are based on the
Exchange-determined setting provided under current rule 6.40-O,
Commentary .03, except that the current rule allows for a minimum
setting of one (1) whereas the proposed rule is increasing that minimum
to twenty-five (25), which the Exchange believes would better reflect
actual practice, because under current Rules, there are no OTP Holders
or OTP Firms that have set their Global Risk Controls below 25.
     Proposed Rule 6.40P-O(c)(3)(D) would provide that the
Exchange would specify by Trader Update the Interval for the Global
Risk Controls, subject to the following:
    [cir] The Interval would not be less than 100 milliseconds and
would not be greater than 300,000 milliseconds, inclusive of the
duration of any trading halt occurring within that time, per proposed
Rule 6.40P-O(c)(3)(D)(i), which minimum setting is identical to the
Exchange-determined minimum set forth in current Rule 6.40-O,
Commentary .03. Although the current rule does not include a maximum
time period, the Exchange proposes to include a maximum allowable
Interval to allow an outside parameter by which

the counters would be reset, which would promote transparency in
Exchange rules regarding the maximum allowable Interval.
    [cir] For transactions occurring in the Core Open Auction, per Rule
6.64P-O, the applicable time period is the lesser of (i) the time
between the Core Open Auction of a series and the initial transaction
or (ii) the Interval, per proposed Rule 6.40P-O(c)(3)(D)(ii), which
proposed time period is identical to the timing provided under current
Rule 6.40-O, Commentary .03.
    Proposed Rule 6.40P-O(d) describes how an Entering Firm's ability
to enter orders, quotes, and related instructions would be reinstated
after a ``Block Only'' or ``Cancel and Block'' Automated Breach Action
has been triggered. In such case, proposed Rule 6.40P-O(d) provides
that the Exchange would not reinstate the Entering Firm's ability to
enter orders and quotes and related instructions on the Exchange (other
than instructions to cancel one or more orders or quotes (including
Auction-Only Orders and orders designated GTC) in full) without the
consent of the Entering Firm, which may be provided via automated
contact if it was a breach of an Activity-Based Risk Control. As
further proposed, an Entering Firm that breaches the Global Risk
Control would not be reinstated unless the Entering Firm provides
consent via non-automated contact with the Exchange. This proposed
functionality is consistent with current Rule 6.40-O, Commentary .02
regarding the need for an Entering Firm to make automated or non-
automated contact with the Exchange, as applicable, prior to being
reinstated. Proposed Rule 6.40P-O(d) is also substantively the same as
the more granular level of risk control under Pillar functionality
available for cash equity trading per Rule 7.19-E(d), except that the
proposed rule does not reference Clearing Firms, which feature would
remain specific to cash-equity trading and not be applied to options
trading.
    Proposed Rule 6.40P-O(e) would set forth new ``Kill Switch Action''
functionality, which would allow an Entering Firm to direct the
Exchange to take certain bulk cancel or block actions with respect to
orders and quotes. In contrast to the Automated Breach Actions
described above, which the Exchange would take automatically after the
breach of a risk limit, the Exchange would not take any of the Kill
Switch Actions without express direction from an Entering Firm. The
Exchange believes that the proposed Kill Switch Action functionality
would also provide OTP Holders and OTP Firms with greater flexibility
to provide bulk instructions to the Exchange with respect to cancelling
existing orders and quotes and blocking new orders and quotes.
    Proposed Rule 6.40P-O(e) would specify that an Entering Firm could
direct the Exchange to take one or more of the following actions with
respect to orders and quotes (excluding those represented in open
outcry except CTB Orders), at either an MPID, or if designated, sub-ID
Level: (1) Cancel all Auction-Only Orders; (2) Cancel all orders
designated GTC; (3) Cancel all unexecuted orders and quotes in the
Consolidated Book other than Auction-Only Orders and orders designated
GTC; or (4) Block the entry of any new order and quote messages and
related instructions, provided that the Exchange would continue to
accept instructions from Entering Firms to cancel one or more orders or
quotes (including Auction-Only Orders and orders designated GTC) in
full, and later, reverse that block. The proposed post-trade Kill
Switch Actions are not currently available for options trading per Rule
6.40-O and are substantially identical to the Kill Switch Action
available on the Exchange's cash equity platform pursuant to Rule 7.19-
E(e), with a difference to address the handling of quotes as well as
orders designated GTC, which are not available on the cash equity
platform. The Exchange believes that offering this functionality for
options trading under Pillar would give Entering Firms more flexibility
in setting risk controls for options trading (as noted above) and add
consistency with the Exchange's risk control functionality available
for cash equity trading. Providing ``Kill Switch Action'' functionality
in Exchange rules is consistent with the rules of other options
exchanges.\146\
---------------------------------------------------------------------------

    \146\ See, e.g., Cboe Rule 5.34(c)(6) (describing the optional
``Kill Switch'' functionality, which allows a Cboe participant to
instruct Cboe to simultaneously cancel or reject all orders or
quotes (or a subset thereof) as well as to instruct Cboe to block
all orders or quotes (or a subset thereof), which block instructions
will remain in effect until such participant contacts Cboe's trade
desk to remove the block).
---------------------------------------------------------------------------

    Proposed Commentary .01 to Rule 6.40P-O would provide that the Pre-
Trade, Activity-Based, and Global Risk Controls described in the
proposed Rule 6.40P-O are meant to supplement, and not replace, the OTP
Holder's or OTP Firm's own internal systems, monitoring, and procedures
related to risk management and are not designed for compliance with
Rule 15c3-5 under the Exchange Act.\147\ Responsibility for compliance
with all Exchange and SEC rules remains with the OTP Holder or OTP
Firm. This proposed language is not included in existing Rule 6.40-O,
and is based on Commentary .01 to Rule 7.19-E. The proposed rule makes
clear that use of the proposed controls alone does not constitute
compliance with Exchange rules or the Exchange Act.
---------------------------------------------------------------------------

    \147\ 17 CFR 240.15c3-5.
---------------------------------------------------------------------------

    In connection with proposed Rule 6.40P-O, the Exchange proposes to
add the following preamble to Rule 6.40-O: ``This Rule is not
applicable to trading on Pillar.'' This proposed preamble is designed
to promote clarity and transparency in Exchange rules that Rule 6.40-O
would not be applicable to trading on Pillar.
Proposed Rule 6.41P-O: Price Reasonability Checks--Orders and Quotes
    The Exchange proposes to describe its Price Reasonability Checks
for orders and quotes in proposed Rule 6.41P-O.\148\ For the OX system,
the concept of ``Price Reasonability Checks'' for Limit Orders are
described in Rule 6.60-O(c) and the concept of price protection filters
for quotes are described in Rule 6.61-O. The proposed ``Price
Reasonability Checks'' on Pillar would be applicable to both orders and
quotes and are designed to provide similar price protections as the
current price checks for Limit Orders and price protection filters for
quotes on the OX system, with differences as described in more detail
below. The Exchange believes that applying the same Price Reasonability
Checks to both orders and quotes and describing them in a single rule
would make the Exchange's rules easier to navigate, while continuing to
provide price protection features for both orders and quotes. The
Exchange proposes to locate the rule text for the proposed Price
Reasonability Checks in Rule 6.41P-O to immediately follow Rule 6.40P-O
regarding the Pre-Trade and Activity-Based Controls, as this placement
would group the risk controls together and make Exchange rules easier
to navigate.
---------------------------------------------------------------------------

    \148\ Current Rule 6.41-O is held as Reserved. The Exchange
proposes to renumber the proposed rule with the ``P'' modifier and
remove reference to ``Reserved.''
---------------------------------------------------------------------------

    Proposed Rule 6.41P-O(a)(1)-(3) would set forth the circumstances
under which the proposed Price Reasonability Checks would apply.
Proposed Rule 6.41P-O(a) would provide that the Exchange would apply
the Price Reasonability Checks, as defined in proposed paragraphs (b)
and (c), to all Limit Orders and quotes (excluding those represented in
open outcry except

CTB Orders), during continuous trading on each trading day, subject to
the following:
     Proposed Rule 6.41P-O(a)(1) would provide that a Limit
Order or quote received during a pre-open state would be subject to the
proposed Price Reasonability Checks after an Auction concludes; that a
Limit Order or quote that was resting on the Consolidated Book before a
trading halt would be subject to the proposed Price Reasonability
Checks again after the Trading Halt Auction; and that a put option
message to buy would be subject to the Arbitrage Check regardless of
when it arrives. This proposed rule is based on current Rule 6.60-O(c),
which provides that the Price Reasonability Checks (for orders) are
applied when a series opens or reopens for trading, and is similar to
Rule 6.61-O(a)(1), which provides that Market Maker quote protection
will be applied when an NBBO is available. NBBO protection is available
when a series is opened for trading. Proposed Rule 6.41P-O(a)(1)
includes additional detail and granularity regarding when the proposed
Price Reasonability Checks would be applied under Pillar. The proposed
Rule also adds new functionality that a put option message to buy would
be subject to the Arbitrage Check even if a series is not open for
trading. The Exchange believes that it is appropriate to apply this
check to put option messages to buy at any time because the check is
not dependent on an external reference price.
     Proposed Rule 6.41P-O(a)(2) would provide that if the
calculation of the Price Reasonability Check is not consistent with the
MPV for the series, it would be rounded down to the nearest price
within the applicable MPV, which is consistent with current
functionality. The Exchange believes this proposed rule would promote
clarity and transparency in Exchange rules regarding how the Price
Reasonability Check would be calculated.
     Proposed Rule 6.41P-O(a)(3) would provide that the
proposed Price Reasonability Checks would not apply to (i) any options
series for which the underlying security has a non-standard cash or
stock deliverable as part of a corporate action; (ii) any options
series for which the underlying security is identified as over-the-
counter (``OTC''); (iii) any option series on an index; and (iv) any
option series for which the Exchange determines it is necessary to
exclude underlying securities in the interests of maintaining a fair
and orderly market, which the Exchange would announce by Trader Update.
Proposed Rule 6.41P-O(a)(3) is based on current Commentary .01 to Rule
6.60-O (orders) and 6.61-O (quotes), with a non-substantive difference
that the proposed rule no longer references Binary Return Derivatives
(``ByRDs'') because ByRDs are no longer traded on the Exchange.
    Proposed Rule 6.41P-O(b) would set forth the ``Arbitrage Checks''
for buy orders or quotes, which subset of Price Reasonability Checks
are based on the principle that an option order or quote is in error
and should be rejected (or canceled) when the same result can be
achieved on the market for the underlying equity security at a lesser
cost.
     Proposed Rule 6.41P-O(b)(1) relates to ``puts'' and would
provide that order or quote messages to buy for put options would be
rejected if the price of the order or quote is equal to or greater than
the strike price of the option, which is substantively identical to
current Rules 6.60-O(c)(1)(A) (for orders) and 6.61-O(a)(3) (for
quotes).
     Proposed Rule 6.41P-O(b)(2) relates to ``calls'' and would
provide that order or quote messages to buy for call options would be
rejected or canceled (if resting) if the price of the order or quote is
equal to or greater than the last sale price of the underlying security
on the Primary Market, plus a specified threshold to be determined by
the Exchange and announced by Trader Update. This proposed rule is
substantially similar to current Rules 6.60-O(c)(1)(B) (for orders) and
6.61-O(a)(2)(B) (for quotes), with several differences. First, because
the Exchange is monitoring last sales from the Primary Market, the
Exchange proposes that the Exchange-specified threshold for the Checks
would be based on the last sale on the Primary Market rather than on
the Consolidated Last Sale.\149\ The Exchange believes that the last
sale on the Primary Market would be indicative of the price of the
underlying security and that by using the last sale of the Primary
Market rather than the Consolidated Last Sale, the Pillar system would
need to ingest and process less data, thereby improving efficiency and
performance of the system. The Exchange believes this proposed
difference would not compromise the price protection feature of the
proposed Arbitrage Checks. Second, current Rule 6.61-O(a)(2)(A) and (C)
specifies which price would be used for Market Maker bids made before
the underlying security is open or during a trading halt, pause, or
suspension of the underlying security. Because on Pillar the proposed
Arbitrage Checks for calls (for orders and quotes) would be applied
only once a series has opened or reopened for trading, the Exchange no
longer needs to specify prices other than the last sale on the Primary
Market for purposes of calculating the Arbitrage Check for calls. The
Exchange proposes to reflect this difference from currently
functionality in Rule 6.41P-O(b)(2).
---------------------------------------------------------------------------

    \149\ Per proposed Rule 1.1., the term ``Primary Market'' with
respect to options traded on the Exchange means the principal market
in which the underlying security is traded. The Exchange also notes
a difference in that the proposed Rule refers to a ``specified
threshold,'' whereas current Rule 6.60-O(c)(1)(B) refers to a
``specified dollar amount,'' which difference is designed to give
the Exchange more flexibility in applying the Arbitrage Check to use
a percentage-based threshold.
---------------------------------------------------------------------------

    Proposed Rule 6.41P-O(c) would set forth the ``Intrinsic Value
Checks'' for orders or quotes to sell, which are designed to protect
sellers of calls and puts from presumptively erroneous executions based
on the ``Intrinsic Value'' of an option.
     Proposed Rule 6.41P-O(c)(1)-(2) would set forth how the
Intrinsic Value of an option would be determined. Proposed Rule 6.41P-
O(c)(1) would provide that the Intrinsic Value for a put option is
equal to the strike price minus the last sale price of the underlying
security on the Primary Market. Proposed Rule 6.41P-O(c)(2) would
provide that the Intrinsic Value for a call option is equal to the last
sale price of the underlying security on the Primary Market minus the
strike price. Proposed Rule 6.41P-O(c)(1)-(2) is based on how the
intrinsic value is calculated in current Rule 6.60-O(c)(2) for orders,
with two differences. First, the proposed ``Intrinsic Value Checks''
would also apply to quotes, which would be new on Pillar and would
provide Market Makers with additional protection for quotes to sell.
Second, the Intrinsic Value of an option would be based on the last
sale on the Primary Market rather than on the Consolidated Last Sale
for the same reasons discussed above, that it would enhance performance
without compromising the price protection feature of the Intrinsic
Value Checks.
     Proposed Rule 6.41P-O(c)(3) would provide that ISOs to
sell would not be subject to the Intrinsic Value Check, which carve out
is substantively identical to current Rule 6.60-O(c)(2).
     Proposed Rule 6.41P-O(c)(4) would describe the application
of the Intrinsic Value Checks to puts and calls to sell.
    [cir] Proposed Rule 6.41P-O(c)(4)(A) would provide that orders or
quotes to sell for both puts and calls would be rejected or canceled
(if resting) if the price of the order or quote is equal to or lower
than its Intrinsic Value, minus a specified threshold to be determined

by the Exchange and announced by Trader Update.
    [cir] Proposed Rule 6.41P-O(c)(4)(B) would provide that the
Exchange-determined threshold percentage (per paragraph (c)(4)(A))
would be based on the NBB, provided that, immediately following an
Auction, it would be based on the Auction Price, or, if none, the lower
Auction Collar price, or, if none, the NBB.\150\ This proposed
threshold percentage is similar to how the Reference Price would be
determined for Trading Collars, as described above pursuant to proposed
Rule 6.64P-O(a)(4). As further proposed, Rule 6.41P-O(c)(4)(B) would
provide that for purposes of determining the Intrinsic Value, the
Exchange would not use an adjusted NBBO. The Exchange further proposes
that the Intrinsic Value Check for sell orders and quotes would not be
applied if the Intrinsic Value cannot be calculated.
---------------------------------------------------------------------------

    \150\ See discussion infra, regarding proposed Rule 6.64P-O(a)
and proposed definitions for the terms ``Auction,'' ``Auction
Price,'' ``Auction Collar,'' ``pre-open state,'' and ``Trading Halt
Auction.''
---------------------------------------------------------------------------

    Proposed Rule 6.41P-O(c)(4)(A)-(B) is substantially similar to
current Rule 6.60-O(a)(2)(A), which describes the application of the
Intrinsic Value check for orders, with the following differences:
     The proposed rule would extend this price protection to
quotes, providing Market Makers with additional protection mechanisms;
     The proposed rule would provide additional detail
regarding how the specified threshold percentage would be determined
immediately following an Auction;
     The proposed rule would establish that an unadjusted NBBO
would not be used to calculate the Intrinsic Value; and
     The proposed rule includes text providing that if the
Intrinsic Value cannot be calculated, the Check would not be applied.
    The Exchange believes that these additions would both add
granularity to the rule and enhance the functionality for calculating
and applying the Intrinsic Value. For the same reasons described above
in connection with Limit Order Price Protection and Trading Collars,
the Exchange believes that using an unadjusted NBBO would serve price
protection purposes by using a more conservative view of the NBBO.
    Proposed Rule 6.41P-O(d) would provide the Automated Breach Action
to be applied when a Market Maker's order or quote fails one of the
Price Reasonability Checks. As proposed, if a Market Maker's order or
quote message is rejected or cancelled (if resting) pursuant to
proposed paragraph (b) (Arbitrage Checks) or (c) (Intrinsic Value
Checks) of proposed Rule 6.41P-O, the Exchange would Cancel and Block
orders and quotes in the affected class of options as described in Rule
6.40P-O(c)(2)(C)(iii) (as described above in section ``Proposed Rule
6.40P-O'').
    Proposed Rule 6.41P-O(d)(1) would provide that a breach of proposed
Rule 6.41P-O(d) would count towards a Market Maker's Global Risk
Control limit per Rule 6.40P-O(a)(4) (as described above in section
``Proposed Rule 6.40P-O'').
    Proposed Rule 6.41P-O(d)(2) concerns how a Market Maker would be
reinstated following an automated breach action. As proposed, the
Exchange would not reinstate the Market Maker's ability to enter orders
and quotes and related instructions on the Exchange in that class of
options (other than instructions to cancel one or more orders/quotes
(including Auction-Only Orders and orders designated GTC) in full)
without the consent of the Market Maker, which may be provided via
automated contact.
    Rule 6.41P-O(d) is substantially similar to current Rule 6.61-O(b),
except that the proposed rule applies to both the orders and quotes of
a Market Maker (not just quotes) and provides the additional
functionality that a breach of the Price Reasonability Checks would
count towards a Market Maker's Global Risk Control limit under proposed
Rule 6.40P-O(c)(3), which functionality would be new under Pillar. The
Exchange believes that the proposed new functionality would provide OTP
Holders and OTP Firms greater control and flexibility over setting risk
tolerance and exposure for both orders and quotes. In connection with
proposed Rule 6.41P-O, the Exchange proposes to add the following
preamble to Rules 6.60-O and 6.61-O: ``This Rule is not applicable to
trading on Pillar.'' This proposed preamble is designed to promote
clarity and transparency in Exchange rules that Rules 6.60-O and 6.61-O
would not be applicable to trading on Pillar.
Proposed Rule 6.64P-O: Auction Process
    Current Rule 6.64-O, OX Opening Process, sets forth the opening
process currently used on the Exchange's OX system for opening trading
in a series each day and reopening trading in a series following a
trading halt. Current Rule 6.64-O(a) defines the term ``Trading
Auction'' as the process by which trading is initiated in a specified
options class that may be employed at the opening of the Exchange each
business day or to re-open trading after a trading halt, and that
Trading Auctions will be conducted automatically by the OX system.
Current Rules 6.64-O (b) and (c) describe the manner for the automated
Trading Auctions and provide that, once the primary market for the
underlying security disseminates a quote and a trade that is at or
within the quote, the OX System then conducts an Auction Process
(``current Auction Process'') whereby the OX System determines a single
price at which a series may be opened by looking to the price at which
the greatest number of contracts can trade at or between the NBBO
disseminated by OPRA.\151\
---------------------------------------------------------------------------

    \151\ If the same number of contracts can trade at multiple
prices, the opening price is the price at which the greatest number
of contracts can trade that is at or nearest to the midpoint of the
NBBO disseminated by OPRA; unless one such price is equal to the
price of any resting Limit Order(s) in which case the opening price
is the same price as the Limit Order(s) with the greatest size and,
if the same size, the highest price and if there is a tie between
price levels and no Limit Orders exist at either of the prices, the
Exchange uses the higher price. See Rule 6.64-O(c).
---------------------------------------------------------------------------

    As described in Rule 6.64-O(b)(D), the Exchange will not conduct
the current Auction Process to open a series if the bid-ask
differential for that series is not within an acceptable range, i.e.,
is not within the bid-ask differential guidelines established in Rule
6.37-O(b)(4).\152\ If a series does not open for trading, market and
limit orders entered in advance of the current Auction Process remain
in the Consolidated Book and will not be routed, even if another
exchange opens that series for trading and such resting orders become
Marketable against the ABBO.\153\
---------------------------------------------------------------------------

    \152\ Because Rule 6.64-O(b)(D) cross-references the bid-ask
differential requirement of Rule 6.37-O (b)(4), which relates to the
obligations of Market Makers in appointed classes, the Exchange will
not open a series for trading if the NBBO disseminated by OPRA in a
series is not within such bid-ask differentials.
    \153\ The term ``Marketable'' is defined in proposed Rule 1.1 to
mean for a Limit Order, an order that can be immediately executed or
routed and Market Orders are always considered marketable.''
---------------------------------------------------------------------------

    The Exchange proposes that new Rule 6.64P-O would set forth the
automated process for both opening and reopening trading in a series on
the Exchange on Pillar. The Exchange proposes to specify that current
Rule 6.64-O would not be applicable to trading on Pillar. With the
transition to Pillar, the fundamental process of how an option series
would be opened (or reopened) on the Exchange would not materially
change because the Exchange would continue to assess whether a series
can be opened based on whether the bid-ask differential for a series is
within a

specified range. However, with the availability of Pillar technology,
the Exchange proposes differences to the proposed auction process that
are designed to provide additional opportunities for an options series
to open or reopen for trading even if the bid-ask differential is wider
than the specified guidelines. While this proposed functionality would
be new for options trading on the Exchange, it is not novel for an
options exchange to provide additional opportunities for a series to
open after a specified period of time in a wide market.\154\ In
addition, the Exchange proposes to specify minimum time periods to
allow a Market Maker(s) to quote in an assigned series before the
series is opened or reopened. With the proposed Auction Process,
described further below, the Exchange endeavors to attract the highest
quality quote for each series at the open to attract order flow for the
auction. While the Exchange does not require Market Makers assigned to
a series to quote before a series can be opened (or reopened), the
Exchange believes that providing time for such Market Makers to do so
would provide both better and more consistent prices on executions to
OTP Holders and OTP Firms in an Auction and a smoother transition to
continuous trading. In addition, the Exchange believes that the
proposed changes would enhance the opening/reopening process on the
Exchange by providing a transparent and deterministic process for the
Exchange to open additional series for trading.
---------------------------------------------------------------------------

    \154\ For example, Cboe recently amended Cboe Rule 5.31 relating
to its opening process to provide for a ``forced opening'' process
that is used if an option class is unable to open because it does
not meet the applicable bid-ask differential. In such case, if the
``Composite Market'' is not crossed and there is no non-zero offer,
within a specified time period, Cboe will open the series without a
trade. See Securities Exchange Act Release No. 90967 (January 22,
2021), 86 FR 7249 (January 28, 2021) (SR-Cboe-2021-005) (Notice of
filing and immediate effectiveness of proposed rule change to amend
Cboe's opening process for simple orders).
---------------------------------------------------------------------------

    Further, the Exchange proposes additional enhancements (and detail
them in the rule) that are based on existing Pillar functionality for
the Exchange's cash equity platform's electronic auctions relating to
how orders and quotes would be processed if they arrive during the
period when the Exchange is processing an Auction and how the Exchange
would process orders and quotes when it transitions to continuous
trading following an Auction. Because the Exchange would be using
Pillar terminology, the Exchange proposes to structure proposed Rule
6.64P-O based in part on Rule 7.35-E, which is the Exchange's cash
equity rule governing auctions (relating to separate sections
describing definitions, order processing during an Auction Processing
Period, and transition to continuous trading) and NYSE Rule 7.35, which
is NYSE's rule governing auctions (relating to separate sections
describing definitions, Auction Ranking, Auction Imbalance Information,
order processing during an Auction Processing Period, and transition to
continuous trading). In addition, the Exchange proposes to include in
Rule 6.64P-O how the Exchange would process orders and quotes during a
trading halt, which is structured based in part on Rule 7.18-E(b) and
(c), which describe how the Exchange processes new and existing orders
during a trading halt on its cash equity market. This text would be new
and is designed to provide granularity and transparency in Exchange
rules.
    Definitions. Proposed Rule 6.64P-O(a) would provide that the Rule
would be applicable to all series that trade on the Exchange other than
Flex Options.\155\ Proposed Rule 6.64P-O(a) would set forth the
definitions that would be used for purposes of Rule 6-O Options Trading
and applicable to trading on Pillar. Certain of the proposed
definitions are the same as (or similar to) auction-related definitions
used on the Exchange's cash equity platform, per Rule 7.35-E
(Auctions), with differences noted herein. To the extent that a
definition from Rule 7.35-E is not utilized in proposed Rule 6.64P-O,
the Exchange has determined that such definition(s) is either
inapplicable to the opening process for options trading or that the
relevant, analogous concept(s) is covered elsewhere in the proposed
rule.
---------------------------------------------------------------------------

    \155\ With the transition to Pillar, the Exchange is not making
any changes to how Flex Options trade. Rule 5.31-O provides that
Flex Options transactions may be effected during normal Exchange
options trading hours on any business day and there will be no
trading rotations in Flex Options. Rule 5.33-O sets forth the
procedures for trading Flex Options. The opening process for
Electronic Complex Orders is set forth in Rule 6.91-O.
---------------------------------------------------------------------------

     Proposed Rule 6.64P-O(a)(1) would define the term
``Auction'' to mean the opening or reopening of a series for trading
either with or without a trade. This proposed definition is based in
part on current Rule 6.64-O(a), which defines the term ``Trading
Auction'' to be a process by which trading is initiated in a specified
options class that may be employed at the opening of the Exchange each
business day or to re-open trading after a trading halt.\156\ On
Pillar, the Exchange proposes that the term ``Auction'' would refer to
the point in the process where the Exchange determines that a series
can be opened or reopened either with or without a trade. After an
Auction concludes, the series then transitions to continuous trading.
---------------------------------------------------------------------------

    \156\ See also Rule 6.64-O(d) (providing that a Trading Auction
to reopen an option class after a trading halt is conducted in the
same manner as a Trading Auction to open each option class at the
start of each trading day, i.e., as described in Rule 6.64-O(a)-
(c)).
---------------------------------------------------------------------------

     Proposed Rule 6.64P-O(a)(1)(A) would provide that a ``Core
Open Auction'' means the Auction that opens trading after the beginning
of Core Trading Hours and proposed Rule 6.64P-O(a)(1)(B) would provide
that a ``Trading Halt Auction'' means the Auction that reopens trading
following a trading halt. These are Pillar terms that would be new to
options trading and are based on the same terms currently used in Rule
7.35-E(c) and (e) for the same purposes.
     Proposed Rule 6.64P-O(a)(2) would define the term
``Auction Collar'' to mean the price collar thresholds for the
Indicative Match Price (defined below) for an Auction. As further
proposed, the upper Auction Collar would be the offer of the Legal
Width Quote (defined below) and the lower Auction Collar would be the
bid of the Legal Width Quote, provided that if the bid of the Legal
Width Quote is zero, the lower Auction Collar would be one MPV above
zero for the series. The proposed rule would further provide that if
there is no Legal Width Quote, the Auction Collars would be published
in the Auction Imbalance Information (defined below) as zero.
    The proposed terminology of ``Auction Collar'' would be new for
options trading and is based on the same term used in Rule 7.35-
E(a)(10) for trading cash equity securities. As proposed, the Auction
Collars would be set at the Legal Width Quote (described below) and
would prevent an Auction trade from occurring at a price outside of the
Legal Width Quote. The Exchange believes that the concept of Auction
Collars is similar to the current requirement that the Exchange will
not open a series if the bid-ask differential is not within the bid-ask
differential guidelines established under Rule 6.37-O(b)(4).\157\ Thus,
the proposed Auction Collars (based on a Legal Width Quote) would use
Pillar terminology to prevent an Auction that results in a trade from
being priced outside the bid-ask

differential applicable to Auctions on Pillar.\158\
---------------------------------------------------------------------------

    \157\ See Rule 6.64-O(b)(D) and (E). The Exchange notes that in
common parlance bid-ask differentials are known as ``legal-width
quotes.''
    \158\ See also Cboe Rule 5.31(a) (defining the ``Opening
Collar'' as the price range that establishes limits at or inside of
which Cboe determines the opening trade price for a series).
---------------------------------------------------------------------------

    Proposed Rule 6.64P-O(a)(3) would define the term ``Auction
Imbalance Information'' to mean the information that the Exchange
disseminates about an Auction via its proprietary data feeds and
includes the Auction Collars, Auction Indicator, Book Clearing Price,
Far Clearing Price, Indicative Match Price, Matched Volume, Market
Imbalance, and Total Imbalance.\159\ With Pillar, the Exchange proposes
to disseminate Auction Imbalance Information for its options market in
the same manner that such information is disseminated for its cash
equity market. The Exchange currently makes certain auction imbalance
information available on its proprietary data feed and the Exchange
believes that enhancing this information by disseminating the proposed
Auction Collars, Auction Indicator, Book Clearing Price, and Far
Clearing Price, which would be new for options trading on Pillar, would
promote transparency. Accordingly, this proposed definition would be
new and is based on the same term used in Rule 7.35-E(a)(4), with
differences to reflect the options-specific content that would be
included in Auction Imbalance Information for options trading. In
addition, the Exchange proposes that the Auction Imbalance Information
would reflect the orders and quotes eligible to participate in an
Auction, which contribute to price discovery. As such, proposed Rule
6.64P-O(a)(3) would further provide that Auction Imbalance Information
would be based on all orders and quotes (including the non-displayed
quantity of Reserve Orders) eligible to participate in an Auction,
excluding IO Orders.\160\ The Exchange believes that specifying that
non-displayed quantity of Reserve Orders would be included in the
Auction Imbalance Information is consistent with current functionality
that the full quantity of Reserve Orders are eligible to participate in
the current Auction Process.
---------------------------------------------------------------------------

    \159\ On the Exchange's cash equity market, Auctions have an
``Auction Imbalance Freeze,'' which is a period in advance of the
scheduled Auction. The Exchange does not currently provide for an
analogous period to open or reopen options trading and does not
propose to include such a period for options trading on Pillar.
Accordingly, the Exchange does not propose terms based on ``Auction
Imbalance Freeze,'' as described in Rule 7.35-E(a)(3), for options
trading on Pillar.
    \160\ This is consistent with the order information included in
Auction Imbalance Information for cash equity trading. See Rule
7.35-E(a)(7) and 7.35-E(a)(8). The Exchange proposes to exclude IO
Orders because they are conditional offsetting orders that would not
contribute to price discovery in the Auction Process.
---------------------------------------------------------------------------

    Proposed Rule 6.64P-O(a)(3)(A) would define the term ``Auction
Indicator'' to mean the indicator that provides a status update of
whether an Auction cannot be conducted because either (i) there is no
Legal Width Quote, or (ii) a Market Maker quote has not been received
during the parameters of the Opening MMQ Timer(s) (defined below). The
Exchange currently disseminates an Auction Indicator on its cash equity
market and proposes similar functionality for options trading on the
Exchange.\161\ This proposed definition would be new for options
trading and uses Pillar terminology based on Rule 7.35-E(a)(13) and
would provide transparency of when an Auction could not be
conducted.\162\ While the Exchange's cash equity rule is written from
the standpoint of when an auction can be conducted, the proposed rule
is written from the standpoint of when an auction cannot be conducted.
The Exchange believes this difference is appropriate because, for
options trading, the proposed Auction (and its Auction Indicator) are
impacted by the absence of necessary information (i.e., a Legal Width
Quote or a Market Maker quote), rather than an auction in the cash
equity market, where the determining factor of whether to conduct an
auction is the quality (not the presence of) of information (i.e., the
Imbalance).
---------------------------------------------------------------------------

    \161\ See Rule 7.35-E(a)(13).
    \162\ Consistent with the proposed rule, Rule 6.64-O(b)(D)
provides that the Exchange will not conduct the current Auction
Process if the bid-ask differential for a series is not within an
acceptable range.
---------------------------------------------------------------------------

    Proposed Rule 6.64P-O(a)(3)(B) would define the term ``Book
Clearing Price'' to mean the price at which all contracts could be
traded in an Auction if not subject to the Auction Collar and states
that the Book Clearing Price would be zero if a sell (buy) Imbalance
cannot be filled by any buy (sell) interest. The Exchange proposes that
the manner that the Book Clearing Price would be calculated for options
trading would be the same as how it is calculated for cash equity
trading. Accordingly, this proposed definition and functionality would
be new for options trading and is based on the definition of ``Book
Clearing Price'' set forth in Rule 7.35-E(a)(11), with differences to
reflect options trading terminology (i.e., reference contracts instead
of buy (sell) orders).
    Proposed Rule 6.64P-O(a)(3)(C) would define the term ``Far Clearing
Price'' to mean the price at which Auction-Only Orders could be traded
in an Auction within the Auction Collar. The Exchange proposes that the
manner that the Far Clearing Price would be calculated for options
trading would be the same as how it is calculated for cash equity
trading. Accordingly, this proposed definition and functionality would
be new for options trading and is based on the definition of ``Far
Clearing Price'' set forth in Rule 7.35-E(a)(12).
    Proposed Rule 6.64P-O(a)(3)(D) would define the term ``Imbalance''
to mean the number of buy (sell) contracts that cannot be matched with
sell (buy) contracts at the Indicative Match Price at any given time.
The Exchange proposes that the manner that the Imbalance would be
calculated for options trading would be the same as how it is
calculated for cash equity trading, which is consistent with current
functionality that calculates the imbalance based on all interest
eligible to participate in an auction. Accordingly, this proposed
definition would be new rule text for options trading and is based on
the definition of ``Imbalance'' set forth in Rule 7.35-E(a)(7), except
that, unlike for cash equities, the proposed definition would not
reference the non-displayed quantity of Reserve Orders. As discussed
above, the Exchange believes that providing an overarching description
of how the non-displayed quantity of Reserve Orders would be included
in Auction Imbalance Information is more appropriately included in the
proposed (more expansive) definition of Auction Imbalance Information
(per proposed Rule 6.64P-O(a)(3)) to reflect the Auction-eligible
interest that contribute to price discovery.\163\ In addition, the
proposed rule differs from Rule 7.35-E(a)(7) to reflect options trading
terminology (i.e., contracts instead of shares).
---------------------------------------------------------------------------

    \163\ See supra note 150 (regarding consistency of proposed Rule
6.64P-O(a)(3) regarding Auction Imbalance Information with Rule
7.35-E(a)(7) and 7.35-E(a)(8)).
---------------------------------------------------------------------------

    Proposed Rule 6.64P-O(a)(3)(D)(i) would define the term ``Total
Imbalance'' to mean the Imbalance of all buy (sell) contracts at the
Indicative Match Price for all orders and quotes eligible to trade in
an Auction. The Exchange proposes that the manner that the Total
Imbalance would be calculated for options trading would be the same as
how it is calculated for cash equity trading and is consistent with
current functionality. Accordingly, this proposed definition would be
new and is based on the definition of ``Total Imbalance'' set forth in
Rule 7.35-E(a)(7)(A), except that the proposed definition does not
include the

superfluous modifier ``net'' in reference to Total Imbalance and
includes options trading terminology (i.e., contracts instead of
shares).
    Proposed Rule 6.64P-O(a)(3)(D)(ii) would define the term ``Market
Imbalance'' to mean the Imbalance of any remaining buy (sell) Market
Orders and MOO Orders that are not matched for trading in the Auction.
The Exchange proposes that the manner that the Market Imbalance would
be calculated for options trading would be the same as how it is
calculated for cash equity trading, which differs from current options
functionality.\164\ Accordingly, this proposed definition and
functionality would be new and is based on the definition of ``Market
Imbalance'' set forth in Rule 7.35-E(a)(7)(B), with a difference to add
reference to MOO Orders (as defined in proposed Rule 6.62P-
O(c)(2)).\165\
---------------------------------------------------------------------------

    \164\ On the OX system, the market imbalance is the difference
between quantities of buy and sell market orders.
    \165\ Rule 7.35-E(a)(7)(B) does not separately reference MOO
Orders because Rule 7.35-E(a) provides that, unless otherwise
specified, the term ``Market Orders'' in Rule 7.35-E includes MOO
Orders (for the Core Open Auction and Trading Halt Auction). The
Exchange proposes that for options trading, the terms Market Order
and MOO Order both be referenced in proposed Rule 6.64P-O.
---------------------------------------------------------------------------

     Proposed Rule 6.64P-O(a)(4) would define the term
``Auction Price'' to mean the price at which an Auction that results in
a trade is conducted. The Exchange proposes that this term would have
the same meaning as the same term as used on NYSE, as described in NYSE
Rule 7.35(a)(6), with a difference to add the phrase ``that results in
a trade'' to be clear that an Auction Price is for an Auction that
results in a trade. This would be a new term for options trading and is
designed to add clarity and transparency to Exchange rules as this term
would be used as a reference price in proposed Rules 6.62P-O(a)(3)(B)
and 6.41P-O(c)(4)(B).\166\
---------------------------------------------------------------------------

    \166\ See also Cboe Rule 5.31(a) (defining the ``Opening Trade
Price'' as the price at which Cboe executes opening trades in a
series). The Exchange notes that the term ``Auction Price'' is
distinguished from the proposed term of ``Indicative Match Price,''
as the latter term is the content included in the Auction Imbalance
Information in advance of an Auction, and the Auction Price is the
price of an Auction that results in a trade.
---------------------------------------------------------------------------

     Proposed Rule 6.64P-O(a)(5) would define the term
``Auction Process'' to mean the process that begins when the Exchange
receives an Auction Trigger (defined below) for a series and ends when
the Auction is conducted. This would be a new term for options trading
and is designed to add clarity and transparency to Exchange rules and
address all steps in the process that culminates in an Auction, as
described in proposed Rule 6.64P-O(d).
     Proposed Rule 6.64P-O(a)(6) would define the term
``Auction Processing Period'' to mean the period during which the
Auction is being processed. The Exchange proposes that this new term
would have the same meaning as the same term on its cash equity market.
The Auction Processing Period is at the end of the Auction Process and
is the period when the actual Auction is conducted and the Exchange
transitions from a pre-open state (described below) to continuous
trading. The end of the Auction Processing Period is the end of the
Auction and, depending on the orders and quotes in the Consolidated
Book, it concludes either with or without a trade. Accordingly, this
proposed definition is substantively identical to the definition of
``Auction Processing Period'' set forth in Rule 7.35-E(a)(2).
     Proposed Rule 6.64P-O(a)(7) would define the term
``Auction Trigger'' to mean the information disseminated by the Primary
Market in the underlying security that triggers the Auction Process for
a series to begin. For a Core Open Auction, the proposed Auction
Trigger would be when the Primary Market first disseminates at or after
9:30 a.m. Eastern Time both a two-sided quote and a trade of any size
that is at or within the quote per proposed Rule 6.64P-O(a)(7)(A). For
a Trading Halt Auction, the proposed Auction Trigger would be when the
Primary Market disseminates at the end of a trading halt or pause a
resume message, a two-sided quote, and a trade of any size that is at
or within the quote, per proposed Rule 6.64P-O(a)(7)(B). This proposed
term is new and is not used on the cash equity platform. This proposed
functionality, however, is not new and is based on how the Exchange
currently opens or reopens a series for trading, as set forth in the
last sentence of current Rule 6.64-O(b).\167\ The proposed rule adds
detail not found in the current rule by referring to a ``two-sided
quote'' rather than a ``quote,'' without any changes to functionality.
The Exchange also proposes a difference that an opening trade on the
Primary Market may be ``of any size,'' which would make clear that an
odd-lot transaction on the Primary Market could be used as an Auction
Trigger, which would be new on Pillar. The Exchange believes that
because it requires both a quote and a trade from the Primary Market
before it can open/reopen trading in the overlying option, and because
a Primary Market that has disseminated a quote for an underlying
security is open for trading, allowing odd-lot sized trades to be
included in the trigger would increase the opportunities to open/reopen
trading options that overlay low-volume securities that have opened for
trading on the Primary Market and would reduce the circumstances needed
to manually trigger an Auction for a series.
---------------------------------------------------------------------------

    \167\ Rule 6.64-O(b) provides, in relevant part, that the
related option series will be opened automatically ``once the
primary market for the underlying security disseminates a quote and
a trade that is at or within the quote.''
---------------------------------------------------------------------------

     Proposed Rule 6.64P-O(a)(8) would define the term
``Calculated NBBO'' to mean the highest bid and lowest offer among all
Market Maker quotes and the ABBO during the Auction Process. The
Exchange proposes to use the term ``Calculated NBBO'' to specify which
bids and offers the Exchange would consider for purposes of determining
whether to proceed with an Auction on Pillar, as described in greater
detail below. The Exchange believes the proposed term provides more
clarity than referencing an ``NBBO disseminated by OPRA'' and is
consistent with the proposed definition of ABBO, which by its terms is
disseminated by OPRA.\168\
---------------------------------------------------------------------------

    \168\ The Exchange notes that the information used to calculate
the proposed Calculated NBBO is consistent with the information that
the Exchange receives from OPRA in advance of the Exchange opening
or reopening trading (i.e., Market Maker rotational quotes from the
Exchange and ABBO) and is similar to Cboe's definition of
``Composite Market,'' as described in Cboe Rule 5.31(a), which
includes Cboe Market Maker quotes and BBOs of other options
exchanges.
---------------------------------------------------------------------------

     Proposed Rule 6.64P-O(a)(9) would define the term
``Indicative Match Price'' to mean 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. This functionality is consistent with the
current process for establishing a single opening price, as described
in Rule 6.64-O(b)(A), but the proposed rule adds more granularity and
uses Pillar terminology.\169\ In addition, the term ``Indicative Match
Price'' refers to the same functionality as the OX system's reference
to the term ``reference price'' in its imbalance information. This
proposed definition is based on the Pillar definition of ``Indicative
Match Price'' set forth in Rule 7.35-E(a)(8), with differences to refer
solely to ``price'' as opposed to ``best price'' because proposed Rule
6.64P-O(a)(9)(A), described below, would provide specificity of how
such price would be determined, and to reflect options trading
terminology (i.e., contracts instead of shares). Proposed Rule 6.64P-
O(a)(9) would further

provide that if there is no Legal Width Quote, the Indicative Match
Price included in the Auction Imbalance Information would be calculated
without Auction Collars. This would be a new feature applicable only to
options trading and an Indicative Match Price without Auction Collars
would be accompanied with an Auction Indicator that the Auction cannot
be conducted because there is no Legal Width Quote.\170\
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    \169\ See Rule 6.64-O(b)(A), (c) (describing process for
determining single opening price).
    \170\ This would be new functionality because currently, if
there is no legal width NBBO, the Exchange does not disseminate
imbalance information and does not calculate an indicative match
price.
---------------------------------------------------------------------------

    Proposed Rule 6.64P-O(a)(9)(A) would provide that if there is more
than one price level at which the maximum number of contracts can be
traded within the Auction Collars, the Indicative Match Price would be
the price closest to the midpoint of the Legal Width Quote, rounded to
the nearest MPV for the series, provided 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. This functionality is similar
to the current process for establishing a single opening price, as
described in Rule 6.64-O(c), which provides that when the same number
of contracts can trade at multiple prices, the opening price is the
price at which the greatest number of contracts can trade that is at or
nearest to the midpoint of the NBBO disseminated by OPRA. The proposed
rule text uses Pillar terminology based on Rule 7.35-E(a)(8)(A) and
adds more granularity, such as describing that the Exchange would round
to the nearest MPV in the series, which is consistent with current
functionality. The Exchange also proposes a difference compared to the
cash equity rules to reflect that when there is more than one price
level at which the maximum number of contracts can trade, the
Indicative Match Price for options trading would be the price closest
to the midpoint of the Legal Width Quote rather than (for cash
equities) the price closest to an auction reference price. The Exchange
believes that reference to the term Legal Width Quote reflects the
proposed use of this term in the Auction Process rather than referring
to the NBBO disseminated by OPRA.
    Proposed Rule 6.64P-O(a)(9)(B) would provide that an Indicative
Match Price that is higher (lower) than the upper (lower) Auction
Collar would be adjusted to the upper (lower) Auction Collar and orders
eligible to participate in the Auction would trade at the collared
Indicative Match Price. Proposed Rule 6.64P-O(a)(9)(B)(i) would provide
that Limit Orders to buy (sell) with a limit price above (below) the
upper (lower) Auction Collar would be included in the Auction Imbalance
Information at the collared Indicative Match Price and would be
eligible to trade at the Indicative Match Price. This proposed rule
text provides granularity that, consistent with current functionality,
orders willing to buy (sell) at a higher (lower) price than the Auction
Price would participate in an Auction trade, which, by definition,
would be required to be at or between the Auction Collars. Proposed
Rule 6.64P-O(a)(9)(B)(ii) would provide that Limit Orders and quotes to
buy (sell) with a limit price below (above) the lower (upper) Auction
Collar would not be included in the Auction Imbalance Information and
would not participate in an Auction. The Exchange proposes that the
manner that orders and quotes priced outside of the Auction Collar
would be included (or not) in the Indicative Match Price would be the
same as how it is determined for cash equity trading. Accordingly, this
proposed rule text is new for options trading (but the functionality is
consistent with current functionality) and uses Pillar terminology
based on Rules 7.35-E(a)(10)(A), (B), and (C) that is designed to add
granularity to the proposed rule, and with a difference to reflect when
the proposed rule would be applicable to quotes.
    Proposed Rule 6.64P-O(a)(9)(C) would provide that if the Matched
Volume (defined below) for an Auction consists of only buy and sell
Market Orders, the Indicative Match Price would be the midpoint of the
Legal Width Quote, rounded to the MPV for the series, or, if, the Legal
Width Quote is locked, then the locked price. This proposed rule text
is new and uses Pillar terminology based on Rule 7.35-E(a)(8)(C), with
differences to reflect that options trading on Pillar would be based on
a Legal Width Quote (as defined herein) to determine the Indicative
Match Price when there are only Market Orders eligible to trade in an
Auction. This proposed rule is designed to provide granularity of how
the Indicative Match Price would be calculated if there are only Market
Orders.
    Proposed Rule 6.64P-O(a)(9)(D) would provide that if there is no
Matched Volume, including if there are Market Orders on only one side
of the Market, the Indicative Match Price and Total Imbalance for the
Auction Imbalance Information would be zero. This proposed rule text is
new and uses Pillar terminology based on Rule 7.35-E(a)(8)(D) and (E)
with differences to reflect that on options, the Indicative Match Price
would be zero in both circumstances. This proposed Rule is designed to
provide granularity regarding how the Indicative Match Price and Total
Imbalance for the Auction Imbalance Information would be calculated if
there is no Matched Volume.
     Proposed Rule 6.64P-O(a)(10) would define a ``Legal Width
Quote'' as a Calculated NBBO that: (A) May be locked, but not crossed;
(B) does not contain a zero offer; and (C) has a spread between the
Calculated NBBO for each option contract that does not exceed a maximum
differential that is determined by the Exchange on a class by class
basis and announced by Trader Update (as discussed further below,
provided that a Trading Official may establish differences other than
the above for one or more series or classes of options.\171\
---------------------------------------------------------------------------

    \171\ See Rule 6.37-O(c) (Unusual Conditions--Opening Auction)
(providing that ``[i[f the interest of maintaining a fair and
orderly market so requires, a Trading Official may declare that
unusual market conditions exist in a particular issue and allow
Market Makers in that issue to make auction bids and offers with
spread differentials of up to two times, or in exceptional
circumstances, up to three times, the legal limits permitted under
Rule 6.37-O'').
---------------------------------------------------------------------------

    Requiring that the Legal Width Quote not be crossed is consistent
with current Rule 6.64-O(b)(E), which requires an uncrossed NBBO
disseminated by OPRA before a series can be opened (or reopened).\172\
The Exchange believes that the additional detail in proposed Rules
6.64P-O(a)(10)(A) and (B) regarding how to determine a Legal Width
Quote provides clarity and granularity as to when a Calculated NBBO
would be eligible to be considered a Legal Width Quote. In addition,
requiring that the Calculated NBBO must not exceed a maximum
differential before an Auction can proceed is based on the current OX
Opening Process, which requires the bid-ask differential for a series
to be in an acceptable range.\173\ However, rather than specify maximum
bid-ask differentials in proposed Rule 6.64P-O, the Exchange believes
it is appropriate to instead retain flexibility to set the

maximum differentials so that the Exchange may consider the different
market models and characteristics of different classes, as well as
modify amounts in response to then-current market conditions.\174\ The
proposed Rule would allow the Exchange to modify these bid-ask
differentials at any time as it deems necessary and appropriate, which
discretion the Exchange has today on the OX system.\175\ In addition,
allowing the Exchange to announce the maximum differentials by Trader
Update (as opposed to by Rule) is consistent with the rules of several
options exchanges that are able to change the amounts of valid opening
widths by notice or circular and not by rule change.\176\
---------------------------------------------------------------------------

    \172\ The proposed calculation of a Legal Width Quote is also
similar to how Cboe determines whether to perform a ``Forced
Opening,'' because Cboe requires a Composite Market that is not
crossed with a non-zero offer. See Cboe Rule 5.31(e)(4).
    \173\ See Rule 6.64-O(b)(D) (providing that ``[t]he OX System
will not conduct an Auction Process if the bid-ask differential for
that series is not within an acceptable range,'' which ``acceptable
range shall mean within the bid-ask differential guidelines
established pursuant to Rule 6.37-O(b)(4)'').
    \174\ For example, Cboe recently amended Cboe Rule 5.31 relating
to its opening process to amend the definition of ``Maximum
Composite Width'' (i.e., the amount that the ``Composite Width'' of
a series may generally not be greater than for the series to open),
which term is used similarly to how the Exchange proposes to use the
term ``Legal Width Quote,'' to delete the specified amounts for the
Maximum Composite Width and to instead provide that Cboe may
determine such amounts ``on a class and Composite bid basis, which
amount [Cboe] may modify during the opening auction process'' and
disseminate ``to all subscribers of [Cboe's] data feeds that
delivery opening auction updates''). See Securities Exchange Act
Release No. 90967 (January 22, 2021), 86 FR 7249 (January 28, 2021)
(SR-Cboe-2021-005) (Notice of filing and immediate effectiveness of
proposed rule change to remove specified spread differentials from
Rule 5.31).
    \175\ See supra note 171 (regarding authority conferred on
Trading Officials, per Rule 6.37-O(c), to make auction bids and
offers with spread differentials of up to two times, or in
exceptional circumstances, up to three times, the legal limits,
``[i[f the interest of maintaining a fair and orderly market so
requires'').
    \176\ See, e.g., Cboe Rule 5.31(a) (definition of Maximum
Composite Width); Cboe EDGX Options Exchange, Inc. (``EDGX'') Rule
21.7(a) (same); BZX Rule 21.7(a) (same)); Cboe C2 Exchange Inc.
(``C2'') Rule 6.11(a) (same); see also Nasdaq Options Market
(``NOM'') Options 3, Section 8(a)(6) (defining ``Valid Width NBBO''
as ``the combination of all away market quotes and any combination
of NOM-registered Market Maker orders and quotes received over the
QUO or SQF Protocols within a specified bid/ask differential as
established and published by the Exchange'' and allowing the Valid
Width NBBO to be ``configurable by underlying, and tables with valid
width differentials will be posted by Nasdaq on its website'') and
MIAX Rule 503(f)(2) (which permits MIAX to determine by circular an
acceptable range in which openings are permissible if there is no
valid width national best bid or offer (``NBBO'')).
---------------------------------------------------------------------------

    The Exchange believes that the proposed definition relating to
``Legal Width Quote'' would promote clarity and transparency in
Exchange rules regarding which quotes--both Market Maker quotes on the
Exchange and the ABBO, i.e., the Calculated NBBO--that the Exchange
would use to determine if there is a Legal Width Quote and provide
direction that to be a Legal Quote Width, a Calculated NBBO may not
exceed a maximum differential.
    The Exchange also proposes to make a conforming change to Rule
6.37-O(c) to update the title from ``Unusual Conditions--Opening
Auction'' to be ``Unusual Conditions--Auctions,'' which would align
with the proposed definition of ``Auctions'' in proposed Rule 6.64P-
O(a), which includes both opening and reopening auctions. This proposed
change also promotes clarity, consistent with current functionality
that Rule 6.37-O(c) is also applicable to reopenings. In addition, the
Exchange proposes to amend Rule 6.37-O(c), which authorizes a Trading
Official to widen the bid-ask differentials in the event of unusual
conditions, to add a cross-reference to extend such authority to
proposed Rule 6.64P-O(a)(9) (regarding the Legal Width Quote spreads).
This proposed amendment would ensure that the existing procedures for
auctions in the event of unusual conditions, as specified in Rule 6.37-
O(c), would continue to be available for option symbols that have
transitioned to Pillar (and subject to new Rule 6.64P-O(a)(10)).
     Proposed Rule 6.64P-O(a)(11) would define the term
``Matched Volume'' to mean the number of buy and sell contracts that
can be matched at the Indicative Match Price, excluding IO Orders. The
concept of Matched Volume on Pillar is consistent with the OX system's
concept of ``paired quantity'' in its imbalance information. This
proposed rule text uses Pillar terminology based on the definition of
``Matched Volume'' set forth in Rule 7.35-E(a)(9), with a non-
substantive difference to reference (option) contracts instead of
shares and to be clear that the Matched Volume would not include IO
Orders. The Exchange believes this proposed definition promotes
granularity in Exchange rules.
     Proposed Rule 6.64P-O(a)(12) would define the term ``pre-
open state'' to mean the period before a series is opened or reopened
for trading and would provide that during the pre-open state, the
Exchange would accept Auction-Only Orders, quotes, and orders
designated Day or GTC, including orders ranked under the proposed
category of ``Priority 3--Non-Display Orders'' that are not eligible to
participate in an Auction.\177\ This proposed text is consistent with
current Rule 6.64-O(b), which provides that the Exchange will accept
market and limit orders for inclusion in the opening auction process
and would add further granularity regarding which interest would be
accepted by the Exchange (even if not eligible for an Auction) prior to
the opening or reopening of each option series and during which time
period. The proposed rule would further provide that the pre-open state
for the Core Open Auction would begin at 6:00 a.m. Eastern Time and
would end when the Auction Processing Period begins, which is similar
to current functionality, which allows order and quote entry to begin
at 5:30 a.m. Eastern Time. The Exchange believes that moving the start
time to 6:00 a.m. Eastern Time would not materially impact the ability
of OTP Holders to enter orders or quotes during the pre-open state. As
further proposed, at the beginning of the pre-open state before the
Core Open Auction, orders designated GTC that remain from the prior
trading day will be included in the Consolidated Book, which is
consistent with current functionality. The proposed rule would also
provide that the pre-open state for a Trading Halt Auction would begin
at the beginning of the trading halt and would end when the Auction
Processing Period begins. This proposed definition of a pre-open state
would be new for Pillar and is designed to distinguish the pre-open
state (for a Core Open Auction or a Trading Halt Auction) from both the
Auction Processing Period and the period when a given series opens for
trading, which would add granularity to Exchange rules. As noted above,
this proposed definition of pre-open state would also be used in
proposed Rules 6.40P-O, 6.41P-O, and 6.62P-O.
---------------------------------------------------------------------------

    \177\ The Exchange notes that Cboe refers to a similar period as
the ``Queuing Period.'' See Cboe Rule 5.31(b). Similar to Cboe's
Queuing Period, the proposed term of ``pre-open state'' means the
period when the Exchange accepts orders and quotes but has not yet
opened/reopened a series for continuous trading. The proposed
``Auction Process,'' defined above, is part of the pre-open state,
but does not begin until the Exchange receives an Auction Trigger,
as defined above.
---------------------------------------------------------------------------

     Proposed Rule 6.64P-O(a)(13) would define the term
``Rotational Quote'' to mean the highest Market Maker bid and lowest
Market Maker offer on the Exchange when the Auction Process begins and
would provide that during the Auction Process, the Exchange would
update the price and size of the Rotational Quote and that such
Rotational Quote can be locked or crossed. The Exchange further
proposes that, if there are no Market Maker quotes, the Rotational
Quote would be published with a zero price and size. The Exchange notes
that, although not specified in the current rule, it currently
disseminates a ``rotational quote'' to OPRA when it is in the process
of opening or reopening a series, i.e., a quote that is comprised only
of Market Maker quotes and does not include orders. The Exchange
proposes a

difference on Pillar because currently, if the Market Maker Quotes are
crossed, the Exchange flips the bid and offer prices. In Pillar, the
Exchange would publish a Rotational Quote with the actual bid and offer
prices, even if crossed, which would provide OTP Firms and OTP Holders
with a more accurate view of whether a Rotational Quote is crossed.
This proposed definition is new, uses Pillar terminology, and adds
granularity to Exchange rules by codifying existing (albeit slightly
modified) functionality.
    Auction Ranking. Proposed Rule 6.64P-O(b) would describe the
ranking for Auctions and would provide that orders and quotes on the
side of the Imbalance are not guaranteed to participate in the Auction
and would be ranked in price-time priority under proposed Rule 6.76P-O,
consistent with the priority ranking associated with each order or
quote, provided that: (1) Limit Orders, quotes, and LOO Orders would be
ranked based on their limit price and not the price at which they would
participate in the Auction; (2) MOO Orders would be ranked under the
proposed category of ``Priority 1--Market Orders''; (3) LOO Orders
would be ranked under the proposed category of ``Priority 2--Display
Orders''; and (4) IO Orders would be ranked based on time among IO
Orders, subject to eligibility to participate at the Indicative Match
Price based on their limit price.\178\
---------------------------------------------------------------------------

    \178\ Unlike the Exchange's cash equity rules, the Exchange
proposes to describe Auction Ranking in a separate section of
proposed Rule 6.64P-O, which is a stylistic choice similar to NYSE
Rule 7.35(b), which also separates the concept of Auction Ranking
from definitions.
---------------------------------------------------------------------------

    This proposed rule is based in part on current Rule 6.64-O(b)(B),
which provides that ``[o]rders and quotes in the system will be matched
up with one another based on price-time priority, provided, however,
that orders will have priority over Market Maker quotes at the same
price.'' The Exchange proposes a difference in Pillar that orders in
the same priority category as quotes would not have priority over
Market Maker quotes at the same price, which distinction is an artifact
of the Exchange's existing system limitation. Instead, the Exchange
proposes that orders and Market Maker quotes in the same priority
category would be ranked based on time, as proposed in Rule 6.76P-O.
This equal ranking of orders and quotes is consistent with how other
options markets handle orders and quotes during the opening
process.\179\ Because the Exchange proposes that orders and quotes in
an options Auction would be processed in the same manner as on its cash
equity platform, including that orders on the side of the Imbalance
would not be guaranteed to participate in an Auction, the proposed rule
text in this regard is based in part on Rule 7.35-E(a)(6)(A)--(D), with
differences to reflect that options trading includes quotes and to be
clear that IO Orders would be ranked based on working time among IO
Orders, subject to such orders' eligibility to participate at the
Indicative Match Price based on their limit price.\180\
---------------------------------------------------------------------------

    \179\ See Cboe Rule 5.31(e)(3)(i) (providing that Cboe
``prioritizes orders and quotes in the following order: market
orders, limit orders and quotes with prices better than the Opening
Trade Price, and orders and quotes at the Opening Trade Price'').
    \180\ See discussion supra, regarding proposed Rule 6.62P-
O(c)(3) and how IO Orders would function. The Exchange notes that,
unlike on the cash equity platform, IO Orders would not be limited
to participating solely in Trading Halt Auctions and may likewise
participate in Core Open Auctions as well.
---------------------------------------------------------------------------

    Auction Imbalance Information. Proposed Rule 6.64P-O(c) would
provide that Auction Imbalance Information would be updated at least
every second until the Auction is conducted, unless there is no change
to the information and would further provide that the Exchange would
begin disseminating Auction Imbalance Information at the following
times: (1) Core Open Auction Imbalance Information would begin at 8:00
a.m. Eastern Time; and (2) Trading Halt Auction Imbalance Information
would begin at the beginning of the trading halt. Because the Exchange
proposes to disseminate Auction Imbalance Information for its options
market in the same manner that such information is disseminated for its
cash equity market, this proposed rule text, which is new, is based in
part on Rule 7.35-E(a)(4)(A) and (C).
    Auction Process. Proposed Rule 6.64P-O(d) would set forth the
Exchange's proposed Auction Process on Pillar. Similar to current OX
system functionality, which requires that the bid-ask differential for
a given series be within an acceptable range before conducting an
auction, under Pillar, a series would not be opened or reopened on a
trade if there is no Legal Width Quote, which concept, as described
above, incorporates (almost identical) bid-ask differentials.\181\ As
described further below, the Exchange proposes that for Pillar, a
series should (ideally) also have Market Maker quotes and, as such,
proposes to provide time for Market Makers assigned to a series to
quote within the specified bid-ask differentials, and if Market Makers
do not quote within those time frames, determine whether to open or
reopen a series based on the ABBO. The Exchange notes that this
proposed process is consistent with that used on other options
exchanges.\182\
---------------------------------------------------------------------------

    \181\ See supra note 152 (describing Rule 6.64-O(b)(D), which
provides that the Exchange will not conduct its current Auction
Process if the bid-ask differential for a series is not ``within an
acceptable range'').
    \182\ See, e.g., Nasdaq PHLX (``PHLX'') Section 8(d), Options
Opening Process (providing that the Opening Process begins when (a)
a ``valid width'' (i.e., a bid/ask differential that is compliant
with PHLX Rule 1014(c)(i)(A)(1)(a)) specialist quote is submitted,
(b) valid width quotes from at least two PHLX market participants
have been submitted within 30 seconds of the opening trade or quote
in the underlying security from the primary exchange, or (c) after
30 seconds of the opening trade or quote in the underlying security
from the primary exchange, one PHLX market participant has submitted
a valid width quote).
---------------------------------------------------------------------------

    Proposed Rule 6.64P-O(d)(1) describes the process for disseminating
the Rotational Quote and would provide that when the Exchange receives
the Auction Trigger for a series, the Exchange would send a Rotational
Quote 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. This proposed rule is consistent
with current functionality and is designed to promote granularity.
    Proposed Rule 6.64P-O(d)(2) would provide that once a Rotational