[Federal Register Volume 83, Number 206 (Wednesday, October 24, 2018)]
[Notices]
[Pages 53692-53699]
[FR Doc No: 2018-23174]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-84451; File No. SR-NYSEArca-2018-74]

Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing
of Proposed Rule Change To Amend Rules 6.62-O and 6.37A-O To Add New
Order Types and Quotation Designations

October 18, 2018.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of
1934 (``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby given
that, on October 5, 2018, NYSE Arca, Inc. (``Exchange'' or ``NYSE
Arca'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in Items I and
II below, which Items have been prepared by the self-regulatory
organization. The Commission is publishing this notice to solicit
comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change

    The Exchange proposes to amend Rules 6.62-O (Certain Types of
Orders Defined) and 6.37A-O (Market Maker Quotations) to add new order
types and quotation designations. The proposed change is available on
the Exchange's website at www.nyse.com, at the principal office of the
Exchange, and at the Commission's Public Reference Room.

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

    In its filing with the Commission, the self-regulatory organization
included statements concerning the purpose of, and basis for, the
proposed rule change

and discussed any comments it received on the proposed rule change. The
text of those statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant parts of such
statements.

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

1. Purpose
    The purpose of this filing is to modify Rules 6.62-O and 6.37A-O to
add new order types and quotation designations as described herein. The
Exchange also proposes to make conforming changes to these rules to
reflect the proposed order types and quotations designations.
Existing Order Types
    Current Rule 6.62-O sets forth the order types available on the
Exchange, including Liquidity Adding Orders (each an ``ALO'') and PNP
(Post No Preference) Orders, both of which provide market participants
control over how their orders interact with contra-side liquidity.
Specifically, an ALO is a Limit Order that is rejected if it is
marketable against the NBBO on arrival.\4\ A PNP Order is eligible to
interact solely with interest on the Exchange, will not route, and will
cancel if it locks or crosses the NBBO.\5\ The Exchange proposes to add
order types that build on the existing ALO and PNP Order functionality
to allow for repricing (rather than cancellation or rejection of
orders) under certain circumstances.
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    \4\ See Rule 6.62-O(t) (providing that ``a Liquidity Adding
Order is a Limit Order which is to be accepted only if it is not
executable at the time of receipt. Orders with the liquidity adding
instruction will not be routed if marketable against the NBBO, but
will be rejected. Liquidity adding orders may only be entered as a
Day Order''). The Exchange proposes to modify paragraph (t) of this
Rule to define Liquidity Adding Orders as ALOs and make conforming
changes to the Rule. See proposed Rule 6.62-O(t). The Exchange also
proposes to modify the rule to reflect that ``[a]n ALO or RALO, as
defined in paragraph (t)(1) of this Rule, will be rejected if
entered outside of Core Trading Hours or during a trading halt or,
if resting, will be cancelled in the event of a trading halt,''
which is a functionality update that ensures these rule types
operate as intended. See id.
    \5\ See Rule 6.62-O(p) (providing that a PNP Order ``is a Limit
Order to buy or sell that is to be executed in whole or in part on
the Exchange, and the portion not so executed is to be ranked in the
Consolidated Book, without routing any portion of the order to
another market center; provided, however, the Exchange shall cancel
a PNP Order that would lock or cross the NBBO''). The Exchange
proposes to capitalize the ``Market Center'' as used in paragraph
(p) of the Rule, which is a defined term in Rule 6.1A-O(6). See
proposed Rule 6.62-O(p).
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Repricing ALO (``RALO'')
    The Exchange proposes to allow market participants the option to
send in ALOs designated as RALO.\6\ As proposed, a RALO would be
repriced (rather than be rejected) if it would either trade as the
liquidity taker or display at a price that locks or crosses any
interest on the Exchange or the NBBO. Specifically, an incoming RALO to
buy (sell) that would trade with any displayed or undisplayed sell
(buy) interest on the Consolidated Book would be displayed at a price
one minimum price variation (``MPV'') below (above) such sell (buy)
interest. An incoming RALO to buy (sell) that is not marketable against
interest in the Consolidated Book but that would lock or cross the NBO
(NBB) would be displayed at a price that is one MPV below (above) the
NBO (NBB). If the sell (buy) interest in the Consolidated Book or NBO
(NBB) moves up (down), the display price of the RALO to buy (sell) and
the undisplayed price at which it is eligible to trade would be
continuously adjusted, up (down) to the RALO's limit price. In other
words, to avoid trading as the liquidity taker, the RALO would be
displayed at a price one MPV away from the best-priced contra-side
interest, whether on the Exchange or an away market, and its display
price would continue to be adjusted up to its limit price.
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    \6\ See proposed Rule 6.62-O(t)(1). The Exchange proposes that a
RALO that is designated as a Reserve Order (i.e., with a portion of
the order not displayed) would be rejected because of the complexity
(and potential priority conflict) that could be introduced if the
Exchange allowed a combination of these two order types. See id.
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    As proposed, a resting RALO to buy (sell) that is displayed one MPV
below (above) interest on the Consolidated Book would be eligible to
trade at its display price. As further proposed, a resting RALO to buy
(sell) that is displayed at a price one MPV below (above) the NBO (NBB)
would be eligible to trade at the NBO (NBB); provided, however, that if
the NBO (NBB) updates to lock or cross the RALO's display price, such
RALO would trade at its display price in time priority behind other
eligible interest already displayed at that price.\7\ Because in such
circumstances the RALO would be trading at its display price, which
would be different than the (less aggressive) price it was previously
eligible to trade, the Exchange believes that principles of price-time
priority dictate that the repriced RALO should be ranked behind other
interest already displayed at the RALO's updated display price.\8\
Similarly, the Exchange proposes that each time there is an update to
the RALO's price, the RALO would be ranked by time priority behind
other eligible interest already at that price. And, if multiple RALOs
simultaneously reprice to the same price at which they are eligible to
trade, the RALOs would be prioritized based on the time of original
order entry. The Exchange believes that this proposed handling of RALOs
likewise would respect and preserve the Exchange price-time priority
model.
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    \7\ The proposed RALO operates in substantially the same manner
as the ALO Order, available on the Exchange's equity market, which,
like the RALO, would not remove liquidity and reprices if it would
lock or cross interest on the Consolidated Book or the NBBO. See
Rule 7.31-E(e)(2).
    \8\ The proposal to re-rank an order when the price at which an
order is eligible to trade changes is consistent with how the
Exchange's equity order types function. See Rule 7.36-E(f)(3)
(providing that an order is assigned a new working time (i.e.,
effective time sequence assigned to an order for purposes of
determining its priority ranking) any time the working price (i.e.,
the price at which an order is eligible to trade) changes).
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    To avoid accepting RALOs priced too far through the NBBO, the
Exchange proposes to limit the extent to which it would reprice such
interest. Specifically, the Exchange would cancel an incoming RALO that
has a limit price to buy (sell) that is more than a configurable number
of MPVs above (below) the initial display price (on arrival) of the
RALO.\9\ The Exchange would determine the configurable number of MPVs,
which will be announced by Trader Update.\10\
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    \9\ See proposed Rule 6.62[sic](t)(1)(B).
    \10\ For example, in a Penny Pilot issue, if the local best
offer is 0.99 and the away best offer is 1.00 with a configuration
set to 3 MPV, a RALO to buy of 1.02 or greater will cancel on
arrival because the initial display price would be 0.98 which is 4
MPVs away from its limit price.
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    The following examples illustrate the proposed RALO order type.
RALO Example 1
Exchange BBO: (100) 1.98 x 2.22 (100)
Away BBO: (50) 1.97 x 2.23 (50)
    Order 1: RALO Buy 50 @ 2.25

     The incoming RALO (Order 1) will reprice to display and be
eligible to trade @ 2.21 (i.e., one MPV below the NBO, which is also
the Exchange BO).

    Order 2: Sell 50 @ 2.18

     Order 2 will trade on arrival with the RALO (Order 1) @
2.21.
RALO Example 2
Exchange BBO: (100) 2.15 x 2.22 (100)
Away BBO: (50) 2.20 x 2.23 (50)
    Order 1: PNPB \11\ Sell 50 @ 2.19

    \11\ A PNP-Blind Order (or PNPB) order ``is a Limit Order to buy
or sell that is to be executed in whole or in part on the Exchange,
and the portion not so executed is to be ranked in the Consolidated
Book, without routing any portion of the order to another market
center; however, if the [PNPB] order would lock or cross the NBBO,
the price and size of the order will not be disseminated. Once the
[PNPB] order no longer locks or crosses the NBBO, the price and size
will be disseminated.'' See Rule 6.62-O(u).

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     The PNPB (Order 1) will be eligible to trade @ 2.20 (but
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will not be displayed at this price because it crosses the NBB).

Order 2: RALO Buy 50 @ 2.25

    a. The RALO (Order 2) will reprice to display and be eligible to
trade @ 2.19 (i.e., one MPV below the PNPB (Order 1) @ 2.20, which is
the best priced (undisplayed) contra-side interest in the Consolidated
Book).
Order 3: Sell 100 @ 2.18

    b. Order 3 will route 50 to the Away BB @ 2.20, and trade the
remaining 50 with the RALO (Order 2) @ 2.19.
    c. The PNPB (Order 1) will then display (because it is no longer
crossing the NBB) and be eligible to trade @ 2.19.
RALO Example 3
Exchange BBO: (100) 1.98 x 2.22 (10)
Away BBO: (50) 1.97 x 2.25 (50)
    Order 1: Sell Limit 10 @ 2.23
    Order 2: Sell Limit 10 @ 2.24
    Order 3: RALO Buy 50 @ 2.25

     The RALO (Order 3) will reprice to display and be eligible
to trade @ 2.21 (i.e., one MPV below the NBO, which is also the
Exchange BO).

    Order 4: Buy Limit [email protected] 2.25

     Order 4 will trade with the Exchange BO @ 2.22.

    Update to Exchange BBO: (50) 2.21 x 2.23 (10)

     Order 3 (RALO) will be repriced to display and be eligible
to trade @ 2.22.
Order 5: Sell 50 @ 2.20
     Order 5 will trade with Order 3 (RALO) @ 2.22.
RALO Example 4
Exchange BBO: (100) 1.98 x 2.22 (10)
Away BBO: (50) 1.97 x 2.25 (50)
    Order 1: RALO Buy 50 @ 2.23

     The RALO (Order 1) will reprice to display and be eligible
to trade @ 2.21 (i.e., one MPV below the NBO, which is also the
Exchange BO).

    Order 2: Buy Limit 50 @ 2.23

     Order 2 will trade 10 contracts with the Exchange BO @
2.22 and the remaining 40 contracts of Order 2 will be added the
Consolidated Book at 2.23. The RALO (Order 1) will reprice to display
and be eligible to trade @ 2.23, at which time the RALO will get a new
priority timestamp making it eligible to trade behind Order 2 (already
displayed at this price) in time priority.

    Order 3: Sell Limit 10 @ 2.23

     Order 3 will trade with Order 2, as Order 2 has time
priority over the RALO (Order 1).

    Order 4: Sell 10 @ 2.50
New Exchange BBO: (80) 2.23 x 2.50 (10)
* * * * *
    The Exchange believes the proposed RALO would give market
participants more flexibility and control over the circumstances under
which their orders trade with contra side-interest (i.e., by ensuring
that a RALO would always add liquidity as maker, rather than remove
liquidity as taker), while ensuring that RALOs priced too far through
the contra-side NBBO would be rejected. The Exchange believes the
proposed RALO would assist market participants in maximizing
opportunities for execution (as such orders would reprice rather than
reject) while encouraging the provision of greater displayed liquidity
to the market, which would contribute to public price discovery.
Repricing PNP Order (``RPNP'')
    The Exchange proposes to allow market participants the option to
send in PNP Orders as RPNP.\12\ As proposed, an RPNP is a PNP Order
that would be repriced (rather than be cancelled after trading with
interest in the Consolidated Book) if it would lock or cross the NBBO.
Specifically, an RPNP to buy (sell) that would lock or cross the NBO
(NBB) would be displayed at a price one MPV below (above) the NBO
(NBB). If the NBO (NBB) moves up (down), the display price of the RPNP
to buy (sell) and the undisplayed price at which it is eligible to
trade would be continuously adjusted, up (down) to the limit price of
the RPNP.
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    \12\ See proposed Rule 6.62-O(p)(1). The Exchange proposes that
an RPNP received during pre-open or during a trading halt will be
treated as a PNP Order (i.e., as a Limit Order and will not reprice)
for purposes of participating in opening auctions or re-opening
auctions. See proposed Rule 6.62-O(p). An RPNP may only be entered
as a Day Order (i.e., that expires at the end of the trading day).
See proposed Rule 6.62-O(p)(1). The Exchange proposes that an RPNP
that is designated as a Reserve Order (i.e., with a portion of the
order not displayed) would be rejected because of the complexity
(and potential priority conflict) that could be introduced if the
Exchange allowed a combination of these two order types. See id.
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    As proposed, a RPNP to buy (sell) that is displayed at a price one
MPV below (above) the NBO (NBB) would be eligible to trade at the NBO
(NBB), up (down) to the limit price of the RPNP; provided, however,
that if the NBO (NBB) updates to lock or cross the RPNP's display
price, such RPNP would trade at its display price in time priority
behind other eligible interest already displayed at that price.\13\
And, if multiple RPNPs simultaneously reprice to the same price at
which they are eligible to trade, the RPNPs would be prioritized based
on the time of original order entry. For the same reason as described
above for the proposed RALO, the Exchange believes that ranking the
RPNP to buy (sell) behind other interest already displayed at the
RPNP's updated display price, and ranking RPNPs that simultaneously
reprice to the same price based on time of original order entry, would
respect and preserve principles of priority. Also consistent with the
Exchange's price-time priority model, the Exchange proposes that each
time there is an update to the RPNP's price, the RPNP would be ranked
by time priority behind other eligible interest already at that price.
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    \13\ The proposed RPNP operates in substantially the same manner
as the Non-Routable Limit Order available on the Exchange's equities
market, which, like the RPNP, reprices if it would lock or cross a
protected quotation of an Away Market or trade through a protected
quotation. See Rule 7.31-E(e)(1).
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    Similar to the proposed RALO, to avoid accepting RPNPs priced too
far through the NBBO, the Exchange proposes to limit the extent to
which it would reprice such interest.\14\ An incoming RPNP would be
cancelled after trading with eligible interest (if any) if its limit
price to buy (sell) is more than a configurable number of MPVs above
(below) the initial display price (on arrival). The Exchange would
determine the configurable number of MPVs, which would be announced by
Trader Update.\15\
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    \14\ See proposed Rule 6.62[sic](p)(1)(B).
    \15\ For example, in a Penny Pilot issue, if the local best
offer is 0.99 and the away best offer is 1.00 with a configuration
set to 3 MPV, a RPNP to buy at 1.03 or greater would trade with the
local offer at 0.99 and any remaining interest will be cancelled
(because the initial display price would be 0.99 which is 4 MPVs
away from its limit price).
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    The Exchange believes the proposed RPNP would give market
participants more flexibility and control over the circumstances under
which their orders trade with contra side-interest, while ensuring that
RPNPs priced too far through the contra-side NBBO would be rejected.
The Exchange believes the proposed RPNP would assist market
participants in maximizing opportunities for execution (as such orders
would reprice rather than reject) while encouraging the provision of
greater liquidity to the market, which would contribute to public price
discovery.
    The following examples illustrate the proposed RPNP order type.
RPNP Example 1
Exchange BBO: (100) 1.98 x 2.22 (100)

Away BBO: (50) 2.00 x 2.20 (50)
    Order 1: RPNP Buy 50 @ 2.25
     The RPNP (Order 1) will display @ 2.19 (i.e., one MPV
below the NBO) and will be eligible to trade @ 2.20 (i.e., the NBO).
    Order 2: Sell 50 @ 2.18

     Order 2 will trade on arrival with the RPNP (Order 1) @
2.20.
RPNP Example 2
Exchange BBO: (100) 1.98 x 2.22 (100)
Away BBO: (50) 2.00 x 2.20 (50)
    Order 1: PNPB Buy 50 @ 2.22

     The PNPB (Order 1) will be eligible to trade @ 2.20 (but
will not be displayed at this price because it crosses the NBO).

    Order 2: RPNP Buy 50 @ 2.21

     The RPNP (Order 2) will display @ 2.19 (i.e., one MPV
below the NBO) and be eligible to trade @ 2.20 behind Order 1 in time
priority.

    Order 3: Sell 10 @ 2.18

     Order 3 will trade on arrival with Order 1 @ 2.20.
RPNP Example 3
Exchange BBO: (100) 1.98 x 2.22 (100)
Away BBO: (50) 2.00 x 2.20 (50)
    Order 1: PNPB Buy 50 @ 2.21

     The PNPB (Order 1) will be eligible to trade at 2.20 (but
will not be displayed at this price because it crosses the NBO).

    Order 2: RPNP Buy 50 @ 2.22

     The RPNP (Order 2) will display @ 2.19 and will be
eligible to trade @2.20 behind Order 1 in time priority.

Away BBO updates to (50) 2.00 x 2.19 (50)

     The updated NBO locks the display price of the RPNP Buy 50
(Order 2).
     The PNPB (Order 1) and the RPNP (Order 2) are both
eligible to trade @ 2.19. The RPNP has priority to trade ahead of the
PNPB because the RPNP was displayed @ 2.19 before the away market
updated (and the PNPB is still undisplayed because its limit price is
still crossing the NBO).

    Order 3: Sell 10 @ 2.18

     Order 3 will trade on arrival with the RPNP (Order 2) @
2.19.
RPNP Example 4
Exchange BBO: (100) 1.98 x 2.22 (100)
Away BBO: (50) 2.00 x 2.20 (50)
    Order 1: Limit Buy 50 @ 2.19.
    Order 2: RPNP Buy 50 @ 2.22

     The RPNP will display @ 2.19 (because crosses the NBO) and
will be eligible to trade @ 2.20.

Away BBO updates to (50) 2.00 x 2.19 (50)

     NBO now locks the display price of Order 2 (RPNP).
     The RPNP (Order 2) will reprice to display and (will
continue to) be eligible to trade @ 2.19, but Order 1 will have
priority over Order 2 as it was already being displayed at this price.

    Order 3: Sell 10 @ 2.18
     Order 3 will trade on arrival with Order 1 @ 2.19.
* * * * *
Existing Market Maker Quotations
    Current Rule 6.37A-O(a) defines Market Maker quotes, including
quotations designated as Market Maker--Light Only (``MMLO''), and
specifies how such quotes are processed when a series is open for
trading. The Exchange proposes to modify Rule 6.37A-O(a) to add two new
quote designations to provide market makers with the same functionality
for their quotations as are proposed for orders entered on the
Exchange. The proposed quotation designations are similar to how the
proposed RALO and RPNP would function and would enable Market Makers to
exert greater control over how their quotes would interact with contra-
side liquidity, while affording them more opportunities to provide
liquidity.
Market Maker--Add Liquidity Only Quotation (``MMALO'')
    The Exchange proposes to allow Markets Makers the option to
designate quotations as MMALO.\16\ Similar to how the proposed RALO
would function, as proposed, an incoming or resting MMALO would never
trade as the liquidity taker nor would it display at a price that would
lock or cross any interest on the Exchange or the NBBO.\17\ Rather than
trade, an MMALO would be repriced based on contra-side interest.\18\
Specifically, an incoming MMALO to buy (sell) that would trade with any
sell (buy) interest on the Consolidated Book would be displayed at a
price one minimum price variation (``MPV'') below (above) such sell
(buy) interest. Similarly, an incoming MMALO to buy (sell) that is not
marketable against interest in the Consolidated Book but that would
lock or cross the NBO (NBB) would be displayed at a price that is one
MPV below (above) the NBO (NBB). If the sell (buy) interest in the
Consolidated Book or NBO (NBB) moves up (down), the display price of
the MMALO to buy (sell) and the undisplayed price at which it is
eligible to trade would be continuously adjusted, up (down) to the
MMALO's limit price. In other words, to avoid trading as the liquidity
taker, the MMALO would be displayed at a price one MPV away from the
best-priced contra-side interest, whether on the Exchange or an away
market. The above trading examples illustrating how a RALO is processed
(RALO Examples 1-4) apply equally to an MMALO of the same size and
price of the RALO in each example.
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    \16\ See proposed Rule 6.37A-O(a)(3)(B) and (a)(4)(A)(i). The
Exchange proposes to delete reference to MMLO in paragraph (a)(4),
regarding the ``[t]reatment of Market Maker Quotations,'' as too
restrictive in light of the proposed quote types; instead, the
Exchange proposes to separately describe the treatment of the
various quote types when a series is open for trading. See proposed
Rule 6.37A-O(a)(4).
    \17\ Because incoming quotations, other than an MMALO, would
immediately ``trade with contra-side interest in the Consolidated
Book at prices that do not trade through interest on another Market
Center,'' the Exchange proposes to modify the rule to carve out
incoming MMALOs. See proposed Rule 6.37A-O(a)(4)(A). The Exchange
also proposes to replace references to ``another Market Center''
with ``the NBBO'' to add clarity and consistency to the Rule. See
id.; see also proposed Rule 6.37A-O(a)(4)(C)(i),(D)(i)-(ii).
    \18\ See proposed Rule 6.37A-O(a)(4)(A)(i).
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    Similar to the proposed RALO, a resting MMALO to buy (sell) that is
displayed one MPV below (above) interest on the Consolidated Book would
be eligible to trade at its display price. Also similar to the proposed
RALO, a resting MMALO to buy (sell) that is displayed at a price one
MPV below (above) the NBO (NBB) would be eligible to trade at the NBO
(NBB); provided, however, that if the NBO (NBB) updates to lock or
cross the MMALO's display price, such MMALO would trade at its display
price in time priority behind other eligible interest already displayed
at that price.\19\ For the same reasons as described above for the
proposed RALO and RPNP, the Exchange believes that ranking the MMALO to
buy (sell) behind other interest already displayed at the MMALO's
updated display price would respect and preserve principles of
priority. Also consistent with the handling of RALOs, the Exchange
proposes that each time there is an update to the MMALO's price, the
MMALO would be ranked by time priority behind other eligible interest
already at that price.\20\ And, if multiple MMALOs simultaneously
reprice to the same price at which they are eligible to trade, the
MMALOs would be prioritized based on the time of original order entry.
The Exchange believes that this handling of MMALOs (which is consistent
with proposed handling of RALOs) in the event of a reprice, including
when multiple MMALOs simultaneously reprice, is consistent

with the Exchange's price-time priority model.
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    \19\ See proposed Rule 6.37A-O(a)(4)(A)(i)(b).
    \20\ See proposed Rule 6.37A-O(a)(4)(A)(i)(c).
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    To incorporate MMALO (and MMRP discussed below) into existing rule
text, the Exchange proposes to streamline Rule 6.37A-O, by re-
organizing and re-numbering related text regarding the treatment of
untraded incoming quotations. Specifically, the Exchange proposes to
provide that ``[a]ny untraded quantity of an incoming quotation will be
added to the Consolidated Book, except in the circumstances specified
below, which result in the remaining balance being cancelled,'' \21\
including when the incoming quotation ``is not designated as MMALO or
MMRP'' and locks or crosses the NBBO and when it is designated as MMLO
and locks or crosses undisplayed interest.\22\ Similarly, the Exchange
would modify the rule providing that an incoming quotation that locks
or crosses the NBBO would be rejected, provided ``it is not designated
as MMALO or MMRP'' and cannot trade with interest in the Consolidated
Book at prices that do not trade through the NBBO.\23\
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    \21\ See proposed Rule 6.37A-O(a)(4)(C).
    \22\ See proposed Rule 6.37A-O(a)(4)(C)(i) and (ii).
    \23\ See proposed Rule 6.37A-O(a)(4)(D)(i).
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    To avoid accepting MMALOs priced too far through the NBBO, the
Exchange proposes to limit the extent to which it would reprice such
interest. Specifically, the Exchange would reject an incoming quote
that is designated as MMALO that has a limit price to buy (sell) that
is more than a configurable number of MPVs above (below) the initial
display price of the MMALO.\24\ The Exchange would determine the
configurable number of MPVs, which will be announced by Trader
Update.\25\
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    \24\ See proposed Rule 6.37A-O(a)(4)(D)(iii). The Exchange notes
that incoming MMALOs that fail the MPV check are rejected while
similarly-priced RALOs would be accepted and then cancelled. The
Exchange notes that this is a distinction without a difference and
simply reflects an operational difference in how the Exchange
evaluates these types of interest. The Exchange also proposes to re-
locate text that is currently at the end of this provision to the
beginning, such that the Rules states that ``[a]n incoming quotation
will be rejected, and the Exchange will cancel the Market Maker's
current quotation on the same side of the market, if:'' as the
Exchange believes this would streamline the Rule making it easier to
navigate and understand. See proposed Rule 6.37A-O(a)(4)(D).
    \25\ For example, in a Penny Pilot issue, if the local best
offer is 0.99 and the away best offer is 1.00 with a configuration
set to 3 MPV, a MMALO to buy of 1.02 or greater would be rejected
because the initial display price would be 0.98, which is 4 MPVs
away from its limit price.
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    The Exchange believes the proposed MMALO would give Market Makers
more flexibility and control over the circumstances under which their
quotes trade with contra side-interest (i.e., by ensuring that an MMALO
would always add liquidity as maker, rather than remove liquidity as
taker), while ensuring that MMALOs priced too far through the contra-
side NBBO would be rejected. The Exchange believes the proposed MMALO
would assist Market Makers in maintaining a fair and orderly market, as
it would encourage Market Makers to provide displayed liquidity to the
market and thereby contribute to public price discovery.
Market Maker--Repricing Quotation (``MMRP'')
    The Exchange also proposes to allow Markets Makers the option to
designate quotations as MMRP, which is similar to the proposed
RPNP.\26\ As proposed, an incoming or resting quotation designated as
MMRP would never display at a price that locks or crosses the NBBO.
Instead, after trading with interest in the Consolidated Book, an
incoming MMRP to buy (sell) that locks or crosses the NBO (NBB) would
be displayed at a price that is one MPV below (above) the NBO (NBB). If
the NBO (NBB) moves up (down), the display price of the MMRP to buy
(sell) and the undisplayed price at which it is eligible to trade would
be continuously adjusted, up (down) to the MMRP's limit price.
---------------------------------------------------------------------------

    \26\ See proposed Rule 6.37A-O(a)(3)(C) and (a)(4)(B).
---------------------------------------------------------------------------

    Similar to the proposed RPNP, an MMRP to buy (sell) that is
displayed at a price one MPV below (above) the NBO (NBB) would trade at
the NBO (NBB); provided, however, that if the NBO (NBB) updates to lock
or cross the MMRP's display price, such MMRP would trade at its display
price in time priority behind other eligible interest already displayed
at that price. For the same reasons described above for the proposed
RALO and RPNP, the Exchange believes that ranking the MMRP to buy
(sell) behind other interest already displayed at the MMRP's updated
display price would respect and preserve principles of priority.\27\
Also consistent with the handling of RALOs and RPNPs,, [sic] the
Exchange proposes that each time there is an update to the MMRP's
price, the MMRP would be ranked by time priority behind other eligible
interest already at that price.\28\ And, if multiple MMRPs
simultaneously reprice to the same price at which they are eligible to
trade, the MMRPs would be prioritized based on the time of original
order entry. The Exchange believes that this handling of MMRPs (which
is consistent with the proposed handling of RALOs and RPNPs) in the
event of a reprice, including when multiple MMRPs simultaneously
reprice, is consistent with the Exchange's price-time priority model.
---------------------------------------------------------------------------

    \27\ See proposed Rule 6.37A-O(a)(4)(B)(i).
    \28\ See proposed Rule 6.37A-O(a)(4)(B)(ii).
---------------------------------------------------------------------------

    The Exchange notes that an MMRP may be submitted when a series is
not open for trading (i.e., during pre-open or a trading halt) and such
MMRP would be eligible to participate in the opening auction and re-
opening auction (as applicable) at the limit price of the MMRP.\29\
Such MMRPs would not be repriced as an option series may not open (or
re-open) if a quote is locked or crossed.\30\
---------------------------------------------------------------------------

    \29\ See proposed Rule 6.37A-O(a)(5). The Exchange also proposes
to make clear that ``[a]ll resting quotations will be cancelled in
the event of a trading halt.'' See id.
    \30\ See Rule 6.64-O(b)(E)(providing in relevant part, that
``[i]f the OX System does not open a series with an Auction Process,
the OX System shall open the series for trading after receiving
notification of an initial uncrossed NBBO disseminated by OPRA for
the series'').
---------------------------------------------------------------------------

    To avoid accepting MMRPs priced too far through the NBBO, the
Exchange proposes to limit the extent to which it would reprice such
interest. Specifically, an incoming MMRP that has a limit price more
than a configurable number of MPVs above (below) the initial display
price (on arrival) would first trade with marketable interest in the
Consolidated Book up (down) to the NBO (NBB) and any remaining balance
would be cancelled.\31\ Similarly, the Exchange would reject an
incoming MMRP that does not trade (i.e., because there is no marketable
interest in the Consolidated Book) and has a limit price to buy (sell)
that is more than a configurable number of MPVs above (below) the
initial display price (on arrival) of the MMRP.\32\ The Exchange would
determine the applicable number of MPVs and announce the configurable
by Trader Update.\33\ The above trading

examples illustrating how a RPNP is processed (RPNP Examples 1-4) apply
equally to an MMRP of the same size and price of the RPNP in each
example.
---------------------------------------------------------------------------

    \31\ See proposed Rule 6.37A-O(a)(4)(C)(iii).
    \32\ See proposed Rule 6.37A-O(a)(4)(D). The Exchange notes that
incoming MMRPs that fail the MPV check are rejected while similarly-
priced RPNPs would be accepted and then cancelled. The Exchange
notes that this is a distinction without a difference and simply
reflects an operational difference in how the Exchange evaluates
these types of interest.
    \33\ For example, in a Penny Pilot issue, if the local best
offer is 0.99 and the away best offer is 1.00 with a configuration
set to 3 MPV, a MMRP to buy at 1.03 or greater would trade with the
local offer at 0.99 and any remaining interest will be cancelled
(because the initial display price would be 0.99 which is 4 MPVs
away from its limit price). Because the MMRP is cancelled, the
Exchange would also cancel the opposite-side quote for that Market
Maker. See Rule 6.37A-O(a)(4)(B)(or, as renumbered, proposed Rule
6.37A-O(a)(4)(C) (providing, ``[w]hen such quantity of an incoming
quotation is cancelled, the Exchange will also cancel the Market
Maker's current quotation on the opposite side of the market).
---------------------------------------------------------------------------

    The Exchange notes that absent the proposed MMRP, incoming quotes
(or portions thereof) would reject or cancel if such quotes locked or
crossed away markets, which aligns with the NMS plan for Options Order
Protection And Locked/Crossed Market Plan (``Plan''), to which the
Exchange is a party.\34\ Thus, the Exchange believes that affording
Market Makers the ability to designate quotes as MMRP affords Market
Makers more certainty when providing liquidity, while ensuring that
MMRPs priced too far through the contra-side NBBO would cancel or
reject after trading with any eligible interest on the Exchange.
---------------------------------------------------------------------------

    \34\ See Plan, dated April 14, 2009, available here, http://www.optionsclearing.com/components/docs/clearing/services/options_order_protection_plan.pdf. See also Securities Exchange Act
Release No. 60405 (July 30, 2009), 74 FR 39362 (August 6, 2009)
(File No. 4-546) (order approving the Plan). The Plan obligates the
participating exchanges to provide order protection, including
addressing locked and crossed markets and the potential for trade-
throughs in certain options classes. See id. Consistent with the
Plan, the rules of the Exchange include prohibitions against trade-
throughs and a pattern or practice of displaying certain quotations
that lock or cross away markets. See, e.g., Rules 6.94-O, 6.95-O.
---------------------------------------------------------------------------

    To reflect the quote types proposed herein, the Exchange proposes
to re-organize paragraph (a) of Rule 6.37A-O, by re-locating text that
a quote will never route from existing paragraph (a)(4) to paragraph
(a)(2); adding new paragraph (a)(3) to provide that ``[a] Market Maker
may designate a quote as follows''; and re-numbering the balance of the
paragraph to account for such changes.\35\ In addition, as proposed,
the description of a Market Maker--Light Only Quotation (``MMLO'')
would be re-numbered as paragraph (a)(3)(A), and the text would be
streamlined to provide simply that ``[o]n arrival, a quotation
designated MMLO will trade with displayed interest in the Consolidated
Book only. Once resting, the MMLO designation no longer applies and
such quotation is eligible to trade with displayed and undisplayed
interest.'' \36\
---------------------------------------------------------------------------

    \35\ See proposed Rule 6.37A-O(a)(2)-(3).
    \36\ See proposed Rule 6.37A-O(a)(3)(A).
---------------------------------------------------------------------------

    The Exchange notes that this proposal does not relieve a Market
Maker of its continuous quoting or firm quote obligations pursuant to
Rules 6.37A-O and 6.86-O, respectively. Further, the Exchange notes
that Market Makers would still be able to send orders in (and out of)
classes to which they are appointed, as orders are not affected by this
proposal.
Implementation
    The Exchange will announce by Trader Update the implementation date
of the proposed rule change within 90 days of the effective date of
this rule filing.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section
6(b) of the Securities Exchange Act of 1934 (the ``Act''),\37\ in
general, and furthers the objectives of Section 6(b)(5) of the Act,\38\
in particular, in that it is designed to prevent fraudulent and
manipulative acts and practices, to promote just and equitable
principles of trade, to remove impediments to and perfect the mechanism
of a free and open market and a national market system, and, in
general, to protect investors and the public interest.
---------------------------------------------------------------------------

    \37\ 15 U.S.C. 78f(b).
    \38\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

RALO and RPNP
    The proposed RALO and RPNP would remove impediments to and perfect
the mechanism of a free and open market and a national market system
because the proposed order types would provide market participants with
greater flexibility and control over how their orders interact with
liquidity on the Exchange. The Exchange believes this proposal allows
market participants to provide and access greater liquidity on the
Exchange, thus benefiting Exchange members. Both proposed order types
provide a means to display such orders at prices that are designed to
maximize their opportunities for execution. Specifically, allowing any
eligible RALO and RPNP to be repriced and potentially trade at multiple
price points would improve the mechanism of price discovery. The
Exchange believes that ranking a repriced RALO or repriced RPNP behind
other interest already eligible to trade at a price, as well as ranking
such orders that simultaneously reprice to the same price by time of
original order entry, respects and preserves principles of priority and
therefore would promote just and equitable principles of trade. The
Exchange notes that similar order types are offered by other options
exchanges.\39\ In addition, the Exchange has approved order types that
function similar to the proposed RALO, and RPNP in its equities market
rules.\40\
---------------------------------------------------------------------------

    \39\ See, e.g., Nasdaq Options Market (``NOM''), Chapter VI
Trading Systems, Sec. 1(e)(11) (providing for a non-routable Post-
Only Order that will reprice upon entry rather than remove liquidity
or lock or cross the NBBO as described herein) and Nasdaq PHLX LLC
(``PHLX'') Rule 1080(m)(iv)(A) (providing for a non-routable Do Not
Route (``DNR'') Order that that will repeatedly reprice as described
herein).
    \40\ See Rules 7.31-E(e)(1) (describing the ``Non-Routable Limit
Order'', which reprices if it would lock or cross a protected
quotation of an Away Market or trade through a protected quotation)
and 7.31-E(e)(2) (describing the ``ALO Order,'' which is an non-
routable limit order that would also reprice if it would remove
liquidity from the NYSE Arca Book).
---------------------------------------------------------------------------

    Specifically, the proposed RALO is substantially similar to the
Post-Only Order available on NOM. A NOM Post-Only Order is a non-
routable order that will not remove liquidity from the NOM System and
is ranked and executed on the exchange or cancelled (at the request of
a market participant), as appropriate, without routing away to another
market. A RALO, like a NOM Post-Only Order, is evaluated at the time of
entry with respect to locking or crossing other orders and if such
order would lock or cross an order on the Exchange, the order would be
repriced to one MPV below the current best offer (for bids) or above
the current best bid (for offers) and displayed at one MPV below the
current best offer (for bids) or above the current best bid (for
offers). Also, like NOM's Post-Only Order, if a proposed RALO would not
lock or cross an order on the local book but would lock or cross the
NBBO of another market center, in violation of the Plan, such order
would be repriced to the current NBO (for bids) or the current NBB (for
offers) and displayed at one MPV above (for offers) or below (for bids)
the national best price. Given that an incoming RALO (like a NOM Post-
Only Order) would need to be evaluated for potential repricing, it may
only be entered with a time-in-force of Day (i.e., like NOM's Post-Only
Order, a RALO could not be submitted as an Immediate-or-Cancel (IOC) or
Good-till-Cancel (GTC)).\41\ The RALO, however, will continuously
reprice to avoid locking or crossing once resting, while the NOM Post-
Only Order appears to be evaluated and repriced only upon entry, which
distinction does not change the underlying principle to both order
types, which is to avoid locking and crossing the market.\42\
---------------------------------------------------------------------------

    \41\ See proposed Rule 6.62-O(t) (providing that an ALO may only
be entered as a Day order) and (t)(1) (providing that a RALO in an
ALO that may be repriced).
    \42\ The continuous repricing feature of the RALO is similar to
the ``multiple display price sliding'' available on Cboe BZX
Exchange, Inc. for its Post Only Order; however that order type has
certain differences from the proposed RALO, including that the BZX
Post Only Order allows such orders to remove liquidity when cost
beneficial or cost neutral to market participants and does not
appear to reprice the Post Only Order based on interest in the local
book. See BZX Rule 11.9(c)(6) and (g).

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

    The Exchange's ALO and the RALO combine elements of the NOM Post-
Only Order in that NOM market participants can opt to have their Post-
Only Order cancelled back if such order locks or crosses another market
(an ALO would simply be rejected) and/or if the Post-Only Order would
be posted to the NOM System at a price other than its limit price
(whereas the RALO is designed to provide additional flexibility for a
potential executions until the order reaches its limit price). The NOM
Post-Only Order does not specify how it interacts, if at all, with
undisplayed interest. The Exchange notes that NOM does not appear to
provide for the cancellation of Post-Only Orders that have a limit
price that is more than a certain number of MPVs through the best-
priced contra-side interest. The Exchange notes that this feature does
not alter the repricing feature of the proposed RALO, but rather
operates as a check for market participants that may have priced their
RALO erroneously. The Exchange therefore believes that any differences
between the proposed RALO and the NOM Post-Only Order are minimal and
do not change the underlying principle to both order types, which is to
avoid locking and crossing the market (with the RALO offering
additional protection against erroneous orders).
    The RPNP is substantially similar to PHLX's ``DNR Order,'' which is
a non-routable order that, after trading with eligible interest on PHLX
on arrival, is displayed one MPV ``inferior'' to the away best bid/
offer'' and is eligible to trade with the best-priced contra-side
interest.\43\ The proposed RPNP, like the DNR Order, automatically
reprices if the best away market changes, or moves to an inferior price
level, and such orders are displayed at the NBBO only if the repriced
order locks or crosses the best-priced local interest. A RPNP (like a
DNR Order) may reprice until it reaches its limit price, at which time
it will remain at that price until executed or cancelled. And, for both
the RPNP and a DNR Order, if the best away market improves its price
such that it locks or crosses its limit price, the exchange executes
the incoming order that is routed from the away market that locked or
crossed the order's limit price. Finally, similar to DNR Orders, any
RPNPs that are submitted outside of trading hours will be executed to
the extent possible, i.e., at their limit price.\44\ The Exchange notes
that PHLX does not appear to provide for the cancellation of DNR Orders
that have a limit price that is more than a certain number of MPVs
through the best-priced contra-side interest. The Exchange notes that
this feature does not alter the repricing feature of the proposed RPNP,
but rather operates as a check for market participants that may have
priced their RPNP erroneously. The Exchange believes that such
difference between the proposed RPNP and PHLX's DNR Order is minimal
and is designed to protect against erroneous orders.
---------------------------------------------------------------------------

    \43\ See PHLX Rule 1080(m)(iv)(A). See also proposed Rule
6.62[sic](p)(1)(A). The Exchange notes, however, that immediately
upon receipt, the DNR Order is exposed at the NBBO, which differs
from the proposed RPNP. However, the Exchange believes this is not a
material difference as a DNR Orders (like the proposed RPNP) may not
trade at prices inferior to the NBBO.
    \44\ See PHLX Rule 1017(k)(C)(6)(providing that DNR Orders will
be executed to ``to the extent possible'' if received pre-open). See
also proposed Rule 6.62[sic](p) (providing that an RPNP received
during pre-open or during a trading halt will be treated as a PNP
Order (i.e., as a Limit Order and will not reprice) for purposes of
participating in opening auctions or re-opening auctions'').
---------------------------------------------------------------------------

MMALO and MMRP
    Similar to the proposed RALO and RPNP, the proposed MMALO and MMRP
quote designations would remove impediments to and perfect the
mechanism of a free and open market and a national market system
because they would provide Market Makers with increased control over
interactions with contra-side liquidity and would increase
opportunities for such interactions. The Exchange notes that, absent
the proposed repricing functionality associated with the MMALO and
MMRP, a Market Maker quote that locks or crosses interest on the
Exchange or an away market would reject or cancel. In the case of
MMALOs, the proposal would promote the display of liquidity because
such quotations would be displayed at the next-best aggressive price
instead of being cancelled. The proposal would also ensure that an
MMALO would always add liquidity as maker, rather than remove liquidity
as taker, while ensuring that MMALOs priced too far through the contra-
side interest on the Exchange or the NBBO would be rejected. As such,
the proposed MMALO would assist Market Makers in maintaining a fair and
orderly market, as it would encourage Market Makers to provide
displayed liquidity to the market and thereby contribute to public
price discovery. In the case of MMRPs, the proposal would afford Market
Makers more certainty when providing liquidity, while ensuring that
MMRPs priced too far through the contra-side NBBO would cancel or
reject after trading with any eligible interest on the Exchange. The
Exchange notes that the proposed MMALO and MMRP are optional and Market
Makers have the option to utilize these quote types (or not). The
Exchange believes that ranking the repriced MMALO or repriced MMRP by
time priority behind other interest already available to trade at a
price respects and preserves principles of priority and therefore would
remove impediments to and perfect the mechanism of a free and open
market and a national market system.
    Because the options market is quote driven and Market Makers are
vital to the price discovery process, the Exchange believes that the
proposed (optional) quote types would provide Market Makers with a
greater level of determinism, in terms of managing their exposure, and
thus may encourage more aggressive liquidity provision, resulting in
more trading opportunities and tighter spreads. This too would help
improve the mechanism of price discovery. Accordingly, the Exchange
believes that the proposal would improve overall market quality and
enhance competition on the Exchange to the benefit of all market
participants. Moreover, the Exchange also notes that other options
exchanges have recently adopted quote types designed to strengthen
market making.\45\ Accordingly, the Exchange believes that the proposal
would improve overall market quality and improve competition on the
Exchange, to the benefit of all market participants.
---------------------------------------------------------------------------

    \45\ See, e.g., MIAX Options Exchange (``MIAX'') Rule 515(d)
(providing that ``[i]f a Market Maker order or quote could not be
executed or could not be executed in full upon receipt, the System
will continue to execute the Market Maker's order or quote at
multiple prices until (i) the Market Maker's quote has been
exhausted or its order has been completely filled; (ii) the
executions have reached the Market Maker's limit price; or (iii)
further executions will trade at a price inferior to the ABBO [Away
Best Bid or Offer], whichever occurs first''). The Exchange notes
that MIAX does not appear to provide for the rejection of Market
Maker quotes that have a limit price that is more than a certain
number of MPVs through the best-priced contra-side interest. The
Exchange notes that this feature does not alter the repricing
feature of the proposed MMALO/MMRP, but rather operates as a check
for market participants that may have priced their MMALO/MMRP
erroneously. See also BOX Options Exchange LLC (``BOX'') IM-8050-3
(providing that ``[i]f an incoming quote is marketable against the
BOX Book and will execute against a resting order or quote, it will
be rejected''). The Exchange notes that other options exchanges
currently offer repricing functionality that are substantially
similar to the proposed functionality for quotes. See supra n. 39.
---------------------------------------------------------------------------

Technical Changes
    The Exchange notes that the proposed organizational and non-
substantive

changes to the rule text would provide clarity and transparency to
Exchange rules and would promote just and equitable principles of trade
and remove impediments to, and perfect the mechanism of, a free and
open market and a national market system.\46\ The proposed rule
amendments would also provide internal consistency within Exchange
rules and operate to protect investors and the investing public by
making the Exchange rules easier to navigate and comprehend.
---------------------------------------------------------------------------

    \46\ See, e.g., supra nn. 4, 5, 16, 17, 24.
---------------------------------------------------------------------------

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change would
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act. The Exchange believes the
proposed quote designations would add value to market making on the
Exchange and the proposed order types would provide market participants
the option of exercising greater control over how orders interact with
contra-side liquidity both on the Exchange and on away markets. The
proposed quotations and order types would allow market participants to
exert greater control over how their quotes and orders interact with
liquidity on the Exchange, thereby attracting more investors to the
Exchange, which, in turn, leads to greater price discovery and improves
overall market quality.
    The Exchange does not believe the proposal would impose a burden on
competition among the options exchanges but instead, because the
Exchange would be offering the proposed optional quotes and order
types, the proposal would add to the existing competitive landscape. In
this highly competitive market, the Exchange would be at a competitive
disadvantage absent this proposal, which adopts functionality available
on other options exchanges. Permitting the Exchange to operate on an
even playing field relative to other exchanges that have similar
functionality removes impediments to and perfects the mechanism for a
free and open market and a national market system. The proposal does
not impose an undue burden on intramarket competition because the
proposed quote designations would be available to all Market Makers on
the Exchange and the proposed order types would be available to all
market participants. The proposal is structured to offer the same
enhancement to all Market Makers and/or market participants, regardless
of size, and would not impose a competitive burden on any participant.
    The proposed quote designations, which provide Market Makers with
enhanced determinism over their quotes, may contribute to more
aggressive quoting by Market Makers, resulting in more trading
opportunities and tighter spreads. To the extent this purpose is
achieved, the proposed quote designations would enhance the market
making function on the Exchange, which would improve overall market
quality and improve competition on the Exchange to the benefit of all
market participants.

C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others

    No written comments were solicited or received with respect to the
proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action

    Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period up to 90 days (i) as the
Commission may designate if it finds such longer period to be
appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
    (A) By order approve or disapprove the proposed rule change, or
    (B) institute proceedings to determine whether the proposed rule
change should be disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include
File Number SR-NYSEArca-2018-74 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.

All submissions should refer to File Number SR-NYSEArca-2018-74. This
file number should be included on the subject line if email is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (http://www.sec.gov/rules/sro.shtml).
Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed rule change that are filed with
the Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for website viewing and printing in
the Commission's Public Reference Room, 100 F Street NE, Washington, DC
20549 on official business days between the hours of 10:00 a.m. and
3:00 p.m. Copies of the filing also will be available for inspection
and copying at the principal office of the Exchange. All comments
received will be posted without change. Persons submitting comments are
cautioned that we do not redact or edit personal identifying
information from comment submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-NYSEArca-2018-74 and should be submitted
on or before November 14, 2018.
---------------------------------------------------------------------------

    \47\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\47\
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-23174 Filed 10-23-18; 8:45 am]
 BILLING CODE 8011-01-P


[Federal Register Volume 78, Number 5 (Tuesday, January 8, 2013)]
[Notices]
[Pages 1293-1296]
[FR Doc No: 2013-00077]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-68556; File No. SR-BX-2012-074]

Self-Regulatory Organizations; NASDAQ OMX BX, Inc.; Notice of
Filing and Immediate Effectiveness of Proposed Rule Change Relating to
Non-Penny Pilot Options Fees

January 2, 2013.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'') \1\, and Rule 19b-4 thereunder,\2\ notice is hereby given
that on December 18, 2012, NASDAQ OMX BX, Inc. (``BX'' or ``Exchange'')
filed with the Securities and Exchange Commission (``SEC'' or
``Commission'') the proposed rule change as described in Items I, II,
and III, below, which Items have been prepared by the Exchange. The
Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change

    The Exchange proposes to amend BX Options Rules, Chapter XV,
Section 2 entitled ``BX Options Market--Fees and Rebates'' to adopt
fees and rebates for Non-Penny Pilot Options.\3\
---------------------------------------------------------------------------

    \3\ Non-Penny Pilot refers to options classes not in the Penny
Pilot.
---------------------------------------------------------------------------

    While the changes proposed herein are effective upon filing, the
Exchange has designated these changes to be operative on January 2,
2013.
    The text of the proposed rule change is available on the Exchange's
Web site at http://nasdaqomxbx.cchwallstreet.com/NASDAQOMXBX/Filings/ com/NASDAQOMXBX/Filings/,
at the principal office of the Exchange, and at the Commission's Public
Reference Room.

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

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

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

1. Purpose
    BX proposes to amend Chapter XV, Section 2(1) to adopt fees and
rebates for Customers, BX Options Market Makers \4\ and Non-Customers
\5\ trading in Non-Penny Pilot Options on its options market. The
Exchange believes the addition of Non-Penny Pilot Options fees and
rebates will allow the Exchange to compete more effectively with other
exchanges that have similarly adopted such pricing. The Exchange plans
to list Non-Penny Pilot Options on January 2, 2013.
---------------------------------------------------------------------------

    \4\ A BX Options Market Maker must be registered as such
pursuant to Chapter VII, Section 2 of the BX Options Rules, and must
also remain in good standing pursuant to Chapter VII, Section 4.
    \5\ A Non-Customer includes a Professional, Firm, Broker-Dealer
and Non-BX Options Market Maker.
---------------------------------------------------------------------------

    The Exchange proposes to adopt a Fee to Add Liquidity, a Rebate to
Remove Liquidity and a Fee to Remove Liquidity in Non-Penny Pilot
Options. Specifically, the Exchange proposes to

assess the following Fees to Add Liquidity in Non-Penny Pilot Options:
Customers a $0.25 per contract, BX Options Market Maker $0.50 per
contract and Non-Customer $0.88 per contract. The Exchange proposes to
assess a higher Fee to Add Liquidity in Non-Penny Pilot Options of
$0.85 per contract to Customers and BX Options Market Makers when the
Customer or BX Options Market Maker is contra to a Customer. Therefore,
depending on the contra-party to the transaction, a Customer would be
assessed either a $0.25 or $0.85 per contract Fee to Add Liquidity in
Non-Penny Pilot Options and a BX Options Market Maker would be assessed
either a $0.50 or $0.85 per contract Fee to Add Liquidity in Non-Penny
Pilot Options. The Exchange proposes to add a note 4 to Section 2 of
Chapter XV to indicate that the higher Fee to Add Liquidity would be
assessed to a Customer or BX Options Market Maker when these market
participants are contra to a Customer.
    The Exchange proposes to pay a Customer a $0.70 per contract Rebate
to Remove Liquidity in Non-Penny Pilot Options. The Exchange would not
pay a rebate to a BX Options Market Maker or Non-Customer. Finally, the
Exchange proposes to assess a Fee to Remove Liquidity in Non-Penny
Pilot Options of $0.88 per contract to a BX Options Market Maker and a
Non-Customer. A Customer would not be assessed a Fee to Remove
Liquidity in Non-Penny Pilot Options.
    The Exchange is not proposing any other changes to Section 2 of
Chapter XV.2.
2. Statutory Basis
    BX believes that the proposed rule changes are consistent with the
provisions of Section 6 of the Act,\6\ in general, and with Section
6(b)(4) of the Act,\7\ in particular, in that they provide for the
equitable allocation of reasonable dues, fees and other charges among
members and issuers and other persons using any facility or system
which BX operates or controls.
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    \6\ 15 U.S.C. 78f.
    \7\ 15 U.S.C. 78f(b)(4).
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    The Exchange believes that its proposal to assess fees and pay
rebates in Non-Penny Pilot Options, which pricing differs from Penny
Pilot Options,\8\ is consistent with pricing at other options markets
that also assess different fees and pay different rebates for Penny
Pilot Options as compared to Non-Penny Pilot Options.\9\ The Exchange
today assesses fees and pay rebates in Penny Pilot Options. The
Exchange plans to list Non-Penny Pilot Options on January 2, 2013. The
Exchange believes that establishing different pricing for Penny Pilot
and Non-Penny Pilot Options is reasonable, equitable and not unfairly
discriminatory because Penny Pilot Options are more liquid options as
compared to Non-Penny Pilot Options. Additionally, other options
exchanges differentiate pricing by security today.\10\
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    \8\ The Penny Pilot on BX Options was established in June 2012.
See Securities Exchange Act Release No. 67256 (June 26, 2012), 77 FR
39277 (July 2, 2012) (SR-BX-2012-030) (order approving BX Options
rules and establishing Penny Pilot). The Exchange filed to extend
the Penny Pilot through December 31, 2012. See Securities Exchange
Act Release No. 67342 (July 3, 2012), 77 FR 40666 (July 10, 2012)
(SR-BX-2012-046).
    \9\ NASDAQ OMX PHLX LLC (``Phlx'') assesses fees and pays
rebates in Non-Penny Pilot Options. See Phlx's Pricing Schedule. The
Chicago Board Options Exchange Incorporated (``CBOE'') assess fees
and pays rebates in Non-Penny Pilot Options. See CBOE's Fees
Schedule. The NASDAQ Options Market LLC (``NOM'') assesses fees and
pays rebates in Non-Penny Pilot Options. See NOM's Rules at Chapter
XV, Section 2. The International Securities Exchange LLC (``ISE'')
assesses fees and pays rebates in Non-Penny Pilot Symbols. See ISE's
Fee Schedule.
    \10\ See supra note 8 [sic].
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    The Exchange believes that the proposed Customer Rebate to Remove
Liquidity in Non-Penny Pilot Options is reasonable because this rebate
will attract Customer order flow to the Exchange to the benefit of all
market participants through increased liquidity. Today, the Exchange
pays a Customer Rebate to Remove Liquidity in Penny Pilot Options.
Further, the Exchange also believes it is equitable and not unfairly
discriminatory to only offer the Rebate to Remove Liquidity to
Customers and not offer the rebate to other market participants because
the Exchange is offering the rebate to incentivize NOM [sic]
Participants to send Customer order flow to the Exchange. It is an
important Exchange function to provide an opportunity to all market
participants to trade against Customer orders. Customer order flow
benefits all market participants by improving liquidity, the quality of
order interaction and executions at the Exchange.
    With respect to the Fee to Add Liquidity, the Exchange believes
that assessing Customers and BX Options Market Makers a lower Fee to
Add Liquidity in Non-Penny Pilot Options, when they are not contra to a
Customer, as compared to Non-Customers is reasonable because the
Exchange seeks to incentivize these critical market participants to add
liquidity. Increased liquidity benefits all market participants. The
Exchange also believes that the lower Fees to Add Liquidity in Non-
Penny Pilot Options for Customers and BX Options Market Makers as
compared to Non-Customers are equitable and not unfairly discriminatory
because Customer order flow benefits all market participants by
improving liquidity, the quality of order interaction and executions at
the Exchange. Also, BX Options Market Makers have obligations to the
market and regulatory requirements,\11\ which normally do not apply to
other market participants. A BX Options Market Maker has the obligation
to make continuous markets, engage in course of dealings reasonably
calculated to contribute to the maintenance of a fair and orderly
market, and not make bids or offers or enter into transactions that are
inconsistent with course of dealings. The proposed differentiation as
between Customers and BX Options Market Makers and Non-Customers
recognizes the differing contributions made to the liquidity and
trading environment on the Exchange by Customers and BX Options Market
Makers, as well as the differing mix of orders entered.
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    \11\ Pursuant to Chapter VII (Market Participants), Section 5
(Obligations of Market Makers), in registering as a Market Maker, an
Options Participant commits himself to various obligations.
Transactions of a Market Maker in its market making capacity must
constitute a course of dealings reasonably calculated to contribute
to the maintenance of a fair and orderly market, and Market Makers
should not make bids or offers or enter into transactions that are
inconsistent with such course of dealings. Further, all Market
Makers are designated as specialists on BX for all purposes under
the Act or rules thereunder. See Chapter VII, Section 5.
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    With respect to the Fee to Add Liquidity, the Exchange believes
that assessing Customers and BX Options Market Makers a higher Fee to
Add Liquidity in Non-Penny Pilot Options, when they are contra to a
Customer is reasonable because the Customer is being paid a Rebate to
Remove Liquidity of $0.70 per contract pursuant to this proposal and
the Exchange believes that the increased fee allows the Exchange to
offer that incentive to Customers to attract liquidity to the market.
The Exchange also believes that the increased Customer and BX Options
Market Maker Fees to Add Liquidity in Non-Penny Pilot Options are
equitable and not unfairly discriminatory because the fees for
Customers and BX Options Market Makers when contra to a Customer order
are lower as compared to Non-Customers ($0.85 as compared to $0.88 per
contract). For the reasons previously mentioned, the Exchange believes
the fees are equitable and not unfairly discriminatory because these
critical market participants add liquidity and have obligations to the

market which differentiates them from Non-Customers.
    The Exchange believes that not assessing a Fee to Remove Liquidity
in Non-Penny Pilot Options to Customers is reasonable because the
Exchange seeks to incentivize NOM [sic] Participants to send Customer
order flow to the Exchange. In addition, the Exchange does not assess a
Customer Fee to Remove Liquidity in Penny Pilot Options. The Exchange
believes that not assessing a Fee to Remove Liquidity in Non-Penny
Pilot Options to Customers is equitable and not unfairly discriminatory
because Customer order flow brings liquidity to the market which
benefits all market participants.
    The Exchange believes that assessing a Fee to Remove Liquidity in
Non-Penny Pilot Options of $0.88 per contract to BX Options Market
Makers and Non-Customers is reasonable because the fee allows the
Exchange to reward Customers that remove liquidity with a rebate. The
advantage of increased Customer order flow benefits all market
participants. In addition, the proposed Fees to Remove Liquidity in
Non-Penny Pilot Options are in the range of fees assessed by other
options exchanges.\12\ The Exchange believes that assessing a Fee to
Remove Liquidity in Non-Penny Pilot Options of $0.88 per contract to BX
Options Market Makers and Non-Customers is equitable and not unfairly
discriminatory because all market participants, BX Options Market
Makers, Professionals, Firms, Broker-Dealers and Non-BX Options Market
Makers, excluding Customers, would be assessed the same Fee to Remove
Liquidity in Non-Penny Pilot Options on every transaction.
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    \12\ NOM assesses Professionals, Firms, non-NOM Market Makers
and NOM Market Makers Non-Penny Pilot Options Fees to Remove
Liquidity of $0.89 per contract. See NOM Chapter XV, Section 2. The
BATS Exchange, Inc. (``BATS'') assesses Professional, Firms and
Market Makers $0.84 per contract to remove liquidity in Non-Penny
Pilot Options. See also BATS BZX Exchange Fee Schedule. NYSE Arca,
Inc. (``NYSE Arca'') assesses Firms and Broker Dealers an $0.85 per
contract Take Liquidity Fee and NYSE Arca Market Makers are assessed
an $0.80 take liquidity fee. See NYSE Arca Options Fee Schedule.
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    In the current U.S. options market, many of the contracts are
quoted in pennies. Under this pricing structure, the minimum penny tick
increment equates to a $1.00 economic value difference per contract,
given that a single standardized U.S. option contract covers 100 shares
of the underlying stock. Where contracts are quoted in $0.05 increments
(non-pennies), the value per tick is $5.00 in proceeds to the investor
transacting in these contracts. Liquidity rebate and access fee
structures on the make-take exchanges for securities quoted in penny
increments are commonly in the $0.30 to $0.45 per contract range. A
$0.30 per contract rebate in a penny quoted security is a rebate
equivalent to 30% of the value of the minimum tick. A $0.45 per
contract fee in a penny quoted security is a charge equivalent to 45%
of the value of that minimum tick. In other words, in penny quoted
securities, where the price is improved by one tick with an access fee
of $0.45 per contract, an investor paying to access that quote is still
$0.55 better off than trading at the wider spread, even without the
access fee ($1.00 of price improvement - $0.45 access fee = $0.55
better economics). This computation is equally true for securities
quoted in wider increments. By comparison, rebates and access fees near
the $0.88 per contract level equate to only 17.6% of the value of the
minimum tick in Non-Penny Pilot Options, less than the experience today
in Penny Pilot Options. Accordingly, the Exchange believes that the
proposed Fees to Add Liquidity and Fees to Remove Liquidity in Non-
Penny Pilot Options are reasonable, equitable and not unfairly
discriminatory.
    The Exchange operates in a highly competitive market comprised of
eleven U.S. options exchanges in which sophisticated and knowledgeable
market participants can and do send order flow to competing exchanges
if they deem fee levels at a particular exchange to be excessive. The
Exchange believes that the proposed fee and rebate scheme for Non-Penny
Pilot Options is competitive and similar to other fees and rebates in
place on other exchanges. The Exchange believes that this competitive
marketplace materially impacts the fees and rebates present on the
Exchange today and substantially influences the proposal set forth
above.

B. Self-Regulatory Organization's Statement on Burden on Competition

    BX does not believe that the proposed rule change will impose any
burden on competition not necessary or appropriate in furtherance of
the purposes of the Act. To the contrary, BX has designed its fees and
rebates to compete effectively for the execution and routing of options
contracts. The Exchange believes that the proposed fee/rebate pricing
structure for Non-Penny Pilot Options would attract liquidity to and
benefit order interaction at the Exchange to the benefit of all market
participants.

C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others

    No written comments were either solicited or received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action

    The foregoing rule change has become effective pursuant to Section
19(b)(3)(A)(ii) of the Act.\13\ At any time within 60 days of the
filing of the proposed rule change, the Commission summarily may
temporarily suspend such rule change if it appears to the Commission
that such action is necessary or appropriate in the public interest,
for the protection of investors, or otherwise in furtherance of the
purposes of the Act. If the Commission takes such action, the
Commission shall institute proceedings to determine whether the
proposed rule should be approved or disapproved.
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    \13\ 15 U.S.C. 78s(b)(3)(A)(ii).
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IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to<EMAIL_ADDRESS>Please include
File Number SR-BX-2012-074 on the subject line.

Paper Comments

     Send paper comments in triplicate to Elizabeth M. Murphy,
Secretary, Securities and Exchange Commission, 100 F Street NE.,
Washington, DC 20549-1090.

All submissions should refer to File Number SR-BX-2012-074. This file
number should be included on the subject line if email is used. To help
the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the

proposed rule change between the Commission and any person, other than
those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for Web site viewing and
printing in the Commission's Public Reference Room, 100 F Street NE.,
Washington, DC 20549-1090, on official business days between the hours
of 10:00 a.m. and 3:00 p.m. Copies of such filing also will be
available for inspection and copying at BX's principal office. All
comments received will be posted without change; the Commission does
not edit personal identifying information from submissions. You should
submit only information that you wish to make available publicly. All
submissions should refer to File Number SR-BX-2012-074, and should be
submitted on or before January 29, 2013.

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\14\
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    \14\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-00077 Filed 1-7-13; 8:45 am]
BILLING CODE 8011-01-P