offer, if any.'' The Exchange proposes textual differences to use the
terms ``sent'' and ``received'' instead of ``entered.'' In addition,
because of the proposed Pillar implementation regarding how a Market
Maker may designate a quote (i.e., as a Non-Routable Limit Order or ALO
Order as described herein and below), the Exchange proposes a
difference from the current Rule to provide that a quote is a bid or
offer not designated as an order. The second sentence of proposed Rule
6.37A-O(a)(1) would provide greater granularity and make clear that the
Exchange would accept multiple quotations from a Market Maker and that
any subsequent quote would cancel an existing displayed same-side
quote. This proposed text is consistent with the current Rule, which
provides that a Market Maker quotation updates a Market Marker's
previous bid or offer.
     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.\112\ On Pillar, the Exchange would not offer the existing
quote types (i.e., MMLO, MMALO and MMRP). 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 will not include a (duplicative) section in proposed Rule
6.37AP-O regarding the treatment of such quotes. As noted above
regarding proposed Rule 6.62P-O(e), the Exchange believes that allowing
quotes to be designated as one of two orders types (i.e., Non-Routable
Limit or ALO) would streamline the rules by consolidating into one rule
the description of the proposed quote/order behavior and therefore
obviate the need to separately describe the same functionality in two
rules.
---------------------------------------------------------------------------

    \112\ 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.
---------------------------------------------------------------------------

     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 (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 treatment of orders designated GTC,
which 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 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.
    [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.\113\
---------------------------------------------------------------------------

    \113\ 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
Marker 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.\114\ 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.
---------------------------------------------------------------------------

    \114\ 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
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(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 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.\115\
---------------------------------------------------------------------------

    \115\ 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.\116\ 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.
---------------------------------------------------------------------------

    \116\ 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.\117\ 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 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. 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.
---------------------------------------------------------------------------

    \117\ 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), 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. 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 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 Rule 6.60-O(c)(1)(A) for orders, with a proposed difference
that proposed ``Arbitrage Check'' would also apply to 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 Rule 6.60-O(c)(1)(B) for orders, with
two differences. First, the proposed ``Arbitrage Checks'' would also
apply to quotes. Second, 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.\118\ 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.
---------------------------------------------------------------------------

    \118\ Per proposed Rule 1.1., the term ``Primary Market'' means
the principal market in which the underlying security is traded.
---------------------------------------------------------------------------

    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. 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.\119\ 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.
---------------------------------------------------------------------------

    \119\ 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, except that the proposed rule also
applies to quotes, provides additional detail regarding how the
specified threshold percentage would be determined immediately
following an Auction, provides transparency that an unadjusted NBBO
would be used to calculate the Intrinsic Value, and adds explicit rule
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 by
fine-tuning how the Intrinsic Value would be calculated and applied.
For the same reasons describe 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(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.\120\
---------------------------------------------------------------------------

    \120\ 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).\121\ 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 an away market NBBO.\122\
---------------------------------------------------------------------------

    \121\ 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.
    \122\ 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.\123\ 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.
---------------------------------------------------------------------------

    \123\ 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.\124\ 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.
---------------------------------------------------------------------------

    \124\ 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.\125\ 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.
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.
---------------------------------------------------------------------------

    \125\ 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)(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).\126\ 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.\127\
---------------------------------------------------------------------------

    \126\ 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.''
    \127\ 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.\128\ 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. Accordingly, 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.\129\ 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.
---------------------------------------------------------------------------

    \128\ 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.
    \129\ 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 Opening MMQ Time Parameter (defined below). The Exchange
currently disseminates an Auction Indicator on its cash equity market
and proposes similar functionality for options trading on the
Exchange.\130\ 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.\131\ 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).
---------------------------------------------------------------------------

    \130\ See Rule 7.35-E(a)(13).
    \131\ 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.\132\ In addition, the proposed rule differs from Rule 7.35-
E(a)(7) to reflect options trading terminology (i.e., contracts instead
of shares).
---------------------------------------------------------------------------

    \132\ See supra note 129 (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.\133\ 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)).\134\
---------------------------------------------------------------------------

    \133\ On the OX system, the market imbalance is the difference
between quantities of buy and sell market orders.
    \134\ 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 on its cash equity market, per Rule
7.35-E(a)(2), 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 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).\135\
---------------------------------------------------------------------------

    \135\ 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 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. 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. 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).\136\ 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.\137\ 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.
---------------------------------------------------------------------------

    \136\ 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.''
    \137\ See also Cboe Rule 5.31(d)(1)(ii), which provides that
Cboe initiates the opening rotation for equity options after ``both
the first disseminated transaction and the first disseminated quote
on the primary market in the security underlying an equity option,''
which rule does not specify the size of the transaction on the
primary market that would trigger initiation of an opening rotation.
---------------------------------------------------------------------------

     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 Away Market NBBO 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.'' \138\
---------------------------------------------------------------------------

    \138\ 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 Away Market NBBO) 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.\139\ 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.\140\
---------------------------------------------------------------------------

    \139\ See Rule 6.64-O(b)(A), (c) (describing process for
determining single opening price).
    \140\ 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(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 the following differentials, which can be widened as provided
for in Rule 6.37-O(c): (i) No more than .25 where the bid does not
exceed $2; (ii) no more than .40 where the bid is more than $2 but does
not exceed $5; (iii) no more than .50 where the bid is more than $5 but
does not exceed $10; (iv) no more than .80 where the bid is more than
$10 but does not exceed $20; and (v) no more than $1 where the bid is
more than $20, provided that a Trading Official may establish
differences other than the above for one or more series or classes of
options.\141\
---------------------------------------------------------------------------

    \141\ 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).\142\
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 the circumstances when a
Calculated NBBO would be eligible to be considered a Legal Width Quote.
---------------------------------------------------------------------------

    \142\ 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).
---------------------------------------------------------------------------

    In addition, requiring that a bid-ask spread meet specified
differentials, described in proposed Rule 6.64P-O(a)(10)(C)(i)-(v),
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.\143\ The proposed differential spread for the
Pillar Auction Process set forth in proposed Rule 6.64P-O(a)(10)(C) are
substantially the same as the bid-ask differentials (as well as the
discretion granted a Trading Official to widen such differentials)
currently set forth in Rule 6.37-O(b)(4), with a difference that for
option contracts with a bid of exactly $2, the differential for
Auctions on Pillar would be .25 instead of .40. The Exchange notes that
this slight variation from Rule 6.37-O(b)(4)(A) for $2 bids would
streamline implementation by having the break point for bid-
differentials for the automated Auction Process to be calculated in
whole dollar increments. The Exchange believes that including the
proposed bid-ask differential in the rule governing the Auction Process
would promote clarity and transparency in Exchange rules regarding
which quotes--both Market Maker quotes on the Exchange and the Away
Market NBBO, i.e., the Calculated NBBO--that the Exchange would use to
determine if there is a Legal Width Quote.
---------------------------------------------------------------------------

    \143\ 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)'').
---------------------------------------------------------------------------

    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.\144\ 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.
---------------------------------------------------------------------------

    \144\ 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.\145\
---------------------------------------------------------------------------

    \145\ 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. Instead, orders and Market Maker
quotes in the same priority category would be ranked based on time, as
proposed in Rule 6.76P-O, which equal ranking is consistent with how
other options markets handle orders and quotes during the opening
process.\146\ 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.\147\
---------------------------------------------------------------------------

    \146\ 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'').
    \147\ 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.\148\ 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 Away Market NBBO. The Exchange notes that
this proposed process is consistent with that used on other options
exchanges.\149\
---------------------------------------------------------------------------

    \148\ See supra note 143 (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'').
    \149\ 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
Quote has been sent, the Exchange would conduct an Auction provided
there is both a Legal Width Quote and, if applicable, a Market Maker
quote with a non-zero offer in the series (which would be subject to
the proposed requirements relating to Market Maker quotes, including
the proposed new Opening MMQ Time Parameter, as discussed further below
per proposed Rule 6.64P-O(d)(3)). The proposed rule would further
provide that the Exchange would wait a minimum of two milliseconds
after disseminating the Rotational Quote before an Auction could be
conducted, which delay would be new and is designed to enhance market
quality by promoting price-forming displayed liquidity to the benefit
of all market participants. This proposed rule text is designed to
provide transparency and determinism

in Exchange rules regarding the earliest potential time that a series
could be opened (after the Exchange receives an Auction Trigger), and
subject to the series meeting all other requirements for opening or
reopening discussed herein.
    Subject to the requirements specified in proposed Rule 6.64P-
O(d)(2), proposed Rule 6.64P-O(d)(2)(A) would provide that if there is
Matched Volume that can trade at or within the Auction Collars, the
Auction would result in a trade at the Indicative Match Price. Proposed
Rule 6.64P-O(d)(2)(B) would provide that if there is no Matched Volume
that can trade at or within the Auction Collars, the Auction would not
result in a trade and the Exchange would transition to continuous
trading as described in proposed Rule 6.64P-O(f) below. This proposed
rule text is new, uses Pillar terminology, and is designed to provide
transparency of when an Auction would result in a trade.
    Proposed Rule 6.64P-O(d)(3) would specify the Opening MMQ Time
Parameter. Although the Exchange does not require a Market Maker
assigned to a series to quote on the Exchange in order to open or
reopen a series for trading, the Exchange believes that having a Market
Maker assigned to a series quote within the bid-ask differential would
promote a fair and orderly Auction process and transition to continuous
trading.\150\ Accordingly, the Exchange proposes a new process for
Auctions on Pillar that would provide time for Market Makers assigned
to a series to quote within the specified bid-ask differentials before
a series would be opened or reopened for trading. As proposed, once the
Auction Process begins, the Exchange would begin a one-minute timer for
the Market Maker(s) assigned to a series to submit a quote with a non-
zero offer.\151\ This one-minute timer would be referred to as the
Opening MMQ Time Parameter. The Opening MMQ Time Parameter is designed
to provide transparency in Exchange rules of the circumstances of when
the Exchange would wait to open or reopen a series for trading if the
assigned Market Maker(s) has not submitted a quote within the specified
time periods, as follows:
---------------------------------------------------------------------------

    \150\ Currently, neither Market Makers nor LMMs are obligated to
provide a quote before a series is opened or reopened, which is why
the proposed Pillar options Auction rule is designed to provide
Market Makers with time to submit their quotes so a series can be
opened.
    \151\ A Market Maker may send quotations only in the issues
included in its appointment, i.e., in series to which such Market
Maker is assigned. See proposed Rule 6.37AP-O(a). See also proposed
Rule 6.37AP-O(b) and (c) (setting forth continuous quoting
obligations of LMMs and Market Makers, respectively, which
obligations are identical to those set forth in Rule 6.37A-O(b) and
(c)).
---------------------------------------------------------------------------

     Proposed Rule 6.64P-O(d)(3)(A) would provide that if there
are no Market Makers assigned to a series, the Exchange would conduct
an Auction in that series based solely on a Legal Width Quote, without
waiting for the Opening MMQ Time Parameter to end. As set forth in
proposed Rule 6.64P-O(d)(2)(A) and (B), if there is Matched Volume,
this Auction would result in a trade, otherwise, the series would
transition to continuous trading as described in proposed Rule 6.64P-
O(f) below.
     Proposed Rule 6.64P-O(d)(3)(B) would provide that if there
is only one Market Maker assigned to a series:
    [cir] The Exchange would conduct the Auction, without waiting for
the Opening MMQ Time Parameter to end, as soon as there is both a Legal
Width Quote and the assigned Market Maker has submitted a quote with a
non-zero offer (proposed Rule 6.64P-O(d)(3)(B)(i)). As set forth in
proposed Rule 6.64P-O(d)(2)(A) and (B), if there is Matched Volume,
this Auction would result in a trade, otherwise, the series would
transition to continuous trading as described in proposed Rule 6.64P-
O(f) below.
    [cir] If the Market Maker assigned to the series has not submitted
a quote with a non-zero offer by the end of the Opening MMQ Time
Parameter and there is a Legal Width Quote, the Exchange would conduct
the Auction (proposed Rule 6.64P-O(d)(3)(B)(ii)). As set forth in
proposed Rule 6.64P-O(d)(2)(A) and (B), if there is Matched Volume,
this Auction would result in a trade, otherwise, the series would
transition to continuous trading as described in proposed Rule 6.64P-
O(f) below.
     Proposed Rule 6.64P-O(d)(3)(C) would provide that if there
are two or more Market Makers assigned to a series:
    [cir] The Exchange would conduct the Auction, without waiting for
the Opening MMQ Time Parameter to end, as soon as there is both a Legal
Width Quote and at least two assigned Market Makers have submitted a
quote with a non-zero offer (proposed Rule 6.64P-O(d)(3)(C)(i)). As set
forth in proposed Rule 6.64P-O(d)(2)(A) and (B), if there is Matched
Volume, this Auction would result in a trade, otherwise, the series
would transition to continuous trading as described in proposed Rule
6.64P-O(f) below.
    [cir] If at least two Market Makers assigned to a series have not
submitted a quote with a non-zero offer by the end of the Opening MMQ
Time Parameter, the Exchange would begin a second Opening MMQ Time
Parameter (of the same length) and that during the second Opening MMQ
Time Parameter, the Exchange would conduct the Auction, without waiting
for the second Opening MMQ Time Parameter to end, if there is both a
Legal Width Quote and at least one Market Maker assigned to the series
has submitted a quote with a non-zero offer (proposed Rule 6.64P-
O(d)(3)(C)(ii)). Because the Exchange does not require a Market Maker
assigned to a series to quote before conducting an Auction, to reduce
the potential delay in opening or reopening a series, the Exchange
believes that during the second Opening MMQ Time Parameter, it is
appropriate to wait for only one Market Maker, instead of two, to
quote. As set forth in proposed Rule 6.64P-O(d)(2)(A) and (B), if there
is Matched Volume, this Auction would result in a trade, otherwise, the
series would transition to continuous trading as described in proposed
Rule 6.64P-O(f) below.
    [cir] If no Market Maker assigned to a series has submitted a quote
with a non-zero offer by the end of the second Opening MMQ Time
Parameter and there is a Legal Width Quote, the Exchange would conduct
the Auction (proposed Rule 6.64P-O(d)(3)(C)(iii). As set forth in
proposed Rule 6.64P-O(d)(2)(A) and (B), if there is Matched Volume,
this Auction would result in a trade, otherwise, the series would
transition to continuous trading as described in proposed Rule 6.64P-
O(f) below.
    Proposed Rule 6.64P-O(d)(4) would provide that for the first five
minutes of the Auction Process (inclusive of the one-minute Opening MMQ
Time Parameter(s)), if there is no Legal Width Quote, the Exchange
would not conduct an Auction, even if there is Matched Volume, i.e.,
the series would not transition to continuous trading. This proposed
rule text provides transparency that, in the absence of a Legal Width
Quote, the Exchange would not conduct an Auction that results in a
trade even if there is Matched Volume. In such case, because there is
Matched Volume, the Exchange could not open that series and would wait
for a Legal Width Quote before conducting the Auction. Consistent with
proposed Rule 6.64P-O(d)(2)(A), if at any time during this five-minute
period there is a Legal Width Quote, the Exchange would proceed
immediately with an Auction and would not wait for the five-minute
timer to end.
    The Exchange proposes new functionality for Pillar to allow the
Exchange to open a series without a trade after five minutes have
elapsed without a Legal Width Quote, i.e.,

transition to continuous trading as described in proposed Rule 6.64P-
O(f), when there is a Calculated NBBO that is wider than the Legal
Width Quote. This option to open or reopen a series would not be
available if there is Matched Volume. As proposed, five minutes after
the Auction Process begins:
     Proposed Rule 6.64P-O(d)(4)(A) would provide that if there
is no Matched Volume and the Calculated NBBO is wider than the Legal
Width Quote, is not crossed, and does not contain a zero offer, the
Exchange would transition to continuous trading as described below in
paragraph (f) of this Rule (as described below, a trade could occur
during the transition to continuous trading, but there would not be a
trade resulting from Matched Volume in the Auction). As further
proposed, in such case, the Auction would not be intended to end with a
trade, but it may result in a trade (even if there is no Legal Width
Quote) if orders or quotes arrive when the Exchange is evaluating the
status of orders and quotes, but before the Auction Processing Period
begins.\152\ The Exchange believes this proposed rule would facilitate
the opening or reopening of a series so that it can begin continuous
trading when there is a Calculated NBBO in a series that is wider than
the Legal Width Quote and is not crossed and does not contain a zero
offer.\153\
---------------------------------------------------------------------------

    \152\ The Exchange expects this to be a rare race condition that
would result when the Exchange receives orders and quotes at
virtually the same time that it is evaluating whether it can open a
series on a quote based on a wide Calculated NBBO (and before the
Auction Processing Period begins) and that, as a result of that race
condition, those new orders or quotes are marketable against contra-
side interest, i.e., results in Matched Volume for the Auction, at
the same time that the Exchange concludes, based on interest that
had previously been received, that it can proceed with an Auction in
the absence of a Legal Width Quote. In such case, the Auction could
result in a trade.
    \153\ Such opening is similar to Cboe's ``Forced Opening''
process because it allows a series to open without a trade after a
specified time period when the market is wider than the specified
bid-ask differentials. See Cboe Rule 5.31(e)(4).
---------------------------------------------------------------------------

     Proposed Rule 6.64P-O(d)(4)(A)(i) would provide that any
time a series is opened or reopened when there is no Legal Width Quote,
i.e., the Auction would end without a trade, Market Orders and MOO
Orders would not participate in the Auction and would be cancelled
before the Exchange transitions to continuous trading, which would
protect such orders from trading at unintended prices.
     Proposed Rule 6.64P-O(d)(4)(B) would provide that if the
Exchange still cannot conduct an Auction as provided under paragraph
(A) (above), the Exchange would continue to evaluate both the
Calculated NBBO and interest on the Consolidated Book until the earlier
of: (i) A Legal Width Quote is established and an Auction can be
conducted; (ii) the series can be opened as provided for in proposed
Rule 6.64P-O(d)(4)(A); (iii) the series is halted; or (iv) the end of
Core Trading Hours. The proposed rule provides transparency that the
Exchange would continue to look for an opportunity to open or reopen a
series based on changes to the Calculated NBBO or orders and quotes on
the Consolidated Book.
    Proposed Rule 6.64P-O(d)(5) would provide that the Exchange may
deviate from the standard manner of the Auction Process, including
adjusting the timing of the Auction Process in any option series or
opening or reopening a series when there is no Legal Width Quote, when
it believes it is necessary in the interests of a fair and orderly
market. This proposed rule is based on Rule 6.64-O(b)(F) and,
consistent with current functionality, is designed to provide the
Exchange with flexibility to open a series even if there is no Legal
Width Quote.\154\ For example, a Floor Broker may have a two-sided open
outcry order. If the series is not opened, that trade could not be
consummated. Accordingly, this proposed rule would allow the Exchange
to open a series for trading to facilitate open outcry trading.
---------------------------------------------------------------------------

    \154\ See Rule 6.64-O(b)(F) (providing that ``[t]he Exchange may
deviate from the standard manner of the Auction Process, including
adjusting the timing of the Auction Process in any option class,
when it believes it is necessary in the interests of a fair and
orderly market'').
---------------------------------------------------------------------------

    Order Processing during an Auction Processing Period. As described
above, the Auction Processing Period is the abbreviated time period
(i.e., generally measured in less than a second) when the Exchange
conducts the Auction and therefore transitions a series from a pre-open
state to continuous trading. For example, if there is a Legal Width
Quote, Market Maker quotes, and Matched Volume, the Auction Processing
Period is when that Matched Volume will trade at the Indicative Match
Price. New orders and quotes received during the Auction Processing
Period would not be eligible to participate in that Auction trade.
Because the Exchange would be using the same Pillar auction
functionality for options trading that is used for its cash equity
market, the Exchange proposes that proposed Rule 6.64P-O(e) would be
based on Rule 7.35-E(g) and sub-paragraphs (1) and (2), with
differences only to reference quotes in addition to orders. The
proposed rule promotes granularity and transparency of how orders and
quotes that arrive during the Auction Processing Period would be
processed.
    Accordingly, as proposed, new order and quote messages received
during the Auction Processing Period would be accepted but would not be
processed until after such Auction Processing Period. As with Rule
7.35-E(g), for purposes of proposed Rule 6.64P-O(e) and (f), an ``order
instruction'' would likewise refer to a request to cancel, cancel and
replace, or modify an order or quote.
    As further proposed, during the Auction Processing Period, order
instructions would be processed as follows:
     An order instruction that arrives during the Auction
Processing Period would not be processed until after the Auction
Processing Period if it relates to an order or quote that was received
before the Auction Processing Period. Any subsequent order instructions
relating to such order would be rejected (proposed Rule 6.64P-O(e)(1)).
     An order instruction that arrives during the Auction
Processing Period would be processed on arrival if it relates to an
order that was received during the Auction Processing Period (proposed
Rule 6.64P-O(e)(2)).
    Transition to Continuous Trading. After the Auction Processing
Period concludes, i.e., once the Auction concludes either with or
without a trade, the Exchange transitions to continuous trading. During
this transition, the way in which orders, quotes, and order
instructions are processed would differ depending on when such messages
arrived at the Exchange. Proposed Rule 6.64P-O(f) would describe how
the Exchange would transition to continuous trading after the Auction
Processing Period concludes, which would detail new functionality for
options trading under Pillar, and is based on how the Exchange
transitions to continuous trading on its cash equity market following
an Auction, as described in Rule 7.35-E(h). The Exchange believes that
the proposed rule provides granularity regarding how orders and quotes
would be processed in connection with the transition to continuous
trading for options trading.\155\ As proposed, the transition to
continuous trading would proceed as follows.
---------------------------------------------------------------------------

    \155\ See, e.g., Cboe Rule 5.31(f) (describing Cboe's process
for orders and quotes not executed in its opening process).
---------------------------------------------------------------------------

    Proposed Rule 6.64P-O(f)(1) would provide that orders that are no
longer

eligible to trade would be cancelled. This proposed rule text is based
on Pillar terminology used in Rule 7.35-E(h)(1). For options trading,
the only orders that would no longer be eligible to trade after the
Auction Processing Period concludes would be Auction-Only Orders and
such orders would cancel (rather than ``expire'').
    Proposed Rule 6.64P-O(f)(2) would provide that order instructions
would be processed as follows:
     An order instruction that relates to an order or quote
that was received before the Auction Processing Period or that has
already transitioned to continuous trading and that arrives during
either the transition to continuous trading or the Auction Processing
Period under paragraph (e)(1) of this Rule would be processed in time
sequence with the processing of orders and quotes as specified in
paragraphs (f)(3)(A) or (B) of this Rule. In addition, any subsequent
order instructions relating to such order or quote would be rejected
(proposed Rule 6.64P-O(f)(2)(A)). This proposed rule text is based on
Rule 7.35-E(h)(2)(A), except that it does not include reference to
order instructions received during an Auction Imbalance Freeze, which,
as discussed above, is a concept on the cash equity platform that is
not applicable to options trading. This proposed rule text provides
transparency regarding how order instructions that arrived during the
Auction Processing Period would be processed if they relate to orders
or quotes that were received before the Auction Processing Period.\156\
---------------------------------------------------------------------------

    \156\ See id. (unexecuted orders and quotes will be entered into
the Cboe book in time sequence).
---------------------------------------------------------------------------

     An order instruction that arrives during the transition to
continuous trading would be processed on arrival if it relates to an
order or quote that was entered during either the Auction Processing
Period or the transition to continuous trading and such order or quote
has not yet transitioned to continuous trading (proposed Rule 6.64P-
O(f)(2)(B)). This proposed rule text is based on Rule 7.35-E(h)(2)(B)
without any substantive differences.
    Proposed Rule 6.64P-O(f)(3) would set forth how orders and quotes
would be processed during the transition to continuous trading
following an Auction. The proposed process for transitioning to
continuous trading is consistent with current functionality (with
differences described below) relating to draining the queue of
unexecuted orders and quotes following the current Auction Process. The
Exchange believes that the proposed rule provides granularity of this
process as compared to the current Rule. Specifically, the Exchange
proposes that it would process Auction-eligible orders and quotes that
were received before the Auction Processing Period and orders ranked
under the proposed category of ``Priority 3- Non-Display Orders''
(which interest was not eligible to participate in an Auction) received
before a trading halt as follows:
     Proposed Rule 6.64P-O(f)(3)(A)(i) would provide that Limit
Orders and quotes would be subject to the Limit Order Price Check,
Arbitrage Check, and Intrinsic Value Check, as applicable. This
proposed rule differs from current functionality, whereby risk checks
are applied before an Auction. This proposed rule text is consistent
with the proposed rule changes, described above, regarding when the
Limit Order Price Check, Arbitrage Check, and Intrinsic Value Check
(per proposed Rules 6.62P-O(a)(3) and 6.41P-O, respectively) would be
applied to orders and quotes that were received during a pre-open
state. The Exchange proposes to apply these checks to orders and quotes
before they become eligible for trading or routing during continuous
trading.
     Proposed Rule 6.64P-O(f)(3)(A)(ii) would provide that
Limit Orders and Market Orders would be assigned a Trading Collar. This
proposed rule is consistent with the proposed changes to Trading
Collars on Pillar, described above (per Rule 6.62P(a)(4)), that an
order received during a pre-open state would be assigned a Trading
Collar after an Auction concludes, or that an order would be reassigned
a Trading Collar after a halt.
     Proposed Rule 6.64P-O(f)(3)(A)(iii) would provide that
orders eligible to route that are marketable against Away Market
Protected Quotations would route based on the ranking of such orders as
set forth in Rule 6.76P-O(c). This proposed rule is consistent with
current functionality and uses Pillar terminology based on Rule 7.35-
E(h)(3)(A)(ii)(a), with differences to use the term ``Away Market
Protected Quotations'' instead of ``protected quotations on Away
Markets'' and to cross reference proposed Rule 6.76P-O(c).\157\ As with
current functionality, routable orders would be routed to Away Markets
to avoid either trading through or locking or crossing an Away Market
Protected Quotation.
---------------------------------------------------------------------------

    \157\ See supra note 95 (citing definitions of ``Protected
Bid,'' ``Protected Offer,'' and ``Quotation'' set forth in in Rule
6.92-O(a)(15) and (16) and of ``Away Market'' as set forth in
proposed Rule 1.1).
---------------------------------------------------------------------------

     Proposed Rule 6.64P-O(f)(3)(A)(iv) would provide that
after routing eligible orders, orders and quotes not eligible to route
that are marketable against Away Market Protected Quotations would
cancel. This functionality would be new for options trading (such
orders and quotes would currently reprice) and this proposed rule is
based on Rule 7.35-E(h)(3)(A)(ii)(b), with differences to use the term
``Away Market Protected Quotations'' instead of ``protected quotations
on Away Markets.'' By cancelling non-routable orders and quotes
marketable against Away Market Protected Quotations, the Exchange would
avoid locking or crossing such Away Market Protected Quotations.
     Proposed Rule 6.64P-O(f)(3)(A)(v) would provide that once
there are no more unexecuted orders marketable against Away Market
Protected Quotations, orders and quotes that are marketable against
other orders and quotes in the Consolidated Book would trade or be
repriced. This proposed rule is based on Rule 7.35-E(h)(3)(A)(ii)(c),
with a difference that an order could be repriced based on this
assessment, which would be unique to options trading because as
described above, an ALO Order that would be marketable against a
contra-side order or quote on the Consolidated Book cannot take
liquidity and in such case, the Exchange would reprice an ALO Order
that is marketable as provided for in proposed Rule 6.62P-O(e)(2).\158\
The Exchange further notes that, similar to the Exchange's cash equity
market, the Exchange could transition to continuous trading without the
Auction resulting in a trade, but that a trade(s) may occur during the
transition to continuous trading, which trade(s) would be published to
OPRA before the Exchange publishes a quote to OPRA.\159\ The Exchange
would not consider a trade that occurs during the transition to
continuous trading to be an Auction that results in a trade.\160\
---------------------------------------------------------------------------

    \158\ As described above, the Exchange proposes a difference on
Pillar because ALO Orders would be eligible to participate in an
Auction. Currently, ALOs 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. See discussion supra
regarding Rule 6.62-O(t).
    \159\ For example, the Exchange may determine that, as described
in proposed Rule 6.64P-O(d)(4)(A), if there is no Matched Volume but
there is a Calculated NBBO that meets the requirements specified in
that Rule, it can conduct an Auction without a trade and transition
to continuous trading pursuant to proposed Rule 6.64P-O(f). In such
case, there would not be an Auction that results in a trade, but a
trade(s) could occur among orders and quotes that trade during the
transition to continuous trading.
    \160\ OPRA does not distinguish between a trade that results
from an opening auction and a trade that occurs during the
transition to continuous trading. By contrast, the Exchange's
proprietary data feed would distinguish a trade that resulted from
an Auction from a trade that occurred during the transition to
continuous trading.

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

     Proposed Rule 6.64P-O(f)(3)(A)(vi) would provide that
Market Orders received during a pre-open state would be subject to the
validation specified in proposed Rule 6.62P-O(a)(1)(C). The Exchange
notes that because such Market Orders would already have been received
by the Exchange, if such orders fail one of those validations, they
would be cancelled instead of rejected. This would be new rule text as
compared to the Exchange's cash equity rules to reflect the validations
that would be applicable to Market Orders for options trading on Pillar
and would add transparency and granularity to Exchange rules.
     Proposed Rule 6.64P-O(f)(3)(A)(vii) would provide that the
display quantity of Reserve Orders would be replenished. This proposed
rule is based on Rule 7.35-E(h)(3)(A)(ii)(d), without any substantive
differences. This proposed rule is based on current functionality and
provides granularity in Exchange rules.
     Proposed Rule 6.64P-O(f)(3)(A)(viii) would describe the
last step in this process regarding Auction-eligible interest received
before the Auction Processing Period and orders ranked under the
proposed category of ``Priority 3--Non-Display Orders'' received before
a trading halt. Specifically, the Exchange would send a quote to OPRA
and proprietary data feeds representing the highest-priced bid and
lowest-priced offer of any remaining, unexecuted Auction-eligible
orders and quotes that were received before the Auction Processing
Period. This proposed rule is consistent with current options
functionality and is also based on current cash equity functionality,
as set forth in Rule 7.35-E(h)(3)(A)(ii). Although the functionality
would be the same for both markets, for options traded on the Exchange,
the Exchange proposes to describe this aspect of the process in
sequence, and reference both orders and quotes. The Exchange notes that
this quote sent to OPRA would be different than the Rotational Quote
sent at the beginning of the Auction Process because it could be
comprised of both orders and quotes. At a high level, this represents
current functionality because after a series opens, the Exchange
disseminates its best bid and offer of its quotes and orders to OPRA.
    Proposed Rule 6.64P-O(f)(3)(B) would provide that next, orders
ranked under the proposed category of ``Priority 3--Non-Display
Orders'' that were received during a pre-open state would be assigned a
new working time, in time sequence relative to one another based on
original entry time, and would be subject to the Limit Order Price
Check, Arbitrage Check, and Intrinsic Value Check, as applicable, and
if not cancelled, would be traded or repriced. This proposed
functionality would be new for Pillar and applicable only for options
traded on the Exchange. Even though orders ranked Priority 3--Non-
Display Orders would not be eligible to trade in an Auction (other than
the reserve interest of Reserve Orders), the Exchange proposes to
accept such orders during a pre-open state. These orders would
transition to continuous trading after any unexecuted Auction-eligible
interest transitions to continuous trading, as described above in
proposed Rule 6.64P-O(f)(3)(A)(i)--(viii). The Exchange believes that
waiting to process non-displayed orders in this sequence would ensure
that there is an NBBO against which such orders could be priced, as
described in proposed Rule 6.62P-O(d) (regarding Orders with a
Conditional or Undisplayed Price and/or Size) above.
    Proposed Rule 6.64P-O(f)(3)(C) would provide that next, orders and
quotes that were received during the Auction Processing Period would be
assigned a new working time in time sequence relative to one another,
based on original entry time and would be subject to the Limit Order
Price Check, Pre-Trade Risk Controls, Arbitrage Check, Intrinsic Value
Check, and validations specified in proposed Rule 6.62P-O(a)(1)(A), as
applicable to certain Market Orders, and if not cancelled would be
processed consistent with the terms of the order or quote. This
proposed rule text is designed to reflect that orders and quotes
received during the Auction Processing Period would not be subjected to
these price/risk validations until after the Exchange has transitioned
to continuous trading, and that if such interest fails these
validations, those orders or quotes would be cancelled instead of
rejected. This proposed rule text is based on Rule 7.35-E(h)(3)(B),
with differences to reflect the price/risk validations that would be
applicable to orders and quotes for options trading.
    Proposed Rule 6.64P-O(f)(3)(D) would further provide that when
transitioning to continuous trading:
     The display price and working price of orders and quotes
would be adjusted based on the contra-side interest in the Consolidated
Book or Away Market NBBO, as provided for in Rule 6.62P-O (proposed
Rule 6.64P-O(f)(3)(D)(i)). This proposed rule is based on Rule 7.35-
E(h)(3)(C), with differences to reflect that, for options trading, the
display price or working price of an order may be adjusted based either
on contra-side interest on the Consolidated Book (e.g., for ALO Orders)
or the Away Market NBBO (as opposed to the PBBO or NBBO for cash
equities trading).
     The display price and working price of a Day ISO would be
adjusted in the same manner as a Non-Routable Limit Order until the Day
ISO is either traded in full or displayed at its limit price and the
display price and working price of a Day ISO ALO would be adjusted in