[Federal Register Volume 85, Number 112 (Wednesday, June 10, 2020)]
[Notices]
[Pages 35459-35460]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-12515]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-89008; File No. SR-NYSEArca-2020-31]
Self-Regulatory Organizations; NYSE Arca, Inc.; Order Approving a
Proposed Rule Change, as Modified by Amendment No. 2, To Modify Rule
6.60-O Regarding the Treatment of Orders Subject to Trade Collar
Protection
June 4, 2020.
I. Introduction
On April 9, 2020, NYSE Arca, Inc. (``NYSE Arca'' or the
``Exchange'') filed with the Securities and Exchange Commission (the
``Commission''), pursuant to Section 19(b)(1) \1\ of the Securities
Exchange Act of 1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ a
proposed rule change to modify Exchange Rule 6.60-O regarding the
treatment of orders subject to Trade Collar Protection. The Exchange
submitted Amendment No. 2, which superseded and replaced the proposed
rule change, on April 23, 2020.\4\ The proposed rule change was
published for comment in the Federal Register on April 30, 2020.\5\ The
Commission received no comments on the proposal. This order approves
the proposed rule change, as modified by Amendment No. 2.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 15 U.S.C. 78a.
\3\ 17 CFR 240.19b-4.
\4\ Amendment No. 2 is available at https://www.sec.gov/comments/sr-nysearca-2020-31/srnysearca202031-7238141-217098.pdf.
The Exchange submitted Amendment No. 1 on April 22, 2020, and
withdrew it on April 23, 2020.
\5\ Securities Exchange Act Release No. 88737 (April 24, 2020),
85 FR 24069 (``Notice'').
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II. Description of the Proposal, as Modified by Amendment No. 2
The Exchange states that it proposes changes to Rule 6.60-O(a) to
modify functionality and to adopt enhancements to the operation of the
Trading Collars.\6\ The Exchange applies Trade Collar Protection to
incoming market orders and marketable limit orders (each a ``collared
order'' and, collectively, ``Marketable Orders'') if the width of the
NBBO is greater than one Trading Collar. As described more fully in the
Notice, the Exchange states that Trading Collars mitigate the risks
associated with orders sweeping through multiple price points
(including during extreme market volatility) and resulting in
executions at prices that are potentially erroneous.\7\ According to
the Exchange, by applying Trading Collars to incoming orders, the
Exchange provides an opportunity to attract additional liquidity at
tighter spreads and it ``collars'' affected orders at successive price
points until the bid and offer are equal to the bid-ask differential
guideline for that option (i.e., equal to the Trading Collar).\8\
Similarly, by applying Trading Collars to partially executed orders,
the Exchange states that it prevents the balance of such orders from
executing away from the prevailing market after exhausting interest at
or near the top of book on arrival.\9\
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\6\ See Notice, supra note 5, 85 FR at 24070. ``Trading
Collars'' are determined by the Exchange on a class-by-class basis
and, unless announced otherwise via Trader Update, are the same
value as the bid-ask differential guidelines established pursuant to
Rule 6.37-O(b)(4). See Rule 6.60(a)(2).
\7\ See Notice, supra note 5, 85 FR at 24070.
\8\ See id.
\9\ See id.
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Accordingly, the Exchange proposes to modify the treatment of
incoming market orders when the width of the NBBO is greater than one
Trading Collar (i.e., a ``wide market'') and there is an existing
contra-side collared order. Currently, an incoming market order would
immediately execute against an existing contra-side collared order in a
wide market.\10\ The Exchange proposes to reject a market order to buy
(sell) received in a wide market if there is already a collared
Marketable Order to sell (buy).\11\ The Exchange states that the
proposed rule change would prevent the execution of the market order at
a potential erroneous price and provide the collared order greater
opportunity to receive execution.\12\
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\10\ See Rule 6.60-O(a)(1)(A).
\11\ See proposed Rule 6.60-O(a)(1)(B).
\12\ See Notice, supra note 5, 85 FR at 24070.
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The Exchange also proposes to amend the operation of the Trading
Collar so
[[Page 35460]]
that the display price would be the last execution price of the
collared order.\13\ Currently, the display price of a collared
Marketable Order could be based on either the available contra-side
trading interest within (or outside of) one Trading Collar or the
Collar Range \14\ of the collared order.\15\ The Exchange states that
the proposed rule change would simplify the method of selecting the
display price (i.e., the current collar execution price) thereby
enabling investors to gauge market interest, and, by using a single
standard to determine the display price, provide more certainty for
order senders.\16\
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\13\ See proposed Rule 6.60-O(a)(5).
\14\ A ``Collar Range'' is within one Trading Collar above (for
buy orders) or below (for sell orders) the collar execution price.
See Rule 6.60-O(a)(4)(D).
\15\ See Rule 6.60-O(a)(5)(A)-(B).
\16\ See Notice, supra note 5, 85 FR at 24071.
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Currently, a collared order to buy (sell) would be assigned a new
collar execution price one Trading Collar above (below) the current
displayed price of the collared order and processed at the updated
price after the expiration of one second and absent an update to the
NBBO.\17\ The Exchange states that the current rule is silent as to the
impact of any portion of the collared order routing to an away market
as well as which side of the NBBO needs to update during the one-
second time period.\18\ Accordingly, the Exchange proposes to define an
``Expiration'' as when a collared order displays without executing,
routing, or repricing and there is no update to the same-side NBBO
price for a period of at least one second.\19\ The Exchange states that
the proposed modification makes clear that any such routing or same-
side NBBO updates would restart the one-second timer for repricing
purposes, and that collared orders subject to conditions that qualify
as a proposed Expiration would be repriced as set forth in Rule 6.60-
O(a)(6)(C).\20\ Relatedly, the Exchange proposes to add a new paragraph
that provides that a market order that is collared will cancel after it
is subject to a specified number of Expirations, to be determined by
the Exchange and announced by Trader Update.\21\
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\17\ See Rule 6.60-O(a)(6)(C).
\18\ See id.
\19\ See proposed Rule 6.60-O(a)(6)(C).
\20\ See Notice, supra note 5, 85 FR at 24071.
\21\ See proposed Rule 6.60-O(a)(6)(C)(i).
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Finally, the Exchange states that it will announce the
implementation of the proposed rule change in a Trader Update to be
published no later than 60 days following a Commission approval.\22\
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\22\ See Notice, supra note 5, 85 FR at 24071.
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III. Discussion and Commission Findings
After careful review, the Commission finds that the proposed rule
change, as modified by Amendment No. 2, is consistent with the
requirements of the Act and the rules and regulations thereunder
applicable to a national securities exchange.\23\ In particular, the
Commission finds that the proposed rule change, as modified by
Amendment No. 2, is consistent with Section 6(b)(5) of the Act,\24\
which requires, among other things, that the rules of a national
securities exchange be designed to prevent fraudulent and manipulative
acts and practices, to promote just and equitable principles of trade,
to remove impediments to and perfect the mechanism of a free and open
market and a national market system, and, in general, to protect
investors and the public interest.
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\23\ In approving this proposal, the Commission has considered
the proposed rule's impact on efficiency, competition, and capital
formation. See 15 U.S.C. 78c(f).
\24\ 15 U.S.C. 78f(b)(5).
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The Commission notes that the Exchange believes that the proposal
to reject incoming market orders when there is a contra-side collared
order would allow the collared order to continue to seek liquidity
while providing the latter-arriving, contra-side order protection from
execution in a wide market, which could be indicative of unstable
market conditions or market dislocation.\25\ The Exchange also believes
that rejecting the incoming market order rather than collaring it while
there is a collared order on the contra-side would provide greater
execution opportunities for the collared order.\26\
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\25\ See Notice, supra note 5, 85 FR at 24071.
\26\ See id.
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In addition, the Exchange believes that the proposal to select the
display price of a collared order based on the current collar execution
price would provide order senders with more certainty and enable them
to gauge indications of market interest.\27\
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\27\ See id.
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The Commission notes that the Exchange believes that the proposed
definition of ``Expiration'' and the proposal to limit the number of
Expirations per collared market order would improve the operation of
the Trading Collar functionality because canceling back market orders
that have persisted for a certain number of Expirations, which could be
indicative of unstable market conditions, should provide order senders
more certainty of the handling of such orders and help avoid such
orders receiving bad executions in times of market dislocation.\28\
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\28\ See id.
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In addition, the Commission notes that the Exchange states that the
proposed rule modifications to the Trading Collar functionality are
similar to functionality available on other options exchanges.\29\
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\29\ Specifically, the Exchange compares the Trading Collar
functionality, as proposed, with NASDAQ Options Market and NASDAQ
OMX BX, Options 3, Section 15 (Risk Protections) (b)(1), Acceptable
Trade Range. The Exchange states that these exchanges provide a risk
protection feature for quotes and orders, which prevents executions
(partial or otherwise) of orders beyond an ``acceptable trade
range'' (as calculated by the exchange) and that when an order (or
quote) reaches the limits of the ``acceptable trade range'', it
posts for a period not to exceed one second and recalculated a new
``acceptable trade range''. See id. 85 FR at 24072.
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The Commission believes that the operation of the Trade Collar
Protection mechanism set forth in the proposal is consistent with the
Act. In addition, the Commission believes that the proposed changes
should provide more certainty for investors with respect to how their
orders will be handled on the Exchange. Accordingly, the Commission
believes that the proposal is reasonably designed to help prevent
fraudulent and manipulative acts and practices, promote just and
equitable principles of trade, remove impediments to and perfect the
mechanism of a free and open market and a national market system, and,
in general, protect investors and the public interest.
IV. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\30\ that the proposed rule change (SR-NYSEArca-2020-31), as
modified by Amendment No. 2, be, and it hereby is, approved.
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\30\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\31\
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\31\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-12515 Filed 6-9-20; 8:45 am]
BILLING CODE 8011-01-P