Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”) and Rule 19b–4 thereunder, notice is hereby given that, on August 18, 2023, NYSE Arca, Inc. (“NYSE Arca” or the “Exchange”) filed with the Securities and Exchange Commission (“Commission”) the proposed rule change as described in Items I, II, and III below, which Items have been prepared by the self-regulatory organization. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons.
I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change
The Exchange proposes to modify Rule 6.91P–O(g)(1) to expand the existing Complex Strategy Limit. The proposed rule change is available on the Exchange's website at www.nyse.com, at the principal office of the Exchange, and at the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the self-regulatory organization included statements concerning the purpose of, and basis for, the proposed rule change and discussed any comments it received on the proposed rule change. The text of those statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant parts of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and the Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to modify Rule 6.91P–O(g) regarding risk checks of Electronic Complex Orders (or ECOs) to expand the existing Complex Strategy Limit. Specifically, the Exchange proposes to impose a limit on complex strategies per underlying symbol, as described below. The Exchange also notes that at least one other options exchange likewise may impose a limit on new complex order strategies.
Rule 6.91P–O(a)(7) defines an “Electronic Complex Order” or “ECO” to mean any Complex Order, as defined in Rule 6.62P–O (f). Rule 6.62P–O(f) (providing a Complex Order is “any order involving the simultaneous purchase and/or sale of two or more option series in the same underlying security, for the same account, in a ratio that is equal to or greater than one-to-three (.333) and less than or equal to three-to-one (3.00) and for the purpose of executing a particular investment strategy.”).
See proposed Rule 6.91P–O(g)(1) (Complex Strategy Limits). A “complex strategy” means a particular combination of leg components and their ratios to one another. New complex strategies can be created when the Exchange receives either a request to create a new complex strategy or an ECO with a new complex strategy. See Rule 6.91P–O(a)(4).
See, e.g., Cboe Rule 5.33(a) (providing, in its definition of “complex strategy” that Cboe “may limit the number of new complex strategies that may be in the [Cboe] System or entered for any EFID (which EFID limit would be the same for all Users) at a particular time”).
Rule 6.91P–O(g) describes the “ECO Risk Checks,” which are designed to help OTP Holders and OTP Firms (collectively OTPs) to effectively manage risk when trading ECOs. Rule 6.91P–O(g)(1) sets forth the “Complex Strategy Limit,” which establishes a limit on the maximum number of new complex strategies that may be requested to be created per Market Participant Identifier or MPID, which limit would be announced by Trader Update. Under current functionality, when an MPID reaches the limit on the maximum number of new complex strategies, the Exchange rejects all requests to create new complex strategies from that MPID for the rest of the trading day.
An Options Trading Permit or “OTP” is issued by the Exchange for effecting approved securities transactions on the Exchange. See Rule 1.1. An “OTP Holder” is a natural person, in good standing, who has been issued an OTP and an “OTP Firm” is a sole proprietorship, partnership, corporation, limited liability company or other organization in good standing that holds an OTP or upon whom an individual OTP Holder has conferred trading privileges on the Exchange. See id. The Exchange notes that an OTP may be acting as a Market Maker, which market participant is subject to heightened requirements. See, e.g., Rule 6.37AP–O(b), (c).
Per Rule 1.1, an MPID refers to the identifier assigned to the orders and quotes of a single OTP Holder or OTP Firm for the execution and clearing of trades on the Exchange by that permit holder. An OTP Holder or OTP Firm may obtain multiple MPIDs and each such MPID may be associated with one or more sub-identifiers of that MPID.” See id.
Notwithstanding the established Complex Strategy Limit, Rule 6.91P–O(g)(1) also authorizes the Exchange to reject a request to create a new complex strategy from any MPID whenever the Exchange determines it is necessary in the interests of a fair and orderly market. The established Complex Strategy Limit (the “Strategy Limit”), and the Exchange's discretion related thereto, is a system protection tool that enables the Exchange to prevent any single MPID from creating more than a limited number of complex strategies during the trading day.
The Exchange proposes to modify Rule 6.91P–O(g)(1) to adopt another limit for the number of permissible complex strategies requested to be created by an MPID in a trading day, except that the new limit would be based on the number of complex strategies in the same underlying symbol (the “Strategy Limit per Symbol”). Like the existing Strategy Limit, the proposed Strategy Limit per Symbol would operate as a system protection tool that enables the Exchange to prevent any single MPID from creating more than a limited number of complex strategies in a particular symbol during the trading day.
The Exchange has observed that the high volume of requests to create complex strategies in the same underlying symbol can tax Exchange resources and result in latency in providing acknowledgements to OTPs for all series in that same underlying symbol. As such, the proposed Strategy Limit per Symbol would augment and add granularity to the existing Complex Strategy Limit by allowing the Exchange to establish separate limits based on the underlying symbol. The Exchange believes that MPIDs may benefit from this added granularity. For example, an MPID that sends a significant number of complex series creation requests for a particular underlying symbol may breach the Strategy Limit per Symbol for that underlying. However, that MPID would continue to have the ability to request complex strategies in other symbols—unless or until that MPID breaches the Strategy Limit per Symbol in a different symbol or—in the aggregate—breaches the Complex Strategy Limit. Thus, the Exchange believes that the proposed change would benefit all market participants because it would curtail (or remove) the latency that has at times resulted from the Exchange receiving a significant number of requests for new complex strategies in the same underlying.
To accommodate the proposed change, the Exchange proposes to reorganize and re-word certain of the existing text without changing functionality. As proposed, Rule 6.91P–O(g)(1) would be re-named (in plural) “Complex Strategy Limits” (as opposed to a singular “Complex Strategy Limit”) and would state the following:
The Exchange will establish limits, which will be announced by Trader Update, on (A) the maximum number of new complex strategies (irrespective of the underlying symbol) that an MPID may request be created (the “Strategy Limit”); and (B) the maximum number of new complex strategies in a particular underlying symbol that an MPID may request be created (the “Strategy Limit per Symbol”). When an MPID breaches the Strategy Limit, the Exchange will reject for the rest of the trading day, all requests from that MPID to create new complex strategies. When an MPID breaches the Strategy Limit per Symbol in a particular underlying, the Exchange will reject for the rest of the trading day all requests from that MPID to create complex strategies in that underlying symbol. Notwithstanding the established Strategy Limit and Strategy Limit per Symbol, the Exchange may reject a request to create a new complex strategy from any MPID whenever the Exchange determines it is necessary in the interests of a fair and orderly market.
See proposed Rule 6.91P–O(g)(1) (Complex Strategy Limits).
For example, if the Strategy Limit is 100, an MPID has already requested and created 100 complex strategies in a trading day, the Exchange will reject any request for the 101st complex strategy for the remainder of the trading day. The same logic applies for the Strategy Limit per Symbol such that if this limit is 50 and an MPID has already requested and created 50 complex strategies in the underlying symbol XYZ in a trading day, the Exchange will reject any request for the 51st complex strategy in XYZ for the remainder of the trading day.
The Exchange believes that this proposed modification is merely an extension of existing functionality that would help the Exchange add granularity to, and better calibrate, its risk settings related to the number of Complex Strategies per Symbol for an MPID per trading day and is therefore non-controversial.
Implementation
The Exchange will announce by Trader Update the implementation date of the proposed rule change, which implementation will be no later than 90 days after the effectiveness of this rule change.
2. Statutory Basis
The proposed rule change is consistent with Section 6(b) of the Securities Exchange Act of 1934 (the “Act”), in general, and furthers the objectives of Section 6(b)(5), in particular, because it is designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, to foster cooperation and coordination with persons engaged in facilitating transactions in securities, to remove impediments to, and perfect the mechanism of, a free and open market and a national market system and, in general, to protect investors and the public interest.
The Exchange has observed that the high volume of requests to create complex strategies in the same underlying symbol can tax Exchange resources and result in latency in providing acknowledgements to OTPs for all series in that underlying symbol. As such, the proposed Strategy Limit per Symbol would augment and add granularity to the existing Complex Strategy Limit by allowing the Exchange to establish separate limits based on the underlying symbol. The Exchange believes that MPIDs may benefit from this added granularity. For example, an MPID that sends a significant number of complex series creation requests for a particular underlying symbol may breach the Strategy Limit per Symbol for that underlying. However, that MPID would continue to have the ability to request complex strategies in other symbols—unless or until that MPID breaches the Strategy Limit per Symbol in a different symbol or—in the aggregate—breaches the Complex Strategy Limit. Thus, the proposed change would 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 because it would curtail (or remove) the latency that has at times resulted from the Exchange receiving a significant number of requests for new complex strategies in the same underlying.
The Exchange believes that the proposed change to expand the limits placed on Complex Strategies per MPID would promote just and equitable principles of trade because it would modify existing functionality in a manner that would enable the Exchange to add granularity to, and better calibrate, its risk settings related to the number of Complex Strategies in the same underlying symbol requested in a trading day.
Finally, the proposed rule change would help maintain a fair and orderly market because it would enhance an existing system protection tool to enable the Exchange to prevent any single MPID from creating more than a limited number of complex strategies in the same underlying symbol during the trading day.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. The Exchange does not believe that the proposed rule change would impose any burden on intra-market competition that is not necessary or appropriate in furtherance of the purposes of the Act because the proposed Strategy Limit per Symbol would apply equally to all market participants that request new complex strategies. As stated herein, the proposed rule change would provide the Exchange the ability to better calibrate risk settings related to the number of Complex Strategies per Symbol for an MPID per trading day, which in turn should benefit all market participants because (as described above) it would curtail (or remove) the latency that has at times resulted from the Exchange receiving a significant number of requests for new complex strategies in the same underlying.
The Exchange believes that the proposed rule change would not impose a burden on competing options exchanges. The Exchange notes that it operates in a highly competitive market in which market participants can readily favor competing venues. When an exchange offers enhanced functionality (like the proposed Strategy Limit per Symbol) that distinguishes it from the competition and participants find it useful, it has been the Exchange's experience that competing exchanges will move to adopt similar functionality. Thus, the Exchange believes that this type of competition amongst exchanges is beneficial to the entire marketplace as it can result in enhanced processes, functionality, and technologies.
C. Self-Regulatory Organization's Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others
No written comments were solicited or received with respect to the proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action
Because the foregoing proposed rule change does not: (i) significantly affect the protection of investors or the public interest; (ii) impose any significant burden on competition; and (iii) become operative for 30 days from the date on which it was filed, or such shorter time as the Commission may designate, it has become effective pursuant to Section 19(b)(3)(A) of the Act and Rule 19b–4(f)(6) thereunder. At any time within 60 days of the filing of the proposed rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act. If the Commission takes such action, the Commission shall institute proceedings to determine whether the proposed rule change should be approved or disapproved.
17 CFR 240.19b–4(f)(6). In addition, Rule 19b–4(f)(6)(iii) requires a self-regulatory organization to give the Commission written notice of its intent to file the proposed rule change, along with a brief description and text of the proposed rule change, at least five business days prior to the date of filing of the proposed rule change, or such shorter time as designated by the Commission. The Exchange has satisfied this requirement.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods:
Electronic Comments
• Use the Commission's internet comment form ( https://www.sec.gov/rules/sro.shtml ); or
• Send an email to rule-comments@sec.gov. Please include file number SR–NYSEARCA–2023–56 on the subject line.
Paper Comments
- Send paper comments in triplicate to Secretary, Securities and Exchange Commission, 100 F Street NE, Washington, DC 20549–1090.
All submissions should refer to file number SR–NYSEARCA–2023–56. This file number should be included on the subject line if email is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission's internet website ( https://www.sec.gov/rules/sro.shtml ). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for website viewing and printing in the Commission's Public Reference Room, 100 F Street NE, Washington, DC 20549, on official business days between the hours of 10 a.m. and 3 p.m. Copies of the filing also will be available for inspection and copying at the principal office of the Exchange. Do not include personal identifiable information in submissions; you should submit only information that you wish to make available publicly. We may redact in part or withhold entirely from publication submitted material that is obscene or subject to copyright protection. All submissions should refer to file number SR–NYSEARCA–2023–56 and should be submitted on or before September 29, 2023.
For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.
17 CFR 200.30–3(a)(12), (59).
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023–19356 Filed 9–7–23; 8:45 am]
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