83 FR 9769 - Self-Regulatory Organizations; NYSE American LLC; Notice of Filing of Proposed Rule Change for New Rule 971.2NY for An Electronic Price Improvement Auction for Complex Orders

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 83, Issue 45 (March 7, 2018)

Page Range		9769-9781
FR Document		2018-04625
Federal Register, Volume 83 Issue 45 (Wednesday, March 7, 2018)
[Federal Register Volume 83, Number 45 (Wednesday, March 7, 2018)]
[Notices]
[Pages 9769-9781]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2018-04625]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-82802; File No. SR-NYSEAMER-2018-05]


Self-Regulatory Organizations; NYSE American LLC; Notice of 
Filing of Proposed Rule Change for New Rule 971.2NY for An Electronic 
Price Improvement Auction for Complex Orders

March 2, 2018.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby 
given that on February 15, 2018, NYSE American LLC (the ``Exchange'' or 
``NYSE American'') filed with the Securities and Exchange Commission 
(the ``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.
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    \1\ 15 U.S.C.78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes a new Rule 971.2NY for an electronic price 
improvement auction for complex orders. 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 expand its electronic crossing mechanism 
offering, which is the Customer Best Execution or ``CUBE'' Auction 
described in Rule 971.1NY, to make it available for complex orders. To 
effect this change, the Exchange proposes new Rule 971.2NY (Complex 
Electronic Cross Transactions) to establish the CUBE for complex orders 
(``Complex CUBE Auction'' or ``Auction''). The proposed Complex CUBE 
Auction would operate in a manner substantially similar to the CUBE 
Auction for single-leg orders (the ``Single-Leg CUBE''). Accordingly, 
proposed Rule 971.2NY is based on Rule 971.1NY with differences as 
necessary to account for different processing of and priority rules for 
Complex Orders.\4\ In addition to being substantially similar to the 
Single-Leg CUBE (discussed below), the proposed Complex CUBE Auction 
would operate in a manner consistent with electronic price improvement 
auctions for complex auctions available on other options markets.\5\
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    \4\ Rule 980NY sets forth how the Exchange conducts trading of 
Electronic Complex Orders (referred to herein simply as Complex 
Orders). Per Rule 980NY, ``an `Electronic Complex Order' means any 
Complex Order as defined in Rule 900.3NY(e) that is entered into the 
System.'' Rule 900.3NY defines Complex Order as ``any order 
involving the simultaneous purchase and/or sale of two or more 
different 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.''
    \5\ See Chicago Board Options Exchange, Inc. (``CBOE'') Rule 
6.74A--Automated Improvement Mechanism (``AIM''); Nasdaq PHLX, LLC 
(``PHLX'') Rule 1087--Price Improvement XL (``PIXL''); BOX Options 
Exchange LLC (``BOX'') Rule 7245--Complex Order Price Improvement 
Period (``COPIP''); Nasdaq ISE, LLC (``ISE'') Rule 723--Price 
Improvement Mechanism (``PIM''); Miami International Securities 
Exchange, LLC (``MIAX'') Rule 515A, Interpretation and Policies 
.12--Price Improvement Mechanism (``PRIME'').
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    As proposed, the Complex CUBE Auction (like the Single-Leg CUBE) 
would be available to ATP Holders both on and off the Trading Floor of 
the Exchange, subject to the requirements of Section 11(a) of the Act 
(discussed below). In addition to the Complex CUBE Auction, Floor-based 
ATP Holders may continue to use existing Floor-based crossing rules.
    The Exchange also proposes to amend Rule 900.2NY(7)(a), make minor 
updates to the Single-Leg CUBE, and amend other Exchange rules (as 
noted herein) for purposes of clarity, transparency and internal 
consistency.
Single-Leg CUBE \6\
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    \6\ See Rule 971.1NY. See Securities Exchange Act Release No. 
72025 (April 25, 2014), 79 FR 24779 (May 1, 2017 [sic]) (SR-NYSEMKT-
2014-17) (order approving CUBE Auction for single-leg orders) 
(``Single-Leg CUBE Approval Order''). To make clear that Rule 
971.1NY relates to the CUBE Auction for single leg orders, the 
Exchange proposes to re-title this rule, and modify cross-references 
to this rule, to ``Single-Leg Electronic Cross Transactions.'' See 
proposed Rules 971.1NY; 900.2NY(18A) (regarding the definition of a 
Professional Customer); 935NY (regarding order exposure 
requirements). The Exchange also proposes to modify Rules 
900.2NY(18A) to exclude Professional Customers from the definition 
of ``Customer'' for purposes of this proposed rule. See proposed 
Rule 900.2NY(18A).
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    The Single-Leg CUBE provides a mechanism through which an ATP 
Holder may seek to guarantee the execution of a limit order it 
represents as agent on behalf of a public customer, broker dealer, or 
any other entity (the ``CUBE Order''). The ATP Holder that

[[Page 9770]]

submits the CUBE Order (the ``Initiating Participant'') agrees to 
guarantee the execution of the CUBE Order by submitting a contra-side 
order (``Contra Order'') representing principal interest or interest it 
has solicited to trade with the CUBE Order at a specified price 
(``single stop price'') or by utilizing auto-match or auto-match limit 
features. The Auction starts with an initiating price that is displayed 
(while the price(s) at which the Contra Order has guaranteed the CUBE 
Order is not displayed). Except as specified by rule, a CUBE Order to 
buy (sell) may trade at prices equal to or between the initiating price 
as the upper (lower) bound and the National Best Bid (``NBB'') 
(National Best Offer (``NBO'')) as the lower (upper) bound.\7\
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    \7\ See Rule 971.1NY(b)(1) (regarding exceptions to general 
parameters, including tighter execution parameters when there is 
Customer interest on the Book and for CUBE Orders for 50 or fewer 
contracts).
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    Although the Contra Order would guarantee the CUBE Order an 
execution, the purpose of the Single-Leg CUBE is to provide the 
opportunity for price improvement for the CUBE Order as well as the 
opportunity for other market participants to interact with the CUBE 
Order. Accordingly, the Exchange notifies market participants with a 
Request for Response (``RFR'') when an Auction is occurring so that 
they have an opportunity to participate by submitting RFR Responses in 
the form of GTX Orders (though unrelated quotes and order received 
during the Auction may be eligible to participate in the CUBE as well). 
The Response Time Interval (``RTI'') for the Auction is determined by a 
random timer, but will never be less than 100 milliseconds or more than 
1 second. However, the CUBE may end prior to the end of the RTI if 
during an Auction, the Exchange receives quotes or orders that are 
marketable to allow such incoming orders or quotes an opportunity to 
interact with interest in the Auction and then continue with regular 
order processing without delay.\8\
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    \8\ See Rule 971.1NY(c)(4).
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    At the conclusion of the Single-Leg CUBE, the CUBE Order may 
execute at multiple prices within a permissible range but would always 
trade at the best-priced interest in the Auction.\9\ Generally, the 
CUBE mechanism will determine whether the total RFR Responses can fill 
the CUBE Order at a price or prices better than the initiating price. 
If so, the CUBE Order is matched against the better-priced RFR 
Responses granting the CUBE Order the maximum amount of price 
improvement possible. As noted above, certain unrelated orders may be 
considered RFR Responses and may interact with the CUBE Order (thus 
maximizing opportunities for price improvement) and any portion of 
these unrelated orders remaining thereafter would be placed on the 
Consolidated Book.
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    \9\ See Rule 971.1NY(c)(5).
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    The Exchange proposes to make the CUBE mechanism available to 
Complex Orders, as described below.
Complex CUBE Overview
    The purpose of the Complex CUBE Auction is to provide the 
opportunity for price improvement for a Complex Order in an electronic 
paired auction as well as the opportunity for other market participants 
to interact with such Complex Order. Accordingly, just as in the 
Single-Leg CUBE, the Exchange would notify market participants when an 
Auction is occurring so that they may have an opportunity to 
participate.
    Like the Single-Leg CUBE, the Complex CUBE Auction is designed to 
work in conjunction with the Exchange's Consolidated Book--the 
Exchange's single electronic order book that contains all quotes and 
limit orders, including Complex Orders.\10\ Any orders executed in the 
Complex CUBE Auction would occur in the Complex Matching Engine 
(``CME''), which is the mechanism that ranks and maintains priority of 
Complex Orders, and monitors the bids and offers in the leg markets for 
possible execution of a Complex Order.\11\ By integrating the Complex 
CUBE Auction into the CME, the Exchange would assure that the Complex 
CUBE Auction respects the priority of interest in the Consolidated 
Book.\12\
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    \10\ See Rule 900.2NY(14) (defining Consolidated Book (or 
``Book'') and providing that all quotes and orders ``that are 
entered into the Book will be ranked and maintained in accordance 
with the rules of priority as provided in Rule 964NY'').
    \11\ See Rule 980NY(b) (``Priority of Electronic Complex Orders 
in the Consolidated Book''). See also proposed Rule 971.2NY 
(regarding processing of Complex CUBE Orders purposes to Rule 
980NY).
    \12\ See proposed Rule 971.2NY(a).
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    As discussed in more detail below, the Auction may conclude early 
(to preserve priority) if, during the Auction, the Exchange receives 
trading interest that improves the interest that existed on the 
Consolidated Book at the start of the Auction. If such incoming trading 
interest is a Complex Order, that order would have an opportunity to 
participate in the Auction; if such trading interest updates the legs 
markets, it would be processed per Rule 980NY after the Complex Order 
that initiated the Auction is fully executed.\13\
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    \13\ The Exchange notes that, as described in the ``Conclusion 
of the Complex CUBE Auction and Order Allocation'' section, the 
allocation of the Complex CUBE Order is consistent with the 
allocation of orders executed in the Complex Order Auction. See Rule 
980NY(c)(7)(B) [sic].
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    The Exchange believes that the operation of the proposed Complex 
CUBE Auction is consistent with processing of Complex Orders in the CME 
and respects the processing of updates to the leg markets consistent 
with Rule 980NY. In addition, the Exchange believes that the Complex 
CUBE Auction would provide more efficient transactions, reduce 
execution risk to ATP Holders, and afford greater opportunities for 
price improvement. The Exchange also believes this proposal would 
result in tighter markets, and ensure that each order receives the best 
possible price.
Definitions
    Because of different processing of and priority rules for Complex 
Orders, the Exchange proposes to both amend current definitions in 
Exchange rules relating to Complex Orders and add new terms that would 
be used for purposes of the Complex CUBE Auction.
    First, the Exchange proposes to amend Rule 900.2NY(7), which 
currently defines the term ``Complex BBO,'' to mean ``the BBO for a 
given complex order strategy as derived from the best bid on OX and 
best offer on OX for each individual component series of a Complex 
Order.'' The Exchange proposes both (i) a non-substantive amendment to 
rename the ``Complex BBO'' as the ``Derived BBO,'' and revise the 
description, and (ii) a substantive amendment to add a new definition 
of ``Complex BBO'' to refer to the best-priced Complex Orders in the 
Consolidated Book.
    To effect this change, the Exchange proposes to amend current Rule 
900.2NY(7)(b) to provide that a Complex BBO means complex orders with 
the lowest-priced net debit/credit price on each side of the 
Consolidated Book for the same complex order strategy.\14\ The Exchange 
believes that defining the Complex BBO to refer to Complex Orders would 
promote transparency and clarity in Exchange rules because the 
definition would be more closely correlated to prices of Complex 
Orders, and not a derived price from the leg markets. As discussed 
below, the

[[Page 9771]]

Exchange proposes to use this amended term ``Complex BBO'' in the rule 
text describing the Complex CUBE Auction.
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    \14\ See Rule 980NY(b) (providing that Electronic Complex Orders 
are ranked in the Consolidated Book, in part, based on their ``total 
or net debit or credit'' price). Complex orders are entered with a 
plus (``+'') sign when the order sender wants to receive money 
(``credit'') or a negative (``-'') to indicate they are willing to 
pay out money (``debit'') when the order executes. In the examples 
used herein, prices are assumed to be credit, unless it is preceded 
by negative sign (indicating a debit).
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    The Exchange proposes this definition of Complex BBO to reflect the 
distinctions between pricing of Complex Orders (which are entered at 
net debit/credit prices) and single-leg orders. Among Complex Orders 
with the same complex strategy, a Complex Order willing to pay money, 
which is expressed with a negative sign, is lower priced than a Complex 
Order willing to pay out a smaller amount or a Complex Order that wants 
to receive money. For example, a Complex Order with a net debit price 
of -$2.00 is lower-priced than a Complex Order with a net debit price 
of -$1.00, and both those orders are lower-priced (and, as discussed 
below, better priced) than a Complex Order with a net credit of +$1.00. 
Accordingly, the concept of ``lower-priced'' for Complex Orders relates 
to the net debit/credit price associated with the order, and not 
whether such order is designated as a ``buy'' or ``sell'' order.
    The Exchange also proposes new Rule 900.2NY(7)(c) to provide that 
the ``Derived BBO'' is calculated using the BBO from the Consolidated 
Book for each of the options series comprising the given complex order 
strategy.\15\ This revised definition would not change how the Exchange 
determines what was formerly referred to as the ``Complex BBO.'' The 
Exchange proposes this change to terminology to make clear that the 
Derived BBO is derived from BBO of the leg markets, as is described in 
the current definition of a ``Complex BBO.'' The Exchange proposes to 
make conforming amendments to Rule 980NY to replace all references to 
``Complex BBO'' in that rule to the new term ``Derived BBO.'' \16\
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    \15\ Rule 900.2NY(7) (defining the BBO as the best bid or offer 
in the System).
    \16\ See proposed Rule 980NY(e)(2), (e)(3)(ii), (e)(6)(A)(i), 
(ii) and (iii), (e)(6)(B)(ii) and (iii), (e)(6)(C)(i)-(iv), and 
(e)(6)(7)(A), and Commentary .02 and .05(a) to Rule 980NY.
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    Second, the Exchange proposes that Commentary .02 to proposed Rule 
971.2NY would include terms used in Rule 971.2NY. The Exchange proposes 
to use the term ``interest'' in these definitions because these terms 
relate to any interest that could interact with a Complex Order, 
including quotes and orders in the leg markets that comprise the 
complex order strategy. As proposed:
     Better-priced or more aggressive interest would mean 
lower-priced net debit/credit interest on each side of the Consolidated 
Book for the same complex order strategy. As further proposed, higher-
priced interest would be worse-priced or less aggressive than lower-
priced interest. For example, a complex order entered with a price of -
$4.00, indicating the sender is willing to pay out up to $4.00 when the 
order trades, is more aggressively priced than a complex order entered 
with a price of -$3.00, indicating the sender is only willing to pay 
out up to $3.00 when the order trades.
     Interest improves the Complex or Derived BBO if it would 
be priced lower than the same-side Complex or Derived BBO. As noted 
above, for Complex Orders, a lower-priced order is better priced, and 
therefore an improved price for a Complex Order would be lower-priced.
     Interest locks when it would be priced at the exact 
inverse price of any contra-side interest.
     Interest crosses when it would be priced lower than the 
exact inverse price of any contra-side interest.
     A Complex Order would be executable against contra-side 
interest price [sic] at the exact inverse value or lower. For example, 
a Complex Order with a debit price of $1.00 would be executable against 
a Complex Order with a credit price of $1.00 or lower, and vice versa.
    The Exchange believes that defining these terms in the proposed 
rule would promote transparency and clarity regarding how the Complex 
CUBE Auction would function.
Criteria for Starting a Complex CUBE Auction
    Under proposed Rule 971.2NY(a), a Complex CUBE Order is a Complex 
Order, as defined in Rule 900.3NY(e) (see supra note 4) submitted 
electronically by an ATP Holder (``Initiating Participant'') into the 
Complex CUBE Auction that the Initiating Participant represents as 
agent on behalf of a public customer, broker dealer, or any other 
entity.
    Proposed Rule 971.2NY(a)(1) would provide that the Initiating 
Participant would guarantee the execution of the Complex CUBE Order by 
submitting a contra-side order (``Complex Contra Order'') representing 
principal interest or non-Customer interest it has solicited to trade 
with the Complex CUBE Order at either (A) a specified price (``stop 
price'') (as described below in proposed Rule 971.2NY(b)(1)(A)), or (B) 
an auto-match limit price (as described below in proposed Rule 
971.2NY(b)(1)(B)).\17\ Proposed Rule 971.2NY(a)(1)(A)-(B) is based on 
Rule 971.1NY(a), but differs in that it uses the term ``Complex'' and 
does not include details about the initiating price (see proposed Rule 
971.2NY(a)(3)) or any reference to an auto-match feature.\18\
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    \17\ The Exchange previously filed a proposed rule change that 
it would issue guidance advising ATP Holders that Contra Orders for 
the account of a Customer may not be entered into a CUBE Auction. 
See Securities Exchange Act Release No. 72389 (June 13, 2014), 79 FR 
35201, 35203 (SR-NYSEMKT-2014-51). The Exchange proposes to amend 
Rule 971.1NY(a) relating to Single-Leg CUBE and to include in 
proposed Rule 971.2NY the requirement that any solicited interest 
included in the Contra Order be non-Customer interest.
    \18\ Because the Exchange does not offer Market Orders for 
Complex Orders, there is no auto-match feature for Complex CUBE 
(which is a feature that is offered in the Single-Leg CUBE). See 
Rule 971.1NY(c)(1)(B) (describing auto-match feature as allowing the 
Initiating Participant for a CUBE Order to buy (sell) to 
``automatically match as principal or as agent on behalf of a Contra 
Order the price and size of all RFR Responses'' that are worse that 
are lower (higher) than the initiating price and within the range of 
permissible executions''). The Exchange proposes a clarifying 
amendment to Rule 971.1NY(c)(1)(B) relating to the Single-Leg CUBE 
to modify the auto-match text to remove, as redundant, the clause 
``as principal or as agent on behalf of a Contra Order,'' given that 
the function of the Initiating Participant is already set forth in 
the Rule 971.1NY(a).
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    Proposed Rule 971.2NY(a)(2) would define the term ``CUBE BBO,'' 
which would be determined upon entry of a CUBE Order in the System, and 
is the more aggressive of (i) the Complex BBO improved by $0.01, or 
(ii) the Derived BBO improved by: $0.01 multiplied by the smallest leg 
of the complex order strategy.\19\ As described below, the Exchange 
would use the CUBE BBO both for purposes of determining whether an 
Auction may begin or if an Auction must conclude early. Put another 
way, in order to initiate an Auction, the Complex CUBE Order must be 
priced better than the interest resting on the Consolidated Book, i.e., 
the CUBE BBO, which ensures that price-time priority is respected. 
Accordingly, the Exchange proposes to embed within the definition of 
CUBE BBO the requirement for price improvement, which concept is 
described for the Single-Leg CUBE for CUBE Orders for fewer than 50 
contracts in Rules 971.1NY(b)(1)(B) and (b)(6).
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    \19\ A complex order strategy is entered with the ratio 
expressed in the fewest number of contracts for each leg of the 
ratio. For a complex order strategy with a ratio of 2, 3, and 6 
contracts per leg, the $0.01 figure would be multiplied by 2 
contracts, which represents the smallest leg. To calculate the CUBE 
BBO for this strategy, the Derived BBO would need to be priced 
improved by $0.02.
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    The Exchange also proposes to define in proposed Rule 971.2NY(a)(2) 
that the ``same-side CUBE BBO'' and ``contra-side CUBE BBO'' refer to 
the CUBE BBO on the same or opposite side of the market as the Complex 
CUBE Order, respectively. As described below, the Exchange proposes to 
use these terms

[[Page 9772]]

throughout the proposed rule to provide parameters for commencing and, 
in some cases, concluding an Auction early. As further proposed, the 
time at which the Auction is initiated would be considered the time of 
execution for the Complex CUBE Order.\20\ Proposed Rule 971.2NY(a)(2) 
is based in part on Rule 971.1NY(b) for the Single-Leg Cube with 
differences to refer to the CUBE BBO (as opposed to the NBBO or BBO) to 
account for distinctions between single-leg orders and Complex Orders.
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    \20\ Pursuant to Rule 991NY(b)(7), option transactions effected 
as part of a Complex Trade are exempt from NBBO trade through 
liability and therefore an individual leg market of a Complex Order 
may trade at or between the Exchange Exchange's best bid/offer, 
without regard to the NBBO. See also Rule 980NY (providing that 
``[n]o leg of an Electronic Complex Order will be executed at a 
price outside the Exchange's best bid/offer for that leg'').
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    Proposed Rule 971.2NY(a)(3) would provide that the initiating price 
of a Complex CUBE Order would be the less aggressive of the net debit/
credit price of such order or the price that locks the contra-side CUBE 
BBO. Proposed Rule 971.2NY(a)(3) is similar to the second to last 
sentence of Rule 971.1NY(a) describing the initiating price at which a 
Single-Leg CUBE Auction begins. As described above in Commentary .02(a) 
to proposed Rule 971.2NY, for purposes of this Rule, ``less 
aggressive'' interest refers to higher-priced interest. Accordingly, to 
respect price-time priority of the Consolidated Book, the Exchange 
proposes that if the net debit/credit price of a Complex CUBE Order is 
crossing the contra-side CUBE BBO, the initiating price of such order 
would be the price that locks the contra-side CUBE BBO. The concept of 
an initiating price for Complex CUBE Orders set forth in proposed Rule 
971.2NY(a)(3) is based on the same concept introduced for CUBE Orders 
in a Single-Leg CUBE (in Rule 971.1NY(a), (b)(1)), but the means of 
determining that price differs to account for distinctions between 
single-leg orders and Complex Orders.
    Proposed Rule 971.2NY(a)(4) would establish the ``range of 
permissible executions'' for an Auction. Specifically, proposed Rule 
971.2NY(a)(4) would provide that a Complex CUBE Order may trade at all 
prices equal to or between the initiating price and the same-side CUBE 
BBO. Proposed Rule 971.2NY(a)(4) is based in part on Rules 
971.1NY(b)(1)(A) and (B) in that it sets forth the permissible range of 
executions for an Auction. However, because a Complex CUBE Auction 
would be based on the CUBE BBO rather than the NBBO, and the CUBE BBO 
already accounts for price improvement over the Consolidated Book, the 
Exchange would not need to differentiate permissible ranges of 
execution based on the size of the Complex CUBE Order or the presence 
of Customer interest, as set forth in Rule 971.1NY(b)(1)(A) and (B) for 
the Single-Leg CUBE. Moreover, because of distinctions between Complex 
Orders and single-leg orders, the Exchange proposes that the range of 
permissible executions for an Auction be based on the side of the 
Complex CUBE Order as it relates to the CUBE BBO.
    Proposed Rule 971.1NY(a)(4)(A) would further provide that if the 
CUBE BBO updates during the Auction (referred to as the ``updated CUBE 
BBO''), the range of permissible executions would be adjusted with the 
updated CUBE BBO unless the incoming interest would cause the Auction 
to conclude early, as described below pursuant to paragraph (c)(3) of 
this Rule. This proposed rule text is based on Rule 971.1NY(b)(1)(C), 
which similarly provides that the range of permissible executions will 
adjust if the BBO on the same side of the Single-Leg CUBE Order 
updates. The proposed requirement that the initiating price improve the 
best-priced interest in the Consolidated Book, including interest that 
arrives during the Auction, is designed to ensure that the Auction is 
integrated with the Consolidated Book such that it respects and 
preserves the priority of interest in the Book.

Example: Complex CUBE Auction Initiating Price and Range of Permissible 
Executions (proposed Rule 971.2NY(a)(2)-(4)):

LMM Jan 50 C 10 x 7.03-7.05 x 10
LMM Jan 55 C 10 x 3.00-3.02 x 10
Derived BBO for {S 1 Jan 50 C/B 1 Jan 55 C{time}  = -$4.01 to $4.05
Complex BBO for {S 1 Jan 50 C/B 1 Jan 55 C{time}  = N/A (no complex 
orders on book)
Complex CUBE Order: Cust1 {B 1 Jan 50 C/S 1 Jan 55 C{time}  x 700 -
$4.05
Complex Contra Order: Firm1 {S 1 Jan 50 C/B 1 Jan 55 C{time}  x 700 
$4.02 Auto-match limit price
CUBE BBO: -$4.02 to $4.04

    RFR sent identifying the complex order strategy, side and size, 
with initiating price of -$4.04.

Permissible range of executions = -$4.02 to -$4.04

    In the above example, the initiating price is -$4.04 because the 
initiating price for a Complex CUBE Order will be the less aggressive 
of the limit price of such order (i.e., -$4.05) or the price that locks 
the contra-side CUBE BBO (i.e., -$4.04). If during the Auction the LMM 
Jan 50C bid were to update to $7.04, the updated CUBE BBO would be -
$4.03 to $4.04 and therefore the new range of executions would be -
$4.03 to -$4.04 (per proposed Rule 971.2NY(a)(4)(A)).
    Proposed Rule 971.2NY(b) sets forth the eligibility requirements 
for initiating a Complex CUBE Auction, which Auction is available to 
all options traded on the Exchange. To initiate a Complex CUBE Auction, 
pursuant to proposed Rule 971.2NY(b)(1), the Initiating Participant 
must mark the Complex CUBE Order for Auction processing and must 
specify one of two ways in which it would guarantee the execution of a 
Complex CUBE Order--a single stop price or ``auto-match limit,'' which 
is consistent with the operation of the Single-Leg CUBE as well as the 
rules of other options exchanges that offer electronic price 
improvement auctions.\21\ The Exchange believes that these guarantee 
alternatives would afford the Initiating Participant flexibility and 
control over the price(s) at which it would be willing to guarantee a 
Complex CUBE Order. Neither the stop price nor any use of auto-match 
limit would be displayed.
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    \21\ See Rule 971.1NY(c)(1)(A) and (C). As previously stated 
(supra note 18), because the Exchange does not offer Complex Orders 
to be entered as market orders, the Exchange does not propose to 
offer the ``auto-match'' option described in Rule 971.1(c)(1)(B) for 
the Complex CUBE Auction. See also CBOE Rule 6.74A(b)(1)(A).
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    Pursuant to proposed Rule 971.2NY(b)(1)(A), if the Initiating 
Participant specifies a single stop price, the stop price must be 
executable against the initiating price of the auction.\22\ When an 
Initiating Participant elects a single stop price, this would be the 
price at which the Complex Contra Order would trade with the Complex 
CUBE Order, pursuant to paragraph (c)(4) of this proposed Rule, as 
discussed below. As further proposed, if a stop price crosses the same-
side CUBE BBO (i.e., would be priced outside the permissible range of 
executions), the Complex CUBE Order would not be eligible to initiate 
an Auction and would be rejected along with the Complex Contra Order. 
Thus, using the information in the above Example, the CUBE BBO is -
$4.02 to $4.04 and a Complex CUBE Order to buy starts an Auction with 
an initiating price of -$4.04, a stop price of $4.01 would be rejected 
because it crosses the same-side CUBE BBO (of -$4.02). The

[[Page 9773]]

proposal to allow a Complex CUBE to be guaranteed by a single stop 
price is based in part on how the single-stop price feature operates 
with the Single-Leg CUBE, but with differences to reflect the 
permissible range of executions for a Complex CUBE Order.\23\
---------------------------------------------------------------------------

    \22\ See proposed Commentary .02 to Rule 971.2NY (defining 
executable for purposes of this Rule). The Exchange proposes to 
modify the definition of the single stop price in the Single-Leg 
CUBE to similarly refer to the stop price being ``equal to,'' as 
opposed to ``at'' the initiating price, which would add clarity and 
consistency to Exchange rules. See proposed Rule 971.1NY(c)(1)(C).
    \23\ See Rule 971.1NY(c)(1)(A). The Exchange notes however that 
it would re-price a stop price to be within the range of permissible 
executions on the Single-Leg CUBE, which feature the Exchange does 
not allow in the Complex CUBE Auction.
---------------------------------------------------------------------------

    Rather than opt for a single stop price, an Initiating Participant 
may, pursuant to proposed Rule 971.2NY(b)(1)(B), elect the ``auto-match 
limit price'' alternative, which price must be executable against the 
initiating price of the Auction.\24\ As further proposed, the Complex 
Contra Order may trade with the Complex CUBE Order at prices that are 
better than or equal to the initiating price up to the auto-match limit 
price, if applicable, pursuant to paragraph (c)(4) of this proposed 
Rule.\25\ Accordingly, a Complex Contra Order with an auto-match limit 
price is eligible to trade at all prices within the range of 
permissible executions for such Auction, subject to the specified limit 
price.
---------------------------------------------------------------------------

    \24\ See proposed Commentary .02 to Rule 971.2NY (defining 
executable for purposes of this Rule).
    \25\ See proposed Rule 971.2NY(c)(1)(C) [sic].
---------------------------------------------------------------------------

    As proposed, if the auto-match limit price crosses the same-side 
CUBE BBO (i.e., would be outside the range of permissible executions), 
the Complex Contra Order would be priced back to lock the same-side 
CUBE BBO. The Exchange believes that if an Initiating Participant 
specifies an auto-match limit price, such ATP Holder has indicated that 
it is willing to trade with the Complex CUBE Order at more than one 
price. The Exchange therefore believes it would be consistent with the 
intent of the auto-match limit price election to adjust the price of 
such order so that it would be eligible to trade within the range of 
permissible executions for a Complex CUBE Order. Accordingly, if the 
auto-match limit price selected is inferior to the same-side CUBE BBO 
bound of permissible execution prices, the auto-match limit price would 
be re-priced to within the permissible execution range. Thus, using the 
information in the above Example, if the Initiating Participant 
submitted an auto-match limit price of $4.01 (which is outside the 
permissible range of executions of -$4.02 to -$4.04), it would be re-
priced to -$4.02 and an Auction would be initiated.
    The manner in which a Complex CUBE Order would be guaranteed by an 
auto-match limit price is consistent with how the Single-Leg CUBE 
functions, as described in Rule 971.1NY(c)(1)(C). The Exchange proposes 
to amend Rule 971.1NY(c)(1)(C) to update the Single-Leg CUBE rule to 
reflect this functionality. As proposed, the Exchange proposes to 
specify for the Single-Leg CUBE that, when selecting auto-match limit, 
the Initiating Participant may specify an ``auto-match limit price'' 
that is equal to or below (above) the initiating price of the Auction 
and that the Contra Order may trade with the CUBE Order at prices that 
are lower (higher) than the initiating price down (up) to the auto-
match limit price. The Exchange also proposes to specify that it would 
adjust the auto-match limit price to within the range of permissible 
executions by adding a new sentence to that Rule that would provide: 
``An auto-match limit price specified for a CUBE Order to buy (sell) 
that is below (above) the lower (upper) bound of the range of 
permissible executions will be repriced to the lower (upper) bound.''
    Paragraphs (b)(2)-(5) of proposed Rule 971.2NY set forth additional 
requirements for initiating a Complex CUBE Auction, including 
specifying the various reasons that a proposed Complex CUBE Order would 
be deemed ineligible to commence an Auction and thus would be rejected 
along with the Complex Contra Order. The enumerated bases for rejecting 
a Complex CUBE Order (and Complex Contra Order) are substantially 
similar to the bases for rejecting a CUBE Order (and Contra Order) in 
the Single-Leg CUBE.
    1. Proposed Rule 971.2NY(b)(2) would provide that a Complex CUBE 
Order that does not have a net debit/credit price that is equal to or 
better than the same-side CUBE BBO would be rejected, along with the 
Complex Contra Order. The Exchange believes that rejecting such Complex 
CUBE Orders would be appropriate because they are not the best-priced 
interest available and should not trade ahead of better-priced interest 
on the same side of the market. This proposed rule text is based on 
Rule 971.1NY(b)(2), which similarly provides that a Single-Leg CUBE 
Order would be rejected if priced less aggressively than the 
permissible range of executions.
    2. Proposed Rule 971.2NY(b)(3) would provide that Complex CUBE 
Orders submitted before the opening of trading would not be eligible to 
initiate an Auction and would be rejected, along with the Complex 
Contra Order. Because a Complex CUBE Order is deemed executed at the 
initiation of the Auction, any Complex CUBE Orders entered before the 
opening of trading would not be able to execute, and therefore the 
Exchange believes it would be appropriate to reject these Complex CUBE 
Orders. This proposed treatment of the Complex CUBE Order is the same 
as for a Single-Leg CUBE Order, per Rule 971.1NY(b)(4).
    3. Proposed Rule 971.2NY(b)(4) would provide that Complex CUBE 
Orders submitted during the final second of the trading session in the 
component series would not be eligible to initiate an Auction and would 
be rejected, along with the Complex Contra Order. As discussed below, 
the length of the Auction may be a random time between 100 milliseconds 
and 1 second, to be determined and announced by the Exchange. The 
Exchange believes, however, that it would be appropriate to reject 
Complex CUBE Orders submitted during the final second of the trading 
session to assure that the processing of a Complex CUBE Order may be 
completed. This proposed treatment of the Complex CUBE Order is the 
same as for a Single-Leg CUBE Order, per Rule 971.1NY(b)(5).
    4. Proposed Rule 971.2NY(b)(5) would provide that Complex CUBE 
Orders submitted during a trading halt would not be eligible to 
initiate an Auction and would be rejected, along with the Complex 
Contra Order. Because a Complex CUBE Order is deemed executed at the 
initiation of the Auction, any Complex CUBE Orders entered during a 
trading halt would not be able to execute, and therefore the Exchange 
believes it would be appropriate to reject these Complex CUBE Orders. 
This functionality mirrors that of the Single-Leg CUBE and the Exchange 
similarly proposes to amend the Rule 971.1NY to add sub-paragraph 
(b)(10) to set forth the same feature in the rule for Single-Leg CUBE.
    The Exchange notes that Complex Orders may be expressed in any 
decimal price, and the legs(s) of a complex order may be executed in 
one cent increments regardless of the minimum price increment (``MPV'') 
otherwise applicable to the individual legs of the order.\26\ 
Accordingly, the Exchange does not propose rule text based on Rule 
971.1NY(b)(7) for the Single-Leg CUBE, because this pricing requirement 
is already provided for in Rule 980NY.
---------------------------------------------------------------------------

    \26\ See Commentary .01 to Rule 980NY.
---------------------------------------------------------------------------

    The Exchange believes that the above-described restrictions and 
requirements would ensure that the existing priority and display rules 
for Electronic Complex Orders, as well as quotes and orders making up 
the leg markets for a complex order strategy, are preserved, while 
still providing ATP Holders an

[[Page 9774]]

opportunity to guarantee either price improvement, more liquidity 
beyond the displayed size, or both, for orders they represent as 
agent.\27\
---------------------------------------------------------------------------

    \27\ See Rule 980NY.
---------------------------------------------------------------------------

Complex CUBE Auction Process: RFRs, RTI and Responses
    Proposed Rule 971.2NY(c) sets forth the Auction process, which is 
substantially similar to the Single-Leg CUBE. Proposed Rule 971.2NY(c), 
which is based on Rule 971.1NY(c), would provide that the time at which 
the Auction is initiated would be considered the time of execution for 
the Complex CUBE Order.\28\ As further proposed, only one Auction may 
be conducted at a time in any given complex order strategy and, once 
commenced, the Complex CUBE Order, as well as the Complex Contra Order, 
may not be cancelled or modified. This functionality is consistent with 
the Single-Leg CUBE as well as rules of other options exchanges that 
operate electronic price improvement auctions for complex orders.\29\
---------------------------------------------------------------------------

    \28\ Pursuant to Rule 991NY(b)(7), option transactions effected 
as part of a Complex Trade are exempt from NBBO trade through 
liability and therefore an individual leg market [sic] of a Complex 
Order may trade at or between the Exchange [sic] Exchange's best 
bid/offer, without regard to the NBBO. See also Rule 980NY 
(providing that ``[n]o leg of an Electronic Complex Order will be 
executed at a price outside the Exchange's best bid/offer for that 
leg'').
    \29\ See, e.g., Rule 971.1NY(b),(c); CBOE Rule 6.74A(b); ISE 
Rule 723(b)(4); ISE Rule 723 Supplementary Material .04.
---------------------------------------------------------------------------

    Proposed Rule 971.2NY(c)(1) would describe the Auction Request for 
Responses (``RFR'') and Response Time Interval. Pursuant to proposed 
Rule 971.2NY(c)(1)(A), upon receipt of a valid Complex CUBE Order, the 
Exchange would announce the Auction by disseminating an RFR to all 
participants who subscribe to receive Auction messages for options. The 
RFR would identify the following characteristics of a Complex CUBE 
Order: The complex order strategy, the side of the market, the size, 
and the initiating price. Proposed Rule 971.2NY(c)(1)(A) is based on 
Rule 971.1NY(c)(2)(A) with differences only to add the term ``complex'' 
as applicable.\30\
---------------------------------------------------------------------------

    \30\ See also CBOE Rule 6.74A(b)(1)(B); ISE Rule 723(c).
---------------------------------------------------------------------------

    The Exchange proposes to define the term ``Response Time Interval'' 
or ``RTI'' in proposed Rule 971.2NY(c)(1)(B) as the period of time 
during which responses to the RFR may be entered. As proposed, the 
Response Time Interval would last for a random period of time within 
parameters determined by the Exchange and announced by Trader Update. 
The proposed minimum/maximum parameters for the Response Time Interval 
would be no less than 100 milliseconds and no more than one (1) second. 
The proposed duration of an Auction would be determined in the same 
manner as the Response Time Interval is determined for a Single-Leg 
CUBE under Rule 971.1NY(c)(2)(B). The proposed use of a random Response 
Time Interval would provide each Complex CUBE Auction with a functional 
difference that distinguishes it from similar price improvement 
mechanisms offered by other exchanges.\31\
---------------------------------------------------------------------------

    \31\ See e.g., CBOE Rule 6.74A(b)(2)(C) [sic]; PHLX Rule 
1087(b)(1)(D); ISE Rule 723(c)(1).
---------------------------------------------------------------------------

    Pursuant to proposed Rule 971.2NY(c)(1)(C), during the RTI, any ATP 
Holder may respond to the RFR, provided such response is properly 
marked specifying price, size, and side of the market (each, an ``RFR 
Response''). This proposed rule text is based on Rule 971.1(c)(2)(C).
    As proposed, any RFR Response (including unrelated Electronic 
Complex Orders) that crosses the same-side CUBE BBO would be eligible 
to trade in the Auction at a price that locks the same-side CUBE BBO. 
In such instance, the RFR Response would have been priced more 
aggressively than the contra-side range of permissible execution 
prices, and it would trade with the Complex CUBE Order at a price both 
within the range of permissible executions and within the limit price 
of the RFR Response. Thus, using the information in the above Example, 
if the Initiating Participant submitted an auto-match limit price of 
$4.01 (which is outside the permissible range of executions of -$4.02 
to -$4.04), it would be re-priced to -$4.02. The Exchange notes that 
this re-pricing is consistent with treatment of RFR Responses in the 
Single-Leg CUBE.\32\
---------------------------------------------------------------------------

    \32\ See Rule 971.1NY(c)(2)(i)(f) [sic] (providing that ``[f]or 
a CUBE Order to buy (sell), GTX Orders priced below (above) the 
lower (upper) bound of executions shall be repriced to the lower 
(upper) bound of executions, as specified in paragraph (b)(1) of 
this Rule).
---------------------------------------------------------------------------

    Similar to Rule 971.1NY(c)(2)(C), proposed Rule 971.2NY(c)(1)(C) 
would specify that the Auction would accept RFR Responses as described 
in proposed sub-paragraphs (i) and (ii) to that Rule. Proposed Rule 
971.2NY(c)(1)(C)(i) would define a ``Complex GTX Order,'' which would 
operate in the same manner as GTX Orders in the Single-Leg CUBE.\33\ As 
proposed, a Complex GTX Order would be an Electronic Complex Order, as 
defined in Rule 980NY, with a time-in-force contingency for the RTI, 
and must specify the price, size, and side of the market:
---------------------------------------------------------------------------

    \33\ See Rule 971.1NY(c)(2)(C)(i).
---------------------------------------------------------------------------

     Pursuant to proposed Rule 971.2NY(c)(1)(C)(i)(a), Complex 
GTX Orders would not be displayed on the Consolidated Book or 
disseminated to any participants. Any portion of a Complex GTX Order 
that is not fully executed as provided for in paragraphs (c)(3) and (4) 
of this Rule would be cancelled at the conclusion of the Auction. This 
rule text is based on Rule 971.1NY(c)(2)(C)(i)(a) for Single-Leg CUBE 
without any substantive differences.
     Pursuant to proposed Rule 971.2NY(c)(1)(C)(i)(b), Complex 
GTX Orders with a size greater than the size of the Complex CUBE Order 
would be capped at the size of the Complex CUBE Order. This rule text 
is based on Rule 971.1NY(c)(2)(C)(i)(c) for Single-Leg CUBE without any 
substantive differences.
     Pursuant to proposed Rule 971.2NY(c)(1)(C)(i)(c), Complex 
GTX Orders may be cancelled or modified, which would afford ATP Holders 
opting to utilize this order type additional flexibility and control. 
This rule text is based on Rule 971.1NY(c)(2)(C)(i)(d) for Single-Leg 
CUBE. The Exchange proposes to amend Rule 971.1NY(c)(2)(C)(i)(d) for 
Single-Leg CUBE to similarly provide that in addition to being 
cancelled, GTX Orders submitted to the Single-Leg CUBE may be modified.
     Pursuant to proposed Rule 971.2NY(c)(1)(C)(i)(d), Complex 
GTX Orders on the same side of the market as the Complex CUBE Order 
would be rejected. Because Complex GTX Orders can only trade against a 
Complex CUBE Order or an unrelated order on the same side as a Complex 
CUBE Order, same-side Complex GTX Orders are unnecessary to the Complex 
CUBE Auction process. Therefore, the Exchange proposes that same-side 
Complex GTX Orders would be rejected. This rule text is based on Rule 
971.1NY(c)(2)(C)(i)(e) for Single-Leg CUBE without any substantive 
differences.
    In addition to being substantively identical to GTX Orders in the 
Single-Leg CUBE, other options exchanges that offer electronic price 
improvement auctions for complex orders similarly enable market 
participants to enter non-displayed interest that would participate in 
the auction only, which interest generally operates in the same

[[Page 9775]]

manner as the proposed Complex GTX Order.\34\
---------------------------------------------------------------------------

    \34\ See, e.g., CBOE 6.74A(b)(1)(I) (non-displayed interest 
intended only for the auction may be cancelled); ISE 723(c)(3) (non-
displayed interest intended only for the auction may be modified, 
but not cancelled). See also supra note 26 (regarding the MPV for 
Complex Orders).
---------------------------------------------------------------------------

    Pursuant to proposed Rule 971.2NY(c)(1)(C)(ii), the Exchange 
proposes to define ``Unrelated Electronic Complex Orders'' as 
Electronic Complex Orders (as defined in Rule 980NY, including COA-
eligible orders \35\) on the opposite side of the market as the Complex 
CUBE Order that are received during the RTI, even if not marked for 
consideration in the Auction (i.e., as a Complex GTX Order), provided 
such orders can participate within the range of permissible executions 
specified for the Auction pursuant to paragraph (a)(4) of this Rule. 
Accordingly, similar to Rule 971.1NY(c)(2)(C)(ii), which provides for 
unrelated quotes and orders that are entered during the RTI for the 
Single-Leg CUBE to be considered RFR Responses, the Exchange would 
consider Electronic Complex Orders that are entered during the RTI for 
an Auction to be RFR Responses if they could participate in the range 
of permissible executions. The Exchange believes that considering these 
unrelated complex orders as RFR Responses would increase the number of 
orders against which the Complex CUBE Order may be executed, and should 
thus maximize opportunities for price improvement of the Complex CUBE 
Order.
---------------------------------------------------------------------------

    \35\ Rule 980NY(e) describes the Complex Order Process or COA, 
which is designed to offer price improvement to Complex Orders; 
however, the COA is not a crossing mechanism and a COA-eligible 
order is not guaranteed an execution. See Rule 980NY(e)(1) (defining 
COA-eligible orders).
---------------------------------------------------------------------------

    However, unlike the Single-Leg CUBE, because quotes and orders in 
the leg markets for a complex strategy underlying a Complex CUBE Order 
would not be eligible to participate in the Auction, such quotes and 
orders would not be considered ``unrelated orders'' and therefore would 
not be RFR Responses. As described in more detail below in proposed 
Rule 971.2NY(c)(3)(B)-(F), updates to the leg markets during the 
Auction may cause it to conclude early to preserve priority of that 
interest at a price. Limiting participation in the Complex CUBE Auction 
to Complex Orders, but allowing certain updates to the leg markets to 
cause an Auction to conclude early, is consistent with how the Exchange 
treats interest in the COA process, as described in Rule 
980NY(e)(7)(B). Because the Exchange would not consider quotes and 
orders in the leg markets to be RFR Responses for an Auction, the 
Exchange does not propose rule text based on Rule 
971.1NY(c)(2)(C)(ii)(a)-(c).
Conclusion of the Complex CUBE Auction
    As proposed in Rule 971.2NY(c)(2), just as with the Single-Leg 
CUBE, the Complex CUBE Auction would conclude at the end of the 
RTI.\36\ This proposed functionality is similar to the operation of 
electronic price improvement mechanisms for complex orders offered by 
other exchanges.\37\ Consistent with the Single-Leg CUBE and the rules 
of other exchanges that operate electronic price improvement auctions 
for complex orders, this rule would further provide that an Auction 
would conclude in the event of a trading halt in any of the component 
series \38\ and the Complex CUBE Order would be executed per proposed 
Rule 971.2NY(c)(4).\39\ As described in proposed Rule 971.2NY(c)(3) 
(and discussed below), specified additional events may result in the 
early conclusion of the Auction. Proposed Rule 971.2NY(c)(2) would 
further provide that any RFR Responses that do not execute in the 
Auction would execute in accordance with Rule 980NY, Complex Order 
Trading, and any remaining balance of Complex GTX Orders would cancel, 
because such orders have a time-in-force for the duration of the 
Auction.
---------------------------------------------------------------------------

    \36\ See Rule 971.1NY(c)(3).
    \37\ See, e.g., CBOE Rule 6.74A(b)(2)(A); PHLX Rule 
1087(b)(2)(A); ISE Rule 723(c)(5)(i).
    \38\ See, e.g., Rule 971.1NY(c)(3); CBOE Rule 6.74A(b)(2)(F); 
PHLX Rule 1087(b)(2)(D).
    \39\ Because the execution [sic] of the Auction would be deemed 
the time the Complex CUBE Auction is initiated, if a trading halt 
occurs in the series during the RTI and the Auction concludes early, 
the Exchange does not believe that such execution needs to be 
nullified pursuant to Rule 953NY Commentary .03 [sic].
---------------------------------------------------------------------------

Early Conclusion of a Complex CUBE Auction
    As noted earlier, like the Single-Leg CUBE, a Complex CUBE Auction 
would conclude early (i.e., before the end of the RTI) as a result of 
certain events that would otherwise disrupt the priority of the Auction 
within the Consolidated Book.\40\ Such early conclusion events are 
consistent with how the electronic price improvement auctions for 
complex orders on other markets operate.\41\
---------------------------------------------------------------------------

    \40\ See Rule 971.1NY(c)(4).
    \41\ See, e.g., CBOE Rule 6.74A(b)(2)(B),(C),(E); PHLX Rule 
1087(b)(2)(C); ISE Rule 723(c)(5)(ii)-(iii); BOX IM 7150.
---------------------------------------------------------------------------

    Proposed Rule 971.2NY(c)(3) would provide that an Auction would 
conclude early before the end of the RTI as described in paragraphs 
(c)(3)(A)-(F) of the proposed Rule and that when it concludes, the 
Complex CUBE Order would execute as provided for in proposed Rule 
971.2NY(c)(4), described below.\42\ While the precise circumstances 
that result in the early end of a Complex CUBE Auction differ from 
those of a Single-Leg CUBE, the tenets of honoring price/time are the 
same. Specifically, the Exchange proposes to use references to the 
same-side and contra-side CUBE BBO to describe early conclusion 
scenarios for Complex CUBE Auctions because these definitions take into 
consideration updates to both the leg markets and better-priced 
Electronic Complex Orders in the Consolidated Book.
---------------------------------------------------------------------------

    \42\ Pursuant to proposed Rule 971.2NY(c)(2), and as discussed 
herein, a trading halt in the affected series would also result in 
the early conclusion of an Auction and contracts would be allocated 
pursuant to proposed paragraph (c)(4).
---------------------------------------------------------------------------

     First, pursuant to proposed Rule 971.2NY(c)(3)(A), an 
Auction would conclude early if, during the RTI, the Exchange receives 
a new Complex CUBE Order in the same complex order strategy that meets 
the conditions of proposed Rule 971.2NY(b). As proposed, after the 
first Auction concludes, the incoming Complex CUBE Order would initiate 
its own Auction and proceed as described in proposed Rule 971.2NY(c). 
Proposed Rule 971.1NY(c)(3)(A) functions in the same manner as Rule 
971.1NY(c)(4)(A) relating to the Single-Leg CUBE with non-substantive 
differences to refer to the same complex order strategy instead of the 
same series. This proposed basis for an early conclusion of an Auction 
is also consistent with the rules of other exchanges operating 
electronic auctions for complex orders.\43\
---------------------------------------------------------------------------

    \43\ See, e.g., CBOE Rule 6.74A(b); ISE Rule 723 Supplementary 
Material .04. The Exchange notes that although these rules specify 
that auctions may not overlap or queue in any manner, the rules are 
nonetheless silent on how this is enforced (i.e., by rejecting new 
auction orders or by concluding an ongoing auction early).
---------------------------------------------------------------------------

     Second, pursuant to proposed Rule 971.2NY(c)(3)(B), an 
Auction would conclude early if, during the RTI, the Exchange receives 
any interest that would adjust the same-side CUBE BBO to be better than 
the initiating price. The Exchange proposes to conclude the Auction 
early in such circumstance to honor the priority of the Consolidated 
Book, which would now be equal to or better-priced than the initiating 
price of the Auction. This early conclusion scenario is based in part 
on Rule 971.1NY(c)(4)(D) for Single-Leg CUBE, but uses Complex CUBE 
terminology.

[[Page 9776]]

     Third, pursuant to proposed Rule 971.2NY(c)(3)(C), an 
Auction would conclude early if, during the RTI, the Exchange receives 
any interest that adjusts the same-side CUBE BBO to cross any RFR 
Responses. This early conclusion scenario is based in part on Rule 
971.1NY(c)(4)(B) for Single-Leg CUBE in that the interest would be on 
the same side as the Complex CUBE Order and would be marketable against 
RFR Responses, but uses Complex CUBE terminology.
     Fourth, pursuant to proposed Rule 971.2NY(c)(3)(D), an 
Auction would conclude early if, during the RTI, the Exchange receives 
any interest that adjusts the same-side CUBE BBO to cross the single 
stop price specified by the Initiating Participant. This early end 
scenario would not apply to instances where the Initiating Participant 
specified an auto-match limit price. The Exchange proposes to conclude 
the Auction early in such circumstances because the stop price would 
not be eligible to trade as part of an updated CUBE BBO.\44\ 
Accordingly, the Exchange proposes to conclude such Auction early and 
execute the Complex CUBE Order as provided for in proposed Rule 
971.2NY(c)(4).
---------------------------------------------------------------------------

    \44\ See proposed Rule 971.2NY(a)(4).
---------------------------------------------------------------------------

     Fifth, pursuant to proposed Rule 971.2NY(c)(3)(E), an 
Auction would conclude early if, during the RTI, the Exchange receives 
interest that crosses the same-side CUBE BBO. This early conclusion 
scenario is based in part on Rule 971.1NY(c)(4)(C) for the Single-Leg 
CUBE because arriving interest that crosses the same-side CUBE BBO 
would be marketable against interest in the Consolidated Book, but uses 
Complex CUBE terminology.
     Finally, pursuant to proposed Rule 971.2NY(c)(3)(F), an 
Auction would conclude early if, during the RTI, the Exchange receives 
interest in the leg market that causes the contra-side CUBE BBO to be 
better than the stop price or auto-match limit price. This early 
conclusion scenario is based in part on Rule 971.1NY(c)(4)(C) for the 
Single-Leg CUBE because arriving interest that crosses the contra-side 
CUBE BBO would be marketable against interest in the Consolidated Book, 
but uses Complex CUBE terminology.
    In each of the above scenarios, the Auction would conclude early to 
preserve priority of incoming interest. When the Auction concludes, the 
Complex CUBE Order would be matched with the best-priced interest 
received during the Auction and, once the Complex CUBE Order is filled, 
the incoming interest (that caused the Auction to conclude early) would 
be ranked and prioritized. If the incoming interest is a Complex Order 
and on the opposite side, it may execute against the Complex CUBE 
Order; if the incoming interest is on the same side as the Complex CUBE 
Order, it may execute against any unfilled RFR Responses before being 
posted to the Consolidated Book. If the incoming interest (that caused 
the Auction to conclude early) is an updated quote or order in the leg 
markets, it would be processed after the Complex CUBE Auction pursuant 
to Rule 980NY. Again, the rationale for concluding the Auction early in 
each of the above scenarios is to operate seamlessly with the 
Consolidated Book and honor the price-time priority model on the 
Exchange--while still affording the Complex CUBE Order an opportunity 
to receive price improvement.
Complex CUBE Order Allocation
    Proposed Rule 971.2NY(c)(4) sets forth the order allocation process 
for the Auction. Generally, at the conclusion of the Complex CUBE 
Auction, the Auction mechanism would determine whether the total RFR 
Responses can fill the Complex CUBE Order at a price or prices better 
than the stopped price or auto-match limit price.\45\ If so, the 
Complex CUBE Order is matched against the better-priced RFR Responses 
granting the Complex CUBE Order the maximum amount of price improvement 
possible.
---------------------------------------------------------------------------

    \45\ See proposed Rule 971.2NY(c)(4)(A), (B)(i)-(ii).
---------------------------------------------------------------------------

    When there are multiple RFR Responses at a given price, the Complex 
CUBE Order would be executed against the RFR Responses on a pro-rata 
basis pursuant to the size pro rata algorithm set forth in Rule 
964NY(b)(3), except that Customers at a given price would be executed 
first in priority. The Exchange believes that, as proposed, the Auction 
would maximize the opportunity for price improvement while maintaining 
the priority of Customer orders.
    Proposed Rule 971.2NY(c)(4) would provide that any RFR Response 
that exceeds the size of the Complex CUBE Order would be capped at the 
Complex CUBE Order for allocation purposes, per Rule 964NY(b)(3). This 
function is based on Rule 971.1NY(c)(5), which similarly caps the size 
of RFR Responses to a Single-Leg CUBE.
    Pursuant to proposed Rule 971.2NY(c)(4)(A), at each price level, 
any Customer orders that arrived during the Complex CUBE Auction as RFR 
Responses would have first priority to execute and be allocated on a 
size pro rata allocation pursuant to Rule 964NY(b)(3). Allocating 
Customer interest first is consistent with the Exchange's allocation 
model and is based on Rule 971.1NY(c)(5)(A) for the Single-Leg CUBE.
    Pursuant to proposed Rule 971.2NY(c)(4)(B), after Customer interest 
at a particular price level has been satisfied, any remaining size 
would be allocated among the Complex Contra Order and RFR Responses 
differently depending on whether the Initiating Participant designated 
a single stop price or auto-match limit. In each case, the proposed 
allocation of a Complex CUBE Order would follow the same allocation 
rules for a Single-Leg CUBE Order, as described below.
    Proposed Rule 971.2NY(c)(4)(B)(i) would specify how remaining size 
of the Complex CUBE Order for which the Initiating Participant 
specifies a single stop price would trade with interest received during 
the Auction as follows:
     First, to RFR Responses priced better than the stop price, 
beginning with the most aggressive price within the range of 
permissible executions, pursuant to the size pro rata algorithm set 
forth in Rule 964NY(b)(3) at each price point. Proposed Rule 
971.2NY(c)(4)(B)(i)(a) is based on Rule 971.1NY(c)(5)(B)(i)(a),with 
differences only to use terminology for Complex CUBE Orders as defined 
in proposed Commentary .02 to Rule 971.2NY.
     Next, any remaining size of the Complex CUBE Order would 
execute at the stop price. At the stop price, if there is sufficient 
size of the Complex CUBE Order still available after executing at 
prices better than the stop price or against Customer interest, the 
Complex Contra Order would receive an allocation of the greater of 40% 
of the original Complex CUBE Order size or one contract (or the greater 
of 50% of the original Complex CUBE Order size or one contract if there 
is only one RFR Response). Any remaining size of the Complex CUBE Order 
at the stop price would be allocated among remaining RFR Responses 
pursuant to the size pro rata algorithm set forth in Rule 964NY(b)(3). 
If all RFR Responses are filled, any remaining size of the Complex CUBE 
Order would be allocated to the Complex Contra Order.
    Proposed Rule 971.2NY(c)(4)(B)(i)(b) is based on Rule 
971.1NY(c)(5)(B)(i)(b), with differences to use terminology for Complex 
CUBE Orders as defined in proposed Commentary .02 to Rule 971.2NY and 
non-substantive differences to refer to ``size'' rather than 
``contracts'' and to use ``will'' instead of ``shall.'' In addition, 
other exchanges that operate electronic pricing

[[Page 9777]]

mechanism for complex orders similarly guarantee minimum levels of 
participation for the initiating participant.\46\
---------------------------------------------------------------------------

    \46\ See, e.g., PHLX Rule 1087(b)(5)(B)(iv) (providing up to 50% 
allocation with participation guarantees); ISE Rule 713 Commentary 
.03 (providing up to 60% allocation for participation guarantees); 
CBOE Rule 6.74A(b)(3)(F).
---------------------------------------------------------------------------

     If there are no RFR Responses, the Complex CUBE Order 
would execute against the Complex Contra Order at the stop price. 
Proposed Rule 971.2NY(c)(4)(B)(i)(c) is based on Rule 
971.1NY(c)(5)(B)(i)(c) without any substantive differences.
    Proposed Rule 971.2NY(c)(4)(B)(ii) would specify how remaining size 
of the Complex CUBE Order for which an Initiating Participant specifies 
an ``auto-match limit price'' would trade with interest received during 
the Auction as follows:
     First, to RFR Responses at each price level priced better 
than the auto-match limit price (if any) within the range of 
permissible executions, beginning with the most aggressive price, 
pursuant to the size pro rata algorithm set forth in Rule 964NY(b)(3) 
at each price point. Proposed Rule 971.2NY(c)(4)(B)(ii)(a) is based on 
Rule 971.1NY(c)(5)(B)(iii)(a), with differences to use terminology for 
Complex CUBE Orders as defined in proposed Commentary .02 to Rule 
971.2NY.
     Next, to RFR Responses at a price equal to the price of 
the Complex Contra Order's auto-match limit price, and if volume 
remains, to prices worse than the auto-match limit price. At each price 
point equal to or worse than the auto-match limit price, the Complex 
Contra Order would receive an allocation equal to the aggregate size of 
all other RFR Responses starting with the best price at which an 
execution against an RFR Response occurs within the range of 
permissible executions until a price point is reached where the balance 
of the CUBE Order can be fully executed (the ``clean-up price''). At 
the clean-up price, if there is sufficient size of the Complex CUBE 
Order still available after executing at better prices or against 
Customer interest, the Complex Contra Order would be allocated 
additional volume required to achieve an allocation of the greater of 
40% of the original Complex CUBE Order size or one contract (or the 
greater of 50% of the original Complex CUBE Order size or one contract 
if there is only one RFR Response). If the Complex Contra Order meets 
its allocation guarantee at a price better than the clean-up price, it 
would cease matching RFR Responses that may be priced worse than the 
price at which the Complex Contra Order received its allocation 
guarantee. If there are other RFR Responses at the clean-up price, the 
remaining size of the Complex CUBE Order would be allocated to such 
interest pursuant to the size pro rata algorithm set forth in Rule 
964NY(b)(3). Any remaining portion of the Complex CUBE Order would be 
allocated to the Complex Contra Order at the initiating price.
    Proposed Rule 971.2NY(c)(4)(B)(ii)(b) is based on Rule 
971.1NY(c)(5)(B)(iii)(b), with differences to use terminology for 
Complex CUBE Orders as defined in proposed Commentary .02 to Rule 
971.2NY and includes non-substantive differences to define the term 
``clean-up price,'' which for the Single-Leg CUBE, is defined in Rule 
971.1NY(c)(5)(B)(ii)(a).
     If there are no RFR Responses, the Complex CUBE Order 
would execute against the Complex Contra Order at the initiating price. 
Proposed Rule 971.2NY(c)(4)(B)(iii)(c) without any substantive 
differences.
    As noted above, certain unrelated orders may be considered RFR 
Responses and may interact with the Complex CUBE Order (thus maximizing 
opportunities for price improvement) and any portion of these unrelated 
orders remaining thereafter would be processed in accordance with Rule 
980NY, Electronic Order Trading. Proposed Rule 971.2NY(c)(4)(C) is 
based on Rule 971.1NY(c)(5)(C) without any substantive differences.
    Finally, proposed Rule 971.2NY(c)(4)(D) would provide that a single 
RFR Response would not be allocated a volume that is greater than its 
size. This proposed rule text is based on Rule 971.1NY(c)(4)(D) without 
any substantive differences.
Conduct Inconsistent With Just and Equitable Principles of Trade
    The Exchange is proposing Commentary .01 to Rule 971.2NY to set 
forth that certain activity in connection with the Complex CUBE Auction 
would be considered conduct inconsistent with just and equitable 
principles of trade to discourage ATP Holders from attempting to misuse 
or manipulate the Auction process. Proposed Commentary .01 to the Rule 
is based on Commentary .02 to Rule 971.1NY relating to the Single-Leg 
CUBE without any substantive differences and is consistent with the 
rules of other options exchanges that offer electronic price 
improvement auction mechanisms.\47\ Specifically, pursuant to proposed 
Commentary .01 (a)-(d) to Rule 971.2NY, the Exchange proposes that the 
following conduct would be considered conduct inconsistent with just 
and equitable principles of trade:
---------------------------------------------------------------------------

    \47\ See, e.g., Rule 971.1NY, Commentary .02; PHLX 1087(c)-(e); 
ISE 723 Supplementary Material .01; BOX IM-7150-2(a) and (b). The 
Exchange proposes to correct a typographical error in Commentary .02 
of the Single-Leg CUBE rule by adding the word ``of,'' which was 
inadvertently omitted, to add clarity and consistency to the Rule. 
See proposed Commentary .02(b) to Rule 971.1NY (providing, as 
updated, that ``[e]ngaging in a pattern and practice of trading or 
quoting activity for the purpose of causing a CUBE Auction to 
conclude before the end of the Response Interval Time'').
---------------------------------------------------------------------------

    (a) An ATP Holder entering RFR Responses to a Complex CUBE Auction 
for which the ATP Holder is the Initiating Participant. The Exchange 
believes this would prevent Initiating Participants from submitting an 
inaccurate or misleading stop price or trying to improve their 
allocation entitlement by participating with multiple expressions of 
interest.
    (b) Engaging in a pattern and practice of entering unrelated orders 
and quotes for the purpose of causing a Complex CUBE Auction to 
conclude early, i.e., before the end of the RTI. The Exchange believes 
this would prevent an ATP Holder from shortening the duration of the 
Auction thus possibly reducing the number Responses to an Auction in 
order to gain a higher allocation than the percentage the ATP Holder 
may have otherwise received had the Auction not concluded early.
    (c) An Initiating Participant that breaks up an agency order into 
separate Complex CUBE Orders for the purpose of gaining a higher 
allocation percentage than the Initiating Participant would have 
otherwise received in accordance with the allocation procedures 
contained in proposed paragraph (c)(5) to proposed Rule 971.2NY. The 
Exchange believes this would prevent Initiating Participants from 
manipulating the Complex CUBE Orders size and number to gain a higher 
guaranteed execution than the Initiating Participant would have 
otherwise received.
    (d) Engaging in a pattern and practice of sending multiple RFR 
Responses at the same price that in the aggregate exceed the size of 
the Complex CUBE Order. The Exchange believes this will prevent ATP 
Holders from attempting to misuse or manipulate the process.
Order Exposure and Prohibited Conduct
    Current Rule 935NY prohibits Users \48\ from executing as principal 
any orders they represent as agent unless (i) agency orders are first 
exposed on the Exchange for at least one (1) second or (ii) the User

[[Page 9778]]

has been bidding or offering on the Exchange for at least one (1) 
second prior to receiving an agency order that is executable against 
such bid or offer. This rule helps to ensure that orders are properly 
exposed to market participants, affording them a reasonable amount of 
time in which to participate in the execution of the agency order.
---------------------------------------------------------------------------

    \48\ Rule 900.2NY(87) defines User as any ATP Holder that is 
authorized to obtain access to the System.
---------------------------------------------------------------------------

    As previously stated in this filing, the Exchange believes that the 
proposed RTI, with a random length of no less than 100 milliseconds and 
no greater than 1 second (to be determined and announced by the 
Exchange), is of sufficient length so as to permit ATP Holders time to 
respond to a Complex CUBE Auction thereby enhancing opportunities for 
competition among participants and increasing the likelihood of price 
improvement for the Complex CUBE Order. Accordingly, the Exchange 
proposes to amend Rule 935NY to stipulate that a User may execute as 
principal an order that the User represents as agent, provided that the 
User avails him or herself of the Complex CUBE Auction process, 
pursuant to Rule 971.2NY. Such Complex CUBE Order would not be subject 
to the one-second order exposure requirement of Rule 935NY, which 
exclusion from the one-second order exposure requirement is consistent 
with the treatment of similar orders on the Exchange.\49\ Consistent 
with Rule 935NY Commentary .01, ATP Holders would only utilize the 
Auction where there is a genuine intention to execute a bona fide 
transaction.\50\
---------------------------------------------------------------------------

    \49\ See Rule 935NY(iii), (iv) (exempting orders submitted into 
the Single-Leg CUBE and into the Complex Order Auction Process from 
the one second order exposure requirement).
    \50\ See Rule 935NY Commentary .01 (``Rule 935NY prevents a User 
from executing agency orders to increase its economic gain from 
trading against the order without first giving other trading 
interest on the Exchange an opportunity to either trade with the 
agency order or to trade at the execution price when the User was 
already bidding or offering on the book.'')
---------------------------------------------------------------------------

Modification to Complex Order Trading Rule Regarding COA
    Consistent with the principle that the Exchange would only conduct 
one auction in a given complex order strategy at a time, the Exchange 
proposes to amend Rule 980NY(e)(6) to make clear that a COA in progress 
would end upon receipt of a better-priced Complex CUBE Order received 
during the COA.\51\
---------------------------------------------------------------------------

    \51\ See proposed Rule 980NY(e)(6)(A), (B) (making clear that 
Complex CUBE Orders are included in the category of ``[i]ncoming 
Electronic Complex Orders'' that may cause the COA in progress to 
end early'').
---------------------------------------------------------------------------

Section 11(a) of the Exchange Act
    Section 11(a) of the Exchange Act prohibits any member of a 
national securities exchange from effecting transactions on that 
exchange for its own account, the account of an associated person, or 
an account over which it or its associated persons exercises discretion 
(``covered accounts''), unless, as discussed below, an exception 
applies.\52\ The Commission, in its order to approve the Single-Leg 
CUBE, determined that orders effected utilizing this mechanism complied 
with the requirements of Section 11(a).\53\ As noted herein, the 
Complex CUBE Auction operates in a manner substantially similar to the 
Single-Leg CUBE and the argument supporting the Exchange's position 
that the proposed Complex CUBE Auction is consistent with the 
requirements of Section 11(a) and the rules thereunder mirror those 
made (and accepted by the Commission) in regards to the Single-Leg 
CUBE.
---------------------------------------------------------------------------

    \52\ 15 U.S.C. 78k(a)(1).
    \53\ See Single-Leg CUBE Approval Order, supra note 6, 79 FR at 
24787-24788.
---------------------------------------------------------------------------

    First, Section 11(a)(1) contains a number of exceptions for 
principal transactions by members and their associated persons. 
Specifically, Section 11(a)(1)(A) provides an exception from the 
prohibitions in Section 11(a) for dealers acting in the capacity of 
market makers. The Exchange believes that orders sent by on- and off-
floor market makers, for covered accounts, to the proposed Complex CUBE 
Auction would qualify for this exception from Section 11(a).
    In addition to this market maker exception, Rule 11a2-2(T) under 
the Exchange Act, known as the ``effect versus execute'' rule, provides 
exchange members with an exception from Section 11(a) by permitting 
them, subject to certain conditions, to effect transactions for covered 
accounts by arranging for an unaffiliated member to execute the 
transactions on the exchange.\54\ To comply with the ``effect versus 
execute'' rule's conditions, a member: (i) Must transmit the order from 
off the exchange floor; (ii) may not participate in the execution of 
the transaction once it has been transmitted to the member performing 
the execution; \55\ (iii) may not be affiliated with the member 
executing the transaction on the floor, or through the facilities, of 
the Exchange; and (iv) with respect to an account over which the member 
has investment discretion, neither the member nor its associated person 
may retain any compensation in connection with effecting the 
transaction except as provided in the rule.\56\
---------------------------------------------------------------------------

    \54\ 17 CFR 240.11a2-2(T).
    \55\ The member, however, may participate in clearing and 
settling the transaction. See Securities Exchange Act Release No. 
14563 (March 14, 1978), 43 FR 11542 (March 17, 1978).
    \56\ 17 CFR 240.11a2-2(T).
---------------------------------------------------------------------------

    The Exchange believes that orders sent by off-floor ATP Holders, 
for covered accounts, to the proposed Complex CUBE Auction would 
qualify for this ``effect versus execute'' exception from Section 
11(a), as described below. In this regard, the first condition of Rule 
11a2-2(T) is that orders for covered accounts be transmitted from off 
the exchange floor. The Exchange represents that orders for covered 
accounts from off-floor ATP Holders sent to the Complex CUBE Auction 
would be transmitted from remote terminals that are off the Exchange 
floor directly to the mechanisms by electronic means.\57\ In the 
context of other automated trading systems, the Commission has found 
that the off-floor transmission requirement is met if a covered account 
order is transmitted from a remote location directly to an exchange's 
floor by electronic means.\58\
---------------------------------------------------------------------------

    \57\ In the alternative, orders for a covered account may be 
sent by an off-floor ATP Holder to an unaffiliated Floor Broker for 
entry into the Complex CUBE Auction mechanism. Floor Brokers, 
however, may not enter orders for their own covered accounts into 
the Auction mechanism from on the floor, or transmit such orders 
from on the floor to off of the floor for entry into the Complex 
CUBE Auction mechanism.
    \58\ See, e.g., Securities Exchange Act Release Nos. 59154 
(December 23, 2008), 73 FR 80468 (December 31, 2008) (SR-BSE-2008-
48) (approving, among other things, the equity rules of the Boston 
Stock Exchange); 57478 (March 12, 2008), 73 FR 14521 (March 18, 
2008) (SR-NASDAQ-2007-004 and SR-NASDAQ-2007-080) (approving rules 
governing the trading of options on The NASDAQ Options Market); 
49068 (January 13, 2004), 69 FR 2775 (January 20, 2004) (SR-BSE-
2002-15) (approving the Boston Options Exchange as an options 
trading facility of BSE); 15533 (January 29, 1979), 44 FR 6084 
(January 31, 1979) (approving the Amex Post Execution Reporting 
System, the Amex Switching System, the Intermarket Trading System, 
the Multiple Dealer Trading Facility of the Cincinnati Stock 
Exchange, the PCX Communications and Execution System, and the 
Philadelphia Stock Exchange Automated Communications and Execution 
System) (``1979 Release''); and 14563 (March 14, 1978), 43 FR 11542 
(March 17, 1978) (approving NYSE's Designated Order Turnaround 
System) (``1978 Release'').
---------------------------------------------------------------------------

    The second condition of Rule 11a2-2(T) requires that the member not 
participate in the execution of its order once the order is transmitted 
to the floor for execution.\59\ The Exchange represents that, upon 
submission to the Complex CUBE Auction, an order will

[[Page 9779]]

be executed automatically pursuant to the proposed rules set forth for 
the Auction. In particular, execution of an order sent to the Auction 
depends not on the ATP Holder entering the order, but rather on what 
other orders are present and the priority of those orders. Thus, at no 
time following the submission of an order is an ATP Holder able to 
acquire control or influence over the result or timing of order 
execution.\60\
---------------------------------------------------------------------------

    \59\ The description above covers the universe of the types of 
ATP Holders (i.e., on- and off-floor market makers, off-floor firms 
that are not market makers, and Floor Brokers).
    \60\ The Exchange notes that the Initiating Participant may not 
cancel or modify a Complex CUBE Order once a Complex CUBE Auction 
has started. See proposed Rule 971.2NY(c).
---------------------------------------------------------------------------

    The third condition of Rule 11a2-2(T) requires that the order be 
executed by an exchange member who is unaffiliated with the member 
initiating the order. The Commission has stated that this requirement 
is satisfied when automated exchange facilities, such as the Complex 
CUBE Auction, are used, as long as the design of these systems ensures 
that members do not possess any special or unique trading advantages in 
handling their orders after transmitting them to the exchange.\61\ The 
Exchange represents that the CUBE Auction is designed so that no ATP 
Holder has any special or unique trading advantage in the handling of 
its orders after transmitting its orders to the mechanism.
---------------------------------------------------------------------------

    \61\ In considering the operation of automated execution systems 
operated by an exchange, the Commission noted that, while there is 
not an independent executing exchange member, the execution of an 
order is automatic once it has been transmitted into the system. 
Because the design of these systems ensures that members do not 
possess any special or unique trading advantages in handling their 
orders after transmitting them to the exchange, the Commission has 
stated that executions obtained through these systems satisfy the 
independent execution requirement of Rule 11a2-2(T). See 1979 
Release.
---------------------------------------------------------------------------

    The fourth condition of Rule 11a2-2(T) requires that, in the case 
of a transaction effected for an account with respect to which the 
initiating member or an associated person thereof exercises investment 
discretion, neither the initiating member, nor any associated person 
thereof, may retain any compensation in connection with effecting the 
transaction, unless the person authorized to transact business for the 
account has expressly provided otherwise by written contract, referring 
to Section 11(a) of the Act and Rule 11a2-2(T) thereunder.\62\ The 
Exchange recognizes that ATP Holders relying on Rule 11a2-2(T) for 
transactions effected through the Complex CUBE Auction must comply with 
this condition of the Rule.
---------------------------------------------------------------------------

    \62\ See 17 CFR 240.11a2-2(T)(a)(2)(iv). In addition, Rule 11a2-
2(T)(d) requires a member or associated person authorized by written 
contract to retain compensation, in connection with effecting 
transactions for covered accounts over which such member or 
associated persons thereof exercises investment discretion, to 
furnish, at least annually to the person authorized to transact 
business for the account, a statement setting forth the total amount 
of compensation retained by the member in connection with effecting 
transactions for the account during the period covered by the 
statement, which amount must be exclusive of all amounts paid to 
others during that period for services rendered to effect such 
transactions. See also 1978 Release (stating ``[t]he contractual and 
disclosure requirements are designed to assure that accounts 
electing to permit transaction-related compensation do so only after 
deciding that such arrangements are suitable to their interests'').
---------------------------------------------------------------------------

    For all of the foregoing reasons, like the Single-Leg CUBE, the 
Exchange believes the Complex CUBE Auction promotes just and equitable 
principles of trade and is consistent with the general policy 
objectives of Section 11(a) of the Act.
Implementation
    The Exchange will announce the implementation date of the proposed 
rule change in a Trader Update to be published no later than 60 days 
following Commission approval. The implementation date will be no later 
than 60 days following publication of the Trader Update announcing 
Commission approval. The Exchange believes that this implementation 
schedule would provide ATP Holders with adequate notice of the Auction 
and would allow ample time for ATP Holders to prepare their systems for 
participation in the Auction process, if such participation is desired.
2. Statutory Basis
    For the reasons set forth above, the Exchange believes the proposed 
rule change is consistent with Section 6(b) of the Act in general, and 
furthers the objectives of Section 6(b)(5) of the Act, in that it is 
designed to promote just and equitable principles of trade, remove 
impediments to and perfect the mechanisms of a free and open market and 
a national market system and, in general, to protect investors and the 
public interest.
    The Exchange proposes to add new Rule 971.2NY to allow Complex 
Orders to be submitted to the Complex CUBE Auction in substantially the 
same manner as orders for single options series instruments currently 
are submitted to the Single-Leg CUBE, except as necessary to account 
for distinctions between regular orders on the Book and Complex Orders. 
As described in greater detail above, the provisions in proposed Rule 
971.2NY are substantially similar to those in Rule 971.1NY, with non-
substantive differences to reflect their applicability to an Auction 
for a Complex Order as compared to a CUBE for orders in a single-leg 
options series. The Exchange believes that the Complex CUBE Auction 
would remove impediments to and perfect the mechanism of a free and 
open market and a national market system because it is designed to 
afford Complex Orders the opportunity for price improvement in a paired 
auction, similar to the Single-Leg CUBE. The Exchange believes that the 
Complex CUBE would provide more efficient transactions, reduce 
execution risk to ATP Holders, and afford greater opportunities for 
price improvement for Complex Orders. The Exchange also believes that 
the proposed rule change would remove impediments to and perfect the 
mechanism of a free and open market and a national market system 
because it result in tighter markets for complex orders, and ensure 
that each order receives the best possible price. Similar to how the 
Single-Leg CUBE operates, the Exchange believes that by integrating the 
Auction into the CME, the Exchange is able to assure that the Auction 
respects the priority of interest in the Consolidated Book.
    The Exchange believes that this rule filing is reasonable, 
equitable and not unfairly discriminatory to customers and Participants 
because it follows the fundamental principles of the existing Single-
Leg CUBE mechanism \63\ and the Exchange's priority and allocation 
rules in the context of the auction for Complex Orders,\64\ each of 
which has been previously approved by the Commission. The Exchange 
further believes the proposal is not unfairly discriminatory because 
the benefits of the proposed Complex CUBE on the Exchange, like the 
Single-Leg CUBE, are equally available to all ATP Holders.
---------------------------------------------------------------------------

    \63\ See Rule 971.1NY, amended to reflect their applicability to 
a Complex CUBE on a Complex Order as compared to a CUBE on orders 
for single-leg options series.
    \64\ See Rule 980NY(e) (describing COA process generally).
---------------------------------------------------------------------------

    The Exchange believes this proposal would remove impediments to and 
perfect the mechanism of a free and open market and a national market 
system because it would increase opportunities for execution of Complex 
Orders. Further, the Exchange believes the proposed Complex CUBE 
Auction would provide greater flexibility to ATP Holders trading 
Complex Orders on the Exchange. The Exchange also believes that the 
proposed Complex CUBE would provide additional opportunities for ATP 
Holders to achieve better handling of Complex Orders and result in 
increased opportunities for execution and better pricing. These 
benefits have

[[Page 9780]]

been realized for orders on single option series under its existing 
Single-Leg CUBE mechanism and the same principles are expected to 
transfer readily to Complex Orders. As a result, the proposed Complex 
CUBE Auction mechanism would promote just and equitable principles of 
trade, foster cooperation and coordination with persons engaged in 
facilitating transactions in securities, and remove impediments to and 
perfect the mechanism of a free and open market and a national market 
system.
    For purposes of the Complex CUBE Auction, only Complex Orders 
received during the Auction would be considered RFR Responses because 
quotes and orders in the leg markets would not be eligible to interact 
with the Complex CUBE Order. Although this aspect of the Complex CUBE 
Auction would differ from the Single-Leg CUBE, it is consistent with 
the current treatment of interest in auctions for complex orders on the 
Exchange, e.g., the COA.\65\ Similarly, to ensure that the Exchange 
preserves price/time priority, the Complex CUBE would conclude early 
when interest arrives during the Auction (including quotes and orders) 
that improve the best-priced interest at the start of the Complex CUBE, 
which is also consistent with COA processing.\66\
---------------------------------------------------------------------------

    \65\ See Rule 980NY(e)(7)(describing that only Complex Orders 
are eligible for execution in Auction).
    \66\ See Rule 980NY(e)(6)(describing that updates to the leg 
markets can end a COA early to preserve priority)
---------------------------------------------------------------------------

    The Exchange believes that proposed Commentary .02 to Rule 971.2NY 
and amendments to Rule 900.2NY(7) relating to definitions that would be 
applicable to the Complex CUBE would remove impediments to and perfect 
the mechanism of a free and open market because these terms reflect the 
different processing of and priority of Complex Orders. The Exchange 
believes that use of these terms achieves the same results as the 
Single-Leg CUBE, but the terms for Complex CUBE are tailored to how 
Complex Orders function. The Exchange further believes that defining 
these terms in Exchange rules would promote transparency and clarity 
for members, the public, and the Commission to understand how the 
Complex CUBE functions, including circumstances when an Auction would 
conclude early. Accordingly, any such differences between the rule for 
Complex CUBE and Single-Leg CUBE are designed to provide clarity in the 
rules and promote just and equitable principles of trade.
    Upon adoption of the proposal, the Exchange would operate price 
improvement auctions in both single-leg options series and Complex 
Orders.\67\ As with the Single-Leg CUBE, the Exchange will not operate 
multiple, simultaneous Complex CUBE Auctions on the same complex order 
strategy. However, the Exchange proposes that it would accept orders 
designated for the CUBE on a single option series where a Complex CUBE 
on a Complex Order strategy that includes such series may be in 
progress. The Exchange would also accept Complex Orders designated for 
the Complex CUBE where a Single-Leg CUBE on either of the component 
series may be in progress. The Exchange believes this simultaneous 
price improvement auction functionality would reduce order cancelation 
and, thereby remove impediments to, and perfect the mechanism of, a 
free and open market and a national market system.
---------------------------------------------------------------------------

    \67\ Exchange rules governing events occurring during permitted, 
simultaneous auctions are clear. Processes on the Exchange System 
are sequential, which prevents any two orders (including CUBE Orders 
and Complex CUBE Orders) from having the same time stamp. Each order 
is processed in accordance with Exchange rules without race 
conditions.
---------------------------------------------------------------------------

    ATP Holders must not use the Complex CUBE process to create a 
misleading impression of market activity (i.e., the facilities may be 
used only where there is a genuine intention to execute a bona fide 
transaction). These provisions are substantially the same as the 
corresponding rules for the Single-Leg CUBE and are important customer 
protection features that prevent fraudulent and manipulative acts and 
practices, promote just and equitable principles of trade and protect 
investors and the public interest.
    In addition, the Complex CUBE Auction promotes equal access by 
providing any ATP Holder that elects to subscribe to receive auction 
messages with the opportunity to interact with orders in the Auction. 
As a result, no ATP Holder would have an information advantage and the 
proposal serves to promote just and equitable principles of trade and 
to remove impediments to and perfect the mechanism of a free and open 
market and a national market system.
    The proposed changes to Rule 980NY(e)(6) that make clear that a COA 
in progress would end upon receipt of a better-priced Complex CUBE 
Order received during the COA would add clarity, transparency and 
internal consistency to Exchange rules and thereby remove impediments 
to, and perfect the mechanism of, a free and open market and a national 
market system.
    The Exchange also believes that the proposed amendment to Rule 
900.2NY to exclude Professional Customers from the definition of 
``Customer'' for purposes of this rule is consistent with just and 
equitable principles of trade because it is intended to protect 
investors that are not broker dealers and ensure that their orders are 
protected regardless of whether there is an Auction, and is consistent 
with treatment for Single-Leg CUBE. The Exchange also believes the 
proposed changes to Rule 953NY to exempt Complex CUBE Orders from the 
1-second order exposure requirement would add clarity, transparency and 
internal consistency to Exchange rules to the benefit of investors and 
the investing public.
    As discussed herein, the Exchange proposes to make certain 
miscellaneous conforming and clarifying changes to Rules 900.2NY(18A), 
935NY, 980NY to make them consistent with the adoption of the proposed 
Complex CUBE rule. These conforming and clarifying changes are required 
to make the Complex CUBE rules consistent with the Exchange's Single-
Leg CUBE rule and are necessary to promote just and equitable 
principles of trade, to foster cooperation and coordination with 
persons engaged in facilitating transactions in securities, and to 
remove impediments to and perfect the mechanism of a free and open 
market and a national market system.
    For the foregoing reasons, the Exchange believes this proposal is a 
reasonable modification to its rules, designed to facilitate increased 
interaction of Complex Orders on the Exchange, and to do so in a manner 
that ensures a dynamic, real-time trading mechanism that maximizes 
opportunities for trade executions for Complex Orders. The Exchange 
believes it is appropriate and consistent with the Act to adopt the 
proposed rule changes.

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 is proposing 
the Auction as a market enhancement that should increase competition 
for Complex Order flow on the Exchange in a manner that would be 
beneficial to investors. Specifically, the Exchange believes that the 
Complex CUBE Auction would provide investors seeking to effect Complex 
Orders with an opportunity for increased liquidity available at 
improved prices, with competitive final

[[Page 9781]]

pricing out of the Initiating Participant's complete control. The 
proposal is structured to offer the same enhancement to all market 
participants and would not impose a competitive burden on any 
participant. The Exchange notes that it operates in a highly 
competitive market in which market participants can readily direct 
order flow to competing venues who offer similar functionality. The 
Exchange believes the proposed rule change is pro-competitive because 
it would enable the Exchange to provide market participants with 
functionality that is similar to that of other options exchanges. The 
Exchange notes that not having the Complex CUBE Auction at the Exchange 
places the Exchange at a competitive disadvantage vis-[agrave]-vis 
other exchanges that offer similar price improvement mechanisms.

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

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

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

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

IV. Solicitation of Comments

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

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please 
include File Number SR-NYSEAMER-2018-05 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-NYSEAMER-2018-05. This 
file number should be included on the subject line if email is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (http://www.sec.gov/rules/sro.shtml). 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for website viewing and printing in 
the Commission's Public Reference Room, 100 F Street NE, Washington, DC 
20549, on official business days between the hours of 10:00 a.m. and 
3:00 p.m. Copies of the filing also will be available for inspection 
and copying at the principal office of the Exchange. All comments 
received will be posted without change. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-NYSEAMER-2018-05 and should be submitted 
on or before March 28, 2018.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\68\
---------------------------------------------------------------------------

    \68\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Robert W. Errett,
Deputy Secretary.
[FR Doc. 2018-04625 Filed 3-6-18; 8:45 am]
 BILLING CODE P
9770 Federal Register / Vol. 83, No. 45 / Wednesday, March 7, 2018 / Notices

submits the CUBE Order (the ‘‘Initiating As noted above, certain unrelated orders The Exchange believes that the
Participant’’) agrees to guarantee the may be considered RFR Responses and operation of the proposed Complex
execution of the CUBE Order by may interact with the CUBE Order (thus CUBE Auction is consistent with
submitting a contra-side order (‘‘Contra maximizing opportunities for price processing of Complex Orders in the
Order’’) representing principal interest improvement) and any portion of these CME and respects the processing of
or interest it has solicited to trade with unrelated orders remaining thereafter updates to the leg markets consistent
the CUBE Order at a specified price would be placed on the Consolidated with Rule 980NY. In addition, the
(‘‘single stop price’’) or by utilizing Book. Exchange believes that the Complex
auto-match or auto-match limit features. The Exchange proposes to make the CUBE Auction would provide more
The Auction starts with an initiating CUBE mechanism available to Complex efficient transactions, reduce execution
price that is displayed (while the Orders, as described below. risk to ATP Holders, and afford greater
price(s) at which the Contra Order has Complex CUBE Overview opportunities for price improvement.
guaranteed the CUBE Order is not The Exchange also believes this
displayed). Except as specified by rule, The purpose of the Complex CUBE proposal would result in tighter
a CUBE Order to buy (sell) may trade at Auction is to provide the opportunity markets, and ensure that each order
prices equal to or between the initiating for price improvement for a Complex receives the best possible price.
price as the upper (lower) bound and Order in an electronic paired auction as
the National Best Bid (‘‘NBB’’) (National well as the opportunity for other market Definitions
Best Offer (‘‘NBO’’)) as the lower (upper) participants to interact with such Because of different processing of and
bound.7 Complex Order. Accordingly, just as in priority rules for Complex Orders, the
Although the Contra Order would the Single-Leg CUBE, the Exchange Exchange proposes to both amend
guarantee the CUBE Order an execution, would notify market participants when current definitions in Exchange rules
the purpose of the Single-Leg CUBE is an Auction is occurring so that they may relating to Complex Orders and add new
to provide the opportunity for price have an opportunity to participate. terms that would be used for purposes
improvement for the CUBE Order as Like the Single-Leg CUBE, the of the Complex CUBE Auction.
well as the opportunity for other market Complex CUBE Auction is designed to First, the Exchange proposes to
participants to interact with the CUBE work in conjunction with the amend Rule 900.2NY(7), which
Order. Accordingly, the Exchange Exchange’s Consolidated Book—the currently defines the term ‘‘Complex
notifies market participants with a Exchange’s single electronic order book BBO,’’ to mean ‘‘the BBO for a given
Request for Response (‘‘RFR’’) when an that contains all quotes and limit orders, complex order strategy as derived from
Auction is occurring so that they have including Complex Orders.10 Any the best bid on OX and best offer on OX
an opportunity to participate by orders executed in the Complex CUBE for each individual component series of
submitting RFR Responses in the form Auction would occur in the Complex a Complex Order.’’ The Exchange
of GTX Orders (though unrelated quotes Matching Engine (‘‘CME’’), which is the proposes both (i) a non-substantive
and order received during the Auction mechanism that ranks and maintains amendment to rename the ‘‘Complex
may be eligible to participate in the priority of Complex Orders, and
BBO’’ as the ‘‘Derived BBO,’’ and revise
CUBE as well). The Response Time monitors the bids and offers in the leg
the description, and (ii) a substantive
Interval (‘‘RTI’’) for the Auction is markets for possible execution of a
amendment to add a new definition of
determined by a random timer, but will Complex Order.11 By integrating the
‘‘Complex BBO’’ to refer to the best-
never be less than 100 milliseconds or Complex CUBE Auction into the CME,
priced Complex Orders in the
more than 1 second. However, the CUBE the Exchange would assure that the
Consolidated Book.
may end prior to the end of the RTI if Complex CUBE Auction respects the
To effect this change, the Exchange
during an Auction, the Exchange priority of interest in the Consolidated
proposes to amend current Rule
receives quotes or orders that are Book.12
900.2NY(7)(b) to provide that a Complex
marketable to allow such incoming As discussed in more detail below,
BBO means complex orders with the
orders or quotes an opportunity to the Auction may conclude early (to
lowest-priced net debit/credit price on
interact with interest in the Auction and preserve priority) if, during the Auction,
each side of the Consolidated Book for
then continue with regular order the Exchange receives trading interest
the same complex order strategy.14 The
processing without delay.8 that improves the interest that existed
on the Consolidated Book at the start of Exchange believes that defining the
At the conclusion of the Single-Leg Complex BBO to refer to Complex
CUBE, the CUBE Order may execute at the Auction. If such incoming trading
interest is a Complex Order, that order Orders would promote transparency and
multiple prices within a permissible clarity in Exchange rules because the
range but would always trade at the would have an opportunity to
participate in the Auction; if such definition would be more closely
best-priced interest in the Auction.9 correlated to prices of Complex Orders,
Generally, the CUBE mechanism will trading interest updates the legs
markets, it would be processed per Rule and not a derived price from the leg
determine whether the total RFR markets. As discussed below, the
Responses can fill the CUBE Order at a 980NY after the Complex Order that
price or prices better than the initiating initiated the Auction is fully executed.13
Order Allocation’’ section, the allocation of the
price. If so, the CUBE Order is matched Complex CUBE Order is consistent with the
10 See Rule 900.2NY(14) (defining Consolidated
against the better-priced RFR Responses allocation of orders executed in the Complex Order
Book (or ‘‘Book’’) and providing that all quotes and Auction. See Rule 980NY(c)(7)(B) [sic].
granting the CUBE Order the maximum orders ‘‘that are entered into the Book will be 14 See Rule 980NY(b) (providing that Electronic
amount of price improvement possible. ranked and maintained in accordance with the rules
daltland on DSKBBV9HB2PROD with NOTICES

Complex Orders are ranked in the Consolidated
of priority as provided in Rule 964NY’’). Book, in part, based on their ‘‘total or net debit or
7 See Rule 971.1NY(b)(1) (regarding exceptions to 11 See Rule 980NY(b) (‘‘Priority of Electronic
credit’’ price). Complex orders are entered with a
general parameters, including tighter execution Complex Orders in the Consolidated Book’’). See plus (‘‘+’’) sign when the order sender wants to
parameters when there is Customer interest on the also proposed Rule 971.2NY (regarding processing receive money (‘‘credit’’) or a negative (‘‘¥’’) to
Book and for CUBE Orders for 50 or fewer of Complex CUBE Orders purposes to Rule 980NY). indicate they are willing to pay out money (‘‘debit’’)
contracts). 12 See proposed Rule 971.2NY(a).
when the order executes. In the examples used
8 See Rule 971.1NY(c)(4). 13 The Exchange notes that, as described in the herein, prices are assumed to be credit, unless it is
9 See Rule 971.1NY(c)(5). ‘‘Conclusion of the Complex CUBE Auction and preceded by negative sign (indicating a debit).

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Exchange proposes to use this amended proposed, higher-priced interest would Proposed Rule 971.2NY(a)(1)(A)–(B) is
term ‘‘Complex BBO’’ in the rule text be worse-priced or less aggressive than based on Rule 971.1NY(a), but differs in
describing the Complex CUBE Auction. lower-priced interest. For example, a that it uses the term ‘‘Complex’’ and
The Exchange proposes this definition complex order entered with a price of does not include details about the
of Complex BBO to reflect the ¥$4.00, indicating the sender is willing initiating price (see proposed Rule
distinctions between pricing of Complex to pay out up to $4.00 when the order 971.2NY(a)(3)) or any reference to an
Orders (which are entered at net debit/ trades, is more aggressively priced than auto-match feature.18
credit prices) and single-leg orders. a complex order entered with a price of Proposed Rule 971.2NY(a)(2) would
Among Complex Orders with the same ¥$3.00, indicating the sender is only define the term ‘‘CUBE BBO,’’ which
complex strategy, a Complex Order willing to pay out up to $3.00 when the would be determined upon entry of a
willing to pay money, which is order trades. CUBE Order in the System, and is the
expressed with a negative sign, is lower • Interest improves the Complex or more aggressive of (i) the Complex BBO
priced than a Complex Order willing to Derived BBO if it would be priced lower improved by $0.01, or (ii) the Derived
pay out a smaller amount or a Complex than the same-side Complex or Derived BBO improved by: $0.01 multiplied by
Order that wants to receive money. For BBO. As noted above, for Complex the smallest leg of the complex order
example, a Complex Order with a net Orders, a lower-priced order is better strategy.19 As described below, the
debit price of ¥$2.00 is lower-priced priced, and therefore an improved price Exchange would use the CUBE BBO
than a Complex Order with a net debit for a Complex Order would be lower- both for purposes of determining
price of ¥$1.00, and both those orders priced. whether an Auction may begin or if an
are lower-priced (and, as discussed • Interest locks when it would be Auction must conclude early. Put
below, better priced) than a Complex priced at the exact inverse price of any another way, in order to initiate an
Order with a net credit of +$1.00. contra-side interest. Auction, the Complex CUBE Order must
Accordingly, the concept of ‘‘lower- • Interest crosses when it would be be priced better than the interest resting
priced’’ for Complex Orders relates to priced lower than the exact inverse on the Consolidated Book, i.e., the
the net debit/credit price associated price of any contra-side interest. CUBE BBO, which ensures that price-
with the order, and not whether such • A Complex Order would be time priority is respected. Accordingly,
order is designated as a ‘‘buy’’ or ‘‘sell’’ executable against contra-side interest the Exchange proposes to embed within
order. price [sic] at the exact inverse value or the definition of CUBE BBO the
The Exchange also proposes new Rule lower. For example, a Complex Order requirement for price improvement,
900.2NY(7)(c) to provide that the with a debit price of $1.00 would be which concept is described for the
‘‘Derived BBO’’ is calculated using the executable against a Complex Order Single-Leg CUBE for CUBE Orders for
BBO from the Consolidated Book for with a credit price of $1.00 or lower, fewer than 50 contracts in Rules
each of the options series comprising 971.1NY(b)(1)(B) and (b)(6).
and vice versa.
the given complex order strategy.15 This The Exchange also proposes to define
The Exchange believes that defining
revised definition would not change in proposed Rule 971.2NY(a)(2) that the
these terms in the proposed rule would
how the Exchange determines what was ‘‘same-side CUBE BBO’’ and ‘‘contra-
promote transparency and clarity
formerly referred to as the ‘‘Complex side CUBE BBO’’ refer to the CUBE BBO
regarding how the Complex CUBE
BBO.’’ The Exchange proposes this on the same or opposite side of the
Auction would function.
change to terminology to make clear that market as the Complex CUBE Order,
the Derived BBO is derived from BBO Criteria for Starting a Complex CUBE respectively. As described below, the
of the leg markets, as is described in the Auction Exchange proposes to use these terms
current definition of a ‘‘Complex BBO.’’ Under proposed Rule 971.2NY(a), a
The Exchange proposes to make See Securities Exchange Act Release No. 72389
Complex CUBE Order is a Complex (June 13, 2014), 79 FR 35201, 35203 (SR–
conforming amendments to Rule 980NY
Order, as defined in Rule 900.3NY(e) NYSEMKT–2014–51). The Exchange proposes to
to replace all references to ‘‘Complex
(see supra note 4) submitted amend Rule 971.1NY(a) relating to Single-Leg CUBE
BBO’’ in that rule to the new term and to include in proposed Rule 971.2NY the
electronically by an ATP Holder
‘‘Derived BBO.’’ 16 requirement that any solicited interest included in
Second, the Exchange proposes that (‘‘Initiating Participant’’) into the the Contra Order be non-Customer interest.
Commentary .02 to proposed Rule Complex CUBE Auction that the 18 Because the Exchange does not offer Market

971.2NY would include terms used in Initiating Participant represents as agent Orders for Complex Orders, there is no auto-match
on behalf of a public customer, broker feature for Complex CUBE (which is a feature that
Rule 971.2NY. The Exchange proposes is offered in the Single-Leg CUBE). See Rule
to use the term ‘‘interest’’ in these dealer, or any other entity. 971.1NY(c)(1)(B) (describing auto-match feature as
definitions because these terms relate to Proposed Rule 971.2NY(a)(1) would allowing the Initiating Participant for a CUBE Order
any interest that could interact with a provide that the Initiating Participant to buy (sell) to ‘‘automatically match as principal
would guarantee the execution of the or as agent on behalf of a Contra Order the price
Complex Order, including quotes and and size of all RFR Responses’’ that are worse that
orders in the leg markets that comprise Complex CUBE Order by submitting a are lower (higher) than the initiating price and
the complex order strategy. As contra-side order (‘‘Complex Contra within the range of permissible executions’’). The
proposed: Order’’) representing principal interest Exchange proposes a clarifying amendment to Rule
or non-Customer interest it has solicited 971.1NY(c)(1)(B) relating to the Single-Leg CUBE to
• Better-priced or more aggressive modify the auto-match text to remove, as
interest would mean lower-priced net to trade with the Complex CUBE Order redundant, the clause ‘‘as principal or as agent on
debit/credit interest on each side of the at either (A) a specified price (‘‘stop behalf of a Contra Order,’’ given that the function
Consolidated Book for the same price’’) (as described below in proposed of the Initiating Participant is already set forth in
daltland on DSKBBV9HB2PROD with NOTICES

Rule 971.2NY(b)(1)(A)), or (B) an auto- the Rule 971.1NY(a).
complex order strategy. As further 19 A complex order strategy is entered with the
match limit price (as described below in
ratio expressed in the fewest number of contracts
15 Rule 900.2NY(7) (defining the BBO as the best proposed Rule 971.2NY(b)(1)(B)).17 for each leg of the ratio. For a complex order
bid or offer in the System). strategy with a ratio of 2, 3, and 6 contracts per leg,
16 See proposed Rule 980NY(e)(2), (e)(3)(ii), 17 The Exchange previously filed a proposed rule the $0.01 figure would be multiplied by 2 contracts,
(e)(6)(A)(i), (ii) and (iii), (e)(6)(B)(ii) and (iii), change that it would issue guidance advising ATP which represents the smallest leg. To calculate the
(e)(6)(C)(i)–(iv), and (e)(6)(7)(A), and Commentary Holders that Contra Orders for the account of a CUBE BBO for this strategy, the Derived BBO would
.02 and .05(a) to Rule 980NY. Customer may not be entered into a CUBE Auction. need to be priced improved by $0.02.

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throughout the proposed rule to provide Book, the Exchange would not need to ¥$4.03 to $4.04 and therefore the new
parameters for commencing and, in differentiate permissible ranges of range of executions would be ¥$4.03 to
some cases, concluding an Auction execution based on the size of the ¥$4.04 (per proposed Rule
early. As further proposed, the time at Complex CUBE Order or the presence of 971.2NY(a)(4)(A)).
which the Auction is initiated would be Customer interest, as set forth in Rule Proposed Rule 971.2NY(b) sets forth
considered the time of execution for the 971.1NY(b)(1)(A) and (B) for the Single- the eligibility requirements for initiating
Complex CUBE Order.20 Proposed Rule Leg CUBE. Moreover, because of a Complex CUBE Auction, which
971.2NY(a)(2) is based in part on Rule distinctions between Complex Orders Auction is available to all options
971.1NY(b) for the Single-Leg Cube with and single-leg orders, the Exchange traded on the Exchange. To initiate a
differences to refer to the CUBE BBO (as proposes that the range of permissible Complex CUBE Auction, pursuant to
opposed to the NBBO or BBO) to executions for an Auction be based on proposed Rule 971.2NY(b)(1), the
account for distinctions between single- the side of the Complex CUBE Order as Initiating Participant must mark the
leg orders and Complex Orders. it relates to the CUBE BBO. Complex CUBE Order for Auction
Proposed Rule 971.2NY(a)(3) would Proposed Rule 971.1NY(a)(4)(A) processing and must specify one of two
provide that the initiating price of a would further provide that if the CUBE ways in which it would guarantee the
Complex CUBE Order would be the less BBO updates during the Auction execution of a Complex CUBE Order—
aggressive of the net debit/credit price (referred to as the ‘‘updated CUBE a single stop price or ‘‘auto-match
of such order or the price that locks the BBO’’), the range of permissible limit,’’ which is consistent with the
contra-side CUBE BBO. Proposed Rule executions would be adjusted with the operation of the Single-Leg CUBE as
971.2NY(a)(3) is similar to the second to updated CUBE BBO unless the well as the rules of other options
last sentence of Rule 971.1NY(a) incoming interest would cause the exchanges that offer electronic price
describing the initiating price at which Auction to conclude early, as described improvement auctions.21 The Exchange
a Single-Leg CUBE Auction begins. As below pursuant to paragraph (c)(3) of believes that these guarantee
described above in Commentary .02(a) this Rule. This proposed rule text is alternatives would afford the Initiating
to proposed Rule 971.2NY, for purposes based on Rule 971.1NY(b)(1)(C), which Participant flexibility and control over
of this Rule, ‘‘less aggressive’’ interest similarly provides that the range of the price(s) at which it would be willing
refers to higher-priced interest. permissible executions will adjust if the to guarantee a Complex CUBE Order.
Accordingly, to respect price-time BBO on the same side of the Single-Leg Neither the stop price nor any use of
priority of the Consolidated Book, the CUBE Order updates. The proposed auto-match limit would be displayed.
Exchange proposes that if the net debit/ requirement that the initiating price Pursuant to proposed Rule
credit price of a Complex CUBE Order improve the best-priced interest in the 971.2NY(b)(1)(A), if the Initiating
is crossing the contra-side CUBE BBO, Consolidated Book, including interest Participant specifies a single stop price,
the initiating price of such order would that arrives during the Auction, is the stop price must be executable
be the price that locks the contra-side designed to ensure that the Auction is against the initiating price of the
CUBE BBO. The concept of an initiating integrated with the Consolidated Book auction.22 When an Initiating
price for Complex CUBE Orders set such that it respects and preserves the Participant elects a single stop price,
forth in proposed Rule 971.2NY(a)(3) is priority of interest in the Book. this would be the price at which the
based on the same concept introduced Complex Contra Order would trade with
Example: Complex CUBE Auction
for CUBE Orders in a Single-Leg CUBE the Complex CUBE Order, pursuant to
Initiating Price and Range of
(in Rule 971.1NY(a), (b)(1)), but the
Permissible Executions (proposed Rule paragraph (c)(4) of this proposed Rule,
means of determining that price differs
971.2NY(a)(2)–(4)): as discussed below. As further
to account for distinctions between
single-leg orders and Complex Orders. LMM Jan 50 C 10 × 7.03–7.05 × 10 proposed, if a stop price crosses the
Proposed Rule 971.2NY(a)(4) would LMM Jan 55 C 10 × 3.00–3.02 × 10 same-side CUBE BBO (i.e., would be
establish the ‘‘range of permissible Derived BBO for {S 1 Jan 50 C/B 1 Jan priced outside the permissible range of
executions’’ for an Auction. 55 C} = ¥$4.01 to $4.05 executions), the Complex CUBE Order
Specifically, proposed Rule Complex BBO for {S 1 Jan 50 C/B 1 Jan would not be eligible to initiate an
971.2NY(a)(4) would provide that a 55 C} = N/A (no complex orders on Auction and would be rejected along
Complex CUBE Order may trade at all book) with the Complex Contra Order. Thus,
Complex CUBE Order: Cust1 {B 1 Jan 50 using the information in the above
prices equal to or between the initiating
C/S 1 Jan 55 C} × 700 ¥$4.05 Example, the CUBE BBO is ¥$4.02 to
price and the same-side CUBE BBO.
Complex Contra Order: Firm1 {S 1 Jan $4.04 and a Complex CUBE Order to
Proposed Rule 971.2NY(a)(4) is based in
50 C/B 1 Jan 55 C} × 700 $4.02 buy starts an Auction with an initiating
part on Rules 971.1NY(b)(1)(A) and (B)
Auto-match limit price price of ¥$4.04, a stop price of $4.01
in that it sets forth the permissible range CUBE BBO: ¥$4.02 to $4.04
of executions for an Auction. However, would be rejected because it crosses the
because a Complex CUBE Auction RFR sent identifying the complex same-side CUBE BBO (of ¥$4.02). The
would be based on the CUBE BBO order strategy, side and size, with
rather than the NBBO, and the CUBE initiating price of ¥$4.04. 21 See Rule 971.1NY(c)(1)(A) and (C). As

previously stated (supra note 18), because the
BBO already accounts for price Permissible range of executions = Exchange does not offer Complex Orders to be
improvement over the Consolidated ¥$4.02 to ¥$4.04 entered as market orders, the Exchange does not
In the above example, the initiating propose to offer the ‘‘auto-match’’ option described
20 Pursuant to Rule 991NY(b)(7), option price is ¥$4.04 because the initiating in Rule 971.1(c)(1)(B) for the Complex CUBE
daltland on DSKBBV9HB2PROD with NOTICES

transactions effected as part of a Complex Trade are Auction. See also CBOE Rule 6.74A(b)(1)(A).
price for a Complex CUBE Order will be 22 See proposed Commentary .02 to Rule 971.2NY
exempt from NBBO trade through liability and
therefore an individual leg market of a Complex the less aggressive of the limit price of (defining executable for purposes of this Rule). The
Order may trade at or between the Exchange such order (i.e., ¥$4.05) or the price Exchange proposes to modify the definition of the
Exchange’s best bid/offer, without regard to the that locks the contra-side CUBE BBO single stop price in the Single-Leg CUBE to
NBBO. See also Rule 980NY (providing that ‘‘[n]o similarly refer to the stop price being ‘‘equal to,’’
leg of an Electronic Complex Order will be executed
(i.e., ¥$4.04). If during the Auction the as opposed to ‘‘at’’ the initiating price, which would
at a price outside the Exchange’s best bid/offer for LMM Jan 50C bid were to update to add clarity and consistency to Exchange rules. See
that leg’’). $7.04, the updated CUBE BBO would be proposed Rule 971.1NY(c)(1)(C).

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proposal to allow a Complex CUBE to be how the Single-Leg CUBE functions, as would not be able to execute, and
guaranteed by a single stop price is described in Rule 971.1NY(c)(1)(C). The therefore the Exchange believes it would
based in part on how the single-stop Exchange proposes to amend Rule be appropriate to reject these Complex
price feature operates with the Single- 971.1NY(c)(1)(C) to update the Single- CUBE Orders. This proposed treatment
Leg CUBE, but with differences to Leg CUBE rule to reflect this of the Complex CUBE Order is the same
reflect the permissible range of functionality. As proposed, the as for a Single-Leg CUBE Order, per
executions for a Complex CUBE Exchange proposes to specify for the Rule 971.1NY(b)(4).
Order.23 Single-Leg CUBE that, when selecting 3. Proposed Rule 971.2NY(b)(4)
Rather than opt for a single stop price, auto-match limit, the Initiating would provide that Complex CUBE
an Initiating Participant may, pursuant Participant may specify an ‘‘auto-match Orders submitted during the final
to proposed Rule 971.2NY(b)(1)(B), elect limit price’’ that is equal to or below second of the trading session in the
the ‘‘auto-match limit price’’ alternative, (above) the initiating price of the component series would not be eligible
which price must be executable against Auction and that the Contra Order may to initiate an Auction and would be
the initiating price of the Auction.24 As trade with the CUBE Order at prices that rejected, along with the Complex Contra
further proposed, the Complex Contra are lower (higher) than the initiating Order. As discussed below, the length of
Order may trade with the Complex price down (up) to the auto-match limit the Auction may be a random time
CUBE Order at prices that are better price. The Exchange also proposes to between 100 milliseconds and 1 second,
than or equal to the initiating price up specify that it would adjust the auto- to be determined and announced by the
to the auto-match limit price, if match limit price to within the range of Exchange. The Exchange believes,
applicable, pursuant to paragraph (c)(4) permissible executions by adding a new however, that it would be appropriate to
of this proposed Rule.25 Accordingly, a sentence to that Rule that would reject Complex CUBE Orders submitted
Complex Contra Order with an auto- provide: ‘‘An auto-match limit price during the final second of the trading
match limit price is eligible to trade at specified for a CUBE Order to buy (sell) session to assure that the processing of
all prices within the range of that is below (above) the lower (upper) a Complex CUBE Order may be
permissible executions for such bound of the range of permissible completed. This proposed treatment of
Auction, subject to the specified limit executions will be repriced to the lower the Complex CUBE Order is the same as
price. (upper) bound.’’ for a Single-Leg CUBE Order, per Rule
As proposed, if the auto-match limit Paragraphs (b)(2)–(5) of proposed Rule 971.1NY(b)(5).
price crosses the same-side CUBE BBO 971.2NY set forth additional 4. Proposed Rule 971.2NY(b)(5)
(i.e., would be outside the range of requirements for initiating a Complex would provide that Complex CUBE
permissible executions), the Complex CUBE Auction, including specifying the Orders submitted during a trading halt
Contra Order would be priced back to various reasons that a proposed would not be eligible to initiate an
lock the same-side CUBE BBO. The Complex CUBE Order would be deemed Auction and would be rejected, along
Exchange believes that if an Initiating ineligible to commence an Auction and with the Complex Contra Order.
Participant specifies an auto-match limit thus would be rejected along with the Because a Complex CUBE Order is
price, such ATP Holder has indicated Complex Contra Order. The enumerated deemed executed at the initiation of the
that it is willing to trade with the bases for rejecting a Complex CUBE Auction, any Complex CUBE Orders
Complex CUBE Order at more than one Order (and Complex Contra Order) are entered during a trading halt would not
price. The Exchange therefore believes it substantially similar to the bases for be able to execute, and therefore the
would be consistent with the intent of rejecting a CUBE Order (and Contra Exchange believes it would be
the auto-match limit price election to Order) in the Single-Leg CUBE. appropriate to reject these Complex
adjust the price of such order so that it 1. Proposed Rule 971.2NY(b)(2) CUBE Orders. This functionality mirrors
would be eligible to trade within the would provide that a Complex CUBE that of the Single-Leg CUBE and the
range of permissible executions for a Order that does not have a net debit/ Exchange similarly proposes to amend
Complex CUBE Order. Accordingly, if credit price that is equal to or better the Rule 971.1NY to add sub-paragraph
the auto-match limit price selected is than the same-side CUBE BBO would be (b)(10) to set forth the same feature in
inferior to the same-side CUBE BBO rejected, along with the Complex Contra the rule for Single-Leg CUBE.
bound of permissible execution prices, Order. The Exchange believes that The Exchange notes that Complex
the auto-match limit price would be re- rejecting such Complex CUBE Orders Orders may be expressed in any decimal
priced to within the permissible would be appropriate because they are price, and the legs(s) of a complex order
execution range. Thus, using the not the best-priced interest available may be executed in one cent increments
information in the above Example, if the and should not trade ahead of better- regardless of the minimum price
Initiating Participant submitted an auto- priced interest on the same side of the increment (‘‘MPV’’) otherwise
match limit price of $4.01 (which is market. This proposed rule text is based applicable to the individual legs of the
outside the permissible range of on Rule 971.1NY(b)(2), which similarly order.26 Accordingly, the Exchange does
executions of ¥$4.02 to ¥$4.04), it provides that a Single-Leg CUBE Order not propose rule text based on Rule
would be re-priced to ¥$4.02 and an would be rejected if priced less 971.1NY(b)(7) for the Single-Leg CUBE,
Auction would be initiated. aggressively than the permissible range because this pricing requirement is
The manner in which a Complex of executions. already provided for in Rule 980NY.
CUBE Order would be guaranteed by an 2. Proposed Rule 971.2NY(b)(3) The Exchange believes that the above-
auto-match limit price is consistent with would provide that Complex CUBE described restrictions and requirements
Orders submitted before the opening of would ensure that the existing priority
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23 See Rule 971.1NY(c)(1)(A). The Exchange notes trading would not be eligible to initiate and display rules for Electronic
however that it would re-price a stop price to be an Auction and would be rejected, along Complex Orders, as well as quotes and
within the range of permissible executions on the with the Complex Contra Order. orders making up the leg markets for a
Single-Leg CUBE, which feature the Exchange does
not allow in the Complex CUBE Auction.
Because a Complex CUBE Order is complex order strategy, are preserved,
24 See proposed Commentary .02 to Rule 971.2NY deemed executed at the initiation of the while still providing ATP Holders an
(defining executable for purposes of this Rule). Auction, any Complex CUBE Orders
25 See proposed Rule 971.2NY(c)(1)(C) [sic]. entered before the opening of trading 26 See Commentary .01 to Rule 980NY.

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manner as the proposed Complex GTX would not consider quotes and orders in conclude early before the end of the RTI
Order.34 the leg markets to be RFR Responses for as described in paragraphs (c)(3)(A)–(F)
Pursuant to proposed Rule an Auction, the Exchange does not of the proposed Rule and that when it
971.2NY(c)(1)(C)(ii), the Exchange propose rule text based on Rule concludes, the Complex CUBE Order
proposes to define ‘‘Unrelated 971.1NY(c)(2)(C)(ii)(a)–(c). would execute as provided for in
Electronic Complex Orders’’ as proposed Rule 971.2NY(c)(4), described
Electronic Complex Orders (as defined Conclusion of the Complex CUBE
Auction below.42 While the precise
in Rule 980NY, including COA-eligible circumstances that result in the early
orders 35) on the opposite side of the As proposed in Rule 971.2NY(c)(2), end of a Complex CUBE Auction differ
market as the Complex CUBE Order that just as with the Single-Leg CUBE, the from those of a Single-Leg CUBE, the
are received during the RTI, even if not Complex CUBE Auction would tenets of honoring price/time are the
marked for consideration in the Auction conclude at the end of the RTI.36 This same. Specifically, the Exchange
(i.e., as a Complex GTX Order), proposed functionality is similar to the proposes to use references to the same-
provided such orders can participate operation of electronic price side and contra-side CUBE BBO to
within the range of permissible improvement mechanisms for complex describe early conclusion scenarios for
executions specified for the Auction orders offered by other exchanges.37 Complex CUBE Auctions because these
pursuant to paragraph (a)(4) of this Rule. Consistent with the Single-Leg CUBE definitions take into consideration
Accordingly, similar to Rule and the rules of other exchanges that updates to both the leg markets and
971.1NY(c)(2)(C)(ii), which provides for operate electronic price improvement better-priced Electronic Complex Orders
unrelated quotes and orders that are auctions for complex orders, this rule in the Consolidated Book.
entered during the RTI for the Single- would further provide that an Auction
• First, pursuant to proposed Rule
Leg CUBE to be considered RFR would conclude in the event of a trading
971.2NY(c)(3)(A), an Auction would
Responses, the Exchange would halt in any of the component series 38
conclude early if, during the RTI, the
consider Electronic Complex Orders and the Complex CUBE Order would be
Exchange receives a new Complex
that are entered during the RTI for an executed per proposed Rule
CUBE Order in the same complex order
Auction to be RFR Responses if they 971.2NY(c)(4).39 As described in
strategy that meets the conditions of
could participate in the range of proposed Rule 971.2NY(c)(3) (and
proposed Rule 971.2NY(b). As
permissible executions. The Exchange discussed below), specified additional
proposed, after the first Auction
believes that considering these events may result in the early
conclusion of the Auction. Proposed concludes, the incoming Complex CUBE
unrelated complex orders as RFR
Rule 971.2NY(c)(2) would further Order would initiate its own Auction
Responses would increase the number
provide that any RFR Responses that do and proceed as described in proposed
of orders against which the Complex
not execute in the Auction would Rule 971.2NY(c). Proposed Rule
CUBE Order may be executed, and
execute in accordance with Rule 980NY, 971.1NY(c)(3)(A) functions in the same
should thus maximize opportunities for
Complex Order Trading, and any manner as Rule 971.1NY(c)(4)(A)
price improvement of the Complex
remaining balance of Complex GTX relating to the Single-Leg CUBE with
CUBE Order.
However, unlike the Single-Leg Orders would cancel, because such non-substantive differences to refer to
CUBE, because quotes and orders in the orders have a time-in-force for the the same complex order strategy instead
leg markets for a complex strategy duration of the Auction. of the same series. This proposed basis
underlying a Complex CUBE Order for an early conclusion of an Auction is
Early Conclusion of a Complex CUBE also consistent with the rules of other
would not be eligible to participate in
Auction exchanges operating electronic auctions
the Auction, such quotes and orders
would not be considered ‘‘unrelated As noted earlier, like the Single-Leg for complex orders.43
orders’’ and therefore would not be RFR CUBE, a Complex CUBE Auction would • Second, pursuant to proposed Rule
Responses. As described in more detail conclude early (i.e., before the end of 971.2NY(c)(3)(B), an Auction would
below in proposed Rule the RTI) as a result of certain events that conclude early if, during the RTI, the
971.2NY(c)(3)(B)–(F), updates to the leg would otherwise disrupt the priority of Exchange receives any interest that
markets during the Auction may cause the Auction within the Consolidated would adjust the same-side CUBE BBO
it to conclude early to preserve priority Book.40 Such early conclusion events to be better than the initiating price. The
of that interest at a price. Limiting are consistent with how the electronic Exchange proposes to conclude the
participation in the Complex CUBE price improvement auctions for Auction early in such circumstance to
Auction to Complex Orders, but complex orders on other markets honor the priority of the Consolidated
allowing certain updates to the leg operate.41 Book, which would now be equal to or
markets to cause an Auction to conclude Proposed Rule 971.2NY(c)(3) would better-priced than the initiating price of
early, is consistent with how the provide that an Auction would the Auction. This early conclusion
Exchange treats interest in the COA scenario is based in part on Rule
36 See Rule 971.1NY(c)(3).
process, as described in Rule 971.1NY(c)(4)(D) for Single-Leg CUBE,
37 See, e.g., CBOE Rule 6.74A(b)(2)(A); PHLX Rule
980NY(e)(7)(B). Because the Exchange but uses Complex CUBE terminology.
1087(b)(2)(A); ISE Rule 723(c)(5)(i).
38 See, e.g., Rule 971.1NY(c)(3); CBOE Rule
34 See, e.g., CBOE 6.74A(b)(1)(I) (non-displayed 6.74A(b)(2)(F); PHLX Rule 1087(b)(2)(D). 42 Pursuant to proposed Rule 971.2NY(c)(2), and

interest intended only for the auction may be 39 Because the execution [sic] of the Auction as discussed herein, a trading halt in the affected
cancelled); ISE 723(c)(3) (non-displayed interest would be deemed the time the Complex CUBE series would also result in the early conclusion of
daltland on DSKBBV9HB2PROD with NOTICES

intended only for the auction may be modified, but Auction is initiated, if a trading halt occurs in the an Auction and contracts would be allocated
not cancelled). See also supra note 26 (regarding the series during the RTI and the Auction concludes pursuant to proposed paragraph (c)(4).
MPV for Complex Orders). early, the Exchange does not believe that such 43 See, e.g., CBOE Rule 6.74A(b); ISE Rule 723
35 Rule 980NY(e) describes the Complex Order execution needs to be nullified pursuant to Rule Supplementary Material .04. The Exchange notes
Process or COA, which is designed to offer price 953NY Commentary .03 [sic]. that although these rules specify that auctions may
improvement to Complex Orders; however, the 40 See Rule 971.1NY(c)(4). not overlap or queue in any manner, the rules are
COA is not a crossing mechanism and a COA- 41 See, e.g., CBOE Rule 6.74A(b)(2)(B),(C),(E); nonetheless silent on how this is enforced (i.e., by
eligible order is not guaranteed an execution. See PHLX Rule 1087(b)(2)(C); ISE Rule 723(c)(5)(ii)– rejecting new auction orders or by concluding an
Rule 980NY(e)(1) (defining COA-eligible orders). (iii); BOX IM 7150. ongoing auction early).

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• Third, pursuant to proposed Rule Auction to conclude early) would be rata allocation pursuant to Rule
971.2NY(c)(3)(C), an Auction would ranked and prioritized. If the incoming 964NY(b)(3). Allocating Customer
conclude early if, during the RTI, the interest is a Complex Order and on the interest first is consistent with the
Exchange receives any interest that opposite side, it may execute against the Exchange’s allocation model and is
adjusts the same-side CUBE BBO to Complex CUBE Order; if the incoming based on Rule 971.1NY(c)(5)(A) for the
cross any RFR Responses. This early interest is on the same side as the Single-Leg CUBE.
conclusion scenario is based in part on Complex CUBE Order, it may execute Pursuant to proposed Rule
Rule 971.1NY(c)(4)(B) for Single-Leg against any unfilled RFR Responses 971.2NY(c)(4)(B), after Customer
CUBE in that the interest would be on before being posted to the Consolidated interest at a particular price level has
the same side as the Complex CUBE Book. If the incoming interest (that been satisfied, any remaining size
Order and would be marketable against caused the Auction to conclude early) is would be allocated among the Complex
RFR Responses, but uses Complex an updated quote or order in the leg Contra Order and RFR Responses
CUBE terminology. markets, it would be processed after the differently depending on whether the
• Fourth, pursuant to proposed Rule Complex CUBE Auction pursuant to Initiating Participant designated a single
971.2NY(c)(3)(D), an Auction would Rule 980NY. Again, the rationale for stop price or auto-match limit. In each
conclude early if, during the RTI, the concluding the Auction early in each of case, the proposed allocation of a
Exchange receives any interest that the above scenarios is to operate Complex CUBE Order would follow the
adjusts the same-side CUBE BBO to seamlessly with the Consolidated Book same allocation rules for a Single-Leg
cross the single stop price specified by and honor the price-time priority model CUBE Order, as described below.
the Initiating Participant. This early end on the Exchange—while still affording Proposed Rule 971.2NY(c)(4)(B)(i)
scenario would not apply to instances the Complex CUBE Order an would specify how remaining size of the
where the Initiating Participant opportunity to receive price Complex CUBE Order for which the
specified an auto-match limit price. The improvement. Initiating Participant specifies a single
Exchange proposes to conclude the stop price would trade with interest
Auction early in such circumstances Complex CUBE Order Allocation received during the Auction as follows:
because the stop price would not be Proposed Rule 971.2NY(c)(4) sets • First, to RFR Responses priced
eligible to trade as part of an updated forth the order allocation process for the better than the stop price, beginning
CUBE BBO.44 Accordingly, the Auction. Generally, at the conclusion of with the most aggressive price within
Exchange proposes to conclude such the Complex CUBE Auction, the the range of permissible executions,
Auction early and execute the Complex Auction mechanism would determine pursuant to the size pro rata algorithm
CUBE Order as provided for in proposed whether the total RFR Responses can fill set forth in Rule 964NY(b)(3) at each
Rule 971.2NY(c)(4). the Complex CUBE Order at a price or price point. Proposed Rule
• Fifth, pursuant to proposed Rule prices better than the stopped price or 971.2NY(c)(4)(B)(i)(a) is based on Rule
971.2NY(c)(3)(E), an Auction would auto-match limit price.45 If so, the 971.1NY(c)(5)(B)(i)(a),with differences
conclude early if, during the RTI, the Complex CUBE Order is matched only to use terminology for Complex
Exchange receives interest that crosses against the better-priced RFR Responses CUBE Orders as defined in proposed
the same-side CUBE BBO. This early granting the Complex CUBE Order the Commentary .02 to Rule 971.2NY.
conclusion scenario is based in part on maximum amount of price improvement • Next, any remaining size of the
Rule 971.1NY(c)(4)(C) for the Single-Leg possible. Complex CUBE Order would execute at
CUBE because arriving interest that When there are multiple RFR the stop price. At the stop price, if there
crosses the same-side CUBE BBO would Responses at a given price, the Complex is sufficient size of the Complex CUBE
be marketable against interest in the CUBE Order would be executed against Order still available after executing at
Consolidated Book, but uses Complex the RFR Responses on a pro-rata basis prices better than the stop price or
CUBE terminology. pursuant to the size pro rata algorithm against Customer interest, the Complex
• Finally, pursuant to proposed Rule set forth in Rule 964NY(b)(3), except Contra Order would receive an
971.2NY(c)(3)(F), an Auction would that Customers at a given price would allocation of the greater of 40% of the
conclude early if, during the RTI, the be executed first in priority. The original Complex CUBE Order size or
Exchange receives interest in the leg Exchange believes that, as proposed, the one contract (or the greater of 50% of
market that causes the contra-side CUBE Auction would maximize the the original Complex CUBE Order size
BBO to be better than the stop price or opportunity for price improvement or one contract if there is only one RFR
auto-match limit price. This early while maintaining the priority of Response). Any remaining size of the
conclusion scenario is based in part on Customer orders. Complex CUBE Order at the stop price
Rule 971.1NY(c)(4)(C) for the Single-Leg Proposed Rule 971.2NY(c)(4) would would be allocated among remaining
CUBE because arriving interest that provide that any RFR Response that RFR Responses pursuant to the size pro
crosses the contra-side CUBE BBO exceeds the size of the Complex CUBE rata algorithm set forth in Rule
would be marketable against interest in Order would be capped at the Complex 964NY(b)(3). If all RFR Responses are
the Consolidated Book, but uses CUBE Order for allocation purposes, per filled, any remaining size of the
Complex CUBE terminology. Rule 964NY(b)(3). This function is Complex CUBE Order would be
In each of the above scenarios, the based on Rule 971.1NY(c)(5), which allocated to the Complex Contra Order.
Auction would conclude early to similarly caps the size of RFR Responses Proposed Rule 971.2NY(c)(4)(B)(i)(b)
preserve priority of incoming interest. to a Single-Leg CUBE. is based on Rule 971.1NY(c)(5)(B)(i)(b),
When the Auction concludes, the Pursuant to proposed Rule with differences to use terminology for
daltland on DSKBBV9HB2PROD with NOTICES

Complex CUBE Order would be 971.2NY(c)(4)(A), at each price level, Complex CUBE Orders as defined in
matched with the best-priced interest any Customer orders that arrived during proposed Commentary .02 to Rule
received during the Auction and, once the Complex CUBE Auction as RFR 971.2NY and non-substantive
the Complex CUBE Order is filled, the Responses would have first priority to differences to refer to ‘‘size’’ rather than
incoming interest (that caused the execute and be allocated on a size pro ‘‘contracts’’ and to use ‘‘will’’ instead of
‘‘shall.’’ In addition, other exchanges
44 See proposed Rule 971.2NY(a)(4). 45 See proposed Rule 971.2NY(c)(4)(A), (B)(i)–(ii). that operate electronic pricing

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mechanism for complex orders similarly allocation guarantee. If there are other Specifically, pursuant to proposed
guarantee minimum levels of RFR Responses at the clean-up price, Commentary .01 (a)–(d) to Rule
participation for the initiating the remaining size of the Complex 971.2NY, the Exchange proposes that
participant.46 CUBE Order would be allocated to such the following conduct would be
• If there are no RFR Responses, the interest pursuant to the size pro rata considered conduct inconsistent with
Complex CUBE Order would execute algorithm set forth in Rule 964NY(b)(3). just and equitable principles of trade:
against the Complex Contra Order at the Any remaining portion of the Complex (a) An ATP Holder entering RFR
stop price. Proposed Rule CUBE Order would be allocated to the Responses to a Complex CUBE Auction
971.2NY(c)(4)(B)(i)(c) is based on Rule Complex Contra Order at the initiating for which the ATP Holder is the
971.1NY(c)(5)(B)(i)(c) without any price. Initiating Participant. The Exchange
substantive differences. Proposed Rule 971.2NY(c)(4)(B)(ii)(b) believes this would prevent Initiating
Proposed Rule 971.2NY(c)(4)(B)(ii) is based on Rule 971.1NY(c)(5)(B)(iii)(b), Participants from submitting an
would specify how remaining size of the with differences to use terminology for inaccurate or misleading stop price or
Complex CUBE Order for which an Complex CUBE Orders as defined in trying to improve their allocation
Initiating Participant specifies an ‘‘auto- proposed Commentary .02 to Rule entitlement by participating with
match limit price’’ would trade with 971.2NY and includes non-substantive multiple expressions of interest.
interest received during the Auction as differences to define the term ‘‘clean-up (b) Engaging in a pattern and practice
follows: price,’’ which for the Single-Leg CUBE, of entering unrelated orders and quotes
• First, to RFR Responses at each is defined in Rule for the purpose of causing a Complex
price level priced better than the auto- 971.1NY(c)(5)(B)(ii)(a). CUBE Auction to conclude early, i.e.,
match limit price (if any) within the • If there are no RFR Responses, the before the end of the RTI. The Exchange
range of permissible executions, Complex CUBE Order would execute believes this would prevent an ATP
beginning with the most aggressive against the Complex Contra Order at the Holder from shortening the duration of
price, pursuant to the size pro rata initiating price. Proposed Rule the Auction thus possibly reducing the
algorithm set forth in Rule 964NY(b)(3) 971.2NY(c)(4)(B)(iii)(c) without any number Responses to an Auction in
at each price point. Proposed Rule order to gain a higher allocation than
substantive differences.
971.2NY(c)(4)(B)(ii)(a) is based on Rule the percentage the ATP Holder may
As noted above, certain unrelated
971.1NY(c)(5)(B)(iii)(a), with differences have otherwise received had the
orders may be considered RFR
to use terminology for Complex CUBE Auction not concluded early.
Responses and may interact with the
Orders as defined in proposed (c) An Initiating Participant that
Complex CUBE Order (thus maximizing
Commentary .02 to Rule 971.2NY. breaks up an agency order into separate
• Next, to RFR Responses at a price opportunities for price improvement)
Complex CUBE Orders for the purpose
equal to the price of the Complex Contra and any portion of these unrelated
of gaining a higher allocation percentage
Order’s auto-match limit price, and if orders remaining thereafter would be
than the Initiating Participant would
volume remains, to prices worse than processed in accordance with Rule
have otherwise received in accordance
the auto-match limit price. At each price 980NY, Electronic Order Trading. with the allocation procedures
point equal to or worse than the auto- Proposed Rule 971.2NY(c)(4)(C) is based contained in proposed paragraph (c)(5)
match limit price, the Complex Contra on Rule 971.1NY(c)(5)(C) without any to proposed Rule 971.2NY. The
Order would receive an allocation equal substantive differences. Exchange believes this would prevent
to the aggregate size of all other RFR Finally, proposed Rule Initiating Participants from
Responses starting with the best price at 971.2NY(c)(4)(D) would provide that a manipulating the Complex CUBE Orders
which an execution against an RFR single RFR Response would not be size and number to gain a higher
Response occurs within the range of allocated a volume that is greater than guaranteed execution than the Initiating
permissible executions until a price its size. This proposed rule text is based Participant would have otherwise
point is reached where the balance of on Rule 971.1NY(c)(4)(D) without any received.
the CUBE Order can be fully executed substantive differences. (d) Engaging in a pattern and practice
(the ‘‘clean-up price’’). At the clean-up Conduct Inconsistent With Just and of sending multiple RFR Responses at
price, if there is sufficient size of the Equitable Principles of Trade the same price that in the aggregate
Complex CUBE Order still available exceed the size of the Complex CUBE
after executing at better prices or against The Exchange is proposing
Order. The Exchange believes this will
Customer interest, the Complex Contra Commentary .01 to Rule 971.2NY to set
prevent ATP Holders from attempting to
Order would be allocated additional forth that certain activity in connection
misuse or manipulate the process.
volume required to achieve an with the Complex CUBE Auction would
allocation of the greater of 40% of the be considered conduct inconsistent with Order Exposure and Prohibited Conduct
original Complex CUBE Order size or just and equitable principles of trade to Current Rule 935NY prohibits Users 48
one contract (or the greater of 50% of discourage ATP Holders from from executing as principal any orders
the original Complex CUBE Order size attempting to misuse or manipulate the they represent as agent unless (i) agency
or one contract if there is only one RFR Auction process. Proposed Commentary orders are first exposed on the Exchange
Response). If the Complex Contra Order .01 to the Rule is based on Commentary for at least one (1) second or (ii) the User
meets its allocation guarantee at a price .02 to Rule 971.1NY relating to the
better than the clean-up price, it would Single-Leg CUBE without any Commentary .02 of the Single-Leg CUBE rule by
cease matching RFR Responses that may substantive differences and is consistent adding the word ‘‘of,’’ which was inadvertently
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with the rules of other options omitted, to add clarity and consistency to the Rule.
be priced worse than the price at which See proposed Commentary .02(b) to Rule 971.1NY
the Complex Contra Order received its exchanges that offer electronic price (providing, as updated, that ‘‘[e]ngaging in a pattern
improvement auction mechanisms.47 and practice of trading or quoting activity for the
46 See, e.g., PHLX Rule 1087(b)(5)(B)(iv) purpose of causing a CUBE Auction to conclude
(providing up to 50% allocation with participation 47 See, e.g., Rule 971.1NY, Commentary .02; before the end of the Response Interval Time’’).
guarantees); ISE Rule 713 Commentary .03 PHLX 1087(c)–(e); ISE 723 Supplementary Material 48 Rule 900.2NY(87) defines User as any ATP

(providing up to 60% allocation for participation .01; BOX IM–7150–2(a) and (b). The Exchange Holder that is authorized to obtain access to the
guarantees); CBOE Rule 6.74A(b)(3)(F). proposes to correct a typographical error in System.

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has been bidding or offering on the Section 11(a) of the Exchange Act respect to an account over which the
Exchange for at least one (1) second Section 11(a) of the Exchange Act member has investment discretion,
prior to receiving an agency order that prohibits any member of a national neither the member nor its associated
is executable against such bid or offer. securities exchange from effecting person may retain any compensation in
This rule helps to ensure that orders are transactions on that exchange for its connection with effecting the
properly exposed to market participants, transaction except as provided in the
own account, the account of an
affording them a reasonable amount of rule.56
associated person, or an account over
time in which to participate in the The Exchange believes that orders
which it or its associated persons
execution of the agency order. sent by off-floor ATP Holders, for
exercises discretion (‘‘covered covered accounts, to the proposed
As previously stated in this filing, the accounts’’), unless, as discussed below, Complex CUBE Auction would qualify
Exchange believes that the proposed an exception applies.52 The for this ‘‘effect versus execute’’
RTI, with a random length of no less Commission, in its order to approve the exception from Section 11(a), as
than 100 milliseconds and no greater Single-Leg CUBE, determined that described below. In this regard, the first
than 1 second (to be determined and orders effected utilizing this mechanism condition of Rule 11a2–2(T) is that
announced by the Exchange), is of complied with the requirements of orders for covered accounts be
sufficient length so as to permit ATP Section 11(a).53 As noted herein, the transmitted from off the exchange floor.
Holders time to respond to a Complex Complex CUBE Auction operates in a The Exchange represents that orders for
CUBE Auction thereby enhancing manner substantially similar to the covered accounts from off-floor ATP
opportunities for competition among Single-Leg CUBE and the argument Holders sent to the Complex CUBE
participants and increasing the supporting the Exchange’s position that Auction would be transmitted from
likelihood of price improvement for the the proposed Complex CUBE Auction is remote terminals that are off the
Complex CUBE Order. Accordingly, the consistent with the requirements of Exchange floor directly to the
Exchange proposes to amend Rule Section 11(a) and the rules thereunder mechanisms by electronic means.57 In
935NY to stipulate that a User may mirror those made (and accepted by the the context of other automated trading
execute as principal an order that the Commission) in regards to the Single- systems, the Commission has found that
User represents as agent, provided that Leg CUBE. the off-floor transmission requirement is
the User avails him or herself of the First, Section 11(a)(1) contains a met if a covered account order is
Complex CUBE Auction process, number of exceptions for principal transmitted from a remote location
pursuant to Rule 971.2NY. Such transactions by members and their directly to an exchange’s floor by
Complex CUBE Order would not be associated persons. Specifically, Section electronic means.58
subject to the one-second order 11(a)(1)(A) provides an exception from The second condition of Rule 11a2–
exposure requirement of Rule 935NY, the prohibitions in Section 11(a) for 2(T) requires that the member not
which exclusion from the one-second dealers acting in the capacity of market participate in the execution of its order
order exposure requirement is makers. The Exchange believes that once the order is transmitted to the floor
consistent with the treatment of similar orders sent by on- and off-floor market for execution.59 The Exchange
orders on the Exchange.49 Consistent makers, for covered accounts, to the represents that, upon submission to the
with Rule 935NY Commentary .01, ATP proposed Complex CUBE Auction Complex CUBE Auction, an order will
Holders would only utilize the Auction would qualify for this exception from
where there is a genuine intention to Section 11(a). 56 17 CFR 240.11a2–2(T).
execute a bona fide transaction.50 In addition to this market maker 57 In the alternative, orders for a covered account
exception, Rule 11a2–2(T) under the may be sent by an off-floor ATP Holder to an
unaffiliated Floor Broker for entry into the Complex
Modification to Complex Order Trading Exchange Act, known as the ‘‘effect CUBE Auction mechanism. Floor Brokers, however,
Rule Regarding COA versus execute’’ rule, provides exchange may not enter orders for their own covered accounts
members with an exception from into the Auction mechanism from on the floor, or
Consistent with the principle that the Section 11(a) by permitting them, transmit such orders from on the floor to off of the
Exchange would only conduct one floor for entry into the Complex CUBE Auction
subject to certain conditions, to effect mechanism.
auction in a given complex order transactions for covered accounts by 58 See, e.g., Securities Exchange Act Release Nos.
strategy at a time, the Exchange arranging for an unaffiliated member to 59154 (December 23, 2008), 73 FR 80468 (December
proposes to amend Rule 980NY(e)(6) to execute the transactions on the 31, 2008) (SR–BSE–2008–48) (approving, among
make clear that a COA in progress other things, the equity rules of the Boston Stock
exchange.54 To comply with the ‘‘effect Exchange); 57478 (March 12, 2008), 73 FR 14521
would end upon receipt of a better- versus execute’’ rule’s conditions, a (March 18, 2008) (SR–NASDAQ–2007–004 and SR–
priced Complex CUBE Order received member: (i) Must transmit the order NASDAQ–2007–080) (approving rules governing
during the COA.51 from off the exchange floor; (ii) may not the trading of options on The NASDAQ Options
Market); 49068 (January 13, 2004), 69 FR 2775
participate in the execution of the (January 20, 2004) (SR–BSE–2002–15) (approving
49 See Rule 935NY(iii), (iv) (exempting orders
transaction once it has been transmitted the Boston Options Exchange as an options trading
submitted into the Single-Leg CUBE and into the facility of BSE); 15533 (January 29, 1979), 44 FR
Complex Order Auction Process from the one
to the member performing the
6084 (January 31, 1979) (approving the Amex Post
second order exposure requirement). execution; 55 (iii) may not be affiliated Execution Reporting System, the Amex Switching
50 See Rule 935NY Commentary .01 (‘‘Rule with the member executing the System, the Intermarket Trading System, the
935NY prevents a User from executing agency transaction on the floor, or through the Multiple Dealer Trading Facility of the Cincinnati
orders to increase its economic gain from trading facilities, of the Exchange; and (iv) with Stock Exchange, the PCX Communications and
against the order without first giving other trading Execution System, and the Philadelphia Stock
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interest on the Exchange an opportunity to either Exchange Automated Communications and
52 15 U.S.C. 78k(a)(1).
trade with the agency order or to trade at the Execution System) (‘‘1979 Release’’); and 14563
53 See Single-Leg CUBE Approval Order, supra
execution price when the User was already bidding (March 14, 1978), 43 FR 11542 (March 17, 1978)
or offering on the book.’’) note 6, 79 FR at 24787–24788. (approving NYSE’s Designated Order Turnaround
51 See proposed Rule 980NY(e)(6)(A), (B) (making 54 17 CFR 240.11a2–2(T). System) (‘‘1978 Release’’).
clear that Complex CUBE Orders are included in 55 The member, however, may participate in 59 The description above covers the universe of

the category of ‘‘[i]ncoming Electronic Complex clearing and settling the transaction. See Securities the types of ATP Holders (i.e., on- and off-floor
Orders’’ that may cause the COA in progress to end Exchange Act Release No. 14563 (March 14, 1978), market makers, off-floor firms that are not market
early’’). 43 FR 11542 (March 17, 1978). makers, and Floor Brokers).

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Federal Register / Vol. 83, No. 45 / Wednesday, March 7, 2018 / Notices 9779

be executed automatically pursuant to recognizes that ATP Holders relying on compared to a CUBE for orders in a
the proposed rules set forth for the Rule 11a2–2(T) for transactions effected single-leg options series. The Exchange
Auction. In particular, execution of an through the Complex CUBE Auction believes that the Complex CUBE
order sent to the Auction depends not must comply with this condition of the Auction would remove impediments to
on the ATP Holder entering the order, Rule. and perfect the mechanism of a free and
but rather on what other orders are For all of the foregoing reasons, like open market and a national market
present and the priority of those orders. the Single-Leg CUBE, the Exchange system because it is designed to afford
Thus, at no time following the believes the Complex CUBE Auction Complex Orders the opportunity for
submission of an order is an ATP promotes just and equitable principles price improvement in a paired auction,
Holder able to acquire control or of trade and is consistent with the similar to the Single-Leg CUBE. The
influence over the result or timing of general policy objectives of Section Exchange believes that the Complex
order execution.60 11(a) of the Act. CUBE would provide more efficient
The third condition of Rule 11a2–2(T) transactions, reduce execution risk to
Implementation
requires that the order be executed by ATP Holders, and afford greater
an exchange member who is unaffiliated The Exchange will announce the opportunities for price improvement for
with the member initiating the order. implementation date of the proposed Complex Orders. The Exchange also
The Commission has stated that this rule change in a Trader Update to be believes that the proposed rule change
requirement is satisfied when published no later than 60 days would remove impediments to and
automated exchange facilities, such as following Commission approval. The perfect the mechanism of a free and
the Complex CUBE Auction, are used, implementation date will be no later open market and a national market
as long as the design of these systems than 60 days following publication of system because it result in tighter
ensures that members do not possess the Trader Update announcing markets for complex orders, and ensure
any special or unique trading Commission approval. The Exchange that each order receives the best
advantages in handling their orders after believes that this implementation possible price. Similar to how the
transmitting them to the exchange.61 schedule would provide ATP Holders Single-Leg CUBE operates, the Exchange
The Exchange represents that the CUBE with adequate notice of the Auction and believes that by integrating the Auction
Auction is designed so that no ATP would allow ample time for ATP into the CME, the Exchange is able to
Holder has any special or unique Holders to prepare their systems for assure that the Auction respects the
trading advantage in the handling of its participation in the Auction process, if priority of interest in the Consolidated
orders after transmitting its orders to the such participation is desired. Book.
mechanism. 2. Statutory Basis The Exchange believes that this rule
The fourth condition of Rule 11a2– filing is reasonable, equitable and not
2(T) requires that, in the case of a For the reasons set forth above, the unfairly discriminatory to customers
transaction effected for an account with Exchange believes the proposed rule and Participants because it follows the
respect to which the initiating member change is consistent with Section 6(b) of fundamental principles of the existing
or an associated person thereof exercises the Act in general, and furthers the Single-Leg CUBE mechanism 63 and the
investment discretion, neither the objectives of Section 6(b)(5) of the Act, Exchange’s priority and allocation rules
initiating member, nor any associated in that it is designed to promote just and in the context of the auction for
person thereof, may retain any equitable principles of trade, remove Complex Orders,64 each of which has
compensation in connection with impediments to and perfect the been previously approved by the
effecting the transaction, unless the mechanisms of a free and open market Commission. The Exchange further
person authorized to transact business and a national market system and, in believes the proposal is not unfairly
for the account has expressly provided general, to protect investors and the discriminatory because the benefits of
otherwise by written contract, referring public interest. the proposed Complex CUBE on the
to Section 11(a) of the Act and Rule The Exchange proposes to add new Exchange, like the Single-Leg CUBE, are
11a2–2(T) thereunder.62 The Exchange Rule 971.2NY to allow Complex Orders equally available to all ATP Holders.
to be submitted to the Complex CUBE The Exchange believes this proposal
60 The Exchange notes that the Initiating Auction in substantially the same would remove impediments to and
Participant may not cancel or modify a Complex manner as orders for single options perfect the mechanism of a free and
CUBE Order once a Complex CUBE Auction has series instruments currently are open market and a national market
started. See proposed Rule 971.2NY(c). submitted to the Single-Leg CUBE,
61 In considering the operation of automated system because it would increase
execution systems operated by an exchange, the
except as necessary to account for opportunities for execution of Complex
Commission noted that, while there is not an distinctions between regular orders on Orders. Further, the Exchange believes
independent executing exchange member, the the Book and Complex Orders. As the proposed Complex CUBE Auction
execution of an order is automatic once it has been described in greater detail above, the
transmitted into the system. Because the design of would provide greater flexibility to ATP
these systems ensures that members do not possess provisions in proposed Rule 971.2NY Holders trading Complex Orders on the
any special or unique trading advantages in are substantially similar to those in Rule Exchange. The Exchange also believes
handling their orders after transmitting them to the 971.1NY, with non-substantive that the proposed Complex CUBE would
exchange, the Commission has stated that differences to reflect their applicability
executions obtained through these systems satisfy provide additional opportunities for
the independent execution requirement of Rule to an Auction for a Complex Order as ATP Holders to achieve better handling
11a2–2(T). See 1979 Release. of Complex Orders and result in
62 See 17 CFR 240.11a2–2(T)(a)(2)(iv). In addition, connection with effecting transactions for the increased opportunities for execution
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Rule 11a2–2(T)(d) requires a member or associated account during the period covered by the statement,
person authorized by written contract to retain which amount must be exclusive of all amounts
and better pricing. These benefits have
compensation, in connection with effecting paid to others during that period for services
transactions for covered accounts over which such rendered to effect such transactions. See also 1978 63 See Rule 971.1NY, amended to reflect their

member or associated persons thereof exercises Release (stating ‘‘[t]he contractual and disclosure applicability to a Complex CUBE on a Complex
investment discretion, to furnish, at least annually requirements are designed to assure that accounts Order as compared to a CUBE on orders for single-
to the person authorized to transact business for the electing to permit transaction-related compensation leg options series.
account, a statement setting forth the total amount do so only after deciding that such arrangements are 64 See Rule 980NY(e) (describing COA process

of compensation retained by the member in suitable to their interests’’). generally).

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Federal Register / Vol. 83, No. 45 / Wednesday, March 7, 2018 / Notices 9781

pricing out of the Initiating Participant’s Paper Comments SECURITIES AND EXCHANGE
complete control. The proposal is COMMISSION
structured to offer the same • Send paper comments in triplicate
enhancement to all market participants to Brent J. Fields, Secretary, Securities [Release No. 34–82799; File No. SR–IEX–
and Exchange Commission, 100 F Street 2018–03]
and would not impose a competitive
burden on any participant. The NE, Washington, DC 20549–1090.
Self-Regulatory Organizations;
Exchange notes that it operates in a All submissions should refer to File Investors Exchange LLC; Notice of
highly competitive market in which Number SR–NYSEAMER–2018–05. This Filing and Immediate Effectiveness of
market participants can readily direct file number should be included on the Proposed Rule Change To Amend
order flow to competing venues who subject line if email is used. To help the Certain Auction Rules Governing the
offer similar functionality. The Pricing of Non-Displayed Orders
Commission process and review your
Exchange believes the proposed rule Resting on the Continuous Book for
comments more efficiently, please use
change is pro-competitive because it the Opening and Closing Auctions
would enable the Exchange to provide only one method. The Commission will
market participants with functionality post all comments on the Commission’s March 1, 2018.
that is similar to that of other options internet website (http://www.sec.gov/ Pursuant to Section 19(b)(1) 1 of the
exchanges. The Exchange notes that not rules/sro.shtml). Copies of the Securities Exchange Act of 1934
having the Complex CUBE Auction at submission, all subsequent (‘‘Act’’) 2 and Rule 19b–4 thereunder,3
the Exchange places the Exchange at a amendments, all written statements notice is hereby given that on February
competitive disadvantage vis-à-vis other with respect to the proposed rule 16, 2018, Investors Exchange LLC
exchanges that offer similar price change that are filed with the (‘‘IEX’’ or the ‘‘Exchange’’) filed with the
improvement mechanisms. Commission, and all written Securities and Exchange Commission
communications relating to the (‘‘Commission’’) the proposed rule
C. Self-Regulatory Organization’s proposed rule change between the change as described in Items I and II
Statement on Comments on the Commission and any person, other than below, which Items have been prepared
Proposed Rule Change Received From
those that may be withheld from the by the Exchange. The Commission is
Members, Participants, or Others
public in accordance with the publishing this notice to solicit
No written comments were solicited provisions of 5 U.S.C. 552, will be comments on the proposed rule change
or received with respect to the proposed available for website viewing and from interested persons.
rule change. printing in the Commission’s Public I. Self-Regulatory Organization’s
Reference Room, 100 F Street NE, Statement of the Terms of Substance of
III. Date of Effectiveness of the Washington, DC 20549, on official
Proposed Rule Change and Timing for the Proposed Rule Change
business days between the hours of
Commission Action Pursuant to the provisions of Section
10:00 a.m. and 3:00 p.m. Copies of the
filing also will be available for 19(b)(1) under the Securities Exchange
Within 45 days of the date of Act of 1934 (‘‘Act’’),4 and Rule 19b–4
publication of this notice in the Federal inspection and copying at the principal
thereunder,5 Investors Exchange LLC
Register or up to 90 days (i) as the office of the Exchange. All comments
(‘‘IEX’’ or ‘‘Exchange’’) is filing with the
Commission may designate if it finds received will be posted without change. Securities and Exchange Commission
such longer period to be appropriate Persons submitting comments are (‘‘Commission’’) a proposed rule change
and publishes its reasons for so finding cautioned that we do not redact or edit to amend Rules 11.350(a)(2) and
or (ii) as to which the self-regulatory personal identifying information from 11.350(a)(30) to properly reflect the
organization consents, the Commission comment submissions. You should manner in which the Exchange will
will: submit only information that you wish handle non-displayed orders resting on
(A) By order approve or disapprove to make available publicly. All the Continuous Book 6 within the
the proposed rule change, or submissions should refer to File Reference Price Range 7 in crossed and
(B) institute proceedings to determine Number SR–NYSEAMER–2018–05 and one-sided markets 8 in the Opening and
whether the proposed rule change should be submitted on or before March Closing Auctions,9 and resolve a
should be disapproved. 28, 2018. conflict with the Exchange’s existing
For the Commission, by the Division of rules regarding the pricing of such
IV. Solicitation of Comments orders. The Exchange has designated
Trading and Markets, pursuant to delegated
authority.68 this rule change as ‘‘non-controversial’’
Interested persons are invited to under Section 19(b)(3)(A) of the Act 10
submit written data, views, and Robert W. Errett,
and provided the Commission with the
arguments concerning the foregoing, Deputy Secretary.
including whether the proposed rule [FR Doc. 2018–04625 Filed 3–6–18; 8:45 am] 1 15 U.S.C. 78s(b)(1).
change is consistent with the Act. BILLING CODE P 2 15 U.S.C. 78a.
Comments may be submitted by any of 3 17 CFR 240.19b–4.
the following methods: 4 15 U.S.C. 78s(b)(1).
5 17 CRF 240.19b–4.
Electronic Comments 6 See Rule 11.350(a)(4).

• Use the Commission’s internet
7 See Rule 11.350(a)(30).
daltland on DSKBBV9HB2PROD with NOTICES

8 A crossed market refers to a scenario in which
comment form (http://www.sec.gov/ the protected national best bid (‘‘Protected NBB’’)
rules/sro.shtml); or is greater than the protected national best offer
(‘‘Protected NBO’’). A one-sided market refers to a
• Send an email to rule-comments@ scenario in which there is only a Protected NBB or
sec.gov. Please include File Number SR– Protected NBO. See Rule 1.160(bb).
NYSEAMER–2018–05 on the subject 9 See Rules 11.350(c) and (d), respectively.

line. 68 17 CFR 200.30–3(a)(12). 10 15 U.S.C. 78s(b)(3)(A).

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Document Created: 2018-03-07 01:27:36
Document Modified: 2018-03-07 01:27:36
Category		Regulatory Information
Collection		Federal Register
sudoc Class		AE 2.7: GS 4.107: AE 2.106:
Publisher		Office of the Federal Register, National Archives and Records Administration
Section		Notices
FR Citation		83 FR 9769