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Federal Register / Vol. 86, No. 30 / Wednesday, February 17, 2021 / Notices
Order 1Buy DMM Order 1000
shares at $10.05, Order 2Sell DMM Order 1000
shares at $10.00, Order 3Buy DMM Order 1000
shares at $10.02, Order 4Sell Limit Order at $10.03, the orders in this example would be processed as follows in an Exchangefacilitated Auction:
Order 1 would be cancelled because DMM Interest would not be eligible to participate in an Auction trade, and here, Order 1 is marketable with Orders 2 and 4, Order 2 would be cancelled because DMM Interest would not be eligible to participate in an Auction trade, and here Order 2 is marketable with Order 3, and Order 3 would not be cancelled because it is no longer marketable with any other interest, i.e., it no longer locks or crosses the price of any other contraside interest in the Exchange Book.
Order 3 would therefore be included in the opening quote.
This Exchange-facilitated Auction would result in the following quote:
$10.02 Order 3DMM Order $10.03
Order 4Limit Order.
To effect this change, the Exchange proposes new subparagraph g3 to Rule 7.35C to specify the additional circumstances when DMM Interest would be cancelled, as follows:
The Exchange will cancel DMM
Interest that is marketable against contra-side unexecuted orders. If the contra-side unexecuted order against which such DMM Interest is marketable is DMM Interest, the DMM Interest with the earlier working time will be canceled.
This proposed rule change would make permanent the temporary functionality set forth in paragraph b3 to Commentary .03.
The Exchange believes that these proposed rule changes would promote fair and orderly markets whenever the Exchange facilitates an Auction under Rule 7.35Cunder any circumstance by supporting DMMs in maintaining continuity with reasonable depth in their assigned securities immediately following an Exchange-facilitated Core Open Auction or Trading Halt Auction that was facilitated by the Exchange.
The Exchange proposes that, with these proposed changes to Rules 7.35Ca1 and g, Commentary .03 to Rule 7.35C would be deleted in its entirety.
In further support of making the functionality set forth in Commentary .03 to Rule 7.35C permanent, the Exchange notes that after the Exchange
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implemented that Commentary, the Exchange observed improved performance relating to Exchangefacilitated Auctions.
For the period March 23, 2020 to April 3, 2020, 4.9% of all Core Open Auctions were facilitated by the Exchange. For the period April 6, 2020
through June 16, 2020, the Exchange facilitated only 2% of all Core Open Auctions. In addition, the percentage of Exchange-facilitated Core Open Auctions that were bound by an Auction Collar decreased from 1.3%
from the pre-April 6, 2020 period, to 0.58% in the April 6, 2020June 16, 2020 period.
In addition, the Exchange observed that after April 6, 2020, Exchange-listed securities experienced reduced volatility in the first half hour of trading. The Exchange uses a quotebased metric to measure volatility in securities,21 and based on that metric, volatility in Exchange-listed securities between the period of April 6, 2020 and June 16, 2020 was 28.4% lower than the same measure between March 23, 2020
and April 3, 2020. In addition, the Exchange further observed that between these two periods, the difference between the Core Open Auction Price and the subsequent five-minute VWAP
dropped by 31.3%.
For DMM firms that have already returned staff to the Trading Floor, this proposed change has limited application because the Exchange has not facilitated any Auctions on behalf of those firms since June 16, 2020. In addition, the Exchange anticipates that once the Trading Floor facilities open in full to DMMs, and all DMM firms have staffing on the Trading Floor, the need for Exchange-facilitated Auctions would be obviated, and the Exchange will revert to pre-pandemic rates of Exchange-facilitated Auctions, which were none. Accordingly, the proposed changes to Rule 7.35C will likely have limited application and would be available as a business continuity 21 As described in an Exchange blog post, this metric is calculated using second-to-second quote returns, which is calculated by averaging the midpoints of all NBBO updates for a security within each second of the day from 9:35 a.m. to 4:00 p.m., and then calculating the percentage rate of return of these average quote midpoints from one second to the next. The variance of returns are then calculated in aggregated time periods e.g., 5-minute buckets and annualized from seconds to 6.5 hour trading days to 252 trading days in the years.
Finally, the Exchange takes the square root of the annualized variance in the aggregated periods, which creates the Exchanges quote volatility metric. See NYSE Data Insights, Introducing Quote Volatility QVa new metric to measure price volatility, available here: https www.nyse.com/
data-insights/introducing-quote-volatility-qv-a-newmetric-to-measure-price-volatility.

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functionality should DMMs be unable to facilitate an Auction in one or more securities, for any reason.
There are no technology changes associated with this proposed rule change and the Exchange would be able to implement it immediately upon approval of this proposed rule change.
2. Statutory Basis The proposed rule change is consistent with Section 6b of the Act,22 in general, and furthers the objectives of Section 6b5 of the Act,23
in particular, in that it is designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, to foster cooperation and coordination with persons engaged in facilitating transactions in securities, and to remove impediments to and perfect the mechanism of a free and open market and a national market system.
The Exchange believes that the rules that it added on a temporary basis to Rule 7.35C have supported the fair and orderly operation of the Exchange during both the market volatility associated with COVID19 and the temporary period that the Trading Floor facilities have been closed either in full or in part due to COVID19. The Exchange further believes the functionality that has been operating on a temporary basis would continue to support the fair and orderly operation of the Exchange under any circumstances where there may be either market-wide volatility or the need for the Exchange to facilitate one or more Auctions.
Exchange Authority To Facilitate a Trading Halt Auction Following a MWCB Halt The Exchange believes that it would remove impediments to and perfect the mechanism of a free and open market and a national market system to provide the Exchange with authority to facilitate a Trading Halt Auction following a MWCB Halt. The Exchange continues to believe that DMM-facilitated Trading Halt Auctions following a MWCB Halt provide the greatest opportunity for fair and orderly reopenings of securities, and would therefore continue to provide DMMs an opportunity to reopen securities before effectuating an Exchange-facilitated Trading Halt Auction. The proposal would provide the Exchange with another tool during volatile markets to reopen securities before 3:50 p.m. so that continuous trading may resume before leading into the close. The Exchange further believes 22 15
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