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Federal Register / Vol. 86, No. 41 / Thursday, March 4, 2021 / Notices would remove impediments to and perfect the mechanism of a free and open market and a national market system. The Exchange also believes that more consistent rules will increase the understanding of the Exchanges operations for Members that are also members on the Exchanges affiliates, thereby contributing to the protection of investors and the public interest.
Specifically, the Exchange believes that the proposed universal changes to replace all instances of Professional interest with non-Priority Customer interest throughout the Exchanges auction allocation rules will add greater consistency within the Exchanges rules.
As discussed above, the Exchange previously made the same modifications within its standard allocation rule in Options 7, Section 10, so the proposed changes will promote more consistent terminology in the rules and make them easier for market participants to navigate and comprehend. The Exchange also believes that using the term non-Priority Customer reduces any potential confusion regarding any reference to Professional Orders or Professional Customer orders. In addition, the Exchange believes that clearly delineating between orders and Reponses of the same capacity in the Facilitation and Solicitation rules will bring clarity and transparency around how allocation takes place in those auction mechanisms. The complex Facilitation and Solicitation rules currently differentiate between orders and Responses,44 so the Exchange is aligning the simple rule to the level of granularity already found in the complex rule while also specifying the capacity of such order or Response within the simple and complex rules.
As noted above, the Exchange is not changing the current allocation methodology, and auction orders and Responses of the same capacity do not get treated differently for allocation purposes today.
The Exchange believes that the proposed changes to the Block rule are consistent with the protection of investors and the public interest as the modifications will more accurately reflect the handling of auctions in Block, specifically as it relates to execution and allocation. The proposed changes will specify that better priced interest entered into Block gets executed in full only if there is sufficient size to execute against such interest, and that Priority Customer interest gets executed first in price time priority. This specificity will be helpful to market participants utilizing Block and provide
greater certainty as to how their Block orders will be executed and allocated.
The Exchange also believes that the proposed changes will continue to ensure a fair and orderly market by maintaining and protecting the priority of Priority Customer orders, while still affording the opportunity for all market participants to seek liquidity and potential price improvement during each Block auction commenced on the Exchange. As noted above, the Exchange is not proposing any changes to the current execution or allocation methodology but believes that the changes will promote consistency with the rulebook of its affiliated exchange BX, which offers identical functionality.45
Similarly, the Exchange believes that specifying the entry checks for simple Facilitation and Solicitation is consistent with the protection of investors and the public interest by providing greater consistency to the level of granularity currently within the complex Facilitation and Solicitation entry checks.46 The Exchange also believes it is appropriate to require that the Facilitation order be entered at an improved price if there is a Priority Customer order on the same side Exchange best bid or offer as the agency order. The Exchange believes this will ensure a fair and orderly market by maintaining priority of orders and quotes and protecting Priority Customer orders, while still affording the opportunity to seek liquidity and for potential price improvement during each Facilitation auction commenced on the Exchange. For the same reasons, the Exchange believes that it is appropriate to require that the Solicitation order be entered at an improved price if there is a Priority Customer order on the Exchange best bid or offer.
The Exchange further believes that it is consistent with the Act to specify the contents of the broadcast message sent to Members upon entry of an order into simple Facilitation and Solicitation as the changes will remove any potential confusion about what type of auction information is disseminated. Currently, the broadcast message in simple Facilitation and Solicitation includes the series, price, and size of the Agency Order, and whether it is to buy or sell.
As this information is helpful to auction participants, the Exchange believes that codifying this information into the simple Facilitation and Solicitation rules may encourage greater participation within these mechanisms, 45 See 46 See
44 See
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thereby increasing the opportunity for options orders to receive executions on the Exchange. The Exchange is not proposing any changes to the current content of the broadcast message but wants to make this clear in its rules, which, with this change, would be consistent with the rules of its affiliated exchanges that offer identical functionality.47 Likewise, the proposed change to add that a facilitation order would be cancelled at the end of the exposure period if an execution would take place at a price that is inferior to the best bid offer on the Exchange is intended to ensure compliance with the general prohibition on trade-throughs in Options 5, Section 2a, and to ensure consistency across the rules of the Exchange and its affiliates that offer identical functionality.48
The proposed changes to replace must not exceed with will only be considered up to in the simple Facilitation and PIM rules are intended to more accurately describe that the System will cap the size of Responses to the size of the agency order for purposes of allocation. The Exchange is not amending current System behavior;
rather, the modifications will more clearly articulate the handling of Responses by the System. In addition, the proposed changes will serve to harmonize the simple and complex auction rules, thereby resulting in greater uniformity and ultimately less burdensome and more efficient regulatory compliance by market participants.49
The Exchange believes that its proposal to specify in the simple Facilitation and PIM rules that an initiating Member may elect to receive a percentage allocation lower than 40%
is consistent with the Act. This feature provides an initiating Member that submits an order into Facilitation or PIM with the flexibility to configure its allocation percentage up to the full 40%
entitlement. The Exchange notes that regardless of the Members instruction, the contra-side order would still be responsible for executing up to the full size of the agency order if there is not enough interest to execute the agency order at a particular price. The Exchange continues to believe that the 40% allocation entitlement is consistent with the statutory standards for competition and free and open markets by promoting price competition within Facilitation and PIM as Members would still have a reasonable opportunity to compete for a significant percentage of 47 See
supra notes 21 and 33.
supra note 23.
49 See supra notes 22 and 34.
48 See
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