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Federal Register / Vol. 86, No. 129 / Friday, July 9, 2021 / Notices
jbell on DSKJLSW7X2PROD with NOTICES2

currently available per Rule 6.40O and are substantially identical to the Kill Switch Action available on the Exchanges cash equity platform pursuant to Rule 7.19Ee, with a difference to address the handling of orders designated GTC, which are not available on the cash equity platform.
The Exchange believes that offering this functionality for options trading under Pillar would give Entering Firms more flexibility in setting risk controls for options trading and add consistency with the Exchanges risk control functionality available for cash equity trading.
Proposed Commentary .01 to Rule 6.40PO would provide that the PreTrade, Activity-Based, and Global Risk Controls described in the proposed Rule 6.40PO are meant to supplement, and not replace, the OTP Holders or OTP
Firms own internal systems, monitoring, and procedures related to risk management and are not designed for compliance with Rule 15c35 under the Exchange Act.45 Responsibility for compliance with all Exchange and SEC
rules remains with the OTP Holder or OTP Firm. This proposed language is not included in existing Rule 6.40O, and is based on Commentary .01 to Rule 7.19E. The proposed rule makes clear that use of the proposed controls alone does not constitute compliance with Exchange rules or the Exchange Act.
In connection with proposed Rule 6.40PO, the Exchange proposes to add the following preamble to Rule 6.40O:
This Rule will not be applicable to trading on Pillar. This proposed preamble is designed to promote clarity and transparency in Exchange rules that Rule 6.40O would not be applicable to trading on Pillar.
Proposed Rule 6.41PO: Price Reasonability ChecksOrders and Quotes The Exchange proposes to describe its Price Reasonability Checks for orders and quotes in proposed Rule 6.41PO.46
For the OX system, the concept of Price Reasonability Checks for Limit Orders are described in Rule 6.60Oc and the concept of price protection filters for quotes are described in Rule 6.61O. The proposed Price Reasonability Checks on Pillar would be applicable to both orders and quotes and would work similarly to how the current price checks for Limit Orders function on the OX system, with updates to functionality consistent with 45 17

CFR 240.15c35.
Rule 6.41O is held as Reserved. The Exchange proposes to renumber the proposed rule with the P modifier and remove reference to Reserved.
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Pillar. The Exchange proposes to locate the rule text for the proposed Price Reasonability Checks in Rule 6.41PO
to immediately follow Rule 6.40PO
regarding the Pre-Trade and ActivityBased Controls, as this placement would group the risk controls together and make Exchange rules easier to navigate.
Proposed Rule 6.41POa13
would set forth the circumstances under which the proposed Price Reasonability Checks would apply. Proposed Rule 6.41POa would provide that the Exchange would apply the Price Reasonability Checks, as defined in proposed paragraphs b and c, to all Limit Orders and quotes during continuous trading on each trading day, subject to the following:
Proposed Rule 6.41POa1 would provide that a Limit Order or quote received during a pre-open state would be subject to the proposed Price Reasonability Checks after an Auction concludes; that a Limit Order or quote that was resting on the Consolidated Book before a trading halt would be subject to the proposed Price Reasonability Checks again after the Trading Halt Auction; and that a put option message to buy would be subject to the Arbitrage Check regardless of when it arrives. This proposed rule is based in part on current Rule 6.60Oa, which provides that the Price Reasonability Checks for orders are applied when a series opens or reopens for trading. Proposed Rule 6.41POa1
adds additional detail and granularity regarding when the proposed Price Reasonability Checks would be applied under Pillar.
Proposed Rule 6.41POa2 would provide that if the calculation of the Price Reasonability Check is not consistent with the MPV for the series, it would be rounded down to the nearest price within the applicable MPV, which text adds new details regarding Pillar rounding functionality.
Proposed Rule 6.41POa3 would provide that the proposed Price Reasonability Checks would not apply to i any options series for which the underlying security has a non-standard cash or stock deliverable as part of a corporate action; ii any options series for which the underlying security is identified as over-the-counter OTC;
iii any option series on an index; and iv any option series for which the Exchange determines it is necessary to exclude underlying securities in the interests of maintaining a fair and orderly market, which the Exchange would announce by Trader Update.
Proposed Rule 6.41POa3 is based on current Commentary .01 to Rule 6.60O
orders and 6.61O quotes, with a
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non-substantive difference that the proposed rule no longer references Binary Return Derivatives ByRDs because ByRDs are no longer traded on the Exchange.
Proposed Rule 6.41POb would set forth the Arbitrage Checks for buy orders or quotes, which subset of Price Reasonability Checks are based on the principle that an option order is in error and should be rejected or canceled when the same result can be achieved on the market for the underlying equity security at a lesser cost.
Proposed Rule 6.41POb1 relates to puts and would provide that order or quote messages to buy for put options would be rejected if the price of the order or quote is equal to or greater than the strike price of the option, which is substantively identical to current Rule 6.60Oc1A for orders, with a proposed difference that proposed Arbitrage Check would also apply to quotes.
Proposed Rule 6.41POb2 relates to calls and would provide that order or quote messages to buy for call options would be rejected or canceled if resting if the price of the order or quote is equal to or greater than the last sale price of the underlying security on the Primary Market, plus a specified dollar amount to be determined by the Exchange and announced by Trader Update. This proposed rule is substantially similar to current Rule 6.60Oc1B for orders, with two differences. First, the proposed Arbitrage Checks would also apply to quotes. Second, because the Exchange is monitoring last sales from the Primary Market, the Exchange proposes that the Exchange-specified dollar amount for the Checks would be based on the last sale on the Primary Market rather than on the Consolidated Last Sale.
Proposed Rule 6.41POc would set forth the Intrinsic Value Checks for orders or quotes to sell, which are designed to protect sellers of calls and puts from presumptively erroneous executions based on the Intrinsic Value of an option.
Proposed Rule 6.41POc12
would set forth how the Intrinsic Value of an option would be determined.
Proposed Rule 6.41POc1 would provide that the Intrinsic Value for a put option is equal to the strike price minus the last sale price of the underlying security on the Primary Market.
Proposed Rule 6.41POc2 would provide that the Intrinsic Value for a call option is equal to the last sale price of the underlying security on the Primary Market minus the strike price.
Proposed Rule 6.41POc12 is based on how the intrinsic value is
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