Federal Register - July 9, 2021
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Source: Federal Register
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Federal Register / Vol. 86, No. 129 / Friday, July 9, 2021 / Notices
proposed Limit Order Price Protection functionality in proposed Rule 6.62P
Oa3. On the OX system, the concept of Limit Order Price Protection for orders is set forth in Rule 6.60Ob and is called the Limit Order Filter. For quotes, price protection filters are described in Rule 6.61O. The proposed Limit Order Price Protection on Pillar would be applicable to both Limit Orders and quotes and would work similarly to how the current price protection mechanisms function on the OX system in that a Limit Order or quote would be rejected if it is priced a specified percentage away from the contra-side NBB or NBO. However, on Pillar, the Exchange proposes to use new thresholds and reference prices that would be applicable to both orders and quotes.
Proposed Rule 6.62POa3A
would provide that each trading day, a Limit Order or quote to buy sell would be rejected or cancelled if resting if it is priced at a Specified Threshold, described below, above below the Reference Price, rounded down to the nearest price within the MPV for the Series Limit Order Price Protection.
In other words, a Limit Order designated GTC would be re-evaluated for Limit Order Price Protection on each day that it is eligible to trade and would be cancelled if the limit price is through the Specified Threshold. In addition, the rounding feature is based on how Limit Order Price Protection is calculated on the Exchanges cash equity market if it is not within the MPV
for the security, as described in the last sentence of Rule 7.31Ea2B. The proposed rule would further provide that Cross Orders and Limit-on-Open LOO Orders described below would not be subject to Limit Order Price Protection and that Limit Order Price Protection would not be applied to a Limit Order or quote if there is no Reference Price.
Proposed Rule 6.62POa3Ai would provide that a Limit Order or quote that arrives when a series is open would be evaluated for Limit Order Price Protection on arrival.
Proposed Rule 6.62POa3Aii would provide that a Limit Order or quote received during a pre-open state would be evaluated for Limit Order Price Protection after an Auction concludes.23
Proposed Rule 6.62POa3Aiii would provide that a Limit Order or quote that was resting on the 23 See
discussion infra, regarding proposed Rule 6.64POa and proposed definitions for the terms Auction, Auction Price, Auction Collar, pre-open state, and Trading Halt Auction.
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set is consistent with the rules of other options exchanges.25
Trading Collar. Trading Collars on the OX system are currently described in Rule 6.60Oa. Under the current rules, incoming Market Orders and marketable Limit Orders are limited in having an immediate execution if they would trade at a price greater than one Trading Collar. A collared order is displayed at that price and then can be repriced to new collars as the NBBO
updates. On Pillar, the Exchange proposes new Trading Collar functionality.
Unlike current functionality, which permits a collared order to be repriced, as proposed, a Market Order or Limit Order would be assigned a single Trading Collar that would be applicable to that order until it is fully executed or cancelled. The new proposed Trading Collar would function as a ceiling for buy orders or floor for sell orders of the price at which such order could be traded, displayed, or routed. The Exchange further proposes that when an order is working at its assigned Trading Collar, it would cancel if not executed within a specified time period.
Proposed Rule 6.62POa4 would provide that a Market Order or Limit Order to buy sell would not trade or route to an Away Market at a price above below the Trading Collar assigned to that order. As further proposed, Auction-Only Orders, Limit Orders designated IOC or FOK, Cross Orders, ISOs, and Market Maker quotes would not be subject to Trading Collars, which is consistent with current Specified Reference price functionality.26 In addition, Trading threshold Collars would not be applicable during $0.00 to $1.00
$0.30 Auctions.
$1.01 to $10.00
50%
Proposed Rule 6.62POa4A
$10.01 to $20.00
40% would provide that a Trading Collar $20.01 to $50.00
30% assigned to an order would be $50.01 to $100.00
20% calculated once per trading day and $100.01 and higher
10%
would not be updated. Accordingly, an order designated GTC would receive a The Exchange believes that the new Trading Collar each day, but that proposed thresholds are more granular Trading Collar would not be updated than those currently specified in Rules intraday. The rule would further 6.60Ob for orders and 6.61
provide that a Market Order or Limit Oa1A and B for quotes and Order that is received during therefore determining whether to reject continuous trading would be assigned a a Limit Order or quote will be more Trading Collar before being processed tailored to the applicable Reference for either trading, repricing, or routing Price. In addition, consistent with Rules 6.60Ob and 6.61Oa1, the 25 See, e.g., CBOE Exchange, Inc. Cboe Rule Exchange proposes that these thresholds 5.34a4 describing the Drill-Through could change, subject to announcing the Protection and that Cboe determines the buffer amount on a class and premium basis; and the changes by Trader Update. Providing Nasdaq Stock Market LLC Nasdaq Options 3, flexibility in Exchange rules regarding Section 15a1B specifying that Order Price how the Specified Thresholds would be Protection can be a configurable dollar amount Consolidated Book before a trading halt would be evaluated for Limit Order Price Protection again after the Trading Halt Auction concludes.
Proposed Rule 6.62POa3B
would specify that the Reference Price for calculating Limit Order Price Protection for an order or quote to buy sell would be the NBO NBB, provided that, immediately following an Auction, the Reference Price would be the Auction Price, or if none, the upper lower Auction Collar price, or, if none, the NBO NBB. The Exchange believes that adjusting the Reference Price for Limit Order Price Protection immediately following an Auction would ensure that the most up-to-date price would be used to assess whether to cancel a Limit Order that was received during a pre-open state or would be reevaluated after a Trading Halt Auction. The Exchange further proposes that for purposes of calculating Limit Order Price Protection, the Exchange would not use an adjusted NBBO, which is based on how Limit Order Price Protection currently functions on the Exchanges cash equity market, as described in Rule 7.31
Ea2B.24
Proposed Rule 6.62POa3C
would specify the Specified Threshold and would provide that unless determined otherwise by the Exchange and announced to OTP Holders and OTP Firms by Trader Update, the Specified Threshold applicable to Limit Order Price Protection would be:
to the NBBO, NBB, and NBO in Rule 7.31E refer to using a determination of the national best bid and offer that has not been adjusted.
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24 References
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specified by Nasdaq and announced via an Options Trader Alert.
26 See Rule 6.60Oa3 Trade Collar Protection does not apply to quotes, IOC Orders, AON Orders, FOK Orders, and NOW Orders..
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