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Federal Register / Vol. 86, No. 129 / Friday, July 9, 2021 / Notices Auction proposed Rule 6.64P
Od3Bii.
Proposed Rule 6.64POd3C
would provide that if there are two or more Market Makers assigned to a series:
The Exchange would conduct the Auction, without waiting for the Opening MMQ Time Parameter to end, as soon as there is both a Legal Width Quote and at least two assigned Market Makers have submitted a quote with a non-zero offer proposed Rule 6.64P
Od3Ci.
If at least two Market Makers have not submitted a quote with a non-zero offer by the end of the Opening MMQ
Time Parameter, the Exchange would begin a second Opening MMQ Time Parameter and that during the second Opening MMQ Time Parameter, the Exchange would conduct the Auction, without waiting for the second Opening MMQ Time Parameter to end, if there is both a Legal Width Quote and at least one Market Maker has submitted a quote with a non-zero offer proposed Rule 6.64POd3Cii.
If no Market Maker has submitted a quote with a non-zero offer by the end of the second Opening MMQ Time Parameter and there is a Legal Width Quote, the Exchange would conduct the Auction proposed Rule 6.64P
Od3Ciii.
Proposed Rule 6.64POd4 would provide that for the first five minutes of the Auction Process, if there is no Legal Width Quote, the Exchange would not conduct an Auction, even if there is Matched Volume. This proposed rule text provides transparency that when there is Matched Volume, the Exchange would not open a series if there is no Legal Width Quote.
The Exchange proposes new functionality for Pillar to allow the Exchange to open a series when there is a Calculated NBBO wider than the Legal Width Quote, provided that there is also no Matched Volume. As proposed, five minutes after the Auction Process begins:
Proposed Rule 6.64POd4A
would provide that if there is no Matched Volume and the Calculated NBBO is wider than the Legal Width Quote, is not crossed, and does not contain a zero offer, the Exchange would transition to continuous trading as described in paragraph f of this Rule. As further proposed, in such case, the Auction would result in a quote, provided that there may be an Auction trade even if there is no Legal Width Quote if orders or quotes arrive during the period when the Exchange is evaluating the status of orders and
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quotes.53 The Exchange believes this proposed rule would provide an opportunity for more series to open for trading when there is a Calculated NBBO in a series that is wider than the Legal Width Quote and is not crossed and does not contain a zero offer.
Proposed Rule 6.64POd4Ai would provide that any time a series is opened or reopened when there is no Legal Width Quote, Market Orders and MOO Orders would not participate in the Auction and would be cancelled before the Exchange transitions to continuous trading.
Proposed Rule 6.64POd4B
would provide that if the Exchange still cannot conduct an Auction, the Exchange would continue to evaluate both the Calculated NBBO and interest on the Consolidated Book until the earlier of: i A Legal Width Quote is established and an Auction can be conducted; ii the series can be opened as provided for in proposed Rule 6.64P
Od4A; iii the series is halted; or iv the end of Core Trading Hours. The proposed rule provides transparency that the Exchange would continue to look for an opportunity to open a series based on changes to the Calculated NBBO or orders and quotes on the Consolidated Book.
Proposed Rule 6.64POd5 would provide that the Exchange may deviate from the standard manner of the Auction Process, including adjusting the timing of the Auction Process in any option series or opening or reopening a series when there is no Legal Width Quote, when it believes it is necessary in the interests of a fair and orderly market. This proposed rule is based on Rule 6.64ObF and is designed to provide the Exchange with flexibility to open a series even if there is no Legal Width Quote. For example, a Floor Broker may have a two-sided open outcry order. If the series is not opened, that trade could not be consummated.
Accordingly, this proposed rule would allow the Exchange to open a series for trading to facilitate open outcry trading.
Order Processing during an Auction Processing Period. As described above, the Auction Processing Period is the abbreviated time period i.e., generally measured in less than a second when the Exchange conducts the Auction. For example, if there is a Legal Width 53 The Exchange expects this to be a rare race condition that would result when the Exchange receives orders and quotes at virtually the same time it is evaluating whether it can open a series based on a wide Calculated NBBO and that as a result of that race condition, those new orders or quotes are marketable against contra-side interest at the same time that the Exchange concludes, based on interest that had previously been received, that it can open on a quote.

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Quote, Market Maker quotes, and Matched Volume, the Auction Processing Period is when that Matched Volume will trade at the Indicative Match Price. New orders and quotes received during the Auction Processing Period would not be eligible to participate in an Auction. Because the Exchange will be using the same Pillar auction functionality for options trading that is used for its cash equity market, the Exchange proposes that proposed Rule 6.64POe would be based on Rule 7.35Eg and sub-paragraphs 1
and 2 with differences only to references quotes in addition to orders.
Accordingly, as proposed, during an Auction Processing Period, new order and quote messages received during the Auction Processing Period would be accepted but would not be processed until after the Auction Processing Period. As with Rule 7.35Eg, for purposes of proposed Rule 6.64POe and f, an order instruction would refer to a request to cancel, cancel and replace, or modify an order or quote.
As proposed, during the Auction Processing Period, order instructions would be processed as follows:
An order instruction that arrives during the Auction Processing Period would not be processed until after the Auction Processing Period if it relates to an order or quote that was received before the Auction Processing Period.
Any subsequent order instructions relating to such order would be rejected proposed Rule 6.64POe1.
An order instruction that arrives during the Auction Processing Period would be processed on arrival if it relates to an order that was received during the Auction Processing Period proposed Rule 6.64POe2.
Transition to Continuous Trading.
After the Auction Processing Period concludes, i.e., once the Auction is done, the Exchange transitions to continuous trading. During this transition, the way orders, quotes, and order instructions are processed differs depending on when such messages arrived at the Exchange. Proposed Rule 6.64POf would describe how the Exchange would transition to continuous trading after the Auction Processing Period concludes, and is based on how the Exchange transitions to continuous trading on its cash equity market following a Trading Halt Auction, as described in Rule 7.35Eh.
The transition to continuous trading would proceed as follows.
Proposed Rule 6.64POf1 would provide that orders that are no longer eligible to trade would be cancelled.
This proposed rule text is based in part on Pillar terminology used in Rule 7.35

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