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Federal Register / Vol. 86, No. 181 / Wednesday, September 22, 2021 / Notices
respect to the availability of this order type. To the contrary, Closing D Orders for DMMs would function similarly to Closing D Orders available to Floor brokers, including that they may not be entered or cancelled in the last ten seconds of trading and the interest would be included in the Closing Auction Imbalance Information.
Accordingly, the Exchange is not providing a bespoke tool for DMMs to supply liquidity for the Closing Auction. In addition, the Exchange proposes to make Closing D Orders available for a wholly independent reason to provide an incentive for more broker-dealers to seek to register as a DMM, which would increase DMM
diversity on the Exchange to increase issuer choice. In addition, the proposed allocation of Closing D Orders entered by the DMM would not provide them with a unique benefit because they would function similarly to Closing D
Orders entered by Floor brokers.
Accordingly, if a Closing D Order is better-priced, it would be guaranteed to participate in the Closing Auction subject to DMM-specific self-trade prevention, just as any other betterpriced interest would be guaranteed an allocation. In addition, that information would be transparent because such Closing D Orders would be included in Closing Auction Imbalance Information.
DMMs would therefore not be receiving a unique benefit in this allocation DMM Auction Liquidity entered in connection with facilitating the Closing Auction would, by its terms, be atpriced interest and would be allocated after at-priced displayed orders, nondisplayed orders, LOC Orders, and Closing IO Orders. Accordingly, unlike at-priced DMM Interest under current Rules, it would not have priority over LOC Orders and Closing IO Orders.
While such DMM Auction Liquidity would have priority over orders with a Yielding Modifier, the Exchange notes that such orders are, by their terms, conditional in nature and designed to yield to other orders. Accordingly, DMMs would have a reduced benefit in connection with Closing Auction allocations for their at-priced DMM
Auction Liquidity.
In the aggregate, the Exchange believes that the above-described changes have altered the balance of benefits and obligations for DMMs and the resulting scope of obligations would no longer be commensurate with DMM
benefits. For example, with respect to the benefits specifically identified by the Commission in the Disapproval Order, DMMs no longer have an informational advantage relating to Floor broker verbal interest at the close
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and their at-priced DMM Auction Liquidity would no longer have priority over LOC or Closing IO Orders.
The Exchange believes that, as a result of these significant alterations to DMM
obligations and benefits, any current need for Prohibited Transactions as a DMM obligation would be obviated. As described by the Commission, Prohibited Transactions provide for a bright-line rule designed to prevent a DMM from aggressively taking liquidity and moving prices on the Exchange immediately before the Closing Auction, and therefore destabilizing the market.51
Prohibited Transactions make sense when a DMM has discretion over the Closing Auction Price and when a DMM
can enter and cancel interest after the end of Core Trading Hours. However, with the proposed changes described in this filing, DMM discretion is explicitly limited; the Closing Auction Price must be within a defined and transparent parameter that cannot be changed after the end of Core Trading Hours and DMMs would be limited in what offsetting interest they can enter after the end of Core Trading Hours. So, while the DMM would still have an obligation to facilitate the Closing Auction and supply liquidity as needed, DMMs would no longer have the same discretion in how they fulfill this obligation. As a result, any trading activity that a DMM would engage in the last ten minutes of trading would be no different than how other market participants trade leading into the close.
The Exchange notes that in the absence of Prohibited Transactions, if a DMM engages in an Aggressing Transaction in the last ten minutes of trading, the DMM would be subject to the re-entry obligations specified in current Rule 104g2 proposed Rule 104d2. Accordingly, DMMs would continue to be subject to a unique obligation in the last ten minutes of trading that would not be applicable to any other member organizations trading on the Exchange. To the extent a DMM
engages in an Aggressing Transaction in the last ten minutes of trading, such reentry obligation would dampen any potential destabilizing impact of such Aggressing Transaction.
Finally, the Exchange believes that the proposed amendments to Rule 98 to delete sub-paragraphs c5 and c5A and renumber subparagraphs c6 and c7 as c5 and c6
would remove impediments to and perfect the mechanism of a free and open market and a national market system because the Exchange added Rule 98c5 for the sole purpose of
requiring DMMs to provide net position information in connection with monitoring their compliance with Prohibited Transactions.52 Accordingly, because the Exchange is proposing to eliminate Prohibited Transactions, the related reporting requirement becomes obsolete.
Proposed Non-Substantive Amendments to Rule 104. The Exchange believes that the proposed nonsubstantive amendments to Rule 104
would remove impediments to and perfect the mechanism of a free and open market and a national market system because the proposed changes are designed to eliminate obsolete rule text, update rule references to reflect Pillar functionality, and make other conforming changes. Specifically, the Exchange proposes to eliminate references to pre-Pillar Rules and trading functionality, including references to Rules 123D, 123C, Rule 1000, the Capital Commitment Schedule, Floor broker agency interest files, odd-lot orders in the close, and self-trade prevention. The Exchange also proposes to update Rule 104b to cross reference Rule 7.31 to determine which orders and modifiers are available to DMMs, rather than separately and duplicatively including this description in Rule 104. The Exchange also proposes to update current Rule 104hii proposed Rule 104eii to delete reference to information that is no longer available to DMM at the post.
The Exchange believes that these proposed amendments will promote transparency and clarity in Exchange rules regarding how DMMs function on the Exchange, including what information is available to them at the post.
The Exchange further believes that the proposed non-substantive amendments to Rules 7.35Bj2 and 7.35Bj2Aiii to eliminate references to Floor broker interest and oral interest entered by Floor brokers at the close would remove impediments to and perfect the mechanism of a free and open market and a national market system because these proposed changes are designed to conform Exchange rules to the changes described in the Floor Broker Interest Approval Order.
B. Self-Regulatory Organizations Statement on Burden on Competition In accordance with Section 6b8 of the Act,53 the Exchange believes that the proposed rule change would not impose any burden on competition that is not necessary or appropriate in furtherance 52 See
51 See
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Disapproval Order at 33536, supra, note 40.

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supra note 46.
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