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Federal Register / Vol. 86, No. 17 / Thursday, January 28, 2021 / Notices
series subject to a forced opening, the opening trade price determination and series open set forth in Rule 21.7e2
and 3 i.e., the opening auction do not occur; instead, the System opens the series without a trade. This will permit a series to open for trading on the Exchange if the series is open for trading on at least one other options exchange, even though the market for the series on the Exchange may be wide.
The proposed change to Rule 21.7f provides that in the event of a forced opening of a series pursuant to proposed Rule 21.7e4 or a compelled opening of a series pursuant to paragraph h, the System enters all of a Users orders in that series in the Queuing Book into the Book in the manner set forth in current Rule 21.7f, unless a User instructs the System to cancel its market orders or all of its orders, in which case the System enters only the non-cancelled orders into the Book in this manner.
Specifically, they will be processed in accordance with Rule 21.8 as unexecuted orders and quotes are handled following the conclusion of the opening rotation, which describes how the System processes, handles, and executes orders. If any order or quote in the Queuing Book is marketable upon the forced opening and the User does not instruct the System to cancel it as proposed, the System would execute marketable orders subject to the priority rules set forth in Rule 21.8. If an order is marketable against away interest and is eligible for routing, the System may route the order for execution to an away exchange. Any non-marketable order would enter the Book or cancel, subject to the User instructions. This proposed change provides Users with flexibility for automated handling of their orders in the event a series opens with a wide market or is otherwise manually opened when the opening conditions may not otherwise be standard.
If a series satisfies the Maximum Composite Width Check prior to the Systems observation of an ABBO for the series, the series opens pursuant to Rule 21.7d2 and 3 i.e., the standard opening auction process occurs for the series. For example, suppose the Exchange determined the forced opening timer to be three minutes. If the opening trigger for a series occurs at 9:30:05 Eastern time but the series does not satisfy the Maximum Composite Width Check after the trigger, the System will force the series open after 9:33:05 Eastern time if it has received an ABBO by that time. However, if the series satisfies the Maximum Composite Width Check at 9:32:30, the series will open in accordance with the normal opening auction process.

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2. Statutory Basis The Exchange believes the proposed rule change is consistent with the Securities Exchange Act of 1934 the Act and the rules and regulations thereunder applicable to the Exchange and, in particular, the requirements of Section 6b of the Act.13 Specifically, the Exchange believes the proposed rule change is consistent with the Section 6b5 14 requirements that the rules of an exchange be designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, to foster cooperation and coordination with persons engaged in regulating, clearing, settling, processing information with respect to, and facilitating transactions in securities, to remove impediments to and perfect the mechanism of a free and open market and a national market system, and, in general, to protect investors and the public interest.
Additionally, the Exchange believes the proposed rule change is consistent with the Section 6b5 15 requirement that the rules of an exchange not be designed to permit unfair discrimination between customers, issuers, brokers, or dealers.
In particular, the Exchange believes the proposed forced opening process for simple orders will remove impediments to and perfect the mechanism of a free and open market and a national market system and protect investors. The proposed rule change will provide for series to open for trading on the Exchange sooner than they may open currently, as long as they are open for trading on other options exchanges. The Exchange believes the proposed rule change will benefit investors, because it may permit these options to open sooner and increase the times during which investors may conduct trading in these options. Additionally, this may increase liquidity in the market for a series that is otherwise open on another options exchange. While the market on the Exchange for a series may be wider than the Maximum Composite Width,16
the Exchange believes it is reasonable to open the series if it opened for trading on another options exchange pursuant to that exchanges Commissionapproved rules. Options exchanges have varying opening processes and have made separate determinations on what constitutes separate, reasonable opening 15 U.S.C. 78fb.
15 U.S.C. 78fb5.
15 Id.
16 The Exchange notes pursuant to Rule 21.7e1B, there are currently instances in which the Exchange will open for trading despite the Composite Market Width being larger than the Maximum Composite Width.
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market widths. The Exchange believes if other options exchanges opened a series with a market width, it is reasonable to open the series for trading on the Exchange as well as orders submitted to other exchanges may be trading at those widths. Since orders may not trade outside of the disseminated NBBO
which defines the then-current market for the series, any orders resting in the Queuing Book that may execute following the forced opening will receive protection against executions at potentially erroneous prices.
Additionally, the proposed ability of Users to cancel orders in the event of a forced opening will provide Users with additional protection. Additionally, the Exchange believes opening series for trading on the Exchange that are open for trading on other options exchanges will put Exchange Users on equal footing with other market participants, as it will provide Users orders that are otherwise resting in the Queuing Book and awaiting execution with the ability to get into the market for potential execution.
The Exchange currently has the authority to deviate from the standard opening process, including to temporarily increase the Maximum Composite Width amounts i.e., widen the permissible opening market and to compel a series open, even if the Maximum Composite Width check is not satisfied, but that may only happen manually if the Exchange determines it is necessary in the interests of a fair and orderly market.17 Currently, if a series is open on another exchange but not on the Exchange, the Exchange generally manually increases the Maximum Composite Width for the series until the series opens. Manually increasing the Maximum Composite Width for a series until the series open is a different manual process than compelling the series to open, but ultimately achieves the same result of causing a series that does not satisfy the Maximum Composite Width check to otherwise open. The Exchange believes it is in the interests of a fair and orderly market to deviate from the opening process to systematically force a series to open, despite a wide Exchange market, if the series is open for trading on another exchange to provide investors with orders in that series resting on the Exchanges Queuing Book to have the same execution opportunities as other investors who submitted orders to other options exchanges with different opening conditions. The proposed rule 17 See Rule 21.7h; see also definition of Maximum Composite Width and Opening Collar in Rule 21.7a.

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