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Federal Register / Vol. 86, No. 30 / Wednesday, February 17, 2021 / Notices be marketable against other unexecuted orders.18
The Exchange proposes to make permanent the changes to how Exchange-facilitated Auctions function, as described in Commentary .03 to Rule 7.35C. By making this functionality permanent, such rules would continue to apply both during the continuation of the current Trading Floor closure and if the Exchange were to facilitate Auctions any time after the Trading Floor fully reopens.
To effect this change, the Exchange proposes to amend 7.35Ca1 as follows new text italicized, deleted text bracketed:
If the Exchange facilitates an Auction, DMM Interest will not be eligible to participate inif such Auction results in a trade, and will be eligible to participate if such Auction results in a quoteand previously-entered DMM Interest will be cancelled.

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This proposed rule change would make permanent the temporary functionality set forth in paragraph a1 to Commentary .03.
With this change, DMM Interest would not participate in any Exchangefacilitated Auctions that would result in a trade. This is how DMM Interest currently functions when the Exchange facilitates an Auction pursuant to either Rule 7.35Ca1 or Commentary .03 to Rule 7.35C. Based on experience operating pursuant to Commentary .03
to Rule 7.35C, the Exchange believes that this functionality should continue permanently when the Exchange facilitates an Auction, including, for example, when the Trading Floor is open but the DMM is unable to facilitate an Auction because of a systems or technical issue.
More specifically, when a DMM
facilitates an Auction that results in a trade, the DMM determines whether to participate on the buy or sell side and, based on that direction from the DMM, DMM Orders that do not participate in the Auction and that would lock or cross other orders, which would include other DMM Orders, will be cancelled.19
If the DMM has entered both buy and sell interest in advance of the Auction and the Exchange facilitates the Auction, the DMM would not be able to control whether the DMMs buy or sell interest would participate in a trade and the Exchange would not have that 18 See
DMM Interest Filing, supra note 12.
Rule 7.35Ah3C providing that after a Core Open or Trading Halt Auction, better at-priced DMM Orders that do not receive an allocation and that lock or cross other unexecuted orders and buy and sell better-priced DMM Orders will be cancelled after the Auction Processing Period concludes.
19 See
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instruction from the DMM of which side of the market that the DMM would participate. As a result, there may be crossing DMM Interest that could result in a wash-sale trade that would not have occurred if the DMM had facilitated the Auction. Excluding DMM Interest from participating in an Exchange-facilitated Auction that results in a trade eliminates the potential for a wash-sale trade. In addition, the Exchange believes it promotes fair and orderly Exchangefacilitated Auctions that result in a trade to exclude DMM Interest from participating in such Auctions, because if a DMMs buy or sell interest does not reflect up-to-date prices, it could impact pricing of the Auction.
By contrast, the Exchange believes that the proposed change for DMM
Interest to participate in an Exchangefacilitated Auction that results in a quote would promote fair and orderly markets. This proposed change is consistent with Commentary .03a1 to Rule 7.35C, but differs from current Rule 7.35Ca1. A security opens on a quote if there is no buy interest willing to trade with sell interest at the same price. The Exchange believes that under such circumstances, including DMM
Interest in the Exchanges quote would assist the DMMs in meeting their obligation to maintain a two-sided quote as well as to maintain continuity and depth in their assigned securities.20
Accordingly, the Exchange believes that making this change permanent would promote fair and orderly markets in connection with Exchange-facilitated Auctions that result in a quote.
The final element of the proposed change to Rule 7.35Ca1 is that DMM
Interest would no longer be automatically cancelled after an Exchange-facilitated Auction. The Exchange believes that this proposed change would assist DMMs in meeting their obligation, as required by Rule 104f2, to provide passive liquidity in order to maintain continuity with reasonable depth in their assigned securities immediately following a Core Open Auction or Trading Halt Auction that was facilitated by the Exchange. In advance of an Auction, DMMs can enter DMM Orders, which if not traded in an Auction, would be part of the DMM
Interest on the Exchange Book after the Auction. In addition, DMMs can enter DMM After-Auction Orders, which do not participate in Auctions and are specifically designed to assist the DMMs to maintain passive liquidity on the Exchange immediately following an Auction, which supports their ability to maintain continuity with reasonable 20 See
PO 00000

Rule 104f2.

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depth immediately following an Auction. If DMM Interest is not automatically cancelled following an Exchange-facilitated Auction, the DMM
would be better able to timely meet these obligations by ensuring that passive liquidity remains on the Exchange Book immediately following an Auction.
The Exchange believes that there remain circumstances when DMM
Interest should be cancelled following an Exchange-facilitated Auction. As proposed, the Exchange would cancel unexecuted DMM Interest under the same circumstances that unexecuted orders of other member organizations would be cancelled following such Auctions.
To effect this change, the Exchange proposes to amend Rule 7.35Cg1, which currently describes which unexecuted orders would be cancelled if a security opens or reopens on a trade via an Exchange-facilitated Auction, and Rule 7.35Cg2, which currently describes which unexecuted orders would be cancelled if a security opens or reopens on a quote that is above below the upper lower Auction Collar via an Exchange-facilitated Auction. The Exchange proposes that these two subparagraphs would be replaced with the following text to incorporate that under the same circumstances, DMM Interest would similarly be cancelled proposed new text italicized:
1 If a security opens or reopens on a trade, Market Orders including sell short Market Orders during a Short Sale Period and Limit Orders, including DMM Interest, with a limit price that is better-priced than the Auction Price and were not executed in the applicable Auction will be cancelled.
2 If a security opens or reopens on a quote that is above below the upper lower Auction Collar, Market Orders including sell short Market Orders during a Short Sale Period and Limit Orders, including DMM
Interest, with a limit price that is betterpriced than the upper lower Auction Collar will be cancelled before such quote is published.

These proposed rule changes would make permanent the temporary functionality set forth in paragraphs b1 and 2 to Commentary .03.
The Exchange further believes that if previously-entered DMM Interest would be marketable against either other DMM
Interest or contra-side unexecuted orders, such DMM Interest should be cancelled. For example, if for a security, the Auction Reference Price is $10.00, the lower Auction Collar is $9.00 and the upper Auction Collar is $11.00, and the orders on the Exchange Book in advance of the Auction are as follows:

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