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Federal Register / Vol. 86, No. 129 / Friday, July 9, 2021 / Notices
specified class of option that is executed during an Interval each, a percentage, and sum up those percentages. As further proposed this definition would state that this risk limit would be breached if the sum of the percentages exceeds the preestablished limit. This risk control is based on the substantially identical risk control set forth in current Rule 6.40
Od, except as noted above.
The term Global Risk Control would refer to a pre-established limit on the number of times an Entering Firm may breach its Activity-Based Risk Controls per Interval proposed Rule 6.40POa4. This proposed definition is based on the substantially identical functionality set forth in current Rule 6.40Of.
The term Interval would refer to the configurable time period during which the Exchange would determine if an Activity-Based Risk Control or the Global Risk Control has been breached proposed Rule 6.40POa5. This proposed definition is consistent with current Rule 6.40O, which contains references throughout to a time period during which the Exchange will determine whether a breach has occurred. The Exchange believes this proposed definition would add clarity and transparency to Exchange rules.
Proposed Rule 6.40POb would set forth how the Pre-Trade, Activity-Based and Global Risk Controls could be set or adjusted. Proposed Rule 6.40POb1
would provide that these risk controls may be set before the beginning of a trading day and may be adjusted during the trading day. Proposed Rule 6.40P
Ob2 would provide that Entering Firms may set these risk controls at the MPID level or at one or more sub-IDs associated with that MPID, or both.
Proposed Rule 6.40POb is based on Rule 7.19Eb3AB but differs in that the proposed rule includes Activity-Based and Global Risk Controls in addition to Pre-Trade Risk Controls.
Proposed Rule 6.40POc would set forth the Automated Breach Actions that the Exchange would take if a designated risk limit is breached. Proposed Rule 6.40POc1Aiii would set forth the automated breach actions for the Pre-Trade Risk Controls.
Proposed Rule 6.40POc1Ai would provide that a Limit Order or quote that breaches the designated limit of either a Single Order Maximum Notional Value Risk Limit or Single Order Maximum Quantity Risk Limit would be rejected.
Proposed Rule 6.40POc1Aii would provide that a Market Order that breaches the designated limit of a Single Order Maximum Quantity Risk Limit
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would be rejected. The proposed rule would also provide that a Market Order that breaches the designated limit of a Single Order Notional Value Risk Limit would be rejected if the order arrived during continuous trading or canceled if the order was received during a preopen state and the quantity remaining to trade after an Auction concludes breaches the designated limit.
Proposed Rule 6.40POc1Aiii is based on Rule 7.19Ec2 but differs in that it specifies the treatment of Limit Orders and Market Orders the latter having different treatment based on when such orders arrive at the Exchange and expands application of the check to include quotes.
Proposed Rule 6.40POc2 would set forth the automated breach actions for the Activity-Based Risk Controls.
Proposed Rule 6.40POc2A
would first specify that an Entering Firm acting as a Market Maker would be required to apply one of the ActivityBased Risk Controls to all of its orders and quotes; whereas an Entering Firm that is not acting as a Market Maker would have the option, but would not be required, to apply one of the Activity-Based Risk Controls to its orders. The requirement that Market Makers utilize Activity-Based Risk Controls for all quotes mirrors the requirements set forth in Rule 6.40O, Commentary .04a; however, the proposed rule differs in that it likewise requires Market Makers to apply one of the Activity-Based Risk Controls to all of its orders. The proposed optionality of the Activity-Based Risk controls for orders sent by Entering Firms not acting as Marker Maker mirrors current Rule 6.40O, Commentary .04b.
Proposed Rule 6.40POc2B
would provide that to determine when an Activity-Based Risk Control has been breached, the Exchange would maintain Trade Counters that would be incremented every time an order or quote trades, including any leg of a Complex Order, and would aggregate the number of contracts traded during each such execution. As further proposed, an Entering Firm may opt to exclude any orders designated IOC or FOK from being considered by a Trade Counter. This is consistent with existing functionality set forth in Rule 6.40Oa and Commentary .07, except, as noted above, there would not be separate Trade Counters for a Market Makers quotes and orders. Instead, a Market Makers quotes and orders in a given option class would be aggregated i.e., counted together.
Proposed Rule 6.40POc2C
would provide that each Entering Firm must select one of three Automated
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Breach Actions for the Exchange to take should the Entering Firm breach an Activity-Based Risk Control.
Notification Only. As set forth in proposed Rule 6.40POc2Ci, if this option is selected, the Exchange would continue to accept new order and quote messages and related instructions and would not cancel any unexecuted orders or quotes in the Consolidated Book. With the Notification Only action, the Exchange would provide such notifications, but would not take any other automated actions with respect to new or unexecuted orders.
This proposed functionality is not currently available in the event of a breach of current Rule 6.40O, but is substantially identical to the Notification Only option set forth in Rule 7.19Ec3Ai for breach of the Gross Credit Risk Limit on the Exchanges cash equity platform. The Exchange believes this proposed option would provide Entering Firms more control over how Activity-Based Risk Controls are implemented and would add consistency to the risk controls already offered under Pillar on the Exchanges cash equity platform.
Block Only. As set forth in proposed Rule 6.40POc2Cii, if this option is selected, the Exchange would reject new order and quote messages and related instructions, provided that the Exchange would continue to process instructions from the Entering Firm to cancel one or more orders or quotes including AuctionOnly Orders in full. The proposed rule would also provide that the Exchange would follow any instructions specified in paragraph e of the proposed Rule and described below. This proposed functionality is not currently available under current Rule 6.40O, but is substantially identical to the Block Only option set forth in Rule 7.19
Ec3Aii for breach of the Gross Credit Risk Limit on the Exchanges cash equity platform. The Exchange believes this proposed option would provide Entering Firms more control over how Activity-Based Risk Controls are implemented and would add consistency to the risk controls already offered under Pillar on the Exchanges cash equity platform.
Cancel and Block. As set forth in proposed Rule 6.40POc2Ciii, if this option is selected, in addition to the Block actions described above, the Exchange would also cancel all unexecuted orders and quotes in the Consolidated Book other than AuctionOnly Orders and orders designated GTC.
This proposed Cancel and Block functionality is substantially similar to the automated breach action taken by
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