Self-Regulatory Organizations; NYSE American LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Modify Rule 971.2NY Regarding Its Complex Customer Best Execution Auction

Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”) and Rule 19b-4 thereunder, notice is hereby given that on January 27, 2021, NYSE American LLC (“NYSE American” or the “Exchange”) filed with the Securities and Exchange Commission (“Commission”) the proposed rule change as described in Items I and II below, which Items have been prepared by the Exchange. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons.

I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change

The Exchange proposes to modify Rule 971.2NY regarding its Complex Customer Best Execution (“CUBE”) auction to provide optional all-or-none functionality for larger-sized orders and to make conforming changes to Rule 971.1NY to clarify existing functionality of the Single-Leg AON CUBE functionality. The proposed rule change is available on the Exchange's website at www.nyse.com , at the principal office of the Exchange, and at the Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change

In its filing with the Commission, the self-regulatory organization included statements concerning the purpose of, and basis for, the proposed rule change and discussed any comments it received on the proposed rule change. The text of those statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant parts of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and the Statutory Basis for, the Proposed Rule Change

1. Purpose

The Exchange proposes to expand its electronic crossing mechanism—the CUBE Auction, to provide optional all-or-none (“AON”) functionality for ATP Holders to execute larger-sized orders (i.e., at least 500 contracts on the smallest leg) in the Complex CUBE Auction and to make conforming changes to Rule 971.1NY to clarify existing functionality of the Single-Leg AON CUBE functionality.

The proposed rule change would be consistent with the recently approved AON CUBE Order functionality for the Single-Leg CUBE Auction. In this regard, the Exchange seeks to expand this functionality to the Complex CUBE Auction, which functionality is also consistent with similar price-improvement mechanisms for larger-sized complex orders already available on other options exchanges. As such, this is a filing that will allow the Exchange to compete with other options exchanges for such larger-sized Complex Orders which would in turn benefit market participants already familiar with such price-improvement mechanisms in that it would provide another venue to trade their larger-sized orders.

The Complex CUBE Auction operates seamlessly with the Consolidated Book—while still affording Complex CUBE Orders an opportunity to receive price improvement. In particular, the Exchange utilizes the concept of a CUBE BBO, which requires price improvement over resting interest to initiate a Complex CUBE Auction. Upon entry of a Complex CUBE Order in the System, the CUBE BBO is determined to be the more aggressive of (i) the Complex BBO improved by $0.01, or (ii) the Derived BBO improved by: $0.01 multiplied by the smallest leg of the complex order strategy. A Complex CUBE Auction begins with an “initiating price,” which for a Complex CUBE Order is the less aggressive of the net debit/credit price of such order or the price that locks the contra-side CUBE BBO and the “range of permissible executions” of a Complex CUBE Order is all prices equal to or between the initiating price and the same-side CUBE BBO. As proposed, the initiation of, and the range of permissible executions for, an AON Complex CUBE Order would align with the protections afforded a standard (non-AON) Complex CUBE Order.

The proposal to expand the current Complex CUBE Auction functionality by providing an additional (optional) method for market participants to effect larger-sized orders in the Complex CUBE Auction would likewise operate seamlessly with the Consolidated Book. The Exchange also believes this proposal would encourage ATP Holders to compete vigorously to provide the opportunity for price improvement for larger-sized orders in a competitive auction process, which may lead to enhanced liquidity and tighter markets.

Proposed AON Complex CUBE Functionality

The Exchange proposes to add new Commentary .04 to Rule 971.2NY to provide that a Complex CUBE Order that has at least 500 contracts on the smallest leg would execute in full at the single stop price against the Complex Contra Order, except under specified circumstances (the “AON Complex CUBE Order”). As further proposed, a Complex Contra Order would not be permitted to guarantee an AON Complex CUBE Order for auto-match limit, which feature is otherwise available in a Complex CUBE Auction.

The CUBE BBO for a proposed AON Complex CUBE Order would be determined in the same manner as for a standard Complex CUBE Order. An AON Complex CUBE Order Auction would also be subject to the same early end events as a Complex CUBE Order.

As proposed, an AON Complex CUBE Order would execute in full with the Complex Contra Order at the single stop price even if there is non-Customer interest priced better than the stop price that, either on its own or when aggregated with other better-priced non-Customer RFR Responses, is insufficient to satisfy the full quantity of the AON Complex CUBE Order. In addition, as proposed, an AON Complex CUBE Order would not execute with the Complex Contra Order if the entire AON Complex CUBE Order can be satisfied in full by certain eligible contra-side interest. Specifically, the Exchange proposes that paragraph (b) to Commentary .04 to Rule 971.2NY would provide that:

(b) The Complex Contra Order will not receive any allocation and will be cancelled (i) if RFR Responses that are priced better than the stop price can satisfy the full quantity of the AON Complex CUBE Order or (ii) there is contra-side Customer interest at the stop price or better that on its own, or when aggregated with RFR Responses equal to or priced better than the stop price, can satisfy the full quantity of the AON Complex CUBE Order. In either such case, the RFR Responses will be allocated as provided for in paragraphs (c)(4)(A) and (c)(4)(B)(i) of this Rule, as applicable.

Thus, if there is price-improving contra-side interest that can satisfy the AON condition of the Auction, the AON Complex CUBE Order would execute in full against those price-improving RFR Responses and the Complex Contra Order would cancel. Or, absent such price-improving interest, if there is contra-side Customer interest equal to the stop price or better that on its own, or when combined with equal or better-priced RFR Responses, can satisfy the AON condition of the Auction, the AON Complex CUBE Order would execute in full against such interest and the Complex Contra Order would cancel. Under either scenario, the AON Complex CUBE Order would be allocated against contra-side interest at the best price(s) pursuant to the Exchange's priority rules. This proposal is also consistent with the AON nature of similar mechanisms on other options exchanges.

As further proposed, both the AON CUBE Order and Contra Order would be cancelled, i.e., the Auction would be cancelled, if there is contra-side Customer interest at the stop price and such interest on its own or when combined with RFR Responses (at the stop price or better) is insufficient to satisfy the entire AON Complex CUBE Order. To effect this, the Exchange proposes that paragraph (b) [sic] to Commentary .04 to Rule 971.2NY would provide that:

(c) The AON Complex CUBE Order and Complex Contra Order will both be cancelled if there is contra-side Customer interest at the stop price or better and such interest, either on its own or when aggregated with RFR Responses equal to or priced better than the stop price is insufficient to satisfy the full quantity of the AON Complex CUBE Order.

Thus, as proposed, if there is contra-side Customer interest at the stop price, but there is not enough size (considering the Customer interest and all RFR Responses at the stop price or better) to satisfy the entire AON Complex CUBE Order, then both the AON Complex CUBE Order and the Contra Complex Order would be cancelled. The Exchange believes that this proposal is consistent with the terms of how AONs function generally without violating the Exchange's general priority rules. With respect to allocation, the Exchange notes that the proposed functionality differs from the allocation of a standard Complex CUBE Order in that the Complex Contra Order is not guaranteed a minimum allocation at the stop price. Instead, given the AON nature of the functionality, the Complex Contra Order either trades with the entire AON Complex CUBE Order or not at all. This proposal is also consistent with the AON nature of similar mechanisms on other options exchanges.

With the exception of differences to the minimum size and allocation described in proposed Commentary .04 to Rule 971.2NY, an AON Complex CUBE auction would be subject to all of the provisions of Rule 971.2NY.

Finally, proposed paragraph (d) to Commentary .04 to Rule 971.2NY would provide that prior to entering an agency order (i.e., Complex CUBE Order) on behalf of a Customer into the Complex CUBE Auction as an AON Complex CUBE Order, Initiating Participants would be required to deliver to the Customer a written notification informing the Customer that such order may be executed using the Complex CUBE Auction, which notification would disclose the terms and conditions of Commentary .04 to Rule 971.2NY and be in a form approved by the Exchange. This notification requirement is consistent with the rules of other options exchanges that offer an AON paired order auction mechanism for complex orders.

Implementation

The Exchange will announce the implementation date of the proposed rule change in a Trader Update to be published no later than 60 days following the approval of this proposed rule change. The Exchange has already notified ATP Holders about the planned implementation of AON Complex CUBE functionality, which has provided them advance time to prepare their systems for participation in the AON Complex CUBE Auction once it becomes available.

2. Statutory Basis

For the reasons set forth above, the Exchange believes the proposed rule change is consistent with Section 6(b) of the Act in general, and furthers the objectives of Section 6(b)(5) of the Act, in that it is designed to promote just and equitable principles of trade, remove impediments to and perfect the mechanisms of a free and open market and a national market system and, in general, to protect investors and the public interest.

The proposed optional all-or-none functionality for larger-sized orders, which is consistent with Exchange's recently approved Single-Leg AON CUBE Order functionality, is intended to benefit investors, because it is designed to provide investors seeking to execute larger-sized option orders in the Complex CUBE Auction with greater certainty regarding the price at which the order would be executed. In this regard, the Exchange seeks to expand this functionality to the Complex CUBE Auction, which functionality is also consistent with similar price-improvement mechanisms for larger-sized complex orders already available on other options exchanges. As such, this is a filing that will allow the Exchange to compete with other options exchanges for such larger-sized Complex Orders and would benefit market participants who are already familiar with such price-improvement mechanisms.

This proposal would remove impediments to and perfect the mechanism of a free and open market and a national market system because it would provide ATP Holders that locate liquidity for their customers' larger-sized orders a facility in which to execute those orders at the agreed-upon price, while also providing an opportunity for such orders to be price improved. In addition, ATP Holders that opt to utilize this proposed functionality would have an equal opportunity to initiate their own or to respond with their best prices to other AON CUBE Auctions. The Exchange believes the proposed functionality would promote and foster competition and provide more options contracts with the opportunity for price improvement.

The Exchange believes that the proposed functionality would provide more efficient transactions, reduce execution risk to ATP Holders, and afford greater execution opportunities for larger-sized orders. The proposed functionality would operate within the Complex CUBE (including by integrating Complex CUBE into the Complex Matching Engine, per Rule 971.2NY(a)) such that the Exchange is able to assure that the proposed functionality would continue to respect the priority of interest, in particular Customer interest. The proposal ensures that the AON Complex CUBE Order is exposed to ATP Holders for the possibility of price improvement and that Customer orders on the Exchange are protected. As noted above, at the conclusion of an AON Complex CUBE Auction, the AON Complex CUBE Order would be executed in full (against the Complex Contra Order or eligible contra-side auction interest) or would be cancelled, together with the Complex Contra Order.

Further, the proposed functionality is reasonable and promotes a fair and orderly market and national market system, because it is substantially similar to the price- improvement mechanisms for larger-sized orders available on other options exchanges. The Exchange believes this proposal may lead to an increase in Exchange volume and should allow the Exchange to better compete against other markets that already offer an all-or-none electronic solicitation mechanism for larger-sized orders. The Exchange believes that its proposal would allow the Exchange to better compete for solicited transactions, while providing an opportunity for price improvement on the larger-sized orders. In addition, the proposed functionality should promote and foster competition and provide more options contracts with the opportunity for price improvement, which should benefit market participants.

The proposed clarifications to the Single-Leg CUBE Auction Rule would protect investors and the public interest because the proposed changes add clarity, transparency and internal consistency to Exchange rules.

Finally, consistent with other options exchanges offering similar price- improvement auctions, the proposed rule change would require ATP Holders to provide customers with the terms and conditions of agency orders that might be submitted as AON Complex CUBE Orders on their behalf.

B. Self-Regulatory Organization's Statement on Burden on Competition

The Exchange does not believe that the proposed rule change will impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. The Exchange does not believe the proposed rule change would impose any burden on intramarket competition, as the proposed rule change will apply in the same manner to all orders submitted as AON Complex Orders to the Complex CUBE Auction. The Exchange recently received rule approval for AON CUBE Order functionality in the Single-Leg CUBE Auction, which operates in a substantially similar manner to the complex functionality, accounting for differing priority and allocation rules.

The Exchange is proposing the functionality for Complex Orders as an optional market enhancement that, if utilized, should increase competition for ATP Holders seeking to execute such larger-sized orders in an electronic auction mechanism. ATP Holders that opt to utilize this proposed functionality would have an equal opportunity to initiate their own or to respond with their best prices to other AON CUBE Auctions. The Exchange notes that other options exchanges offer electronic auction mechanisms for larger-sized orders on an AON basis. The Exchange believes the proposed functionality would provide ATP Holders with a greater choice of exchanges from which to execute such orders. The proposal is structured to offer the same enhancement to all market participants and would not impose an intra-market competitive burden on any participant. The price-improvement functionality for the AON Complex CUBE Auction is designed to promote competition for ATP Holders to compete amongst each other by responding with not only their best price, but also the full size for a particular auction.

The Exchange notes that it operates in a highly competitive market in which market participants can readily direct order flow to competing venues who offer similar functionality. The Exchange believes that the proposed rule change will relieve any burden on, or otherwise promote, competition. The Exchange believes this proposed rule change is necessary to permit fair competition among the options exchanges and to establish more uniform price-improvement auction rules on the various options exchanges. The proposed functionality may lead to an increase in Exchange volume and should allow the Exchange to better compete against other markets that already offer similar price-improvement mechanisms for larger-sized orders. The Exchange anticipates that this proposal will create new opportunities for the Exchange to attract new business and compete on equal footing with those options exchanges that offer auction AON functionality for larger-sized Complex Orders and for this reason the proposal does not create an undue burden on intermarket competition. By contrast, not having the proposed functionality places the Exchange at a competitive disadvantage vis-à-vis other exchanges that offer similar price-improvement mechanisms for larger-sized Complex Orders.

C. Self-Regulatory Organization's Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others

No written comments were solicited or received with respect to the proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action

The Exchange has filed the proposed rule change pursuant to Section 19(b)(3)(A)(iii) of the Act and Rule 19b-4(f)(6) thereunder. Because the proposed rule change does not: (i) Significantly affect the protection of investors or the public interest; (ii) impose any significant burden on competition; and (iii) become operative prior to 30 days from the date on which it was filed, or such shorter time as the Commission may designate, if consistent with the protection of investors and the public interest, the proposed rule change has become effective pursuant to Section 19(b)(3)(A) of the Act and Rule 19b-4(f)(6)(iii) thereunder.

A proposed rule change filed under Rule 19b-4(f)(6) normally does not become operative prior to 30 days after the date of the filing. However, pursuant to Rule 19b4(f)(6)(iii), the Commission may designate a shorter time if such action is consistent with the protection of investors and the public interest. The Exchange has asked the Commission to waive the 30-day operative delay so that the proposal may become operative immediately upon filing. The Exchange states that waiver of the operative delay would allow the Exchange to deploy the new functionality immediately, which would help to ease the potential disruption to floor trading in the event that the Exchange is required to temporarily close its trading floor for reasons related to COVID-19. The Commission believes that waiver of the operative delay is consistent with the protection of investors and the public interest because it will allow the Exchange to implement the proposed functionality without delay in the event that the Exchange must temporarily close its trading floor. As discussed above, the proposed AON complex CUBE auction is substantially similar to the paired solicited complex order auctions in place on other options exchanges and does not raise new or novel regulatory issues. In addition, the proposed changes to the single-leg AON CUBE provisions in Rule 971.1NY should help to avoid confusion by assuring that the descriptions of the single-leg and the complex AON CUBE auctions remain consistent. Accordingly, the Commission hereby waives the 30-day operative delay and designates the proposal operative upon filing.

At any time within 60 days of the filing of such proposed rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act. If the Commission takes such action, the Commission shall institute proceedings under Section 19(b)(2)(B) of the Act to determine whether the proposed rule change should be approved or disapproved.

IV. Solicitation of Comments

Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods:

Electronic Comments

• Use the Commission's internet comment form ( http://www.sec.gov/rules/sro.shtml ); or
• Send an email to rule-comments@sec.gov. Please include File Number SR-NYSEAMER-2021-06 on the subject line.

Paper Comments

• Send paper comments in triplicate to Secretary, Securities and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.

All submissions should refer to File Number SR-NYSEAMER-2021-06. This file number should be included on the subject line if email is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission's internet website ( http://www.sec.gov/rules/sro.shtml ). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for website viewing and printing in the Commission's Public Reference Room, 100 F Street NE, Washington, DC 20549, on official business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of the filing also will be available for inspection and copying at the principal office of the Exchange. All comments received will be posted without change. Persons submitting comments are cautioned that we do not redact or edit personal identifying information from comment submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR-NYSEAMER-2021-06, and should be submitted on or before March 4, 2021.