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NYSE Arca,Rule 6.40-O.,NYSE Arca,Risk Limitation Mechanism


(a)

Counters.

(1)

Trade Counter. The NYSE Arca System ("System") will maintain separate "trade counters" for each of the following scenarios: (i) when any order, including a single-leg order or any leg of a Complex Order, submitted by an OTP Firm or OTP Holder (each an "OTP"; collectively, "OTPs") is executed in any series in a specified class; and (ii) when a Market Maker quote is executed in any series in an appointed class. For each of these scenarios, the trade counters will be incremented every time a trade is executed, in accordance with Commentary .07 to this Rule, and will also aggregate the number of contracts traded during each such execution. The trade counters will also calculate applicable percentages for OTPs using the Percentage-Based Risk Limitation Mechanism set forth below in Rule 6.40-O(d).

(2)

Trigger Counter. The System will maintain a separate "trigger counter" to track the number of times that an OTP has triggered any of the Risk Limitation Mechanisms pursuant to Rule 6.40-O(b),(c), or (d).

(b)

Transaction-Based Risk Limitation Mechanism. The Transaction-Based Risk Limitation Mechanism will be triggered whenever one of the following conditions is met:

(1)

When a trade counter indicates that within a time period specified by the Exchange, “n” executions of an OTP’s open orders have traded in a specific class; or

(2)

When a trade counter indicates that within a time period specified by the Exchange, “n” executions of a Market Maker’s quotes have traded in an appointed class.

(c)

Volume-Based Risk Limitation Mechanism. The Volume-Based Risk Limitation Mechanism will be triggered whenever one of the following conditions is met:

(1)

When a trade counter indicates that within a time period specified by the Exchange, “k” contracts of an OTP’s open orders have traded in a specific class; or

(2)

When a trade counter indicates that within a time period specified by the Exchange, “k” contracts of a Market Maker’s quotes have traded in an appointed class.

(d)

Percentage-Based Risk Limitation Mechanism. The Percentage-Based Risk Limitation Mechanism will be triggered whenever one of the following conditions is met:

(1)

When a trade counter has calculated that within a time period specified by the Exchange, “p” percentage of an OTP’s open orders have traded in a specific class; or

(2)

When a trade counter has calculated that within a time period specified by the Exchange, “p” percentage of a Market Maker’s quotes have traded in an appointed class.

The “p” percentage specified byeach OTP will be calculated as follows:

(i)

A trade counter will first calculate, for each series of an option class, the percentage(s) of an OTP’s order size(s) or a Market Maker's quote size that is executed on each side of the market, including both displayed and non-displayed size;

(ii)

A trade counter will then sum the overall percentages of the size(s) for the entire option class to calculate the "p" percentage.

(e)

The System will take the following action if one of the Risk Limitation Mechanisms above is triggered:

(1)

If triggered pursuant to paragraph (b)(1), (c)(1) or (d)(1) above, the System will automatically cancel all of the OTP orders in the specified class, except as provided in Commentary .01 to this Rule.

(2)

If triggered pursuant to paragraph (b)(2), (c)(2) or (d)(2) above, the System will automatically cancel all of the Market Maker's quotes in the appointed class.

(f)

The System will take the following action if the trigger counter indicates that any of the Risk Limitation Mechanisms are triggered more than “t” times within a time period specified by the Exchange:

(1)

If triggered pursuant to paragraph (b)(1), (c)(1) or (d)(1) above, the System will automatically cancel all of the OTP’s orders, except as provided in Commentary .01 to this Rule, regardless of which specified class triggered the Risk Limitation Mechanism.

(2)

If triggered pursuant to paragraph (b)(2), (c)(2) or (d)(2) above, the System will automatically cancel all of the Market Maker's quotes, regardless of which appointed class triggered the Risk Limitation Mechanism.

Commentary :

 

.01 Pursuant to paragraphs (e) and (f) of Rule 6.40-O, the System will automatically cancel quotes or electronic orders, or portions thereof, that have not been routed to away markets, excluding intraday and prior day GTC, AON, and orders entered in response to an electronic auction that are valid only for the duration of the auction ("GTX") by generating a "bulk cancel" message. In addition to the bulk cancel message, the System will generate an alert message notifying the OTP that it has exceeded the number of triggers of the Risk Limitation Mechanisms, pursuant to paragraph (f) of Rule 6.40-O. Orders and quotes residing in the Consolidated Book received prior to processing of the bulk cancel message may trade. Any unexecuted portion of an order subject to a "bulk cancel" message that had routed away, but returned unexecuted, will be immediately cancelled.

.02 If a Risk Limitation Mechanism is triggered pursuant to Rule 6.40-O (b)(1), (c)(1), or (d)(1), any new orders in the specified class submitted by the OTP will be rejected until the OTP submits a message (which may be automated) to the System to enable the entry of new orders. If a Risk Limitation Mechanism is triggered pursuant to Rule 6.40-O (b)(2), (c)(2), or (d)(2), any new quotes sent by the Market Maker in the appointed class will be rejected until the Market Maker submits a message (which may be automated) to the System to enable the entry of new quotes. If any of the Risk Limitation Mechanisms are triggered pursuant to paragraph (f)(1) to Rule 6.40-O, any new orders, in any class, submitted by the OTP will be rejected until the OTP makes non-automated contact with the Exchange to enable the entry of new orders. If any of the Risk Limitation Mechanisms are triggered pursuant to Rule 6.40-O (f)(2), any new quotes sent by the Market Maker, in any class, will be rejected until the Market Maker makes non-automated contact with the Exchange to enable the entry of new quotes.

.03 The Exchange will specify via Trader Update any applicable minimum, maximum and/or default settings for the Risk Limitation Mechanisms; provided, however, that the Exchange will not (i) specify a minimum setting of less than one or a maximum setting of more than 2,000 for the Transaction-Based Risk Limitation Mechanism; (ii) specify a minimum setting of less than one or a maximum setting of more than 500,000 for the Volume-Based Risk Limitation Mechanism; (iii) specify a minimum setting of less than one or a maximum setting of more than 200,000 for the Percentage- Based Risk Limitation Mechanism; or (iv) specify a minimum setting of less than one or a maximum of more than 100 for the number of triggers of the Risk Limitation Mechanisms, pursuant to paragraph (f) of Rule 6.40-O. The Exchange will also specify via Trader Update any applicable time period(s) for the Risk Limitation Mechanisms; provided, however, that the Exchange will not specify a time period of less than 100 milliseconds.

.04 (a) One of the three Risk Limitation Mechanisms must be activated for all Market Maker quotes. Once a Market Maker activates a Risk Limitation Mechanism for its quotes in an appointed class, the mechanism and the settings established will remain active unless, and until, the Market Maker changes the settings.

(b) The Risk Limitation Mechanisms may be activated, but are not mandated, for orders submitted by OTPs. To be effective, an OTP must activate a Risk Limitation Mechanism, and corresponding settings, for orders in a specified class. Once an OTP activates a Risk Limitation Mechanism for its orders in a specified class, the mechanism and the settings established will remain active unless, and until, the OTP deactivates the Risk Limitation Mechanism or changes the settings. The Risk Limitation Mechanisms will be in effect, if activated by an OTP, during Core Trading Hours, including during Trading Auctions, as defined in Rule 6.64-O. OTPs that utilize any of the Risk Limitation Mechanisms will be subject to paragraph (f) of Rule 6.40-O.

.05 In the event that there are no Market Makers quoting in a class, the best bids and offers of those orders residing in the Consolidated Book in the class will be disseminated as the BBO. If there are no Market Makers quoting in the class and there are no orders in the Consolidated Book in the class, the System shall disseminate a bid of zero and an offer of zero.

.06 The trade counters will automatically reset and commence a new count for the OTP (1) when a time period specified by the Exchange elapses or, (2) if one of the Risk Limitation Mechanisms is triggered, when the OTP submits a message to the System to enable the entry of new orders or quotes, as provided in Commentary .02 to this Rule 6.40-O. Absent a breach pursuant to Rule 6.40-O(f), the trigger counter will automatically reset and commence a new count for the OTP (1) when a time period specified by the Exchange elapses; or (2) following any intraday update to configurable thresholds, as provided in Commentary .03 to this Rule 6.40-O. Following any breach pursuant to Rule 6.40-O (f), the trigger counter will be reset and commence a new count when the OTP makes non-automated contact with the Exchange to enable the entry of new orders or quotes, as provided in Commentary .02 to this Rule 6.40-O.

.07 Executions against Market Maker orders will not be considered by a trade counter in connection with that Market Maker's quoting activity. Likewise, executions against Market Maker quotes will not be considered by a trade counter in connection with the Market Maker's order activity. Executions of routable orders on away markets will be considered by a trade counter once the execution report is received by the Exchange. Executions of each leg of a Complex Order will be considered by a trade counter as an individual transaction. Any OTP that activates the Risk Limitation Mechanisms for orders pursuant to Commentary .04(b) of this Rule may opt to exclude any orders (i.e., whether single-leg orders or Complex Orders) designated with a time-in-force of IOC from being considered by a trade counter.

.08 A determination of whether the conditions of paragraph (b), (c) or (d) of Rule 6.40-O have been met, and any resulting cancellation of orders or quotes pursuant to paragraphs (e) and (f) of Rule 6.40-O, will be made on the basis of trading permit identification. An OTP may activate one of the three Risk Limitation Mechanisms for a particular class for its orders. A Market Maker must activate exactly one of the three Risk Limitation Mechanisms for a particular class for its quotes. A Market Maker may activate different Risk Limitation Mechanisms for its orders and quotes for a particular class.

.09 For purposes of Rule 6.40-O, the terms "class" and "classes" will include all option series, both puts and calls, overlying the same underlying security. For the purposes of this Rule 6.40-O only, any series of mini-options contracts will also be included in the terms "class" and "classes" but only insofar as it relates to the Risk Limitation Mechanism and operation thereof.

Approved: July 28, 2006 (SR-NYSEArca-2006-13); June 11, 2008 (NYSEArca-2008-59); July 25, 2012 (NYSEArca-2012-76); August 22, 2012 (NYSEArca-2012-87); March 18, 2013 (NYSEArca-2013-26); January 7, 2014 (NYSEArca-2013-148); December 5, 2016 (NYSEArca-2016-155); August 17, 2017 (NYSEArca-2017-40); September 25, 2017 (NYSEArca-2017-96); April 3, 2019 (NYSEArca-2019-18); August 16, 2019 (NYSEArca-2019-59).

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