From: Bryan Rule
To the SEC:
Thank you for the opportunity to comment on the new rules for the NYSE Arca options exchange.
Regarding the Release No. 34-53995, describing the new rules for the NYSE Arca options exchange, the first sentence in the first full paragraph of page 34 mentions the "effect versus execute" rule. This same sentence states that NYSE Arca "may not participate in the execution of the transaction once the order has been transmitted." The NYSE Arca plan does interfere with the transmission and execution of option orders.
For example, if the AMEX were 1.00 bid for a particular option, an attempt to submit an offer of .95 on the NYSE Arca would be interfered with, even if the size of the order were larger than the AMEX's 1.00 bid, (a trader may need to sell a large position quickly at .95). The offer at .95 is disallowed, the order is then routed to a different exchange for execution (AMEX), which has different rules and execution capabilities than the intended NYSE Arca options exchange.
The SEC has authored reports reprimanding the AMEX and the PHLX for interfering with legitimate arbitrage between the U.S. option exchanges, and the subject has been at the center of numerous legal proceedings. And, despite the "effect versus execute" rule, the new NYSE Arca rules definitely interfere with the transmission and execution of option orders.
Obviously-wrong price rules already in effect at every U.S. option exchange, ensure that an options order cannot stand if it is executed outside of very narrow price bands. This is the assurance that an order cannot stand if it is executed at a price that is too disadvantaged to the NBBO.