Self-Regulatory Organizations; NASDAQ PHLX LLC; Notice of Filing of Proposed Rule Change Related to the Floor Requirements, 39925-39929 [2017-17685]
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Federal Register / Vol. 82, No. 161 / Tuesday, August 22, 2017 / Notices
Rule 102 of Regulation M
Rule 102 of Regulation M prohibits
issuers, selling security holders, or any
affiliated purchaser of such person from
bidding for, purchasing, or attempting to
induce any person to bid for or purchase
a covered security during the applicable
restricted period in connection with a
distribution of securities effected by or
on behalf of an issuer or selling security
holder.
Based on the representations and facts
presented in the Letter, particularly that
the Trust is a registered open-end
management investment company that
will redeem at the NAV Creation Units
of Shares of the Fund and that a close
alignment between the market price of
Shares and the Fund’s NAV is expected,
the Commission finds that it is
appropriate in the public interest, and
consistent with the protection of
investors, to grant the Trust an
exemption under paragraph (e) of Rule
102 of Regulation M with respect to
Shares of the Fund, thus permitting the
Fund to redeem Shares of the Fund
during the continuous offering of such
Shares.
Rule 10b–17
Rule 10b–17, with certain exceptions,
requires an issuer of a class of publicly
traded securities to give notice of certain
specified actions (for example, a
dividend distribution) relating to such
class of securities in accordance with
Rule 10b–17(b). Based on the
representations and facts presented in
the Letter, and subject to the conditions
below, we find that it is appropriate in
the public interest, and consistent with
the protection of investors, to grant the
Trust a conditional exemption from
Rule 10b–17 because market
participants will receive timely
notification of the existence and timing
of a pending distribution, and thus the
concerns that the Commission raised in
adopting Rule 10b–17 will not be
implicated.6
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Conclusion
It is hereby ordered, pursuant to Rule
101(d) of Regulation M, that the Trust,
based on the representations and the
facts presented in the Letter, is exempt
from the requirements of Rule 101 with
respect to Shares of the Fund, thus
6 We also note that timely compliance with Rule
10b–17(b)(1)(v)(a) and (b) would be impractical
because it is not possible for the Fund to accurately
project ten days in advance what dividend, if any,
would be paid on a particular record date. Further,
the Commission finds, based upon the
representations in the Letter, that the provision of
the notices as described in the Letter would not
constitute a manipulative or deceptive device or
contrivance comprehended within the purpose of
Rule 10b–17.
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permitting persons who may be deemed
to be participating in a distribution of
Shares of the Fund to bid for or
purchase such Shares during their
participation in such distribution.
It is further ordered, pursuant to Rule
102(e) of Regulation M, that the Trust,
based on the representations and the
facts presented in the Letter, is exempt
from the requirements of Rule 102 with
respect to Shares of the Fund, thus
permitting the Fund to redeem Shares of
the Fund during the continuous offering
of such Shares.
It is further ordered, pursuant to Rule
10b–17(b)(2), that the Trust, based on
the representations and the facts
presented in the Letter, and subject to
the conditions below, is exempt from
the requirements of Rule 10b–17 with
respect to transactions in the Shares of
the Fund.
This exemptive relief is subject to the
following conditions:
• The Trust will comply with Rule
10b–17 except for Rule 10b–
17(b)(1)(v)(a) and (b); and
• The Trust will provide the
information required by Rule 10b–
17(b)(1)(v)(a) and (b) to the Exchange as
soon as practicable before trading begins
on the ex-dividend date, but in no event
later than the time when the Exchange
last accepts information relating to
distributions on the day before the exdividend date.
This exemptive relief is subject to
modification or revocation at any time
the Commission determines that such
action is necessary or appropriate in
furtherance of the purposes of the
Exchange Act. This exemption is based
on the facts presented and the
representations made in the Letter. Any
different facts or representations may
require a different response. Persons
relying upon this exemptive relief shall
discontinue transactions involving the
Shares of the Fund, pending
presentation of the facts for the
Commission’s consideration, in the
event that any material change occurs
with respect to any of the facts or
representations made by the Requestors
and, as is the case with all preceding
letters, particularly with respect to the
close alignment between the market
price of Shares and the Fund’s NAV. In
addition, persons relying on this
exemptive relief are directed to the antifraud and anti-manipulation provisions
of the Exchange Act, particularly
Sections 9(a) and 10(b), and Rule 10b–
5 thereunder. Responsibility for
compliance with these and any other
applicable provisions of the federal
securities laws must rest with the
persons relying on this exemptive relief.
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This Order should not be considered
a view with respect to any other
question that the proposed transactions
may raise, including, but not limited to
the adequacy of the disclosure
concerning, and the applicability of
other federal or state laws to, the
proposed transactions.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.7
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2017–17688 Filed 8–21–17; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–81409; File No. SR–Phlx–
2017–67)]
Self-Regulatory Organizations;
NASDAQ PHLX LLC; Notice of Filing of
Proposed Rule Change Related to the
Floor Requirements
August 16, 2017.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on August 3,
2017, NASDAQ PHLX LLC (‘‘Phlx’’ or
‘‘Exchange’’) filed with the Securities
and Exchange Commission (‘‘SEC’’ or
‘‘Commission’’) the proposed rule
change as described in Items I, II, and
III, 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 amend
Commentary .01 of Rule 1014,
Obligations and Restrictions Applicable
to Specialists and Registered Options
Traders, to change quarterly trading
requirements applicable to Registered
Options Traders (‘‘ROTs’’), as described
below.3
The text of the proposed rule change
is set forth below. Proposed new
language is italicized; deletions are
bracketed.
*
*
*
*
*
7 17
CFR 200.30–3(a)(6) and (9).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 A Registered Options Trader or ROT is a regular
member of the Exchange located on the trading
floor who has received permission from the
Exchange to trade in options for his own account.
See Exchange Rule 1014(b)(i).
1 15
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Federal Register / Vol. 82, No. 161 / Tuesday, August 22, 2017 / Notices
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
Rule 1014 Obligations and
Restrictions Applicable to Specialists
and Registered Options Traders
(a)–(g) No change.
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Commentary
.01 An ROT electing to engage in
Exchange options transactions is
designated as a specialist on the
Exchange for all purposes under the
Securities Exchange Act of 1934 and the
rules and regulations thereunder with
respect to options transactions initiated
and effected by him on the floor in his
capacity as an ROT. For purposes of this
commentary, the term ‘‘transactions
initiated and effected on the floor’’ shall
not include transactions initiated by an
ROT off the floor, but which are
considered ‘‘on-floor’’ pursuant to
Commentaries .07 and .08 of Rule 1014.
Similarly, an RSQT electing to engage in
Exchange options transactions is
designated as a specialist on the
Exchange for all purposes under the
Securities Exchange Act of 1934 and the
rules and regulations thereunder with
respect to options transactions initiated
and effected by him in his capacity as
an ROT.
[An ROT (other than an RSQT or a
Remote Specialist)] A non-SQT ROT is
required to trade either (a) 1,000
contracts and 300 transactions, or (b)
10,000 contracts and 100 transactions,
on the Exchange each quarter.
Transactions executed in the trading
crowd where the contra-side is an ROT
are not included.
In addition, in order for an ROT (other
than an RSQT or a Remote Specialist) to
receive specialist margin treatment for
off-floor orders in any calendar quarter,
the ROT must execute the greater of
1,000 contracts or 80% of his total
contracts that quarter in person (not
through the use of orders, except that
non-streaming ROTs can use orders
entered in person) and 75% of his total
contracts that quarter in assigned
options. Transactions executed in the
trading crowd where the contra-side is
an ROT are not included.
The off-floor orders for which an ROT
receives specialist margin treatment
shall be subject to the obligations of
Rule 1014(a) and, in general, be effected
for the purpose of hedging, reducing
risk of, or rebalancing positions of the
ROT. An ROT is responsible for
evidencing compliance with these
provisions. The Exchange may exempt
one or more classes of options from this
calculation.
.02–.19 No change.
*
*
*
*
*
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In its filing with the Commission, the
Exchange 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 these
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 aspects 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 purpose of the proposed rule
change is to add flexibility to one of the
Exchange’s quarterly trading
requirements to encourage liquidityproviding activity by market makers on
the Exchange’s trading floor. Phlx
imposed this trading requirement
initially to require market makers to
ensure available liquidity on the trading
floor. Liquidity provided by market
makers is a key ingredient to ensuring
a competitive trading floor. Market
maker liquidity benefits all market
participants by providing more trading
opportunities. The Exchange’s proposal
is intended to ensure that market
makers on the trading floor are ready
and able to participate to provide a
reasonable pool of liquidity on the floor
trading. The Exchange also notes that
other options exchanges with physical
trading floors do not have a minimum
trading requirement similar to Phlx.
The general term ‘‘market makers’’ on
the Exchange includes Specialists 4 and
ROTs. ROTs can be either Streaming
Quote Traders 5 (‘‘SQTs’’), Remote
4 A Specialist is an Exchange member who is
registered as an options specialist pursuant to Rule
501(a). An options specialist includes a Remote
Specialist which is defined as an options specialist
in one or more classes that does not have a physical
presence on an Exchange floor and is approved by
the Exchange pursuant to Rule 501.
5 An SQT is an ROT who has received permission
from the Exchange to generate and submit option
quotations electronically in options to which such
SQT is assigned. An SQT may only submit such
quotations while such SQT is physically present on
the floor of the Exchange. An SQT may only trade
in a market making capacity in classes of options
in which the SQT is assigned. See Rule
1014(b)(ii)(A).
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SQTs 6 (‘‘RSQTs’’) or non-SQT ROTs.7
Today, quarterly trading requirements
apply to two types of ROTs: SQTs and
non-SQT ROTs. Specialists and RSQTs
are subject to different requirements. By
definition, non-SQT ROTs do not
‘‘stream’’ quotes, meaning send quotes
electronically to the Exchange; instead,
pursuant to Commentary .18 of Rule
1014, they submit limit orders
electronically and respond to Floor
Brokers verbally.
Specifically, the Exchange is
proposing to amend a quarterly trading
requirement set forth in Commentary
.01.8 Phlx Rule 1014 at Commentary .01
currently requires a ROT (other than an
RSQT or Remote Specialist) to trade
1,000 contracts and 300 transactions on
the Exchange each quarter (excluding
transactions executed in the trading
crowd where the contra-side is an ROT).
This proposal seeks to amend this
quarterly requirement of Commentary
.01 in two ways: (1) By limiting the
trading requirement to non-SQT ROTs;
and (2) by adding a new test as an
alternative. The Exchange proposes to
amend Commentary .01 to require a
non-SQT ROT (other than an RSQT or
6 An RSQT is an ROT that is a member affiliated
with and RSQTO with no physical trading floor
presence who has received permission from the
Exchange to generate and submit option quotations
electronically in options to which such RSQT has
been assigned. A qualified RSQT may function as
a Remote Specialist upon Exchange approval. See
Rule 1014(b)(ii)(B).
7 A non-SQT ROT is an ROT who is neither an
SQT nor an RSQT. See Rule 1014(b)(ii)(C).
8 In addition to the trading requirement being
amended herein, the ‘‘in assigned’’ quarterly trading
requirement in Commentary .03 requires that,
except for unusual circumstances, at least 50% of
the trading activity in any quarter (measured in
terms of contract volume) of an ROT (other than an
RSQT) shall ordinarily be in classes of options to
which he is assigned. Temporarily undertaking the
obligations of paragraph (c) at the request of a
member of the Exchange in non-assigned classes of
options is not deemed trading in non-assigned
option contracts. Furthermore, Commentary .13
further provides that, within each quarter, an ROT
must execute in person, and not through the use of
orders, a specified number of contracts, such
number to be determined from time to time by the
Exchange. Options Floor Procedure Advice
(‘‘Advice’’) B–3, Trading Requirements, establishes
a quarterly requirement to trade the greater of 1,000
contracts or 50% of contract volume in person;
pursuant to the Exchange’s minor rule violation and
enforcement plan, it establishes a fine schedule for
violations thereof, as well as for violations of the
quarterly trading requirement in assigned options
contained in Commentary .03. Commentary .01 also
requires that in order for an ROT (other than an
RSQT or a Remote Specialist) to receive specialist
margin treatment for off-floor orders in any calendar
quarter, the ROT must execute the greater of 1,000
contracts or 80% of his total contracts that quarter
in person (not through the use of orders, except that
non-streaming ROTs can use orders entered in
person) and 75% of his total contracts that quarter
in assigned options (excluding transactions
executed in the trading crowd where the contra-side
is an ROT). None of these trading requirements are
changing.
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Federal Register / Vol. 82, No. 161 / Tuesday, August 22, 2017 / Notices
a Remote Specialist) to trade either (a)
1,000 contracts and 300 transactions
(the ‘‘1000/300 Alternative,’’ which is
the current requirement) or (b) 10,000
contracts and 100 transactions (the
‘‘New Alternative’’), on the Exchange
each quarter.
With respect to limiting the
requirement to non-SQT ROTs, the
Exchange notes that today, SQTs and
RSQTs are obligated to continuous
quoting requirements when trading
electronically in their assigned options
series.9 Non-SQT ROTs are not subject
to similar continuous quoting
requirements today on the trading floor.
If a non-SQT ROT trades electronically,
that market maker would be required to
continuously quote in his or her
assigned option pursuant to the
requirement in Rule 1014(b)(ii)(D),
whereas if that market maker was on the
trading floor in the capacity of a nonSQT ROT, the market maker would be
required to separately meet the
requirements of Phlx Rule 1014 at
Commentary .01. With this proposal, the
Exchange is proposing a separate
requirement for market makers that
conduct business on the trading floor as
compared to market makers who
transact business electronically on the
Exchange.
With respect to adding the alternative,
similar to the requirement today,
transactions executed in the trading
crowd where the contra-side is an ROT
would not be included.10 Similar to the
current 1000/300 Alternative, the New
Alternative is a pure trading
requirement, not limited, like the other
trading requirements, to assigned
options 11 and in person trading.12
Accordingly, the New Alternative
requirement can be fulfilled with trades
and contracts that are not in assigned
options and not executed in person,
although, of course, the existing trading
requirements respecting ‘‘in assigned’’
options and ‘‘in person’’ trading must
9 See
Rule 1014(b)(ii)(D).
Exchange already excludes from the
contracts and transactions required by the current
1000/300 Alternative, in each quarter, any
transactions executed in the trading crowd where
the contra-side is an ROT in order to focus market
making efforts on providing the sort of liquidity that
will attract customers (including broker-dealers and
professionals) to the Exchange, and is extending
this exclusion to the New Alternative for the same
reason. As with the 1000/300 Alternative currently
in effect, ROTs will continue to be able to
participate in crowd trades, and those crowd trades
will count towards the new trading requirement,
unless the contra-side is another ROT. ROT-to-ROT
trades in the crowd are certainly permissible on the
Exchange, but the Exchange seeks to better target
liquidity and attract order flow by designing the
trading requirement to exclude them.
11 See Rule 1014.03.
12 See Rule 1014.01.
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10 The
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still be met. Also, limit orders can
continue to be counted toward either
minimum trading requirement. The
Exchange recognizes that floor trading is
a competitive space and that Phlx is the
only floor trading venue requiring its
market makers on the trading floor to
transact a minimum amount of
contracts. The Exchange is not seeking
to burden these market participants by
limiting the type of qualifying
transactions to meet the requirement.
By way of background, the Exchange
adopted the 1000/300 Alternative, the
existing requirement, in 2011.13 At that
time the Exchange believed this
quarterly requirement would be a
reasonable and fair measure to ensure
ROTs were actively providing liquidity.
Since that time the Exchange has
observed that larger order sizes continue
to seek liquidity on the trading floor,
drawing regular responses from nonSQT ROTs whose business is centered
around larger sized transactions, but not
always resulting in transactions for
these larger non-SQT ROT firms
providing liquidity.
The Exchange has observed that
certain non-SQT ROTs, who trade larger
sized orders and who only trade a
handful of underlying stocks are making
markets on a daily basis but are having
less opportunity because larger orders
are often placed into the Qualified
Contingent Cross (QCC) mechanism.14
Consequently there are fewer
opportunities for some non-SQT ROTs
to make certain trades. The Exchange
notes that ROTs may not enter
responses to QCC Orders which are
paired orders entered into the QCC
Mechanism and are not exposed. While
the introduction of QCC accounts for a
portion of the types of qualifying orders
that a non-SQT ROT can transact to
fulfill the floor requirement, lower
volumes on the trading floor has also
contributed to the desire among market
participants to fulfill the trading
requirement in an alternative fashion.
The Exchange is now proposing to
address this issue by modifying the
1000/300 Alternative trading
requirement to include the New
Alternative as an additional metric, one
that could be satisfied by fewer
transactions but more traded contracts,
such that the overall trading
13 See Securities Exchange Act Release No. 65644
(October 27, 2011), 76 FR 67786 (November 2, 2011)
(SR–Phlx–2011–123).
14 See Securities Exchange Act Release No. 64249
(April 7, 2011), 76 FR 20773 (April 13, 2011) (SR–
Phlx–2011–47) (a rule change to establish a QCC
Order to facilitate the execution of stock/option
Qualified Contingent Trades (‘‘QCTs’’) that satisfy
the requirements of the trade through exemption in
connection with Rule 611(d) of the Regulation
NMS).
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39927
requirement originally contemplated by
the 1000/300 Alternative is not diluted.
After discussing this issue with the
larger non-SQT ROTs who are very
active on a daily basis, the Exchange
determined that 100 transactions per
quarter was a reasonable number to
measure whether an non-SQT ROT is
providing liquidity to the market. The
Exchange concluded that a reduced
number of 100 transactions per quarter
would permit non-SQT ROTs to make
their trading decisions without undue
influence of quoting [sic] obligations
alone, and instead choose whether to
participate in trades based on factors
independent of the actual quoting [sic]
obligation.
The Exchange believes that the value
of a non-SQT ROT is not limited to only
whether they actually execute
transactions, but as important is that
they are actively quoting markets and
providing pricing information. Since
100 transactions is only 33% of the
current requirement, the Exchange
determined to increase the total
executed contracts number by 900
percent to 10,000 contracts, to ensure
that the Exchange did not diminish the
trading requirement when viewed from
an overall perspective. The Exchange
believes this alternative requirement is
a good measure that improves the
analysis of whether the larger non-SQT
ROT’s are participating in an expected
manner, and providing liquidity to the
market.
The Exchange notes that in order to
meet the floor trading requirements a
non-SQT ROT may either continue to
comply with the current requirement or
may voluntarily comply with the New
Alternative. The existing requirement is
based on the ability to trade 1,000
contracts and 300 transactions on the
Exchange each quarter, more contracts
but of a smaller size. The New
Alternative permits compliance with the
quoting [sic] rules by transacting fewer
transactions (100 transactions) but larger
sized volume (10,000 contracts). The
two options to comply with the floor
trading rule do not vary in terms of
benefits or obligations.
The Exchange believes the combined
test of ‘‘10,000 contracts’’ and ‘‘100
transactions’’ would be a fair measure of
liquidity as an alternative to
complement the current requirement,
and is a fair and balanced way to
measure whether a non-SQT ROT is
providing liquidity to the marketplace.
This proposed new measure will be a
fairer measure for market makers on the
trading floor in that it considers another
perspective of liquidity—specifically,
the offering of deep liquid markets
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which result in fewer executions, but of
greater size.
2. Statutory Basis
The Exchange believes that its
proposal is consistent with Section 6(b)
of the Act,15 in general, and furthers the
objectives of Section 6(b)(5) of the Act,16
in particular, in that it is designed to
promote just and equitable principles of
trade, to remove impediments to and
perfect the mechanism of a free and
open market and a national market
system, and, in general to protect
investors and the public interest, by
adopting a new alternative trading
requirement which will narrow the
requirement for ROTs, who have other
quoting obligations, while also
providing flexibility to non-SQT ROTs
to encourage market making which
should enhance liquidity on the
Exchange. It would be unjust and
inequitable to continue to impose the
1000/300 Alternative trading
requirement without also offering nonSQT ROTs this New Alternative given
the recent availability of QCC to handle
large orders that previously may have
been executed by certain non-SQT ROTs
in satisfaction of the 1000/300
Alternative test along with lower
volumes on the trading floor.
The Exchange believes that removing
the requirement that SQTs and RSQTs
[sic] are required to meet the trading
requirement is consistent with just and
equitable principles of trade because
these market participants are subject to
continuous quoting requirements
today.17 The Exchange intends to
separate the two requirements. If a nonSQT ROT trades electronically, that
market maker would be required to
continuously quote in his or her
assigned option pursuant to the
requirement in Rule 1014(b)(ii)(D),
whereas if that market maker was on the
trading floor in the capacity of a nonSQT ROT, the market maker would be
required to separately meet the
requirements of Phlx Rule 1014 at
Commentary .01. Non-SQT ROTs are
not subject to continuous quoting
requirements today and therefore the
Exchange proposes to separately
applying a standard consistent with
their business model and exclude other
ROTs from this floor-based requirement.
The proposal will remove
impediments to and perfect the
mechanism of a free and open market
and a national market system by
providing a new alternative to an
existing requirement that today non15 15
U.S.C. 78f(b).
U.S.C. 78f(b)(5).
17 See Rule 1014(b)(ii)(D).
16 15
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SQT ROTs have difficulty meeting given
the current trading environment, thus
enabling them to continue making
markets to the benefit of investors by
requiring ample liquidity. Investors and
the public interest are protected by the
proposal in that it should help preserve
the number of non-SQT ROTs making
markets and providing liquidity to the
benefit of users of the Exchange’s
market.
It is important to note that a non-SQT
ROT cannot control the size and
frequency of crowd trades, even less so
crowd trades where the contra-side is
not an ROT. The Exchange represents
that the only other way to participate in
trades other than through the use of
orders is by quoting; while SQTs quote
electronically by ‘‘streaming’’ quotations
into the Exchange, non-SQT ROTs may
only quote verbally in response to floor
brokers representing orders in the
trading crowd. The Exchange believes
that it has become difficult for such
ROTs to comply with the trading
requirements. The Exchange believes
that this new trading requirement
should increase the likelihood that an
ROT is actively providing liquidity on
Phlx. The Exchange believes that the
proposed new trading requirement
should enhance the market making
functions for non-SQT ROTs and serve
to maintain a fair and orderly market
thereby promoting the protection of
investors and the public interest.
The Exchange notes that non-SQT
ROTs may meet the proposed
requirement by entering limits orders,
but the Exchange notes that the
Exchange is not seeking to burden these
market participants by limiting the type
of qualifying transactions to meet the
requirement. The Exchange recognizes
that floor trading is a competitive space
and that Phlx is the only floor trading
venue requiring its market makers on
the trading floor to transact a minimum
amount of contracts. The Exchange is
not proposing to remove the ability to
enter limit orders to meet the New
Alternative because it seeks to
encourage market makers to transact
business on Phlx.
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 not
necessary or appropriate in furtherance
of the purposes of the Act. With respect
to intra-market competition, limiting the
trading requirement to non-SQT ROTS,
the Exchange does not believe this
imposes an undue burden on
competition because SQTs and RSQTs
are subject to continuous quoting
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requirements today,18 while non-SQT
ROTs are not subject to continuous
quoting obligations.
Further, with respect to inter-market
competition, the Exchange also notes
that other options exchanges with
physical trading floors do not have a
minimum trading requirement similar to
Phlx. The New Alternative trading
requirement would be available to nonSQT ROTs without distinction, as an
alternative to the existing 1000/300
Alternative trading requirement. The
Exchange’s proposal to permit non-SQT
ROTs to comply with the trading
requirement in one of two ways
provides these market participants a
means to compete in a space which has
witnessed lower trading volumes. Also,
the Exchange does not seek to
disadvantage these market participants
who compete with other trading floors
who do not have trading requirements,
as noted above, and also who do not
have the automated compliance checks.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
No written comments were either
solicited or received.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of
publication of this notice in the Federal
Register or within such longer period (i)
as the Commission may designate up to
90 days of such date if it finds such
longer period to be appropriate and
publishes its reasons for so finding or
(ii) as to which the Exchange consents,
the Commission shall: (a) By order
approve or disapprove such proposed
rule change, or (b) institute proceedings
to determine whether the proposed rule
change should be 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 (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
Phlx–2017–67 on the subject line.
18 See
E:\FR\FM\22AUN1.SGM
Rule 1014(b)(ii)(D).
22AUN1
Federal Register / Vol. 82, No. 161 / Tuesday, August 22, 2017 / Notices
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–Phlx–2017–67. 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 Web site (https://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 Web site 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;
the Commission does not edit personal
identifying information from
submissions. You should submit only
information that you wish to make
available publicly. All submissions
should refer to File Number SR–Phlx–
2017–67, and should be submitted on or
before September 12, 2017.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.19
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017–17685 Filed 8–21–17; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–81411; File No. SR–
NYSEArca–2017–84]
Self-Regulatory Organizations; NYSE
Arca, Inc.; Notice of Filing of Proposed
Rule Change To Extend the
Implementation Date for Certain
Changes to the NYSE Arca Rule 5 and
Rule 8 Series
August 16, 2017.
Pursuant to Section 19(b)(1) 1 of the
Securities Exchange Act of 1934
(‘‘Act’’) 2 and Rule 19b–4 thereunder,3
notice is hereby given that on August 3,
2017, NYSE Arca, Inc. (‘‘Exchange’’ or
‘‘NYSE Arca’’) 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 self-regulatory organization. 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 extend the
date on which certain changes to the
NYSE Arca Rule 5 and Rule 8 series are
implemented. The proposed change is
available on the Exchange’s Web site 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.
sradovich on DSK3GMQ082PROD with NOTICES
A. Self-Regulatory Organization’s
Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule
Change
1. Purpose
On January 6, 2017, the Exchange
filed a proposed rule change, as
subsequently amended by Amendments
1 15
U.S.C. 78s(b)(1).
U.S.C. 78a.
3 17 CFR 240.19b–4.
2 15
19 17
CFR 200.30–3(a)(12).
VerDate Sep<11>2014
18:00 Aug 21, 2017
Jkt 241001
PO 00000
Frm 00181
Fmt 4703
Sfmt 4703
39929
No. 1 and 2 thereto (as amended, the
‘‘Proposed Rule Change’’), to adopt
certain changes to the NYSE Arca Rules
5 and 8 series to add additional
continued listing standards for
exchange-traded funds (‘‘ETFs’’) as well
as clarify the procedures that the
Exchange will undertake when an ETF
is noncompliant with applicable rules.
Given the scope of the amendments
specified in the Proposed Rule Change,
the Exchange proposed that such
amendments not be implemented until
October 1, 2017. On March 9, 2017, the
Commission granted accelerated
approval of the Proposed Rule Change,
including the October 1, 2017
implementation date.4 The Exchange
now proposes to extend the
implementation date of the amendments
specified in the Proposed Rule Change
to July 1, 2018.
Since the Proposed Rule Change was
approved, the Exchange has engaged in
extensive conversations with issuers of
listed ETFs, industry advocacy groups
and index providers to discuss the new
rule requirements and offer guidance on
rule interpretation and application. As a
result of these conversations, ETF
issuers have expressed concern about
their ability to have in place systems
and procedures to ensure compliance by
the current October 1, 2017
implementation date. In particular,
listed ETF issuers, and industry
advocacy groups on their behalf, have
explained that issuers will require time
to design and test new compliance
systems as well as engage in discussions
with third-party providers to source and
track new data elements required for
rule compliance.5
The Exchange believes it is
appropriate to extend the
implementation date of the Proposed
Rule Change to July 1, 2018 to provide
listed ETF issuers with the time needed
to develop and test their compliance
procedures. In support of its proposal,
the Exchange notes that the Proposed
Rule Change imposes significant new
compliance requirements on issuers that
they have not been subject to
previously. To meet these new
compliance requirements, issuers must
develop internal systems as well as
coordinate with third-party service
providers, such as index providers, to
4 See Securities Exchange Act Release No. 80189
(March 9, 2017), 82 FR 13889 (March 15, 2017) (SR–
NYSEArca–2017–01).
5 See, for example, Letter, dated July 11, 2017,
from Dorothy Donohue, Acting General Counsel,
Investment Company Institute to Brent J. Fields,
Secretary, Securities and Exchange Commission,
available at https://www.sec.gov/comments/srnasdaq-2016-135/nasdaq2016135-18462085175.pdf. [sic]
E:\FR\FM\22AUN1.SGM
22AUN1
]]>Agencies
[Federal Register Volume 82, Number 161 (Tuesday, August 22, 2017)]
[Notices]
[Pages 39925-39929]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-17685]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-81409; File No. SR-Phlx-2017-67)]
Self-Regulatory Organizations; NASDAQ PHLX LLC; Notice of Filing
of Proposed Rule Change Related to the Floor Requirements
August 16, 2017.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on August 3, 2017, NASDAQ PHLX LLC (``Phlx'' or ``Exchange'') filed
with the Securities and Exchange Commission (``SEC'' or ``Commission'')
the proposed rule change as described in Items I, II, and III, 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.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to amend Commentary .01 of Rule 1014,
Obligations and Restrictions Applicable to Specialists and Registered
Options Traders, to change quarterly trading requirements applicable to
Registered Options Traders (``ROTs''), as described below.\3\
---------------------------------------------------------------------------
\3\ A Registered Options Trader or ROT is a regular member of
the Exchange located on the trading floor who has received
permission from the Exchange to trade in options for his own
account. See Exchange Rule 1014(b)(i).
---------------------------------------------------------------------------
The text of the proposed rule change is set forth below. Proposed
new language is italicized; deletions are bracketed.
* * * * *
[[Page 39926]]
Rule 1014 Obligations and Restrictions Applicable to Specialists and
Registered Options Traders
(a)-(g) No change.
Commentary
.01 An ROT electing to engage in Exchange options transactions is
designated as a specialist on the Exchange for all purposes under the
Securities Exchange Act of 1934 and the rules and regulations
thereunder with respect to options transactions initiated and effected
by him on the floor in his capacity as an ROT. For purposes of this
commentary, the term ``transactions initiated and effected on the
floor'' shall not include transactions initiated by an ROT off the
floor, but which are considered ``on-floor'' pursuant to Commentaries
.07 and .08 of Rule 1014. Similarly, an RSQT electing to engage in
Exchange options transactions is designated as a specialist on the
Exchange for all purposes under the Securities Exchange Act of 1934 and
the rules and regulations thereunder with respect to options
transactions initiated and effected by him in his capacity as an ROT.
[An ROT (other than an RSQT or a Remote Specialist)] A non-SQT ROT
is required to trade either (a) 1,000 contracts and 300 transactions,
or (b) 10,000 contracts and 100 transactions, on the Exchange each
quarter. Transactions executed in the trading crowd where the contra-
side is an ROT are not included.
In addition, in order for an ROT (other than an RSQT or a Remote
Specialist) to receive specialist margin treatment for off-floor orders
in any calendar quarter, the ROT must execute the greater of 1,000
contracts or 80% of his total contracts that quarter in person (not
through the use of orders, except that non-streaming ROTs can use
orders entered in person) and 75% of his total contracts that quarter
in assigned options. Transactions executed in the trading crowd where
the contra-side is an ROT are not included.
The off-floor orders for which an ROT receives specialist margin
treatment shall be subject to the obligations of Rule 1014(a) and, in
general, be effected for the purpose of hedging, reducing risk of, or
rebalancing positions of the ROT. An ROT is responsible for evidencing
compliance with these provisions. The Exchange may exempt one or more
classes of options from this calculation.
.02-.19 No change.
* * * * *
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 Exchange 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 these 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 aspects 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 purpose of the proposed rule change is to add flexibility to
one of the Exchange's quarterly trading requirements to encourage
liquidity-providing activity by market makers on the Exchange's trading
floor. Phlx imposed this trading requirement initially to require
market makers to ensure available liquidity on the trading floor.
Liquidity provided by market makers is a key ingredient to ensuring a
competitive trading floor. Market maker liquidity benefits all market
participants by providing more trading opportunities. The Exchange's
proposal is intended to ensure that market makers on the trading floor
are ready and able to participate to provide a reasonable pool of
liquidity on the floor trading. The Exchange also notes that other
options exchanges with physical trading floors do not have a minimum
trading requirement similar to Phlx.
The general term ``market makers'' on the Exchange includes
Specialists \4\ and ROTs. ROTs can be either Streaming Quote Traders
\5\ (``SQTs''), Remote SQTs \6\ (``RSQTs'') or non-SQT ROTs.\7\ Today,
quarterly trading requirements apply to two types of ROTs: SQTs and
non-SQT ROTs. Specialists and RSQTs are subject to different
requirements. By definition, non-SQT ROTs do not ``stream'' quotes,
meaning send quotes electronically to the Exchange; instead, pursuant
to Commentary .18 of Rule 1014, they submit limit orders electronically
and respond to Floor Brokers verbally.
---------------------------------------------------------------------------
\4\ A Specialist is an Exchange member who is registered as an
options specialist pursuant to Rule 501(a). An options specialist
includes a Remote Specialist which is defined as an options
specialist in one or more classes that does not have a physical
presence on an Exchange floor and is approved by the Exchange
pursuant to Rule 501.
\5\ An SQT is an ROT who has received permission from the
Exchange to generate and submit option quotations electronically in
options to which such SQT is assigned. An SQT may only submit such
quotations while such SQT is physically present on the floor of the
Exchange. An SQT may only trade in a market making capacity in
classes of options in which the SQT is assigned. See Rule
1014(b)(ii)(A).
\6\ An RSQT is an ROT that is a member affiliated with and RSQTO
with no physical trading floor presence who has received permission
from the Exchange to generate and submit option quotations
electronically in options to which such RSQT has been assigned. A
qualified RSQT may function as a Remote Specialist upon Exchange
approval. See Rule 1014(b)(ii)(B).
\7\ A non-SQT ROT is an ROT who is neither an SQT nor an RSQT.
See Rule 1014(b)(ii)(C).
---------------------------------------------------------------------------
Specifically, the Exchange is proposing to amend a quarterly
trading requirement set forth in Commentary .01.\8\ Phlx Rule 1014 at
Commentary .01 currently requires a ROT (other than an RSQT or Remote
Specialist) to trade 1,000 contracts and 300 transactions on the
Exchange each quarter (excluding transactions executed in the trading
crowd where the contra-side is an ROT).
---------------------------------------------------------------------------
\8\ In addition to the trading requirement being amended herein,
the ``in assigned'' quarterly trading requirement in Commentary .03
requires that, except for unusual circumstances, at least 50% of the
trading activity in any quarter (measured in terms of contract
volume) of an ROT (other than an RSQT) shall ordinarily be in
classes of options to which he is assigned. Temporarily undertaking
the obligations of paragraph (c) at the request of a member of the
Exchange in non-assigned classes of options is not deemed trading in
non-assigned option contracts. Furthermore, Commentary .13 further
provides that, within each quarter, an ROT must execute in person,
and not through the use of orders, a specified number of contracts,
such number to be determined from time to time by the Exchange.
Options Floor Procedure Advice (``Advice'') B-3, Trading
Requirements, establishes a quarterly requirement to trade the
greater of 1,000 contracts or 50% of contract volume in person;
pursuant to the Exchange's minor rule violation and enforcement
plan, it establishes a fine schedule for violations thereof, as well
as for violations of the quarterly trading requirement in assigned
options contained in Commentary .03. Commentary .01 also requires
that in order for an ROT (other than an RSQT or a Remote Specialist)
to receive specialist margin treatment for off-floor orders in any
calendar quarter, the ROT must execute the greater of 1,000
contracts or 80% of his total contracts that quarter in person (not
through the use of orders, except that non-streaming ROTs can use
orders entered in person) and 75% of his total contracts that
quarter in assigned options (excluding transactions executed in the
trading crowd where the contra-side is an ROT). None of these
trading requirements are changing.
---------------------------------------------------------------------------
This proposal seeks to amend this quarterly requirement of
Commentary .01 in two ways: (1) By limiting the trading requirement to
non-SQT ROTs; and (2) by adding a new test as an alternative. The
Exchange proposes to amend Commentary .01 to require a non-SQT ROT
(other than an RSQT or
[[Page 39927]]
a Remote Specialist) to trade either (a) 1,000 contracts and 300
transactions (the ``1000/300 Alternative,'' which is the current
requirement) or (b) 10,000 contracts and 100 transactions (the ``New
Alternative''), on the Exchange each quarter.
With respect to limiting the requirement to non-SQT ROTs, the
Exchange notes that today, SQTs and RSQTs are obligated to continuous
quoting requirements when trading electronically in their assigned
options series.\9\ Non-SQT ROTs are not subject to similar continuous
quoting requirements today on the trading floor. If a non-SQT ROT
trades electronically, that market maker would be required to
continuously quote in his or her assigned option pursuant to the
requirement in Rule 1014(b)(ii)(D), whereas if that market maker was on
the trading floor in the capacity of a non-SQT ROT, the market maker
would be required to separately meet the requirements of Phlx Rule 1014
at Commentary .01. With this proposal, the Exchange is proposing a
separate requirement for market makers that conduct business on the
trading floor as compared to market makers who transact business
electronically on the Exchange.
---------------------------------------------------------------------------
\9\ See Rule 1014(b)(ii)(D).
---------------------------------------------------------------------------
With respect to adding the alternative, similar to the requirement
today, transactions executed in the trading crowd where the contra-side
is an ROT would not be included.\10\ Similar to the current 1000/300
Alternative, the New Alternative is a pure trading requirement, not
limited, like the other trading requirements, to assigned options \11\
and in person trading.\12\ Accordingly, the New Alternative requirement
can be fulfilled with trades and contracts that are not in assigned
options and not executed in person, although, of course, the existing
trading requirements respecting ``in assigned'' options and ``in
person'' trading must still be met. Also, limit orders can continue to
be counted toward either minimum trading requirement. The Exchange
recognizes that floor trading is a competitive space and that Phlx is
the only floor trading venue requiring its market makers on the trading
floor to transact a minimum amount of contracts. The Exchange is not
seeking to burden these market participants by limiting the type of
qualifying transactions to meet the requirement.
---------------------------------------------------------------------------
\10\ The Exchange already excludes from the contracts and
transactions required by the current 1000/300 Alternative, in each
quarter, any transactions executed in the trading crowd where the
contra-side is an ROT in order to focus market making efforts on
providing the sort of liquidity that will attract customers
(including broker-dealers and professionals) to the Exchange, and is
extending this exclusion to the New Alternative for the same reason.
As with the 1000/300 Alternative currently in effect, ROTs will
continue to be able to participate in crowd trades, and those crowd
trades will count towards the new trading requirement, unless the
contra-side is another ROT. ROT-to-ROT trades in the crowd are
certainly permissible on the Exchange, but the Exchange seeks to
better target liquidity and attract order flow by designing the
trading requirement to exclude them.
\11\ See Rule 1014.03.
\12\ See Rule 1014.01.
---------------------------------------------------------------------------
By way of background, the Exchange adopted the 1000/300
Alternative, the existing requirement, in 2011.\13\ At that time the
Exchange believed this quarterly requirement would be a reasonable and
fair measure to ensure ROTs were actively providing liquidity. Since
that time the Exchange has observed that larger order sizes continue to
seek liquidity on the trading floor, drawing regular responses from
non-SQT ROTs whose business is centered around larger sized
transactions, but not always resulting in transactions for these larger
non-SQT ROT firms providing liquidity.
---------------------------------------------------------------------------
\13\ See Securities Exchange Act Release No. 65644 (October 27,
2011), 76 FR 67786 (November 2, 2011) (SR-Phlx-2011-123).
---------------------------------------------------------------------------
The Exchange has observed that certain non-SQT ROTs, who trade
larger sized orders and who only trade a handful of underlying stocks
are making markets on a daily basis but are having less opportunity
because larger orders are often placed into the Qualified Contingent
Cross (QCC) mechanism.\14\ Consequently there are fewer opportunities
for some non-SQT ROTs to make certain trades. The Exchange notes that
ROTs may not enter responses to QCC Orders which are paired orders
entered into the QCC Mechanism and are not exposed. While the
introduction of QCC accounts for a portion of the types of qualifying
orders that a non-SQT ROT can transact to fulfill the floor
requirement, lower volumes on the trading floor has also contributed to
the desire among market participants to fulfill the trading requirement
in an alternative fashion.
---------------------------------------------------------------------------
\14\ See Securities Exchange Act Release No. 64249 (April 7,
2011), 76 FR 20773 (April 13, 2011) (SR-Phlx-2011-47) (a rule change
to establish a QCC Order to facilitate the execution of stock/option
Qualified Contingent Trades (``QCTs'') that satisfy the requirements
of the trade through exemption in connection with Rule 611(d) of the
Regulation NMS).
---------------------------------------------------------------------------
The Exchange is now proposing to address this issue by modifying
the 1000/300 Alternative trading requirement to include the New
Alternative as an additional metric, one that could be satisfied by
fewer transactions but more traded contracts, such that the overall
trading requirement originally contemplated by the 1000/300 Alternative
is not diluted. After discussing this issue with the larger non-SQT
ROTs who are very active on a daily basis, the Exchange determined that
100 transactions per quarter was a reasonable number to measure whether
an non-SQT ROT is providing liquidity to the market. The Exchange
concluded that a reduced number of 100 transactions per quarter would
permit non-SQT ROTs to make their trading decisions without undue
influence of quoting [sic] obligations alone, and instead choose
whether to participate in trades based on factors independent of the
actual quoting [sic] obligation.
The Exchange believes that the value of a non-SQT ROT is not
limited to only whether they actually execute transactions, but as
important is that they are actively quoting markets and providing
pricing information. Since 100 transactions is only 33% of the current
requirement, the Exchange determined to increase the total executed
contracts number by 900 percent to 10,000 contracts, to ensure that the
Exchange did not diminish the trading requirement when viewed from an
overall perspective. The Exchange believes this alternative requirement
is a good measure that improves the analysis of whether the larger non-
SQT ROT's are participating in an expected manner, and providing
liquidity to the market.
The Exchange notes that in order to meet the floor trading
requirements a non-SQT ROT may either continue to comply with the
current requirement or may voluntarily comply with the New Alternative.
The existing requirement is based on the ability to trade 1,000
contracts and 300 transactions on the Exchange each quarter, more
contracts but of a smaller size. The New Alternative permits compliance
with the quoting [sic] rules by transacting fewer transactions (100
transactions) but larger sized volume (10,000 contracts). The two
options to comply with the floor trading rule do not vary in terms of
benefits or obligations.
The Exchange believes the combined test of ``10,000 contracts'' and
``100 transactions'' would be a fair measure of liquidity as an
alternative to complement the current requirement, and is a fair and
balanced way to measure whether a non-SQT ROT is providing liquidity to
the marketplace. This proposed new measure will be a fairer measure for
market makers on the trading floor in that it considers another
perspective of liquidity--specifically, the offering of deep liquid
markets
[[Page 39928]]
which result in fewer executions, but of greater size.
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\15\ in general, and furthers the objectives of Section
6(b)(5) of the Act,\16\ in particular, in that it is designed to
promote just and equitable principles of trade, to remove impediments
to and perfect the mechanism of a free and open market and a national
market system, and, in general to protect investors and the public
interest, by adopting a new alternative trading requirement which will
narrow the requirement for ROTs, who have other quoting obligations,
while also providing flexibility to non-SQT ROTs to encourage market
making which should enhance liquidity on the Exchange. It would be
unjust and inequitable to continue to impose the 1000/300 Alternative
trading requirement without also offering non-SQT ROTs this New
Alternative given the recent availability of QCC to handle large orders
that previously may have been executed by certain non-SQT ROTs in
satisfaction of the 1000/300 Alternative test along with lower volumes
on the trading floor.
---------------------------------------------------------------------------
\15\ 15 U.S.C. 78f(b).
\16\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
The Exchange believes that removing the requirement that SQTs and
RSQTs [sic] are required to meet the trading requirement is consistent
with just and equitable principles of trade because these market
participants are subject to continuous quoting requirements today.\17\
The Exchange intends to separate the two requirements. If a non-SQT ROT
trades electronically, that market maker would be required to
continuously quote in his or her assigned option pursuant to the
requirement in Rule 1014(b)(ii)(D), whereas if that market maker was on
the trading floor in the capacity of a non-SQT ROT, the market maker
would be required to separately meet the requirements of Phlx Rule 1014
at Commentary .01. Non-SQT ROTs are not subject to continuous quoting
requirements today and therefore the Exchange proposes to separately
applying a standard consistent with their business model and exclude
other ROTs from this floor-based requirement.
---------------------------------------------------------------------------
\17\ See Rule 1014(b)(ii)(D).
---------------------------------------------------------------------------
The proposal will remove impediments to and perfect the mechanism
of a free and open market and a national market system by providing a
new alternative to an existing requirement that today non-SQT ROTs have
difficulty meeting given the current trading environment, thus enabling
them to continue making markets to the benefit of investors by
requiring ample liquidity. Investors and the public interest are
protected by the proposal in that it should help preserve the number of
non-SQT ROTs making markets and providing liquidity to the benefit of
users of the Exchange's market.
It is important to note that a non-SQT ROT cannot control the size
and frequency of crowd trades, even less so crowd trades where the
contra-side is not an ROT. The Exchange represents that the only other
way to participate in trades other than through the use of orders is by
quoting; while SQTs quote electronically by ``streaming'' quotations
into the Exchange, non-SQT ROTs may only quote verbally in response to
floor brokers representing orders in the trading crowd. The Exchange
believes that it has become difficult for such ROTs to comply with the
trading requirements. The Exchange believes that this new trading
requirement should increase the likelihood that an ROT is actively
providing liquidity on Phlx. The Exchange believes that the proposed
new trading requirement should enhance the market making functions for
non-SQT ROTs and serve to maintain a fair and orderly market thereby
promoting the protection of investors and the public interest.
The Exchange notes that non-SQT ROTs may meet the proposed
requirement by entering limits orders, but the Exchange notes that the
Exchange is not seeking to burden these market participants by limiting
the type of qualifying transactions to meet the requirement. The
Exchange recognizes that floor trading is a competitive space and that
Phlx is the only floor trading venue requiring its market makers on the
trading floor to transact a minimum amount of contracts. The Exchange
is not proposing to remove the ability to enter limit orders to meet
the New Alternative because it seeks to encourage market makers to
transact business on Phlx.
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 not necessary or appropriate in
furtherance of the purposes of the Act. With respect to intra-market
competition, limiting the trading requirement to non-SQT ROTS, the
Exchange does not believe this imposes an undue burden on competition
because SQTs and RSQTs are subject to continuous quoting requirements
today,\18\ while non-SQT ROTs are not subject to continuous quoting
obligations.
---------------------------------------------------------------------------
\18\ See Rule 1014(b)(ii)(D).
---------------------------------------------------------------------------
Further, with respect to inter-market competition, the Exchange
also notes that other options exchanges with physical trading floors do
not have a minimum trading requirement similar to Phlx. The New
Alternative trading requirement would be available to non-SQT ROTs
without distinction, as an alternative to the existing 1000/300
Alternative trading requirement. The Exchange's proposal to permit non-
SQT ROTs to comply with the trading requirement in one of two ways
provides these market participants a means to compete in a space which
has witnessed lower trading volumes. Also, the Exchange does not seek
to disadvantage these market participants who compete with other
trading floors who do not have trading requirements, as noted above,
and also who do not have the automated compliance checks.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were either solicited or received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period (i) as the Commission may
designate up to 90 days of such date if it finds such longer period to
be appropriate and publishes its reasons for so finding or (ii) as to
which the Exchange consents, the Commission shall: (a) By order approve
or disapprove such proposed rule change, or (b) institute proceedings
to determine whether the proposed rule change should be 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 (https://www.sec.gov/rules/sro.shtml); or
Send an email to rule-comments@sec.gov. Please include
File Number SR-Phlx-2017-67 on the subject line.
[[Page 39929]]
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-Phlx-2017-67. 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 Web site (https://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 Web site 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; the Commission does
not edit personal identifying information from submissions. You should
submit only information that you wish to make available publicly. All
submissions should refer to File Number SR-Phlx-2017-67, and should be
submitted on or before September 12, 2017.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\19\
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\19\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-17685 Filed 8-21-17; 8:45 am]
BILLING CODE 8011-01-P
