Self-Regulatory Organizations; International Securities Exchange, LLC; Order Granting Approval of a Proposed Rule Change To Amend the Obvious and Catastrophic Errors Rule, 25777-25779 [2013-10346]
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sroberts on DSK5SPTVN1PROD with NOTICES
Federal Register / Vol. 78, No. 85 / Thursday, May 2, 2013 / Notices
(3) The Exchange represents that
trading in the Shares will be subject to
the existing trading surveillances,
administered by FINRA on behalf of the
Exchange, which are designed to detect
violations of Exchange rules and
applicable federal securities laws and
that these procedures are adequate to
properly monitor Exchange trading of
the Shares in all trading sessions and to
deter and detect violations of Exchange
rules and applicable federal securities
laws.
(4) Prior to the commencement of
trading, the Exchange will inform its
members in an Information Circular of
the special characteristics and risks
associated with trading the Shares.
Specifically, the Information Circular
will discuss the following: (a) The
procedures for purchases and
redemptions of Shares in Creation Units
(and that Shares are not individually
redeemable); (b) Nasdaq Rule 2310,
which imposes suitability obligations on
Nasdaq members with respect to
recommending transactions in the
Shares to customers; (c) how
information regarding the Intraday
Indicative Value is disseminated; (d) the
risks involved in trading the Shares
during the Pre-Market and Post-Market
Sessions when an updated Intraday
Indicative Value will not be calculated
or publicly disseminated; (e) the
requirement that members deliver a
prospectus to investors purchasing
newly issued Shares prior to or
concurrently with the confirmation of a
transaction; and (f) trading information.
(5) For initial and continued listing,
the Fund will be in compliance with
Rule 10A–3 under the Act.32
(6) It is anticipated that the Fund, in
accordance with its principal
investment strategy, will invest
approximately 50% to 75% of its net
assets in Senior Loans that are eligible
for inclusion in and meet the liquidity
thresholds of the Primary or the
Secondary Indices. Each of the Fund’s
Senior Loan investments is expected to
have no less than $250 million USD par
outstanding. While the Fund may hold
a Senior Loan that has defaulted
subsequent to its purchase by the Fund,
the Adviser does not intend to purchase
Senior Loans that are in default.
(7) Under normal market conditions,
the Fund would generally satisfy the
generic fixed income listing
requirements in Nasdaq Rule 5705(b)(4)
on a continuous basis measured at the
time of purchase.
(8) The Fund will not invest in nonU.S.-registered equity issues (except for
underlying ETFs that may hold non-U.S.
32 See
17 CFR 240.10A–3.
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issues). The Fund may hold up to an
aggregate amount of 15% of its net
assets in illiquid securities (calculated
at the time of investment), including
Rule 144A securities, junior
subordinated loans, and unsecured
loans deemed illiquid by the Adviser.
The Fund will not invest in options
contracts, futures contracts, or swap
agreements.
(9) The Fund’s investments will be
consistent with the Fund’s investment
objectives and will not be used to
enhance leverage.
(10) A minimum of 100,000 Shares
will be outstanding at the
commencement of trading. This
approval order is based on all of the
Exchange’s representations, including
those set forth in the Notice.
IV. Conclusion
For the foregoing reasons, the
Commission finds that the proposed
rule change is consistent with Section
6(b)(5) of the Act 33 and the rules and
regulations thereunder applicable to a
national securities exchange.
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act,34 that the
proposed rule change (SR–NASDAQ–
2013–036), as modified by Amendment
No. 2, be, and it hereby is, approved.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.35
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2013–10345 Filed 5–1–13; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–69467; File No. SR–ISE–
2013–15]
Self-Regulatory Organizations;
International Securities Exchange,
LLC; Order Granting Approval of a
Proposed Rule Change To Amend the
Obvious and Catastrophic Errors Rule
April 26, 2013.
I. Introduction
On February 26, 2013, the
International Securities Exchange, LLC
(the ‘‘Exchange’’ or the ‘‘ISE’’) filed with
the Securities and Exchange
Commission (‘‘Commission’’), pursuant
to Section 19(b)(1) of the Securities
Exchange Act of 1934 (the ‘‘Act’’) 1 and
33 15
U.S.C. 78f(b)(5).
U.S.C. 78s(b)(2).
35 17 CFR 200.30–3(a)(12).
1 15 U.S.C. 78s(b)(1).
34 15
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25777
Rule 19b–4 thereunder,2 a proposed rule
change to amend Rule 720, Obvious and
Catastrophic Errors. The proposed rule
change was published for comment in
the Federal Register on March 14,
2013.3 The Commission received no
comment letters on the proposal. This
order approves the proposed rule
change.
II. Description of the Proposed Rule
Change
The Exchange proposes to amend
Rule 720 relating to obvious error and
catastrophic error rules by: (1) Providing
that, in the case of both obvious and
catastrophic errors, the Exchange will
nullify trades for transactions involving
Priority Customers 4 and adjust trades
where none of the parties to the trade
are Priority Customers; and (2)
harmonizing the procedure for making
obvious and catastrophic error
determinations.
Erroneous Transactions Involving
Priority Customers
Under current Rule 720(b)(2), the
Exchange nullifies obvious error
transactions unless all parties to the
trade are ISE market makers, in which
case the Exchange adjusts the price of
the transaction. With respect to
catastrophic errors, the Exchange
currently adjusts all transactions even if
they involve non-market makers.5
The Exchange proposes to amend its
obvious and catastrophic error
procedures to allow the Exchange to
nullify trades that qualify as either an
obvious error or a catastrophic error if
such trades involved a Priority
Customer and adjust trades where none
of the parties to the trade are Priority
Customers (i.e., market makers, brokerdealers and professional customers).
Specifically, the Exchange proposes to
amend Rule 720(b)(2)(ii) and adopt new
Rule 720(c)(2)(B),6 which states that
where at least one party to the obvious
or catastrophic error is a Priority
Customer, the trade will be nullified by
2 17
CFR 240.19b–4.
Exchange Act Release No. 69085
(March 8, 2013), 78 FR 16338 (‘‘Notice’’).
4 ISE Rule 100(a)(37A) defines ‘‘Priority
Customer’’ as a person or entity that (i) is not a
broker or dealer in securities, and (ii) does not place
more than 390 orders in listed options per day on
average during a calendar month for its own
beneficial account(s).
5 See ISE Rule 720(d)(3).
6 This proposed rule change also realigns certain
parts of Rule 720. The rule on Catastrophic Error
Procedure rule was previously found in Rule 720(d)
and with the proposed realignment, this rule now
appears as Rule 720(c).
3 Securities
E:\FR\FM\02MYN1.SGM
02MYN1
25778
Federal Register / Vol. 78, No. 85 / Thursday, May 2, 2013 / Notices
Market Control 7 unless both parties
agree to an adjustment price for the
transaction within thirty (30) minutes of
being notified by Market Control of its
determination. The Exchange believes
that this proposal provides a fair way to
address the issue of a trade executing
through a customer’s limit order price
while balancing the competing interests
of certainty that trades stand with the
policy concerns about dealing with true
errors.
Determination of Erroneous
Transactions
sroberts on DSK5SPTVN1PROD with NOTICES
Under Rule 720(b)(2), Market Control
determines whether an obvious error
has occurred and applies the rule to
adjust or nullify trades with the ability
for those parties affected to request that
a panel of members review decisions
made by Market Control. With respect to
catastrophic errors, Rule 720(d)(2)
currently requires that a panel of
members make the initial determination
of whether a catastrophic error occurred
rather than Market Control.
The Exchange proposes to amend the
catastrophic error procedure to provide
that Market Control shall make the
initial determination of whether or not
a catastrophic error has occurred. The
Exchange’s proposed procedure would
allow parties affected by an action taken
by Market Control the ability to request
that such actions be reviewed by a
member panel, rather than requiring a
member panel to make the initial
determination in all cases. The
Exchange’s proposed rule also sets forth
the steps that Market Control shall take
if a determination has been made that a
catastrophic error has occurred.8
The Exchange also proposes to
rearrange parts of Rule 720. Specifically,
the Exchange proposes to delete Rule
720(c) (Obvious Error Panel) and move
the substance of that rule to new Rule
720(d), which is also renamed Review
Panel, and which will now apply to
both obvious and catastrophic errors.
Proposed Rule 720(d) will provide the
composition of the Review Panel,9 the
scope of the Review Panel’s review,10
the procedure for requesting review,11
and the decisions of the Review Panel.12
7 Market Control consists of designated personnel
in the Exchange’s market control center. See ISE
Rule 720(a)(3)(ii).
8 See Proposed Rule 720(c)(2).
9 See Proposed Rule 720(d)(1).
10 See Proposed Rule 720(d)(2).
11 See Proposed Rule 720(d)(3).
12 See Proposed Rule 720(d)(4). The Exchange is
also proposing conforming amendments to
Supplementary Material .01, .02, .03 and .04 to Rule
720 to reflect the proposed rule changes.
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III. Discussion
The Commission has carefully
considered the proposed rule change
and finds that the proposed rule change
is consistent with the requirements of
the Act and the rules and regulations
thereunder applicable to a national
securities exchange.13 Specifically, the
Commission finds that the proposed
rule change is consistent with Section
6(b)(5) of the Act,14 in that the proposed
change is designed to promote just and
equitable principles of trade, will serve
to 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.15
In the filing, the Exchange notes its
belief that the proposed rule change
relating to nullifying trades involving
Priority Customers and adjusting trades
where none of the parties are Priority
Customers will help market participants
better manage their risk associated with
potential erroneous trades. The
Exchange notes that the proposed rule
change is not unfairly discriminatory,
even though it offers some market
participants a choice as to whether a
trade is nullified or adjusted, while
other market participants will continue
to have all of their obvious and
catastrophic errors adjusted.
Specifically, the Exchange notes that the
existing rules differentiate among
market participants.16 The Exchange
notes further that options rules often
treat Priority Customers in a special
way,17 recognizing that Priority
Customers are not necessarily immersed
in the day-to-day trading of the markets,
less likely to be watching trading
activity in a particular option
throughout the day, and may have
limited funds in their trading accounts.
The Exchange goes on to note that,
while the proposed rule change may
introduce uncertainty regarding whether
a trade will be adjusted or nullified, it
eliminates price uncertainty, as
customer orders can be adjusted to a
significantly different price than their
13 In approving the proposed rule change, the
Commission has considered the proposed rule’s
impact on efficiency, competition, and capital
formation. See 15 U.S.C. 78c(f).
14 15 U.S.C. 78f(b)(5).
15 15 U.S.C. 78o–4(b)(2)(C).
16 The Exchange notes, for example, that the
notification period to begin the obvious error
process is different for Exchange market makers and
non-market makers and whether a trade is adjusted
or busted also differs.
17 For example, many options exchanges priority
rules treat Priority Customer orders differently and
some options exchanges only accept certain types
of orders from Priority Customers. Most options
exchanges also charge different fees for Priority
Customer orders.
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Sfmt 4703
limit order price under the rule prior to
this proposed rule change. Ultimately,
the Exchange believes differentiating
among market participants by
permitting Priority Customers to have a
choice as to whether to nullify a trade
involving an obvious or a catastrophic
error is not unfairly discriminatory,
because it is reasonable and fair to
provide Priority Customers with
additional options to protect themselves
against the consequences of obvious and
catastrophic errors.
The Commission notes that in
considering the proposed rule change,
the Exchange has weighed the benefits
of certainty to non-broker-dealer
customers that their limit price will not
be violated against the costs of increased
uncertainty to other market participants
such as market makers and brokerdealers that their trades may be nullified
instead of adjusted depending on
whether the other party to the
transaction is or is not a Priority
Customer. The proposed rule change
takes an approach similar to the one
taken in the Exchange’s existing obvious
error rule, whereby transactions in
which an obvious error occurred with at
least one party that is not an Exchange
market maker are nullified unless both
parties agree to adjust the price of the
transaction within 30 minutes of being
notified of the obvious error.
Further, the Commission believes that
the proposed rule change relating to
Market Control making the
determination of whether a catastrophic
error has occurred will promote just and
equitable principles of trade by adding
certainty and more consistency to the
current rule. The Exchange noted that,
in its experience, the procedure of
requiring a member panel to make the
initial determination of whether or not
a catastrophic error has occurred in all
cases is inefficient and unnecessary.
The Exchange stated that its obvious
and catastrophic error rule and the
procedures that carry out the rule have
consistently been based on specific and
objective criteria. The Exchange noted
that this proposal furthers that principle
by adopting objective guidelines for the
determination of which trades may be
nullified or adjusted, and for the
determination of whether or not a trade
is deemed to be a catastrophic error. For
the reasons noted above, the Exchange
believes that the proposed rule change
is consistent with the Act.
IV. Conclusion
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act,18 that the
18 15
E:\FR\FM\02MYN1.SGM
U.S.C. 78s(b)(2).
02MYN1
Federal Register / Vol. 78, No. 85 / Thursday, May 2, 2013 / Notices
proposed rule change (SR–ISE–2013–15)
be, and hereby is, approved.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.19
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2013–10346 Filed 5–1–13; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–69468; File No. SR–CBOE–
2013–046]
Self-Regulatory Organizations;
Chicago Board Options Exchange,
Incorporated; Notice of Filing and
Immediate Effectiveness of a Proposed
Rule Change To Delete Rule 6.74(b)
That Sets Forth Expired SizeQuote
Mechanism Pilot Program
April 26, 2013.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (the
‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on April 25,
2013, the Chicago Board Options
Exchange, Incorporated (the ‘‘Exchange’’
or ‘‘CBOE’’) filed with the Securities
and Exchange Commission (the
‘‘Commission’’) the proposed rule
change as described in Items I and II
below, which Items have been prepared
by the Exchange. The Exchange filed the
proposal as a ‘‘non-controversial’’
proposed rule change pursuant to
Section 19(b)(3)(A)(iii) of the Act 3 and
Rule 19b–4(f)(6) thereunder.4 The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
sroberts on DSK5SPTVN1PROD with NOTICES
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
CBOE proposes to delete Rule 6.74(f)
that sets forth the SizeQuote Mechanism
pilot program because this pilot
program expired on February 15, 2008.
The text of the proposed rule change is
available on the Exchange’s Web site
(https://www.cboe.com/AboutCBOE/
CBOELegalRegulatoryHome.aspx), at
the Exchange’s Office of the Secretary,
and at the Commission’s Public
Reference Room.
19 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 15 U.S.C. 78s(b)(3)(A)(iii).
4 17 CFR 240.19b–4(f)(6).
1 15
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16:50 May 01, 2013
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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 purpose of this filing is to delete
Rule 6.74(f) that sets forth the open
outcry SizeQuote Mechanism program,
which was approved on a pilot basis in
February 2005 and was expanded to
include solicited orders in January 2006.
The SizeQuote Mechanism pilot
program was extended twice and
expired on February 15, 2008.5
In connection with the March 18,
2013 launch of mini-options, the
Exchange amended, among other rules,
Rule 6.74(f) to establish a minimum
eligible order size for mini-options in an
amount proportional to the minimum
eligible order size that is required for
standard options (i.e., not less than 250
standard option contracts delivering 100
shares and not less than 2,500 for minioption contracts delivering 10 shares).6
In that filing, the Exchange deleted
obsolete rule text from Rule 6.74(f)(i)
5 See Securities Exchange Act Release Nos. 51205
(February 15, 2005), 70 FR 8647 (February 22, 2005)
(approving SR–CBOE–2004–72 on a pilot basis
through February 15, 2006); 53135 (January 17,
2006), 71 FR 3908 (January 24, 2006) (approving
SR–CBOE–2005–83, which modified the pilot
program); 53252 (February 8, 2006), 71 FR 8012
(February 15, 2006) (immediately effective
proposal, SR–CBOE–2006–05, extending the pilot
program from February 15, 2006 to February 15,
2007); and 55174 (January 25, 2007), 72 FR January
31, 2007 (immediately effective proposal, SR–
CBOE–2007–07, extending the pilot program from
February 15, 2007 to February 15, 2008).
The expired pilot program provided a process by
which a Floor Broker (using his/her exercise of due
diligence to execute orders at the best price(s))
could execute and facilitate large-sized orders in
open outcry. The Exchange issued a Regulatory
Circular announcing the expiration of the
SizeQuote Mechanism Pilot, which was no longer
operative after February 15, 2008. See CBOE
Regulatory Circular RG08–028 (Expiration of
SizeQuote Mechanism Pilot).
6 See Securities Exchange Act Release No. 69235
(March 25, 2013), 78 FR 19552 (April 1, 2013)
(notice of filing and immediate effectiveness of SR–
CBOE–2013–036).
PO 00000
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25779
that referenced that the SizeQuote
Mechanism pilot program had expired
on February 15, 2008. The Exchange
believes that the entirety of 6.74(f)
should be deleted since the SizeQuote
Mechanism pilot program has expired,
the rule text language is obsolete and to
eliminate confusion as to availability of
the SizeQuote Mechanism pilot program
that may arise if the language remains
in Rule 6.74(f).
2. Statutory Basis
The Exchange believes the proposed
rule change is consistent with the Act
and the rules and regulations
thereunder, including the requirements
of Section 6(b) of the Act.7 In particular,
the Exchange believes the proposed rule
change is consistent with the Section
6(b)(5) 8 requirements that the rules of
an exchange be designed to promote just
and equitable principles of trade, to
prevent fraudulent and manipulative
acts, to foster cooperation and
coordination with persons engaged in
facilitating transactions in securities, to
remove impediments to and to perfect
the mechanism for a free and open
market and a national market system,
and, in general, to protect investors and
the public interest.
Specifically, the Exchange believes
that investors and market participants
would benefit from Rule 6.74(d) being
deleted because it sets forth the
SizeQuote Mechanism pilot program
that expired on February 15, 2008 and
therefore contains obsolete and outdated
rule text. If the current rule text
language remains, confusion could arise
as to whether the SizeQuote Mechanism
pilot program is currently available.
Because CBOE did not to renew and/or
revise or seek to make the SizeQuote
Mechanism pilot program permanent,
CBOE believes that it is appropriate to
delete the obsolete rule text that
references the SizeQuote Mechanism
pilot program which expired on
February 15, 2008.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
This proposed rule change does not
impose any burden on competition that
is not necessary or appropriate in
furtherance of the purposes of the Act.
In this regard and as indicated above,
the Exchange notes that the rule change
is being proposed to delete obsolete rule
text language that sets forth the expired
SizeQuote Mechanism pilot program in
Rule 6.74(d). Since all market
participants cannot currently utilize the
expired SizeQuote Mechanism pilot
7 15
8 15
U.S.C. 78f(b).
U.S.C. 78f(b)(5).
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]]>Agencies
[Federal Register Volume 78, Number 85 (Thursday, May 2, 2013)]
[Notices]
[Pages 25777-25779]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-10346]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-69467; File No. SR-ISE-2013-15]
Self-Regulatory Organizations; International Securities Exchange,
LLC; Order Granting Approval of a Proposed Rule Change To Amend the
Obvious and Catastrophic Errors Rule
April 26, 2013.
I. Introduction
On February 26, 2013, the International Securities Exchange, LLC
(the ``Exchange'' or the ``ISE'') filed with the Securities and
Exchange Commission (``Commission''), pursuant to Section 19(b)(1) of
the Securities Exchange Act of 1934 (the ``Act'') \1\ and Rule 19b-4
thereunder,\2\ a proposed rule change to amend Rule 720, Obvious and
Catastrophic Errors. The proposed rule change was published for comment
in the Federal Register on March 14, 2013.\3\ The Commission received
no comment letters on the proposal. This order approves the proposed
rule change.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ Securities Exchange Act Release No. 69085 (March 8, 2013),
78 FR 16338 (``Notice'').
---------------------------------------------------------------------------
II. Description of the Proposed Rule Change
The Exchange proposes to amend Rule 720 relating to obvious error
and catastrophic error rules by: (1) Providing that, in the case of
both obvious and catastrophic errors, the Exchange will nullify trades
for transactions involving Priority Customers \4\ and adjust trades
where none of the parties to the trade are Priority Customers; and (2)
harmonizing the procedure for making obvious and catastrophic error
determinations.
---------------------------------------------------------------------------
\4\ ISE Rule 100(a)(37A) defines ``Priority Customer'' as a
person or entity that (i) is not a broker or dealer in securities,
and (ii) does not place more than 390 orders in listed options per
day on average during a calendar month for its own beneficial
account(s).
---------------------------------------------------------------------------
Erroneous Transactions Involving Priority Customers
Under current Rule 720(b)(2), the Exchange nullifies obvious error
transactions unless all parties to the trade are ISE market makers, in
which case the Exchange adjusts the price of the transaction. With
respect to catastrophic errors, the Exchange currently adjusts all
transactions even if they involve non-market makers.\5\
---------------------------------------------------------------------------
\5\ See ISE Rule 720(d)(3).
---------------------------------------------------------------------------
The Exchange proposes to amend its obvious and catastrophic error
procedures to allow the Exchange to nullify trades that qualify as
either an obvious error or a catastrophic error if such trades involved
a Priority Customer and adjust trades where none of the parties to the
trade are Priority Customers (i.e., market makers, broker-dealers and
professional customers). Specifically, the Exchange proposes to amend
Rule 720(b)(2)(ii) and adopt new Rule 720(c)(2)(B),\6\ which states
that where at least one party to the obvious or catastrophic error is a
Priority Customer, the trade will be nullified by
[[Page 25778]]
Market Control \7\ unless both parties agree to an adjustment price for
the transaction within thirty (30) minutes of being notified by Market
Control of its determination. The Exchange believes that this proposal
provides a fair way to address the issue of a trade executing through a
customer's limit order price while balancing the competing interests of
certainty that trades stand with the policy concerns about dealing with
true errors.
---------------------------------------------------------------------------
\6\ This proposed rule change also realigns certain parts of
Rule 720. The rule on Catastrophic Error Procedure rule was
previously found in Rule 720(d) and with the proposed realignment,
this rule now appears as Rule 720(c).
\7\ Market Control consists of designated personnel in the
Exchange's market control center. See ISE Rule 720(a)(3)(ii).
---------------------------------------------------------------------------
Determination of Erroneous Transactions
Under Rule 720(b)(2), Market Control determines whether an obvious
error has occurred and applies the rule to adjust or nullify trades
with the ability for those parties affected to request that a panel of
members review decisions made by Market Control. With respect to
catastrophic errors, Rule 720(d)(2) currently requires that a panel of
members make the initial determination of whether a catastrophic error
occurred rather than Market Control.
The Exchange proposes to amend the catastrophic error procedure to
provide that Market Control shall make the initial determination of
whether or not a catastrophic error has occurred. The Exchange's
proposed procedure would allow parties affected by an action taken by
Market Control the ability to request that such actions be reviewed by
a member panel, rather than requiring a member panel to make the
initial determination in all cases. The Exchange's proposed rule also
sets forth the steps that Market Control shall take if a determination
has been made that a catastrophic error has occurred.\8\
---------------------------------------------------------------------------
\8\ See Proposed Rule 720(c)(2).
---------------------------------------------------------------------------
The Exchange also proposes to rearrange parts of Rule 720.
Specifically, the Exchange proposes to delete Rule 720(c) (Obvious
Error Panel) and move the substance of that rule to new Rule 720(d),
which is also renamed Review Panel, and which will now apply to both
obvious and catastrophic errors. Proposed Rule 720(d) will provide the
composition of the Review Panel,\9\ the scope of the Review Panel's
review,\10\ the procedure for requesting review,\11\ and the decisions
of the Review Panel.\12\
---------------------------------------------------------------------------
\9\ See Proposed Rule 720(d)(1).
\10\ See Proposed Rule 720(d)(2).
\11\ See Proposed Rule 720(d)(3).
\12\ See Proposed Rule 720(d)(4). The Exchange is also proposing
conforming amendments to Supplementary Material .01, .02, .03 and
.04 to Rule 720 to reflect the proposed rule changes.
---------------------------------------------------------------------------
III. Discussion
The Commission has carefully considered the proposed rule change
and finds that the proposed rule change is consistent with the
requirements of the Act and the rules and regulations thereunder
applicable to a national securities exchange.\13\ Specifically, the
Commission finds that the proposed rule change is consistent with
Section 6(b)(5) of the Act,\14\ in that the proposed change is designed
to promote just and equitable principles of trade, will serve to 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.\15\
---------------------------------------------------------------------------
\13\ In approving the proposed rule change, the Commission has
considered the proposed rule's impact on efficiency, competition,
and capital formation. See 15 U.S.C. 78c(f).
\14\ 15 U.S.C. 78f(b)(5).
\15\ 15 U.S.C. 78o-4(b)(2)(C).
---------------------------------------------------------------------------
In the filing, the Exchange notes its belief that the proposed rule
change relating to nullifying trades involving Priority Customers and
adjusting trades where none of the parties are Priority Customers will
help market participants better manage their risk associated with
potential erroneous trades. The Exchange notes that the proposed rule
change is not unfairly discriminatory, even though it offers some
market participants a choice as to whether a trade is nullified or
adjusted, while other market participants will continue to have all of
their obvious and catastrophic errors adjusted. Specifically, the
Exchange notes that the existing rules differentiate among market
participants.\16\ The Exchange notes further that options rules often
treat Priority Customers in a special way,\17\ recognizing that
Priority Customers are not necessarily immersed in the day-to-day
trading of the markets, less likely to be watching trading activity in
a particular option throughout the day, and may have limited funds in
their trading accounts. The Exchange goes on to note that, while the
proposed rule change may introduce uncertainty regarding whether a
trade will be adjusted or nullified, it eliminates price uncertainty,
as customer orders can be adjusted to a significantly different price
than their limit order price under the rule prior to this proposed rule
change. Ultimately, the Exchange believes differentiating among market
participants by permitting Priority Customers to have a choice as to
whether to nullify a trade involving an obvious or a catastrophic error
is not unfairly discriminatory, because it is reasonable and fair to
provide Priority Customers with additional options to protect
themselves against the consequences of obvious and catastrophic errors.
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\16\ The Exchange notes, for example, that the notification
period to begin the obvious error process is different for Exchange
market makers and non-market makers and whether a trade is adjusted
or busted also differs.
\17\ For example, many options exchanges priority rules treat
Priority Customer orders differently and some options exchanges only
accept certain types of orders from Priority Customers. Most options
exchanges also charge different fees for Priority Customer orders.
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The Commission notes that in considering the proposed rule change,
the Exchange has weighed the benefits of certainty to non-broker-dealer
customers that their limit price will not be violated against the costs
of increased uncertainty to other market participants such as market
makers and broker-dealers that their trades may be nullified instead of
adjusted depending on whether the other party to the transaction is or
is not a Priority Customer. The proposed rule change takes an approach
similar to the one taken in the Exchange's existing obvious error rule,
whereby transactions in which an obvious error occurred with at least
one party that is not an Exchange market maker are nullified unless
both parties agree to adjust the price of the transaction within 30
minutes of being notified of the obvious error.
Further, the Commission believes that the proposed rule change
relating to Market Control making the determination of whether a
catastrophic error has occurred will promote just and equitable
principles of trade by adding certainty and more consistency to the
current rule. The Exchange noted that, in its experience, the procedure
of requiring a member panel to make the initial determination of
whether or not a catastrophic error has occurred in all cases is
inefficient and unnecessary. The Exchange stated that its obvious and
catastrophic error rule and the procedures that carry out the rule have
consistently been based on specific and objective criteria. The
Exchange noted that this proposal furthers that principle by adopting
objective guidelines for the determination of which trades may be
nullified or adjusted, and for the determination of whether or not a
trade is deemed to be a catastrophic error. For the reasons noted
above, the Exchange believes that the proposed rule change is
consistent with the Act.
IV. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\18\ that the
[[Page 25779]]
proposed rule change (SR-ISE-2013-15) be, and hereby is, approved.
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\18\ 15 U.S.C. 78s(b)(2).
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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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-10346 Filed 5-1-13; 8:45 am]
BILLING CODE 8011-01-P
