Self-Regulatory Organizations; Topaz Exchange, LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Related to PIM and Penny Pilot Periods, 62838-62841 [2013-24641]

Download as PDF sroberts on DSK5SPTVN1PROD with FRONT MATTER 62838 Federal Register / Vol. 78, No. 204 / Tuesday, October 22, 2013 / Notices initial and continued listing criteria applicable to Managed Fund Shares. (2) The Exchange has appropriate rules to facilitate transactions in the Shares during all trading sessions. (3) The Exchange represents that trading in the Shares will be subject to the existing trading surveillances, administered by both Nasdaq and 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 2111A, 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 and the First Trust Subsidiary must be in compliance with Rule 10A– 3 under the Exchange Act.30 (6) A minimum of 100,000 Shares will be outstanding at the commencement of trading on the Exchange. (7) 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 deemed illiquid by the Adviser and master demand notes. (8) The equity securities (including shares of ETFs and closed-end funds) in which the Fund may invest will be limited to securities that trade in markets that are members of the ISG, which includes all U.S. national securities exchanges, or are parties to a comprehensive surveillance sharing agreement with the Exchange. The Fund 30 17 CFR 240.10A–3. VerDate Mar<15>2010 21:08 Oct 21, 2013 Jkt 232001 and the First Trust Subsidiary will not invest in any non-U.S. equity securities (other than shares of the First Trust Subsidiary). (9) The Fund will not invest directly in Commodities. The Fund expects to gain exposure to these investments exclusively by investing in the First Trust Subsidiary. (10) The Fund’s investment in the First Trust Subsidiary may not exceed 25% of the Fund’s total assets. (11) The Fund’s and the First Trust Subsidiary’s investments will be consistent with the Fund’s investment objective and will not be used to enhance leverage. The Fund may invest in inverse ETFs, but it will not invest in leveraged or inverse leveraged ETFs. (12) Pursuant to the Exemptive Order, the Fund will not invest directly in options contracts, futures contracts, or swap agreements. However, this restriction will not apply to the First Trust Subsidiary. With respect to the futures contracts held indirectly through the First Trust Subsidiary, not more than 10% of the weight of such futures contracts in the aggregate shall consist of instruments whose principal trading market is not a member of ISG or is a market with which the Exchange does not have a comprehensive surveillance sharing agreement. This approval order is based on all of the Exchange’s representations and description of the Fund, including those set forth above and in the Notice.31 For the foregoing reasons, the Commission finds that the proposed rule change is consistent with Section 6(b)(5) of the Act 32 and the rules and regulations thereunder applicable to a national securities exchange. IV. Conclusion It is therefore ordered, pursuant to Section 19(b)(2) of the Act,33 that the proposed rule change (SR–NASDAQ– 2013–107) be, and it hereby is, approved. 31 The Commission notes that it does not regulate the market for futures in which the Fund plans to take positions. Limits on the positions that any person may take in futures may be directly set by the CFTC or by the markets on which the futures are traded. The Commission has no role in establishing position limits on futures even though such limits could impact an exchange-traded product that is under the jurisdiction of the Commission. 32 15 U.S.C. 78f(b)(5). 33 15 U.S.C. 78s(b)(2). PO 00000 Frm 00256 Fmt 4703 Sfmt 4703 For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.34 Kevin M. O’Neill, Deputy Secretary. [FR Doc. 2013–24643 Filed 10–21–13; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–70636; File No. SR–Topaz– 2013–05] Self-Regulatory Organizations; Topaz Exchange, LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Related to PIM and Penny Pilot Periods October 9, 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 September 27, 2013, the Topaz Exchange, LLC (d/b/a ISE Gemini) (the ‘‘Exchange’’ or ‘‘Topaz’’) 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 the Substance of the Proposed Rule Change Topaz is proposing to amend its rules to correct date references related to two pilot programs being conducted on the Exchange: the PIM Pilot and Penny Pilot, each as defined below. The Exchange is also proposing to revise a provision describing how the Exchange notifies Members about which option classes are eligible to trade in the Penny Pilot. The text of the proposed rule change is available on the Exchange’s Internet Web site at https://www.ise.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 the 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 34 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 1 15 E:\FR\FM\22OCN1.SGM 22OCN1 Federal Register / Vol. 78, No. 204 / Tuesday, October 22, 2013 / Notices proposed rule change. The text of these statements may be examined at the places specified in Item IV below. The self-regulatory organization has prepared summaries, set forth in Sections A, B and C below, of the most significant aspects of such statements. sroberts on DSK5SPTVN1PROD with FRONT MATTER A. Self-Regulatory Organization’s Statement of the Purpose of, and the Statutory Basis for, the Proposed Rule Change 1. Purpose The Exchange is proposing to amend its rules to correct two incorrect date references related to the expiration of pilot programs currently being conducted on the Exchange. In particular, the Exchange proposes to amend the pilot periods specified for a pilot program related to the minimum size requirement for orders sent to the Exchange’s Price Improvement Mechanism (‘‘PIM Pilot’’), and a pilot program permitting certain options classes to be quoted and traded in pennies (‘‘Penny Pilot’’). The Exchange’s rules related to both of these pilot programs each mistakenly state a pilot period end date that was prior to Topaz’s registration as a national securities exchange.3 With respect to the PIM Pilot, Topaz rules provide that during the specified pilot period there will be no minimum size requirement for orders to be eligible for the PIM. Supplementary Material .03 to Rule 723 states that this pilot was scheduled to expire on July 18, 2013, which is a date prior to the Exchange’s registration as a national securities exchange. The Exchange notes that Supplementary Material .05 to Rule 723 currently references the correct pilot end date of July 18, 2014, which is consistent with the pilot period on the International Securities Exchange, LLC (‘‘ISE’’).4 The Exchange is therefore proposing to update Supplementary Material .03 to extend the PIM Pilot through July 18, 2014 as was intended. The Exchange notes that by clarifying this date reference it is not making any substantive changes to the operation of the PIM Pilot, which will continue in its current form. With respect to the Penny Pilot, Topaz rules provide that during the specified pilot period certain participating options classes may be quoted and traded in increments as low 3 The Securities and Exchange Commission granted the Exchange’s application for registration as a national securities exchange on July 26, 2013. See Securities Exchange Act Release No. Release No. [sic] 70050 (July 26, 2013), 78 FR 46622 (Aug. 1, 2013). The Exchange began trading on August 5, 2013. 4 See Supplementary Material .03 to ISE Rule 723. VerDate Mar<15>2010 21:08 Oct 21, 2013 Jkt 232001 as $0.01.5 Supplementary Material .01 to Rule 710 states that the Penny Pilot was scheduled to expire on June 30, 2013, which is a date prior to Exchange’s registration as a national securities exchange. The Exchange notes that the second paragraph of Supplementary Material .01 to Rule 710 currently references the correct pilot end date of December 31, 2013, which is consistent with the pilot period on other options exchanges.6 The Exchange is therefore proposing to update the first paragraph of Supplementary Material .01 to Rule 710 to extend the Penny Pilot through December 31, 2013. This filing does not propose any substantive changes to the Penny Pilot: all classes currently participating will remain the same and all minimum increments will remain unchanged. With this proposed rule change, the Exchange also proposes to revise the provision describing how the Exchange specifies which option classes trade in the Penny Pilot. Currently, the rule requires that the Exchange specify which options trade in the Penny Pilot and in what increments in a Regulatory Information Circular that has been filed with the Commission pursuant to Rule 19b–4 under the Exchange Act and distributed to its Members. The Exchange now proposes to revise that provision to indicate that information regarding the option classes trading in the Penny Pilot will be communicated to Members through a Market Information Circular. The Exchange will also post on its Web site the replacement option classes that are selected for the Penny Pilot.7 By revising this provision, the Exchange will eliminate the requirement to file a Regulatory Information Circular with the Commission pursuant to Rule 19b– 4. The Exchange notes that when it filed its application to be registered as a 5 In particular, the minimum price variation for all participating options classes, except for the Nasdaq-100 Index Tracking Stock (‘‘QQQQ’’), the SPDR S&P 500 Exchange Traded Fund (‘‘SPY’’) and the iShares Russell 2000 Index Fund (‘‘IWM’’), is $0.01 for all option series trading at less than $3 per contract and $0.05 for all option series trading at $3 per contract or greater. QQQQ, SPY and IWM are traded in $0.01 increments for all options series. 6 See, e.g., Supplementary Material .01 to ISE Rule 710; Chicago Board Options Exchange, Inc. Rule 6.42(3); NASDAQ OMX PHLX, LLC Rule 1034(a)(i)(B). 7 This revision is consistent with rules at most of the other options exchanges participating in the Penny Pilot: ISE Rule 710, Supplementary Material .01; BATS Exchange, Inc. Rule 21.5, Interpretations and Policies .01; NASDAQ OMX BX, Inc. Chapter VI, Section 5(3); NASDAQ OMX PHLX, Inc. Rule 1034(a)(i)(B); The NASDAQ Stock Market LLC Chapter VI, Section 5; NYSE MKT LLC Rule 960NY, Commentary .02; and NYSE Arca, Inc. Rule 6.72, Commentary .02. PO 00000 Frm 00257 Fmt 4703 Sfmt 4703 62839 national securities exchange it represented that it would provide certain data to the Commission in connection with the PIM and Penny Pilots.8 The Exchange will continue to provide such data to the Commission with respect to trading during the extended pilot periods. In addition, Topaz represents that it will provide the Commission with the same data that the ISE has agreed to provide with respect to any current or future pilot program conducted on the Exchange that is based on Topaz rules that are incorporated by reference to the rules of the ISE. For example, the Exchange currently conducts a pilot program that eliminates position and exercise limits for physically-settled options on the SPDR S&P ETF Trust (‘‘SPY Pilot’’). When the ISE adopted the SPY Pilot it agreed to provide data to the Commission in a ‘‘Pilot Report’’ to be submitted within thirty (30) days of the end of the twelve (12) month time period following the adoption of the pilot program.9 As this pilot program is being conducted on Topaz pursuant to rules incorporated by reference to ISE rules,10 the Exchange will therefore be obligated to provide the same data to the Commission with respect to trading on Topaz.11 The Exchange also notes that it currently conducts another pilot program adopted in connection with the Plan to Address Extraordinary Market Volatility that suspends Rule 720 (Obvious and Catastrophic Errors) with respect to transactions executed during a Limit State or Straddle State (‘‘Obvious Error Pilot’’).12 Although this pilot program is not incorporated by 8 See Exhibit B to Topaz Exchange Form 1 Application. 9 See Securities Exchange Act Release No. 62300 (Oct. 5, 2012), 78 FR 62300 (Oct. 12, 2012) (SR–ISE– 2012–81). 10 Chapter 4 of the Rules of the ISE is incorporated by reference into the Topaz rulebook. 11 The Pilot Report to be submitted by Topaz will detail the size and different types of strategies employed with respect to positions established as a result of the elimination of position limits in SPY. In addition, the report will note whether any problems resulted due to the no limit approach and any other information that may be useful in evaluating the effectiveness of the pilot program. The Pilot Report will compare the impact of the pilot program, if any, on the volumes of SPY options and the volatility in the price of the underlying SPY shares, particularly at expiration. In preparing the report the Exchange will utilize various data elements such as volume and open interest. In addition the Exchange will make available to Commission staff data elements relating to the effectiveness of the pilot program. 12 Rule 720 provides a process by which a transaction may be busted or adjusted when the execution price of a transaction deviates from the option’s theoretical price by a certain amount. E:\FR\FM\22OCN1.SGM 22OCN1 62840 Federal Register / Vol. 78, No. 204 / Tuesday, October 22, 2013 / Notices reference to ISE rules,13 the Exchange believes that it should provide the Commission the same data elements for Topaz as is required to be provided by ISE regarding how Limit and Straddle States affect the quality of the options market.14 2. Statutory Basis sroberts on DSK5SPTVN1PROD with FRONT MATTER The basis under the Securities Exchange Act of 1934 (the ‘‘Exchange Act’’) for this proposed rule change is found in Section 6(b)(5), in that the proposed rule change is designed to promote just and equitable principles of trade, 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. The Exchange believes that it is appropriate to correct the pilot dates referenced in its rules for the PIM and Penny Pilots so that Members and investors have a clear and accurate understanding of the Exchange’s rules. The Exchange notes again that the pilot end dates being proposed here are consistent with other parts of the Exchange’s rules, and with the rules of the ISE and other options exchanges. In addition, the revision to how the Exchange will specify which options participate in the Penny Pilot promotes just and equitable principles of trade since it clarifies how Members and other market participants will be made aware of which option classes are trading in the Penny Pilot and eliminates a requirement that the Exchange specify which option classes are in the Penny Pilot through a Regulatory Information Circular that has been filed with the Commission pursuant to Rule 19b–4 under the Exchange Act. Eliminating the requirement to file the Regulatory Information Circular is appropriate because most other options exchanges do not require such a submission to the Commission. 13 See Securities Exchange Act Release No. 69329 (April 5, 2013), 78 FR 21657 (April 11, 2013) (SR– ISE–2013–22). 14 In particular, the Exchange represents that it will conduct its own analysis concerning the elimination of obvious error rule during Limit and Straddle States and agrees to provide the Commission with relevant data to assess the impact of this proposed rule change. As part of its analysis, the Exchange will evaluate the options market quality during Limit and Straddle States, assess the character of incoming order flow and transactions during Limit and Straddle States, and review any complaints from members and their customers concerning executions during Limit and Straddle States. The Exchange also agrees to provide to the Commission data requested to evaluate the impact of the elimination of the obvious error rule, including data relevant to assessing the various analyses noted above. VerDate Mar<15>2010 21:08 Oct 21, 2013 Jkt 232001 B. Self-Regulatory Organization’s Statement on Burden on Competition The proposed rule changes are nonsubstantive corrections to the Exchange’s rules and therefore do not implicate the competition analysis. The proposed rule change will serve to promote regulatory clarity and consistency, thereby reducing burdens on the marketplace and facilitating investor protection. C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others The Exchange has not solicited, and does not intend to solicit, comments on this proposed rule change. The Exchange has not received any unsolicited written comments from members or other interested parties. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action The Exchange believes that the foregoing proposed rule change may take effect upon filing with the Commission pursuant to Section 19(b)(3)(A) 15 of the Act and Rule 19b– 4(f)(6) thereunder 16 because the foregoing proposed rule change does not (i) significantly affect the protection of investors or the public interest, (ii) impose any significant burden on competition, and (iii) become operative for 30 days after its filing date, or such shorter time as the Commission may designate. The Exchange has asked the Commission to waive the 30-day operative delay so that the proposal may become operative immediately upon filing. The Commission believes that waiver of the operative delay is consistent with the protection of investors and the public interest because this rule change is not proposing any substantive changes. The proposed rule change is correcting certain inaccuracies in the Exchange’s rules, conforming to how other exchanges provide notice of the options that trade in the Penny Pilot, and confirming that the Exchange will provide certain data to the Commission in connection with various pilot programs. These changes and clarifications should eliminate member confusion and provide clarity on how the rules apply. Therefore, the Commission designates the proposal operative upon filing.17 15 15 U.S.C. 78s(b)(3)(A). CFR 240.19b–4(f)(6). 17 For purposes only of waiving the 30-day operative delay, the Commission has considered the At any time within 60 days of the filing of the proposed rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such action is: (i) Necessary or appropriate in the public interest; (ii) for the protection of investors; or (iii) otherwise in furtherance of the purposes of the Act. If the Commission takes such action, the Commission shall institute proceedings to determine whether the proposed rule should be approved or disapproved. IV. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: Electronic Comments • Use the Commission’s Internet comment form (https://www.sec.gov/ rules/sro.shtml); or • Send an email to rule-comments@ sec.gov. Please include File No. SR– Topaz–2013–05 on the subject line. Paper Comments • Send paper comments in triplicate to Elizabeth M. Murphy, Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549–1090. All submissions should refer to File No. SR–Topaz–2013–05. 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 such filing also will be available for inspection and copying at the principal 16 17 PO 00000 Frm 00258 Fmt 4703 Sfmt 4703 proposed rule’s impact on efficiency, competition, and capital formation. See 15 U.S.C. 78c(f). E:\FR\FM\22OCN1.SGM 22OCN1 Federal Register / Vol. 78, No. 204 / Tuesday, October 22, 2013 / Notices offices 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 No. SR–Topaz– 2013–05, and should be submitted on or before November 12, 2013. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.18 Kevin M. O’Neill, Deputy Secretary. [FR Doc. 2013–24641 Filed 10–21–13; 8:45 am] BILLING CODE 8011–01–P [Release No. 34–70655; File No. SR–BX– 2013–054] Self-Regulatory Organizations; NASDAQ OMX BX, Inc.; Notice of Filing of Proposed Rule Change To Amend the Fee Schedule Under Exchange Rule 7018(a) With Respect to Transactions in Securities Priced at $1 per Share or Greater October 10, 2013. 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 September 27, 2013, NASDAQ OMX BX, Inc. (‘‘BX’’ 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. sroberts on DSK5SPTVN1PROD with FRONT MATTER I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to amend the fee schedule under Exchange Rule 7018(a) with respect to transactions in securities priced at $1 per share or greater. The Exchange will implement the proposed rule change on October 1, 2013. The text of the proposed rule change is also available on the Exchange’s Web site at https:// nasdaqomxbx.cchwallstreet.com, at the principal office of the Exchange, and at CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 1 15 VerDate Mar<15>2010 21:08 Oct 21, 2013 Jkt 232001 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 Statutory Basis for, the Proposed Rule Change SECURITIES AND EXCHANGE COMMISSION 18 17 the Commission’s Public Reference Room. 1. Purpose The Exchange is proposing to amend the credit it pays with respect to routable orders that access liquidity on the Exchange (either before or after routing to other venues). Currently, the Exchange pays a credit of $0.0013 or $0.0011 per share executed for orders that execute at BX if the member achieves certain volume tiers and a credit of $0.0007 per share executed if such tiers are not reached. However, the Exchange pays a credit of $0.0014 per share executed with respect to routable orders (specifically, orders using the Exchange’s BSTG, BSCN, BMOP, BTFY, BCRT, BDRK, or BCST routing strategies) if such orders execute at the Exchange. The Exchange is reducing this credit to $0.0011 per share executed, as a means of reducing costs in a period of persistent low trading volumes. The Exchange notes, however, that it is still providing an incentive for members to use the Exchange’s routing functionality by paying a credit available to all members, regardless of their trading volumes, that exceeds the base credit of $0.0007 per share executed otherwise available.3 2. Statutory Basis BX believes that the proposed rule change is consistent with the provisions of Section 6 of the Act,4 in general, and Sections 6(b)(4) and (b)(5) of the Act,5 in particular, because it provides for the equitable allocation of reasonable dues, 3 The Exchange notes that the credits discussed above do not apply to orders that execute against midpoint pegged orders, since such orders receive price improvement in lieu of an Exchange-paid credit. 4 15 U.S.C. 78f. 5 15 U.S.C. 78f(b)(4) and (b)(5). PO 00000 Frm 00259 Fmt 4703 Sfmt 4703 62841 fees and other charges among members and issuers and other persons using any facility or system that the Exchange operates or controls, and it does not unfairly discriminate between customers, issuers, brokers or dealers. The proposed change is reasonable because it reflects a modest decrease of $0.0003 per share executed in the credit paid to members with routable orders that execute at the Exchange. The resulting credit is comparable to the credit that members receive if they provide an average daily volume of at least 25,000, but less than 1 million, shares of liquidity during the month, which is a higher rate than the base rate of $0.0007 per share executed. The change is consistent with an equitable allocation of fees and is not unfairly discriminatory because it makes the credits applicable to routable orders that execute at the Exchange more consistent with the credits paid with respect to other orders that execute at the Exchange. Although the credit exceeds the base rate of $0.0007, the difference is not unfairly discriminatory because the credit offered with respect to routable orders is still available to all members, regardless of volume levels, and is intended to provide an incentive for BX members to make use of the Exchange’s optional routing functionality. B. Self-Regulatory Organization’s Statement on Burden on Competition The Exchange does not believe that the proposed rule change will result in any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act, as amended.6 BX notes that it operates in a highly competitive market in which market participants can readily favor competing venues if they deem fee levels at a particular venue to be excessive, or rebate opportunities available at other venues to be more favorable. In such an environment, BX must continually adjust its fees to remain competitive with other exchanges and with alternative trading systems that have been exempted from compliance with the statutory standards applicable to exchanges. Because competitors are free to modify their own fees in response, and because market participants may readily adjust their order routing practices, BX believes that the degree to which fee changes in this market may impose any burden on competition is extremely limited. In this instance, the decreased credit is intended to reduce the Exchange’s costs, while still continuing to provide an incentive for 6 15 E:\FR\FM\22OCN1.SGM U.S.C. 78f(b)(8). 22OCN1

Agencies

SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 78, Number 204 (Tuesday, October 22, 2013)]
[Notices]
[Pages 62838-62841]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-24641]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-70636; File No. SR-Topaz-2013-05]


Self-Regulatory Organizations; Topaz Exchange, LLC; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change Related to 
PIM and Penny Pilot Periods

October 9, 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 September 27, 2013, the Topaz Exchange, LLC (d/b/a ISE Gemini) 
(the ``Exchange'' or ``Topaz'') 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.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of the 
Substance of the Proposed Rule Change

    Topaz is proposing to amend its rules to correct date references 
related to two pilot programs being conducted on the Exchange: the PIM 
Pilot and Penny Pilot, each as defined below. The Exchange is also 
proposing to revise a provision describing how the Exchange notifies 
Members about which option classes are eligible to trade in the Penny 
Pilot. The text of the proposed rule change is available on the 
Exchange's Internet Web site at https://www.ise.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 the 
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

[[Page 62839]]

proposed rule change. The text of these statements may be examined at 
the places specified in Item IV below. The self-regulatory organization 
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 Exchange is proposing to amend its rules to correct two 
incorrect date references related to the expiration of pilot programs 
currently being conducted on the Exchange. In particular, the Exchange 
proposes to amend the pilot periods specified for a pilot program 
related to the minimum size requirement for orders sent to the 
Exchange's Price Improvement Mechanism (``PIM Pilot''), and a pilot 
program permitting certain options classes to be quoted and traded in 
pennies (``Penny Pilot''). The Exchange's rules related to both of 
these pilot programs each mistakenly state a pilot period end date that 
was prior to Topaz's registration as a national securities exchange.\3\
---------------------------------------------------------------------------

    \3\ The Securities and Exchange Commission granted the 
Exchange's application for registration as a national securities 
exchange on July 26, 2013. See Securities Exchange Act Release No. 
Release No. [sic] 70050 (July 26, 2013), 78 FR 46622 (Aug. 1, 2013). 
The Exchange began trading on August 5, 2013.
---------------------------------------------------------------------------

    With respect to the PIM Pilot, Topaz rules provide that during the 
specified pilot period there will be no minimum size requirement for 
orders to be eligible for the PIM. Supplementary Material .03 to Rule 
723 states that this pilot was scheduled to expire on July 18, 2013, 
which is a date prior to the Exchange's registration as a national 
securities exchange. The Exchange notes that Supplementary Material .05 
to Rule 723 currently references the correct pilot end date of July 18, 
2014, which is consistent with the pilot period on the International 
Securities Exchange, LLC (``ISE'').\4\ The Exchange is therefore 
proposing to update Supplementary Material .03 to extend the PIM Pilot 
through July 18, 2014 as was intended. The Exchange notes that by 
clarifying this date reference it is not making any substantive changes 
to the operation of the PIM Pilot, which will continue in its current 
form.
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    \4\ See Supplementary Material .03 to ISE Rule 723.
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    With respect to the Penny Pilot, Topaz rules provide that during 
the specified pilot period certain participating options classes may be 
quoted and traded in increments as low as $0.01.\5\ Supplementary 
Material .01 to Rule 710 states that the Penny Pilot was scheduled to 
expire on June 30, 2013, which is a date prior to Exchange's 
registration as a national securities exchange. The Exchange notes that 
the second paragraph of Supplementary Material .01 to Rule 710 
currently references the correct pilot end date of December 31, 2013, 
which is consistent with the pilot period on other options 
exchanges.\6\ The Exchange is therefore proposing to update the first 
paragraph of Supplementary Material .01 to Rule 710 to extend the Penny 
Pilot through December 31, 2013. This filing does not propose any 
substantive changes to the Penny Pilot: all classes currently 
participating will remain the same and all minimum increments will 
remain unchanged.
---------------------------------------------------------------------------

    \5\ In particular, the minimum price variation for all 
participating options classes, except for the Nasdaq-100 Index 
Tracking Stock (``QQQQ''), the SPDR S&P 500 Exchange Traded Fund 
(``SPY'') and the iShares Russell 2000 Index Fund (``IWM''), is 
$0.01 for all option series trading at less than $3 per contract and 
$0.05 for all option series trading at $3 per contract or greater. 
QQQQ, SPY and IWM are traded in $0.01 increments for all options 
series.
    \6\ See, e.g., Supplementary Material .01 to ISE Rule 710; 
Chicago Board Options Exchange, Inc. Rule 6.42(3); NASDAQ OMX PHLX, 
LLC Rule 1034(a)(i)(B).
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    With this proposed rule change, the Exchange also proposes to 
revise the provision describing how the Exchange specifies which option 
classes trade in the Penny Pilot. Currently, the rule requires that the 
Exchange specify which options trade in the Penny Pilot and in what 
increments in a Regulatory Information Circular that has been filed 
with the Commission pursuant to Rule 19b-4 under the Exchange Act and 
distributed to its Members. The Exchange now proposes to revise that 
provision to indicate that information regarding the option classes 
trading in the Penny Pilot will be communicated to Members through a 
Market Information Circular. The Exchange will also post on its Web 
site the replacement option classes that are selected for the Penny 
Pilot.\7\ By revising this provision, the Exchange will eliminate the 
requirement to file a Regulatory Information Circular with the 
Commission pursuant to Rule 19b-4.
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    \7\ This revision is consistent with rules at most of the other 
options exchanges participating in the Penny Pilot: ISE Rule 710, 
Supplementary Material .01; BATS Exchange, Inc. Rule 21.5, 
Interpretations and Policies .01; NASDAQ OMX BX, Inc. Chapter VI, 
Section 5(3); NASDAQ OMX PHLX, Inc. Rule 1034(a)(i)(B); The NASDAQ 
Stock Market LLC Chapter VI, Section 5; NYSE MKT LLC Rule 960NY, 
Commentary .02; and NYSE Arca, Inc. Rule 6.72, Commentary .02.
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    The Exchange notes that when it filed its application to be 
registered as a national securities exchange it represented that it 
would provide certain data to the Commission in connection with the PIM 
and Penny Pilots.\8\ The Exchange will continue to provide such data to 
the Commission with respect to trading during the extended pilot 
periods. In addition, Topaz represents that it will provide the 
Commission with the same data that the ISE has agreed to provide with 
respect to any current or future pilot program conducted on the 
Exchange that is based on Topaz rules that are incorporated by 
reference to the rules of the ISE.
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    \8\ See Exhibit B to Topaz Exchange Form 1 Application.
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    For example, the Exchange currently conducts a pilot program that 
eliminates position and exercise limits for physically-settled options 
on the SPDR S&P ETF Trust (``SPY Pilot''). When the ISE adopted the SPY 
Pilot it agreed to provide data to the Commission in a ``Pilot Report'' 
to be submitted within thirty (30) days of the end of the twelve (12) 
month time period following the adoption of the pilot program.\9\ As 
this pilot program is being conducted on Topaz pursuant to rules 
incorporated by reference to ISE rules,\10\ the Exchange will therefore 
be obligated to provide the same data to the Commission with respect to 
trading on Topaz.\11\
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    \9\ See Securities Exchange Act Release No. 62300 (Oct. 5, 
2012), 78 FR 62300 (Oct. 12, 2012) (SR-ISE-2012-81).
    \10\ Chapter 4 of the Rules of the ISE is incorporated by 
reference into the Topaz rulebook.
    \11\ The Pilot Report to be submitted by Topaz will detail the 
size and different types of strategies employed with respect to 
positions established as a result of the elimination of position 
limits in SPY. In addition, the report will note whether any 
problems resulted due to the no limit approach and any other 
information that may be useful in evaluating the effectiveness of 
the pilot program. The Pilot Report will compare the impact of the 
pilot program, if any, on the volumes of SPY options and the 
volatility in the price of the underlying SPY shares, particularly 
at expiration. In preparing the report the Exchange will utilize 
various data elements such as volume and open interest. In addition 
the Exchange will make available to Commission staff data elements 
relating to the effectiveness of the pilot program.
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    The Exchange also notes that it currently conducts another pilot 
program adopted in connection with the Plan to Address Extraordinary 
Market Volatility that suspends Rule 720 (Obvious and Catastrophic 
Errors) with respect to transactions executed during a Limit State or 
Straddle State (``Obvious Error Pilot'').\12\ Although this pilot 
program is not incorporated by

[[Page 62840]]

reference to ISE rules,\13\ the Exchange believes that it should 
provide the Commission the same data elements for Topaz as is required 
to be provided by ISE regarding how Limit and Straddle States affect 
the quality of the options market.\14\
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    \12\ Rule 720 provides a process by which a transaction may be 
busted or adjusted when the execution price of a transaction 
deviates from the option's theoretical price by a certain amount.
    \13\ See Securities Exchange Act Release No. 69329 (April 5, 
2013), 78 FR 21657 (April 11, 2013) (SR-ISE-2013-22).
    \14\ In particular, the Exchange represents that it will conduct 
its own analysis concerning the elimination of obvious error rule 
during Limit and Straddle States and agrees to provide the 
Commission with relevant data to assess the impact of this proposed 
rule change. As part of its analysis, the Exchange will evaluate the 
options market quality during Limit and Straddle States, assess the 
character of incoming order flow and transactions during Limit and 
Straddle States, and review any complaints from members and their 
customers concerning executions during Limit and Straddle States. 
The Exchange also agrees to provide to the Commission data requested 
to evaluate the impact of the elimination of the obvious error rule, 
including data relevant to assessing the various analyses noted 
above.
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2. Statutory Basis
    The basis under the Securities Exchange Act of 1934 (the ``Exchange 
Act'') for this proposed rule change is found in Section 6(b)(5), in 
that the proposed rule change is designed to promote just and equitable 
principles of trade, 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. The Exchange believes that 
it is appropriate to correct the pilot dates referenced in its rules 
for the PIM and Penny Pilots so that Members and investors have a clear 
and accurate understanding of the Exchange's rules. The Exchange notes 
again that the pilot end dates being proposed here are consistent with 
other parts of the Exchange's rules, and with the rules of the ISE and 
other options exchanges.
    In addition, the revision to how the Exchange will specify which 
options participate in the Penny Pilot promotes just and equitable 
principles of trade since it clarifies how Members and other market 
participants will be made aware of which option classes are trading in 
the Penny Pilot and eliminates a requirement that the Exchange specify 
which option classes are in the Penny Pilot through a Regulatory 
Information Circular that has been filed with the Commission pursuant 
to Rule 19b-4 under the Exchange Act. Eliminating the requirement to 
file the Regulatory Information Circular is appropriate because most 
other options exchanges do not require such a submission to the 
Commission.

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

    The proposed rule changes are non-substantive corrections to the 
Exchange's rules and therefore do not implicate the competition 
analysis. The proposed rule change will serve to promote regulatory 
clarity and consistency, thereby reducing burdens on the marketplace 
and facilitating investor protection.

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

    The Exchange has not solicited, and does not intend to solicit, 
comments on this proposed rule change. The Exchange has not received 
any unsolicited written comments from members or other interested 
parties.

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

    The Exchange believes that the foregoing proposed rule change may 
take effect upon filing with the Commission pursuant to Section 
19(b)(3)(A) \15\ of the Act and Rule 19b-4(f)(6) thereunder \16\ 
because the foregoing proposed rule change does not (i) significantly 
affect the protection of investors or the public interest, (ii) impose 
any significant burden on competition, and (iii) become operative for 
30 days after its filing date, or such shorter time as the Commission 
may designate.
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    \15\ 15 U.S.C. 78s(b)(3)(A).
    \16\ 17 CFR 240.19b-4(f)(6).
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    The Exchange has asked the Commission to waive the 30-day operative 
delay so that the proposal may become operative immediately upon 
filing. The Commission believes that waiver of the operative delay is 
consistent with the protection of investors and the public interest 
because this rule change is not proposing any substantive changes. The 
proposed rule change is correcting certain inaccuracies in the 
Exchange's rules, conforming to how other exchanges provide notice of 
the options that trade in the Penny Pilot, and confirming that the 
Exchange will provide certain data to the Commission in connection with 
various pilot programs. These changes and clarifications should 
eliminate member confusion and provide clarity on how the rules apply. 
Therefore, the Commission designates the proposal operative upon 
filing.\17\
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    \17\ For purposes only of waiving the 30-day operative delay, 
the Commission has considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is: (i) 
Necessary or appropriate in the public interest; (ii) for the 
protection of investors; or (iii) otherwise in furtherance of the 
purposes of the Act. If the Commission takes such action, the 
Commission shall institute proceedings to determine whether the 
proposed rule should be approved or disapproved.

IV. Solicitation of Comments

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

Electronic Comments

     Use the Commission's Internet comment form (https://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File No. SR-Topaz-2013-05 on the subject line.

Paper Comments

     Send paper comments in triplicate to Elizabeth M. Murphy, 
Secretary, Securities and Exchange Commission, 100 F Street NE., 
Washington, DC 20549-1090.
    All submissions should refer to File No. SR-Topaz-2013-05. 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 such filing also will be available for inspection 
and copying at the principal

[[Page 62841]]

offices 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 No. SR-
Topaz-2013-05, and should be submitted on or before November 12, 2013.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\18\
Kevin M. O'Neill,
Deputy Secretary.
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    \18\ 17 CFR 200.30-3(a)(12).
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[FR Doc. 2013-24641 Filed 10-21-13; 8:45 am]
BILLING CODE 8011-01-P

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