Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Relating to the Volume-Based and Multi-Trigger Threshold, 40107-40111 [2015-16973]
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Federal Register / Vol. 80, No. 133 / Monday, July 13, 2015 / Notices
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 self-regulatory
organization consents, the Commission
will:
(A) by order approve or disapprove
the proposed rule change, or
(B) institute proceedings to determine
whether the proposed rule change
should be disapproved.
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–BOX–
2015–22, and should be submitted on or
before August 3, 2015.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.36
Brent J. Fields,
Secretary.
[FR Doc. 2015–16975 Filed 7–10–15; 8:45 am]
BILLING CODE 8011–01–P
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–
BOX–2015–22 on the subject line.
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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:
Self-Regulatory Organizations;
NASDAQ OMX PHLX LLC; Notice of
Filing and Immediate Effectiveness of
Proposed Rule Change Relating to the
Volume-Based and Multi-Trigger
Threshold
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–BOX–2015–22. 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
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SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–75372; File No. SR-Phlx2015–52]
July 7, 2015.
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 June 22,
2015, NASDAQ OMX PHLX LLC
(‘‘Phlx’’ or ‘‘Exchange’’) filed with the
Securities and Exchange Commission
(‘‘SEC’’ or ‘‘Commission’’) the proposed
rule change as described in Items I and
II, 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 adopt a
new Rule 1095 entitled ‘‘Automated
Removal of Market Maker Quotes’’ of
the rules governing Phlx. The Exchange
proposes to adopt two new Phlx Market
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36 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
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40107
Maker 3 risk protections, a volume-based
threshold and a multi-trigger threshold.4
The text of the proposed rule change
is available on the Exchange’s Web site
at https://
nasdaqomxphlx.cchwallstreet.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
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
1. Purpose
The purpose of the filing is to adopt
two new risk protections for Phlx
specialists, SQTs and RSQTs
(collectively ‘‘Market Makers’’) to
monitor marketplace risk. These
protections are intended to assist Market
Makers to control their trading risks.5
Quoting across many series in an option
creates the possibility of ‘‘rapid fire’’
executions that can create large,
unintended principal positions that
expose Market Makers, who are required
to continuously quote in assigned
options, to potentially significant
3 A ‘‘Market Maker’’ includes Registered Options
Traders (‘‘ROTs’’) (Rule 1014(b)(i) and (ii)), which
includes Streaming Quote Traders (‘‘SQTs’’) (see
Rule 1014(b)(ii)(A)) and Remote Streaming Quote
Traders (‘‘RSQTs’’) (see Rule 1014(b)(ii)(B)). An
SQT is defined in Exchange Rule 1014(b)(ii)(A) as
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 RSQT is defined in Exchange Rule
1014(b)(ii)(B) as an ROT that is a member or
member organization 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. An RSQT may only submit such
quotations electronically from off the floor of the
Exchange. A Market Maker also includes a
specialist, an Exchange member who is registered
as an options specialist pursuant to Rule 1020(a).
4 Market Makers will be required to continue to
utilize the Risk Monitor Mechanism in Rule 1093,
as is the case today.
5 See Rule 1014 entitled ‘‘Obligations and
Restrictions Applicable to Specialists and
Registered Options Traders.’’
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market risk. Today, the Exchange’s rules
permit Market Makers to monitor risk
arising from multiple executions across
multiple options series of a single
underlying security.6
The Exchange is proposing to offer a
new volume-based and multi-trigger
threshold protection to Market Makers.
The Exchange proposes to adopt a new
Rule 1095, entitled, ‘‘Automated
Removal of Market Maker Quotes,’’ to
establish: (1) a threshold used to
calculates each Market Maker’s total
volume executed in all series of an
underlying security within a specified
time period and compares that to a predetermined threshold (‘‘Volume-Based
Threshold’’), and (2) a threshold used to
measure the number of times the Phlx
XL system (‘‘System’’) has triggered7
based on the Risk Monitor Mechanism
(‘‘Percentage-Based Threshold’’)
pursuant to Rule 1093 and VolumeBased Thresholds within a specified
time period and compares that total to
a pre-determined threshold (‘‘MultiTrigger Threshold’’).
Volume-Based Threshold
the underlying security.9 The VolumeBased Threshold will be based on the
total number of contracts executed in
the market in the same options series in
in an underlying security and will not
offset the number of contracts executed
on the opposite side of the market..
Once the System determines that the
number of contracts executed equals or
exceeds a number established by the
Market Maker during the Volume-Based
Specified Time Period, the System will
remove Market Maker’s quotes. The
Volume-Based Specified Time Period
designated by the Market Maker must be
the same length of time as designated
for purposes of the Percentage-Based
Threshold in Rule 1093.
A Volume-Based Specified Time
Period will commence for an option
every time an execution occurs in any
series in such option and will continue
until the System automatically removes
quotes as described in newly proposed
sections (iv) or (v) or the Volume-Based
Specified Time Period expires. The
Volume-Based Specified Time Period
operates on a rolling basis among all
series in an option in that there may be
multiple Volume-Based Specified Time
Periods occurring simultaneously and
such Volume-Based Specified Time
Periods may overlap.10
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In connection with offering these two
new threshold protections, a Market
Maker would provide a specified time
period and volume threshold by which
the Exchange’s System would
automatically remove the Market
Maker’s quotes in all series of an
underlying security, depending on the
threshold utilized, submitted through
designated Phlx protocols, as specified
by the Exchange. The Exchange counts
Specialized Quote Feed (‘‘SQF’’)8 quotes
only in determining the number of
contracts traded and removed by the
System.
The Volume-Based Threshold will
determine, during a specified time
period established by the Market Maker
not to exceeds 15 seconds (‘‘VolumeBased Specified Time Period’’), whether
a Marker Maker executed a number of
contracts which equals or exceeds the
designated number of contracts
specified by the Market Maker in all
series of an underlying security to
determine whether to remove the
Market Maker’s quotes in all series of
A Market Maker or Market Maker
Group, which is defined as multiple
affiliated Market Makers,11 may provide
the specified time period and number of
allowable triggers by which the
Exchange will automatically remove
quotes in all options series in all
underlying issues submitted through
designated Phlx protocols, as specified
by the Exchange (‘‘Multi-Trigger
Threshold’’). During a specified time
period established by the Market Maker
not to exceed 15 seconds (‘‘MultiTrigger Specified Time Period’’), the
number of times the System
automatically removes the Market
Maker’s or Group’s quotes in all options
series will be based on the number of
triggers of the Percentage-Based
Threshold, described in proposed
section (ii) [sic], as well as the VolumeBased Threshold described in proposed
6 See Phlx Rule 1093, entitled ‘‘Phlx XL Risk
Monitor Mechanism.’’ The Percentage Based
Threshold compares each Market Maker’s executed
volume to the total volume disseminated in that
series or underlying, and then triggers a protective
response when that percentage exceeds the
percentage the Market Maker has determined to be
acceptable.
7 A trigger is defined as the event which causes
the System to automatically remove all quotes in all
options series in an underlying issue.
8 SQF permits the receipt of quotes.
9 The System’s count of the number of contracts
executed is based on trading interest resting on the
Exchange book.
10 Id.
11 This would be more than one Market Maker,
but does not require the aggregation of all the
member’s Market Makers. A Group would be
comprised of Market Makers affiliated with one
member or member organization. The member or
member organization would be required to define
a Group by providing a list of such affiliated Market
Makers to the Exchange.
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Multi-Trigger Threshold
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(ii).12 For purposes of this rule, a trigger
shall be defined as the event which
causes the System to automatically
remove quotes in all options series in all
underlying issues. Once the System
determines that the number of triggers
equals or exceeds a number established
by either the Market Maker or Group,
during a Multi-Trigger Specified Time
Period, the System will automatically
remove all quotes in all options series
in all underlying issues for that Market
Maker or Group. A Multi-Trigger
Specified Time Period will commence
after every trigger of either the
Percentage-Based Threshold or the
Volume-Based Threshold and will
continue until the System removes
quotes as described in section (iv) of the
proposed rule or the Multi-Trigger
Specified Time Period expires. Members
may configure the Multi-Trigger
Threshold at the badge level (by Market
Maker) or by Group (multiple affiliated
Market Makers), but not both. This is
different as compared to the PercentageBased Threshold in Rule 1093 or the
newly proposed Volume-Based
Thresholds that are configured only on
the badge level (by Market Maker).13
The System counts triggers within a
Multi-Trigger Specified Time Period
across all options for the Market Maker
or Group. A Multi-Trigger Specified
Time Period operates on a rolling basis
in that there may be multiple MultiTrigger Specified Time Periods
occurring simultaneously and such
Multi-Trigger Specified Time Periods
may overlap.
The System will automatically
remove quotes in all options in an
underlying security when the VolumeBased Threshold has been reached. The
System will automatically remove
quotes in all options in all underlying
securities when the Multi-Trigger
Threshold has been reached.14 The
12 Today, ISE’s functionality permits market
maker quotes to be removed from the ISE trading
system if a specified number of curtailment events
occur across both ISE and ISE Gemini, LLC (‘‘ISE
Gemini’’). ISE and ISE Gemini’s trading systems
will count the number of times a market maker’s
pre-set curtailment events occur on each exchange
and aggregate them. Once a market maker’s
specified number of curtailment events across both
markets is reached, the trading systems will remove
the market maker’s quotes in all classes on both ISE
and ISE Gemini. ISE will then reject any quotes sent
by the market maker after the parameters across
both exchanges have been triggered until the market
maker notifies the market operations staff of ISE
that it is ready to come out of its curtailment. See
Securities Exchange Release No. 73147 (September
19, 2014), 79 FR 57639 (September 25, 2014) (SR–
ISE–2014–09) (Order approving proposed rule
change related to market maker risk parameters).
13 See proposed new Rule 1095(iii).
14 The specified time period for the VolumeBased Threshold and the Multi-Trigger Threshold
may differ. The specified time period for the
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System will send a Purge Notification
Message 15 to the Market Maker for all
affected options when the above
thresholds have been reached.
The two thresholds, Volume-Based
Threshold and Multi-Trigger Threshold
operate independently of each other.
The triggering of the Volume-Based
Threshold would occur independently
of that of the Multi-Trigger Threshold.
The Multi-Trigger Threshold is
somewhat dependent on the VolumeBased Threshold to the extent that the
Volume-Based Threshold serves as a
trigger for the Multi-Trigger Threshold.
Quotes will be automatically executed
up to the Market Maker’s size regardless
of whether the quote exceeds the
Volume-Based Threshold.16
If a Market Maker requests the System
to remove quotes in all options series in
all underlying issues, the System will
automatically reset the Volume-Based
Specified Time Period(s). The MultiTrigger Specified Time Period(s) will
not automatically reset for the MultiTrigger Threshold.17
When the System removes quotes as
a result of the Volume-Based Threshold,
the Market Maker must send a re-entry
indicator to re-enter the System. When
the System removes quotes as a result of
the Multi-Trigger Threshold, the System
will not accept quotes through
designated protocols until the Market
Maker manually requests re-entry.18
After quotes are removed as a result of
the Multi-Trigger Threshold, Exchange
staff must set a re-entry indicator in this
case to enable re-entry, which will cause
the System to send a Reentry
Notification Message to the Market
Maker for all options series in all
underlying issues.19 The Market
Maker’s Clearing Firm will be notified
regarding the trigger and re-entry into
the System after quotes are removed as
a result of the Multi-Trigger Threshold,
provided the Market Maker’s Clearing
Firm has requested to receive such
notification.20 The System will then
reset all counters to zero and re-entry
and continued trading will be
Volume-Based Threshold must be the same as the
Percentage-Based Threshold in Rule 1093.
15 A message entitled ‘‘Purge Notification
Message’’ is systemically sent to the Marker Maker
upon the removal of quotes due to Volume-Based
Threshold or Multi-Trigger Threshold.
16 See proposed new Rule 1095(iii).
17 See proposed new Rule 1095(iv).
18 In the interest of maintaining fair and orderly
markets, the Exchange believes it is important that
Market Makers communicate their readiness to
Exchange staff in a non-automated manner, such as
by email or telephone.
19 See proposed new Rule 1095(v).
20 Phlx Rule 1016 permits the Exchange to share
Marker Maker designated risk settings in the System
with the Clearing Firm.
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permitted. A Market Maker is subject to
continuous quoting obligations21
despite the removal of quotes from the
System and approval process for reentry.
Today, the Exchange provides Market
Makers with the Percentage-Based
Threshold in Rule 1093 to monitor
risk.22 The Exchange will continue to
require Market Makers to utilize the
Percentage-Based Threshold. The
Volume-Based Threshold and the MultiTrigger Threshold will be optional.
The Exchange reserved subsection (i)
for future modifications to this rule.
The Exchange proposes to implement
this rule within thirty (30) days of the
operative date.
Example #1 of the Volume-Based
Threshold is displayed below. Presume
the following order book:
Size on bid x
offer for MM1
Series of underlying XYZ
100
100
110
110
Strike
Strike
Strike
Strike
Call ......................
Put .......................
Call ......................
Put .......................
300x300
50x50
200x200
150x150
In this example, assume the Specified
Time Period designated by the Market
Maker # 1 is 10 seconds and the
designated number of contracts
permitted for the Volume-Based
Threshold is 250 contracts. Assume at
12:00:00, the Market Maker # 1 executes
all of his offer size, 200 contracts, in the
110 Strike Calls. The System will
initiate the Specified Time Period and
for 10 seconds the System will count all
volume executed in series of underlying
XYZ. If at any point during that 10
second period, the Market Maker # 1
executes additional contracts in any
series of underlying XYZ, those
contracts will be added to the initial
execution of 200 contracts. To illustrate,
assume at 12:00:05 the Market Maker #
1 executes 60 contracts of his offer in
the 100 Strike Calls. The total volume
executed is now 260 contracts. Since
that volume exceeds the Market Maker
#1’s designated number of contracts for
the Volume-Based Threshold (250
contracts), all of his quotes in all series
of underlying XYZ over the designated
protocols will be removed from the
System; no quotes will be executed in
series XYZ until the Market Maker
enters new quotes in series XYZ. The
Volume-Based Specified Time Period
will be reset for Market Maker #1 in
underlying XYZ and Market Maker #1
will need to send a re-entry indicator in
21 See
22 An
note 3.
initial default value is set for each Market
Maker.
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40109
order to re-enter quotes in options series
for underlying XYZ into the System.
Example #2 of the Volume-Based
Threshold: Similar to the example
above, assume the Specified Time
Period is 10 seconds and the designated
number of contracts permitted for the
Volume-Based Threshold is 250
contracts. Assume at 12:00:00, Market
Maker #1 executes all of his offer size,
200 contracts, in the 110 Strike Calls.
The System will initiate the Specified
Time Period and for 10 seconds the
System will count all volume executed
in series of underlying XYZ. If at any
point during that 10 second period,
Market Maker #1 executes additional
contracts in any series of underlying
XYZ, those contracts will be added to
the initial execution of 200 contracts.
Then assume at 12:00:05 Market Maker
#1 executes 20 contracts of his offer in
the 100 Strike Calls. The total volume
executed is 220 contracts which does
not exceed the Volume-Based
Threshold. This second execution
initiates another Specified Time Period
so there are two open time periods, the
first with 5 seconds remaining and a
new 10 second time period. At 12:00:10,
the first timer period expires and the
initial execution of 200 contracts is no
longer counted toward the designated
number of contracts permitted for the
Volume-Based Threshold. Further
assume at 12:00:12, which is outside of
the initial time period but still within 10
seconds of the second execution of 20
contracts, another execution occurs with
Market Maker #1 executing 230
contracts of his bid in the 100 Strike
Calls. This total volume executed
toward the Volume-Based Threshold
within the Specified Time Period is now
250 contracts which equals the
designated number of contracts
permitted causing the System to remove
all quotes in all series of underlying
XYZ over the designated protocols for
Market Maker #1 to be removed from
the System; no quotes will be executed
in series XYZ until the Market Maker
enters new quotes in series XYZ. The
Volume-Based Specified Time Period
will be reset for Market Maker #1 in
underlying XYZ and Market Maker #1
will need to send a re-entry indicator in
order to re-enter quotes in options series
for underlying XYZ into the System.
This example displays the rolling basis
in which the Specified Time Period
operates.
Example #3: In order to illustrate the
Multi-Trigger Threshold, assume
Example #1 and Example #2 provided
above occurred in options series of two
different underlyings rather than all in
options series of underlying XYZ and
for two separate Market Makers (MM#1
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for Example #1 and MM#2 for Example
#2) of the same member organization.
Assume a Group is defined by the
member organization and is comprised
of the MM #1 and MM #2. Further
assume the member organization has
defined the Multi-Trigger Specified
Time Period as 10 seconds and the
number of allowable triggers as two.
Based on the aforementioned examples,
a Multi-Trigger Specified Time Period
commences at 12:00:05 when MM#1
triggers the Volume-Based Threshold.
This Volume-Based Threshold triggers
counts as the first trigger toward the
Multi-Trigger Threshold for the Group.
Another Multi-Trigger Specified Time
Period is initiated at 12:00:12 when
MM#2 triggers the Volume-Based
Threshold (per Example #2). This
Volume-Based Threshold trigger counts
as the second trigger toward the MultiTrigger Threshold for the Group since it
is within the Multi-Trigger Specified
Time Period of the first trigger. Since
the member organization designated two
triggers for the number of allowable
triggers, the Group, both MM#1 and
MM#2, quotes in all option series in all
underlying issues for the Group are
automatically removed from the System
and Purge Notification Messages are
sent to the Group; no quotes will be
executed in series XYZ until the Market
Maker enters new quotes in series XYZ.
The member organization will need to
contact the Exchange to request
Exchange staff to enable re-entry into
the System. The Exchange proposes to
implement this rule within thirty (30)
days of the operative date. The
Exchange will issue an Options Trader
Alert in advance to inform market
participants of such date.
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2. Statutory Basis
The Exchange believes that its
proposal is consistent with Section 6(b)
of the Act 23 in general, and furthers the
objectives of Section 6(b)(5) of the Act 24
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
enhancing the risk protections available
to Exchange members. The proposal
promotes policy goals of the
Commission which has encouraged
execution venues, exchange and nonexchange alike, to enhance risk
protection tools and other mechanisms
to decrease risk and increase stability.
U.S.C. 78f(b).
24 15 U.S.C. 78f(b)(5).
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transactions made by the Member on
whose behalf the Clearing Member
submits the letter of guarantee. The
Exchange believes that because Clearing
Members guarantee all transactions on
behalf of a Member, and therefore, bear
the risk associated with those
transactions, it is appropriate for
Clearing Members to have knowledge of
what risk settings a Market Maker may
utilize within the System and should be
provided and receive notice of re-entry
into the System after triggering the
Multi-Trigger Threshold.
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. Specifically,
the proposal will not impose a burden
on intra-market or inter-market
competition, rather it provides Market
Makers with the opportunity to avail
themselves of similar risk tools which
are currently available on other
exchanges.26 The proposal does not
impose a burden on inter-market
competition, because members may
choose to become market makers on a
number of other options exchanges,
which may have similar but not
identical features.27 The proposed rule
change is meant to protect Market
Makers from inadvertent exposure to
excessive risk. Accordingly, the
proposed rule change will have no
impact on competition.
Further, the Exchange is proposing
this rule change at the request of its
Market Makers to further reduce their
risk in the event the Market Maker is
suffering from a systems issue or due to
the occurrence of unusual or
unexpected market activity. The
proposed Group parameter for the
Multi-Trigger threshold will protect
Market Makers from inadvertent
exposure to excessive risk at the Group
level. Reducing such risk will enable
Market Makers to enter quotations
without any fear of inadvertent
exposure to excessive risk, which in
turn will benefit investors through
increased liquidity for the execution of
their orders. Such increased liquidity
benefits investors because they receive
better prices and because it lowers
volatility in the options market.
The Exchange believes that requiring
Market Makers to enter values for the
Percentage-Based Threshold is not
26 See
Section 8 of the 19b4.
BATS Rule 21.16, BOX Rules 8100 and
8110, C2 Rule 8.12, CBOE Rule 8.18, ISE Rule
804(g), MIAX Rule 612, NYSE MKT Rule 928NY
and NYSE Arca Rule 6.40.
27 See
25 The time of receipt for an order or quote is the
time such message is processed by the Exchange
book.
23 15
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The individual firm benefits of
enhanced risk protections flow
downstream to counter-parties both
within and without the Exchange,
thereby increasing systemic protections
as well. Additionally, because the
Exchange offers the these risk tools to
Market Makers, in order to encourage
them to provide as much liquidity as
possible and encourage market making
generally, the proposal removes
impediments to and perfects the
mechanism of a free and open market
and a national market system and
protect investors and the public interest.
With respect to permitting the MultiTrigger Threshold to be set either to one
Market Maker or to a number of
specified Market Makers affiliated with
a member, it is important to note that
the risk to Market Makers is not limited
to a single series in an option but to all
series in an option. Market Makers that
quote in multiple series of multiple
options have significant exposure,
requiring them to offset or hedge their
overall positions. The proposed
functionality will be useful for Market
Makers, who are required to
continuously quote in assigned options
classes on the Exchange. Quoting across
many series in an option or multiple
options creates the possibility of
executions that can create large,
unintended principal positions that
could expose market makers to
unnecessary risk. The Multi-Trigger
Threshold functionality is intended to
assist Market Makers manage that risk at
the Group level so that Market Makers
may provide deep and liquid markets to
the benefit of all investors.
The Exchange further represents that
its proposal will operate consistently
with the firm quote obligations of a
broker-dealer pursuant to Rule 602 of
Regulation NMS and that the
functionality is not mandatory.
Specifically, any interest that is
executable against a Market Maker’s
quotes that are received 25 by the
Exchange prior to the time either of
these functionalities are engaged will be
automatically executed at the price up
to the Market Maker’s size, regardless of
whether such execution results in
executions in excess of the Market
Maker’s pre-set parameters.
With respect to providing risk settings
to the Market Maker’s Clearing Member,
each Member that transacts through a
Clearing Member on the Exchange
executes a Letter of Guarantee wherein
the Clearing Member accepts financial
responsibility for all Exchange
PO 00000
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E:\FR\FM\13JYN1.SGM
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Federal Register / Vol. 80, No. 133 / Monday, July 13, 2015 / Notices
unreasonably burdensome because
Market Makers can enter an out-of-range
value so that the Exchange-provided
risk protections will not be triggered.
Reducing risk by utilizing the proposed
risk protections will enable Market
Makers to enter quotations with larger
size, which in turn will benefit investors
through increased liquidity for the
execution of their orders. Such
increased liquidity benefits investors
because they receive better prices and
because it lowers volatility in the
options market.
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
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 from the date on
which it was filed, or such shorter time
as the Commission may designate, it has
become effective pursuant to Section
19(b)(3)(A)(ii) of the Act 28 and
subparagraph (f)(6) of Rule 19b–4
thereunder.29 The Exchange has
requested that the Commission waive
the thirty-day operative delay so that the
proposal may become operative
immediately. The Exchange states that
waiving the thirty-day operative delay
will enable Market Makers to enhance
their risk controls and risk management
processes without additional delay. The
Commission believes that waiving the
thirty day delay is consistent with the
protection of investors and the public
interest. Therefore, the Commission
hereby waives the thirty-day operative
delay and designates the proposal
effective upon filing.30
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
28 15
U.S.C. 78s(b)(3)(a)(ii).
CFR 240.19b–4(f)(6). In addition, Rule 19b–
4(f)(6) requires a self-regulatory organization to give
the Commission written notice of its intent to file
the proposed rule change at least five business days
prior to the date of filing of the proposed rule
change, or such shorter time as designated by the
Commission. The Exchange has satisfied this
requirement.
30 For purposes 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).
asabaliauskas on DSK5VPTVN1PROD with NOTICES
29 17
VerDate Sep<11>2014
19:27 Jul 10, 2015
Jkt 235001
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 Number SR–
Phlx–2015–52 on the subject line.
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–2015–52. 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–2015–52 and should
PO 00000
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40111
be submitted on or before August 3,
2015.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.31
Brent J. Fields,
Secretary.
[FR Doc. 2015–16973 Filed 7–10–15; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–75381; File No. SR–CBOE–
2015–065]
Self-Regulatory Organizations;
Chicago Board Options Exchange,
Incorporated; Notice of Filing and
Immediate Effectiveness of a Proposed
Rule Change to Extend a Pilot Program
that Eliminates Position and Exercise
Limits for Physically-Settled SPDR
S&P 500 ETF Trust (‘‘SPY’’) Options
July 7, 2015.
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 July 1,
2015, Chicago Board Options Exchange,
Incorporated (the ‘‘Exchange’’ or
‘‘CBOE’’) 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 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 the Substance
of the Proposed Rule Change
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.
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
31 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
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]]>Agencies
[Federal Register Volume 80, Number 133 (Monday, July 13, 2015)]
[Notices]
[Pages 40107-40111]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-16973]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-75372; File No. SR-Phlx-2015-52]
Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of
Filing and Immediate Effectiveness of Proposed Rule Change Relating to
the Volume-Based and Multi-Trigger Threshold
July 7, 2015.
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 June 22, 2015, NASDAQ OMX PHLX LLC (``Phlx'' or ``Exchange'')
filed with the Securities and Exchange Commission (``SEC'' or
``Commission'') the proposed rule change as described in Items I and
II, 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 adopt a new Rule 1095 entitled ``Automated
Removal of Market Maker Quotes'' of the rules governing Phlx. The
Exchange proposes to adopt two new Phlx Market Maker \3\ risk
protections, a volume-based threshold and a multi-trigger threshold.\4\
---------------------------------------------------------------------------
\3\ A ``Market Maker'' includes Registered Options Traders
(``ROTs'') (Rule 1014(b)(i) and (ii)), which includes Streaming
Quote Traders (``SQTs'') (see Rule 1014(b)(ii)(A)) and Remote
Streaming Quote Traders (``RSQTs'') (see Rule 1014(b)(ii)(B)). An
SQT is defined in Exchange Rule 1014(b)(ii)(A) as 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 RSQT is defined in Exchange Rule 1014(b)(ii)(B) as an ROT that is
a member or member organization 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. An RSQT may only submit such quotations
electronically from off the floor of the Exchange. A Market Maker
also includes a specialist, an Exchange member who is registered as
an options specialist pursuant to Rule 1020(a).
\4\ Market Makers will be required to continue to utilize the
Risk Monitor Mechanism in Rule 1093, as is the case today.
---------------------------------------------------------------------------
The text of the proposed rule change is available on the Exchange's
Web site at https://nasdaqomxphlx.cchwallstreet.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 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
1. Purpose
The purpose of the filing is to adopt two new risk protections for
Phlx specialists, SQTs and RSQTs (collectively ``Market Makers'') to
monitor marketplace risk. These protections are intended to assist
Market Makers to control their trading risks.\5\ Quoting across many
series in an option creates the possibility of ``rapid fire''
executions that can create large, unintended principal positions that
expose Market Makers, who are required to continuously quote in
assigned options, to potentially significant
[[Page 40108]]
market risk. Today, the Exchange's rules permit Market Makers to
monitor risk arising from multiple executions across multiple options
series of a single underlying security.\6\
---------------------------------------------------------------------------
\5\ See Rule 1014 entitled ``Obligations and Restrictions
Applicable to Specialists and Registered Options Traders.''
\6\ See Phlx Rule 1093, entitled ``Phlx XL Risk Monitor
Mechanism.'' The Percentage Based Threshold compares each Market
Maker's executed volume to the total volume disseminated in that
series or underlying, and then triggers a protective response when
that percentage exceeds the percentage the Market Maker has
determined to be acceptable.
---------------------------------------------------------------------------
The Exchange is proposing to offer a new volume-based and multi-
trigger threshold protection to Market Makers. The Exchange proposes to
adopt a new Rule 1095, entitled, ``Automated Removal of Market Maker
Quotes,'' to establish: (1) a threshold used to calculates each Market
Maker's total volume executed in all series of an underlying security
within a specified time period and compares that to a pre-determined
threshold (``Volume-Based Threshold''), and (2) a threshold used to
measure the number of times the Phlx XL system (``System'') has
triggered\7\ based on the Risk Monitor Mechanism (``Percentage-Based
Threshold'') pursuant to Rule 1093 and Volume-Based Thresholds within a
specified time period and compares that total to a pre-determined
threshold (``Multi-Trigger Threshold'').
---------------------------------------------------------------------------
\7\ A trigger is defined as the event which causes the System to
automatically remove all quotes in all options series in an
underlying issue.
---------------------------------------------------------------------------
Volume-Based Threshold
In connection with offering these two new threshold protections, a
Market Maker would provide a specified time period and volume threshold
by which the Exchange's System would automatically remove the Market
Maker's quotes in all series of an underlying security, depending on
the threshold utilized, submitted through designated Phlx protocols, as
specified by the Exchange. The Exchange counts Specialized Quote Feed
(``SQF'')\8\ quotes only in determining the number of contracts traded
and removed by the System.
---------------------------------------------------------------------------
\8\ SQF permits the receipt of quotes.
---------------------------------------------------------------------------
The Volume-Based Threshold will determine, during a specified time
period established by the Market Maker not to exceeds 15 seconds
(``Volume-Based Specified Time Period''), whether a Marker Maker
executed a number of contracts which equals or exceeds the designated
number of contracts specified by the Market Maker in all series of an
underlying security to determine whether to remove the Market Maker's
quotes in all series of the underlying security.\9\ The Volume-Based
Threshold will be based on the total number of contracts executed in
the market in the same options series in in an underlying security and
will not offset the number of contracts executed on the opposite side
of the market.. Once the System determines that the number of contracts
executed equals or exceeds a number established by the Market Maker
during the Volume-Based Specified Time Period, the System will remove
Market Maker's quotes. The Volume-Based Specified Time Period
designated by the Market Maker must be the same length of time as
designated for purposes of the Percentage-Based Threshold in Rule 1093.
---------------------------------------------------------------------------
\9\ The System's count of the number of contracts executed is
based on trading interest resting on the Exchange book.
---------------------------------------------------------------------------
A Volume-Based Specified Time Period will commence for an option
every time an execution occurs in any series in such option and will
continue until the System automatically removes quotes as described in
newly proposed sections (iv) or (v) or the Volume-Based Specified Time
Period expires. The Volume-Based Specified Time Period operates on a
rolling basis among all series in an option in that there may be
multiple Volume-Based Specified Time Periods occurring simultaneously
and such Volume-Based Specified Time Periods may overlap.\10\
---------------------------------------------------------------------------
\10\ Id.
---------------------------------------------------------------------------
Multi-Trigger Threshold
A Market Maker or Market Maker Group, which is defined as multiple
affiliated Market Makers,\11\ may provide the specified time period and
number of allowable triggers by which the Exchange will automatically
remove quotes in all options series in all underlying issues submitted
through designated Phlx protocols, as specified by the Exchange
(``Multi-Trigger Threshold''). During a specified time period
established by the Market Maker not to exceed 15 seconds (``Multi-
Trigger Specified Time Period''), the number of times the System
automatically removes the Market Maker's or Group's quotes in all
options series will be based on the number of triggers of the
Percentage-Based Threshold, described in proposed section (ii) [sic],
as well as the Volume-Based Threshold described in proposed (ii).\12\
For purposes of this rule, a trigger shall be defined as the event
which causes the System to automatically remove quotes in all options
series in all underlying issues. Once the System determines that the
number of triggers equals or exceeds a number established by either the
Market Maker or Group, during a Multi-Trigger Specified Time Period,
the System will automatically remove all quotes in all options series
in all underlying issues for that Market Maker or Group. A Multi-
Trigger Specified Time Period will commence after every trigger of
either the Percentage-Based Threshold or the Volume-Based Threshold and
will continue until the System removes quotes as described in section
(iv) of the proposed rule or the Multi-Trigger Specified Time Period
expires. Members may configure the Multi-Trigger Threshold at the badge
level (by Market Maker) or by Group (multiple affiliated Market
Makers), but not both. This is different as compared to the Percentage-
Based Threshold in Rule 1093 or the newly proposed Volume-Based
Thresholds that are configured only on the badge level (by Market
Maker).\13\ The System counts triggers within a Multi-Trigger Specified
Time Period across all options for the Market Maker or Group. A Multi-
Trigger Specified Time Period operates on a rolling basis in that there
may be multiple Multi-Trigger Specified Time Periods occurring
simultaneously and such Multi-Trigger Specified Time Periods may
overlap.
---------------------------------------------------------------------------
\11\ This would be more than one Market Maker, but does not
require the aggregation of all the member's Market Makers. A Group
would be comprised of Market Makers affiliated with one member or
member organization. The member or member organization would be
required to define a Group by providing a list of such affiliated
Market Makers to the Exchange.
\12\ Today, ISE's functionality permits market maker quotes to
be removed from the ISE trading system if a specified number of
curtailment events occur across both ISE and ISE Gemini, LLC (``ISE
Gemini''). ISE and ISE Gemini's trading systems will count the
number of times a market maker's pre-set curtailment events occur on
each exchange and aggregate them. Once a market maker's specified
number of curtailment events across both markets is reached, the
trading systems will remove the market maker's quotes in all classes
on both ISE and ISE Gemini. ISE will then reject any quotes sent by
the market maker after the parameters across both exchanges have
been triggered until the market maker notifies the market operations
staff of ISE that it is ready to come out of its curtailment. See
Securities Exchange Release No. 73147 (September 19, 2014), 79 FR
57639 (September 25, 2014) (SR-ISE-2014-09) (Order approving
proposed rule change related to market maker risk parameters).
\13\ See proposed new Rule 1095(iii).
---------------------------------------------------------------------------
The System will automatically remove quotes in all options in an
underlying security when the Volume-Based Threshold has been reached.
The System will automatically remove quotes in all options in all
underlying securities when the Multi-Trigger Threshold has been
reached.\14\ The
[[Page 40109]]
System will send a Purge Notification Message \15\ to the Market Maker
for all affected options when the above thresholds have been reached.
---------------------------------------------------------------------------
\14\ The specified time period for the Volume-Based Threshold
and the Multi-Trigger Threshold may differ. The specified time
period for the Volume-Based Threshold must be the same as the
Percentage-Based Threshold in Rule 1093.
\15\ A message entitled ``Purge Notification Message'' is
systemically sent to the Marker Maker upon the removal of quotes due
to Volume-Based Threshold or Multi-Trigger Threshold.
---------------------------------------------------------------------------
The two thresholds, Volume-Based Threshold and Multi-Trigger
Threshold operate independently of each other. The triggering of the
Volume-Based Threshold would occur independently of that of the Multi-
Trigger Threshold. The Multi-Trigger Threshold is somewhat dependent on
the Volume-Based Threshold to the extent that the Volume-Based
Threshold serves as a trigger for the Multi-Trigger Threshold. Quotes
will be automatically executed up to the Market Maker's size regardless
of whether the quote exceeds the Volume-Based Threshold.\16\
---------------------------------------------------------------------------
\16\ See proposed new Rule 1095(iii).
---------------------------------------------------------------------------
If a Market Maker requests the System to remove quotes in all
options series in all underlying issues, the System will automatically
reset the Volume-Based Specified Time Period(s). The Multi-Trigger
Specified Time Period(s) will not automatically reset for the Multi-
Trigger Threshold.\17\
---------------------------------------------------------------------------
\17\ See proposed new Rule 1095(iv).
---------------------------------------------------------------------------
When the System removes quotes as a result of the Volume-Based
Threshold, the Market Maker must send a re-entry indicator to re-enter
the System. When the System removes quotes as a result of the Multi-
Trigger Threshold, the System will not accept quotes through designated
protocols until the Market Maker manually requests re-entry.\18\ After
quotes are removed as a result of the Multi-Trigger Threshold, Exchange
staff must set a re-entry indicator in this case to enable re-entry,
which will cause the System to send a Reentry Notification Message to
the Market Maker for all options series in all underlying issues.\19\
The Market Maker's Clearing Firm will be notified regarding the trigger
and re-entry into the System after quotes are removed as a result of
the Multi-Trigger Threshold, provided the Market Maker's Clearing Firm
has requested to receive such notification.\20\ The System will then
reset all counters to zero and re-entry and continued trading will be
permitted. A Market Maker is subject to continuous quoting
obligations\21\ despite the removal of quotes from the System and
approval process for re-entry.
---------------------------------------------------------------------------
\18\ In the interest of maintaining fair and orderly markets,
the Exchange believes it is important that Market Makers communicate
their readiness to Exchange staff in a non-automated manner, such as
by email or telephone.
\19\ See proposed new Rule 1095(v).
\20\ Phlx Rule 1016 permits the Exchange to share Marker Maker
designated risk settings in the System with the Clearing Firm.
\21\ See note 3.
---------------------------------------------------------------------------
Today, the Exchange provides Market Makers with the Percentage-
Based Threshold in Rule 1093 to monitor risk.\22\ The Exchange will
continue to require Market Makers to utilize the Percentage-Based
Threshold. The Volume-Based Threshold and the Multi-Trigger Threshold
will be optional.
---------------------------------------------------------------------------
\22\ An initial default value is set for each Market Maker.
---------------------------------------------------------------------------
The Exchange reserved subsection (i) for future modifications to
this rule.
The Exchange proposes to implement this rule within thirty (30)
days of the operative date.
Example #1 of the Volume-Based Threshold is displayed below.
Presume the following order book:
------------------------------------------------------------------------
Series of underlying XYZ Size on bid x offer for MM1
------------------------------------------------------------------------
100 Strike Call........................... 300x300
100 Strike Put............................ 50x50
110 Strike Call........................... 200x200
110 Strike Put............................ 150x150
------------------------------------------------------------------------
In this example, assume the Specified Time Period designated by the
Market Maker # 1 is 10 seconds and the designated number of contracts
permitted for the Volume-Based Threshold is 250 contracts. Assume at
12:00:00, the Market Maker # 1 executes all of his offer size, 200
contracts, in the 110 Strike Calls. The System will initiate the
Specified Time Period and for 10 seconds the System will count all
volume executed in series of underlying XYZ. If at any point during
that 10 second period, the Market Maker # 1 executes additional
contracts in any series of underlying XYZ, those contracts will be
added to the initial execution of 200 contracts. To illustrate, assume
at 12:00:05 the Market Maker # 1 executes 60 contracts of his offer in
the 100 Strike Calls. The total volume executed is now 260 contracts.
Since that volume exceeds the Market Maker #1's designated number of
contracts for the Volume-Based Threshold (250 contracts), all of his
quotes in all series of underlying XYZ over the designated protocols
will be removed from the System; no quotes will be executed in series
XYZ until the Market Maker enters new quotes in series XYZ. The Volume-
Based Specified Time Period will be reset for Market Maker #1 in
underlying XYZ and Market Maker #1 will need to send a re-entry
indicator in order to re-enter quotes in options series for underlying
XYZ into the System.
Example #2 of the Volume-Based Threshold: Similar to the example
above, assume the Specified Time Period is 10 seconds and the
designated number of contracts permitted for the Volume-Based Threshold
is 250 contracts. Assume at 12:00:00, Market Maker #1 executes all of
his offer size, 200 contracts, in the 110 Strike Calls. The System will
initiate the Specified Time Period and for 10 seconds the System will
count all volume executed in series of underlying XYZ. If at any point
during that 10 second period, Market Maker #1 executes additional
contracts in any series of underlying XYZ, those contracts will be
added to the initial execution of 200 contracts. Then assume at
12:00:05 Market Maker #1 executes 20 contracts of his offer in the 100
Strike Calls. The total volume executed is 220 contracts which does not
exceed the Volume-Based Threshold. This second execution initiates
another Specified Time Period so there are two open time periods, the
first with 5 seconds remaining and a new 10 second time period. At
12:00:10, the first timer period expires and the initial execution of
200 contracts is no longer counted toward the designated number of
contracts permitted for the Volume-Based Threshold. Further assume at
12:00:12, which is outside of the initial time period but still within
10 seconds of the second execution of 20 contracts, another execution
occurs with Market Maker #1 executing 230 contracts of his bid in the
100 Strike Calls. This total volume executed toward the Volume-Based
Threshold within the Specified Time Period is now 250 contracts which
equals the designated number of contracts permitted causing the System
to remove all quotes in all series of underlying XYZ over the
designated protocols for Market Maker #1 to be removed from the System;
no quotes will be executed in series XYZ until the Market Maker enters
new quotes in series XYZ. The Volume-Based Specified Time Period will
be reset for Market Maker #1 in underlying XYZ and Market Maker #1 will
need to send a re-entry indicator in order to re-enter quotes in
options series for underlying XYZ into the System. This example
displays the rolling basis in which the Specified Time Period operates.
Example #3: In order to illustrate the Multi-Trigger Threshold,
assume Example #1 and Example #2 provided above occurred in options
series of two different underlyings rather than all in options series
of underlying XYZ and for two separate Market Makers (MM#1
[[Page 40110]]
for Example #1 and MM#2 for Example #2) of the same member
organization. Assume a Group is defined by the member organization and
is comprised of the MM #1 and MM #2. Further assume the member
organization has defined the Multi-Trigger Specified Time Period as 10
seconds and the number of allowable triggers as two. Based on the
aforementioned examples, a Multi-Trigger Specified Time Period
commences at 12:00:05 when MM#1 triggers the Volume-Based Threshold.
This Volume-Based Threshold triggers counts as the first trigger toward
the Multi-Trigger Threshold for the Group. Another Multi-Trigger
Specified Time Period is initiated at 12:00:12 when MM#2 triggers the
Volume-Based Threshold (per Example #2). This Volume-Based Threshold
trigger counts as the second trigger toward the Multi-Trigger Threshold
for the Group since it is within the Multi-Trigger Specified Time
Period of the first trigger. Since the member organization designated
two triggers for the number of allowable triggers, the Group, both MM#1
and MM#2, quotes in all option series in all underlying issues for the
Group are automatically removed from the System and Purge Notification
Messages are sent to the Group; no quotes will be executed in series
XYZ until the Market Maker enters new quotes in series XYZ. The member
organization will need to contact the Exchange to request Exchange
staff to enable re-entry into the System. The Exchange proposes to
implement this rule within thirty (30) days of the operative date. The
Exchange will issue an Options Trader Alert in advance to inform market
participants of such date.
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act \23\ in general, and furthers the objectives of Section
6(b)(5) of the Act \24\ 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 enhancing the risk protections available to Exchange
members. The proposal promotes policy goals of the Commission which has
encouraged execution venues, exchange and non-exchange alike, to
enhance risk protection tools and other mechanisms to decrease risk and
increase stability.
---------------------------------------------------------------------------
\23\ 15 U.S.C. 78f(b).
\24\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
The individual firm benefits of enhanced risk protections flow
downstream to counter-parties both within and without the Exchange,
thereby increasing systemic protections as well. Additionally, because
the Exchange offers the these risk tools to Market Makers, in order to
encourage them to provide as much liquidity as possible and encourage
market making generally, the proposal removes impediments to and
perfects the mechanism of a free and open market and a national market
system and protect investors and the public interest.
With respect to permitting the Multi-Trigger Threshold to be set
either to one Market Maker or to a number of specified Market Makers
affiliated with a member, it is important to note that the risk to
Market Makers is not limited to a single series in an option but to all
series in an option. Market Makers that quote in multiple series of
multiple options have significant exposure, requiring them to offset or
hedge their overall positions. The proposed functionality will be
useful for Market Makers, who are required to continuously quote in
assigned options classes on the Exchange. Quoting across many series in
an option or multiple options creates the possibility of executions
that can create large, unintended principal positions that could expose
market makers to unnecessary risk. The Multi-Trigger Threshold
functionality is intended to assist Market Makers manage that risk at
the Group level so that Market Makers may provide deep and liquid
markets to the benefit of all investors.
The Exchange further represents that its proposal will operate
consistently with the firm quote obligations of a broker-dealer
pursuant to Rule 602 of Regulation NMS and that the functionality is
not mandatory. Specifically, any interest that is executable against a
Market Maker's quotes that are received \25\ by the Exchange prior to
the time either of these functionalities are engaged will be
automatically executed at the price up to the Market Maker's size,
regardless of whether such execution results in executions in excess of
the Market Maker's pre-set parameters.
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\25\ The time of receipt for an order or quote is the time such
message is processed by the Exchange book.
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With respect to providing risk settings to the Market Maker's
Clearing Member, each Member that transacts through a Clearing Member
on the Exchange executes a Letter of Guarantee wherein the Clearing
Member accepts financial responsibility for all Exchange transactions
made by the Member on whose behalf the Clearing Member submits the
letter of guarantee. The Exchange believes that because Clearing
Members guarantee all transactions on behalf of a Member, and
therefore, bear the risk associated with those transactions, it is
appropriate for Clearing Members to have knowledge of what risk
settings a Market Maker may utilize within the System and should be
provided and receive notice of re-entry into the System after
triggering the Multi-Trigger Threshold.
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. Specifically, the proposal will
not impose a burden on intra-market or inter-market competition, rather
it provides Market Makers with the opportunity to avail themselves of
similar risk tools which are currently available on other
exchanges.\26\ The proposal does not impose a burden on inter-market
competition, because members may choose to become market makers on a
number of other options exchanges, which may have similar but not
identical features.\27\ The proposed rule change is meant to protect
Market Makers from inadvertent exposure to excessive risk. Accordingly,
the proposed rule change will have no impact on competition.
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\26\ See Section 8 of the 19b4.
\27\ See BATS Rule 21.16, BOX Rules 8100 and 8110, C2 Rule 8.12,
CBOE Rule 8.18, ISE Rule 804(g), MIAX Rule 612, NYSE MKT Rule 928NY
and NYSE Arca Rule 6.40.
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Further, the Exchange is proposing this rule change at the request
of its Market Makers to further reduce their risk in the event the
Market Maker is suffering from a systems issue or due to the occurrence
of unusual or unexpected market activity. The proposed Group parameter
for the Multi-Trigger threshold will protect Market Makers from
inadvertent exposure to excessive risk at the Group level. Reducing
such risk will enable Market Makers to enter quotations without any
fear of inadvertent exposure to excessive risk, which in turn will
benefit investors through increased liquidity for the execution of
their orders. Such increased liquidity benefits investors because they
receive better prices and because it lowers volatility in the options
market.
The Exchange believes that requiring Market Makers to enter values
for the Percentage-Based Threshold is not
[[Page 40111]]
unreasonably burdensome because Market Makers can enter an out-of-range
value so that the Exchange-provided risk protections will not be
triggered. Reducing risk by utilizing the proposed risk protections
will enable Market Makers to enter quotations with larger size, which
in turn will benefit investors through increased liquidity for the
execution of their orders. Such increased liquidity benefits investors
because they receive better prices and because it lowers volatility in
the options market.
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
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 from the date on which it was filed, or
such shorter time as the Commission may designate, it has become
effective pursuant to Section 19(b)(3)(A)(ii) of the Act \28\ and
subparagraph (f)(6) of Rule 19b-4 thereunder.\29\ The Exchange has
requested that the Commission waive the thirty-day operative delay so
that the proposal may become operative immediately. The Exchange states
that waiving the thirty-day operative delay will enable Market Makers
to enhance their risk controls and risk management processes without
additional delay. The Commission believes that waiving the thirty day
delay is consistent with the protection of investors and the public
interest. Therefore, the Commission hereby waives the thirty-day
operative delay and designates the proposal effective upon filing.\30\
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\28\ 15 U.S.C. 78s(b)(3)(a)(ii).
\29\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)
requires a self-regulatory organization to give the Commission
written notice of its intent to file the proposed rule change at
least five business days prior to the date of filing of the proposed
rule change, or such shorter time as designated by the Commission.
The Exchange has satisfied this requirement.
\30\ For purposes 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 Number SR-Phlx-2015-52 on the subject line.
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-2015-52. 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-2015-52 and
should be submitted on or before August 3, 2015.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\31\
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\31\ 17 CFR 200.30-3(a)(12).
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Brent J. Fields,
Secretary.
[FR Doc. 2015-16973 Filed 7-10-15; 8:45 am]
BILLING CODE 8011-01-P
