Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Relating to the Volume-Based and Multi-Trigger Thresholds, 41100-41104 [2015-17169]
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Federal Register / Vol. 80, No. 134 / Tuesday, July 14, 2015 / Notices
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[FR Doc. 2015–17244 Filed 7–13–15; 8:45 am]
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Self-Regulatory Organizations; The
NASDAQ Stock Market LLC; Notice of
Filing and Immediate Effectiveness of
Proposed Rule Change Relating to the
Volume-Based and Multi-Trigger
Thresholds
asabaliauskas on DSK5VPTVN1PROD with NOTICES
July 8, 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 23,
2015, The NASDAQ Stock Market LLC
(‘‘NASDAQ’’ 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 NASDAQ. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
2 17
U.S.C. 78s(b)(1).
CFR 240.19b–4.
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II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
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
1 15
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
NASDAQ proposes to amend Chapter
VII, Section 6, entitled ‘‘Market Maker
Quotations,’’ of the rules governing the
NASDAQ Options Market (‘‘NOM’’ or
‘‘Exchange’’). The Exchange proposes to
adopt two new NOM Market Maker 3
optional risk protections, a volumebased threshold and a multi-trigger
threshold.4
The text of the proposed rule change
is available on the Exchange’s Web site
at https://
www.nasdaq.cchwallstreet.com, at the
principal office of the Exchange, and at
the Commission’s Public Reference
Room.
1. Purpose
The purpose of the filing is to adopt
two new risk protections for NOM
Market Maker’s to monitor marketplace
risk. These protections are intended to
assist NOM Market Makers to control
their trading risks.5 Quoting across
many series in an option creates the
possibility of ‘‘rapid fire’’ executions
3 The term ‘‘NOM Market Maker’’ means a
Participant that has registered as a Market Maker on
NOM pursuant to Chapter VII, Section 2, and must
also remain in good standing pursuant to Chapter
VII, Section 4.
4 Market Makers will be required to continue to
utilize the Risk Monitor Mechanism in Chapter VI,
Section 19, as is the case today.
5 Pursuant to NOM Rules at Chapter VII, Section
5, entitled ‘‘Obligations of Market Makers’’, in
registering as a market maker, an Options
Participant commits himself to various obligations.
Transactions of a NOM Market Maker must
constitute a course of dealings reasonably
calculated to contribute to the maintenance of a fair
and orderly market, and Market Makers should not
make bids or offers or enter into transactions that
are inconsistent with such course of dealings.
Further, all Market Makers are designated as
specialists on NOM for all purposes under the Act
or rules thereunder. See Chapter VII, Section 2.
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that can create large, unintended
principal positions that expose NOM
Market Makers, who are required to
continuously quote in assigned options,
to potentially significant market risk.
Today, the Exchange’s rules permit
NOM 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 NOM Market
Makers. The Exchange proposes to
amend NOM’s Rules at Chapter VII,
Section 6(f) to establish: (1) A threshold
used to calculate each NOM Market
Maker’s total volume executed in all
series of a given underlying security
within a specified time period and
compares that to a pre-determined
threshold (‘‘Volume-Based Threshold’’),
and (2) a threshold which measures the
number of times the System has
triggered 7 based on the Risk Monitor
Mechanism (‘‘Percentage-Based
Threshold’’) pursuant to Chapter VI,
Section 19 and Volume-Based
Thresholds within a specified time
period and compares that total to a predetermined threshold (‘‘Multi-Trigger
Threshold’’).
Volume-Based Threshold
In connection with offering these two
new threshold protections, a NOM
Market Maker would provide a specified
time period and volume threshold by
which the Exchange’s System would
automatically remove the NOM Market
Maker’s quotes and orders in an options
class, depending on the threshold
utilized, submitted through designated
NOM protocols, as specified by the
Exchange. The Exchange counts
Specialized Quote Feed (‘‘SQF’’) 8
quotes and OTTO 9 orders only in
determining the number of contracts
traded and removed by the System.10
The Volume-Based Threshold will
determine, during a specified time
period established by the NOM Market
6 See NOM Chapter VI, Section 19, ‘‘Risk Monitor
Mechanism.’’
7 A trigger is defined as the event which causes
the System to automatically remove all quotes and
orders in all options series in an underlying issue.
8 SQF permits the receipt of quotes. SQF Auction
Responses and market sweeps are also not
included.
9 OTTO immediate or cancel orders will not be
included. OTTO provides a method for subscribers
to send orders and receive status updates on those
orders. OTTO accepts limit orders from System
subscribers, and if there is a matching order, the
orders will execute. Non-matching orders are added
to the limit order book, a database of available limit
orders, where they are matched.
10 Financial Information Exchange (‘‘FIX’’) Orders
are not counted in determining the number of
contracts traded and removed by the System.
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Federal Register / Vol. 80, No. 134 / Tuesday, July 14, 2015 / Notices
Maker not to exceeds 15 seconds
(‘‘Volume-Based Specified Time
Period’’), whether a NOM Market Maker
executed a number of contracts which
equals or exceeds the designated
number of contracts specified by the
NOM Market Maker in all series of an
underlying security to determine
whether to remove the NOM Market
Maker’s quotes and orders in all series
of the underlying security.11 The
Volume-Based Threshold will be based
on the total number of contracts
executed in the market in the same
options series 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 NOM Market Maker
during the Volume-Based Specified
Time Period, the System will remove
the NOM Market Maker’s quotes and
orders. The Volume-Based Specified
Time Period designated by the NOM
Market Maker must be the same length
of time as designated for purposes of the
Percentage-Based Threshold in Rule
1093 [sic].12
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 and orders as described in newly
proposed sections (f)(iv) or (f)(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.13
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Multi-Trigger Threshold
A NOM Market Maker or NOM
Market Maker Group, which is defined
as multiple affiliated NOM Market
Makers,14 may provide the specified
time period and number of allowable
triggers by which the Exchange will
automatically remove quotes and orders
in all options series in all underlying
securities issues submitted through
designated NOM protocols, as specified
by the Exchange (‘‘Multi-Trigger
Threshold’’). During a specified time
11 The System counter is based on trading interest
resting on the Exchange book.
12 See proposed new Chapter VII, Section 6(f)(ii).
13 Id.
14 This would be more than one NOM Market
Maker, but does not require the aggregation of all
of the Participant’s Market Makers. A Group would
be comprised of NOM Market Makers affiliated with
one Participant. The Participant would be required
to define a Group by providing a list of such
affiliated NOM Market Makers to the Exchange.
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period established by the NOM Market
Maker not to exceed 15 seconds (‘‘MultiTrigger Specified Time Period’’), the
number of times the System
automatically removes the NOM Market
Maker’s or Group’s quotes and orders in
all options series will be based on the
number of triggers of the PercentageBased Threshold, described in proposed
(f)(ii), as well as the Volume-Based
Threshold described in proposed
(f)(ii).15 For purposes of this rule, a
trigger shall be defined as the event
which causes the System to
automatically remove quotes and orders
in all options series in an underlying
issue. Once the System determines that
the number of triggers equals or exceeds
a number established by either the NOM
Market Maker or Group, during a MultiTrigger Specified Time Period, the
System will automatically remove all
quotes and orders in all options series
in all underlying issues for that NOM
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 and orders as described in
section (f)(iv) of the proposed rule or the
Multi-Trigger Specified Time Period
expires. Participants may configure the
Multi-Trigger Threshold at the badge
level (by NOM Market Maker) or by
Group (multiple affiliated NOM Market
Makers), but not both. This is different
as compared to the Percentage-Based
Threshold in Chapter VI, Section 19 or
the newly proposed Volume-Based
Thresholds that are configured only on
the badge level (by NOM Market
Maker).16 The System counts triggers
within a Multi-Trigger Specified Time
Period across all options for the NOM
Market Maker or Group. A Multi-Trigger
Specified Time Period operates in that
there may be multiple Multi-Trigger
Specified Time Periods occurring
15 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).
16 See proposed new Chapter VII, Section 6(f)(iii).
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41101
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.17 The
System will send a Purge Notification
Message 18 to the NOM 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 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 and orders will be automatically
executed up to the NOM Market Maker’s
size regardless of whether the quote
exceeds the Volume-Based threshold.19
If a NOM Market Maker requests the
System to remove quotes and orders in
all options series in an underlying issue,
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.20
When the System removes quotes and
orders as a result of the Volume-Based
Threshold, the NOM Market Maker
must send a re-entry indicator to reenter the System. When the System
removes quotes and orders as a result of
the Multi-Trigger Threshold, the System
will not accept quotes and orders
through designated protocols until the
NOM Market Maker manually requests
re-entry.21 After quotes and orders are
removed as a result of the Multi-Trigger
Threshold, Exchange staff must set a reentry indicator in this case to enable reentry, which will cause the System to
send a Reentry Notification Message to
the NOM Market Maker for all options
17 The specified time period for the VolumeBased 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 Chapter VI, Section
19.
18 A message entitled ‘‘Purge Notification
Message’’ is systemically sent to the BX Marker
Maker upon the removal of quotes due to VolumeBased Threshold or Multi-Trigger Threshold.
19 See proposed new Chapter VII, Section 6(f)(iii).
20 See proposed new Chapter VII, Section 6(f)(iv).
21 In the interest of maintaining fair and orderly
markets, the Exchange believes it is important that
NOM Market Makers communicate their readiness
to Exchange staff in a non-automated manner, such
as by email or telephone.
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Federal Register / Vol. 80, No. 134 / Tuesday, July 14, 2015 / Notices
series in all underlying issues.22 The
NOM Market Maker’s Clearing Firm will
be notified regarding the trigger and reentry into the System after quotes and
orders are removed as a result of the
Multi-Trigger Threshold, provided the
NOM Market Maker’s Clearing Firm has
requested to receive such notification.23
The System will then reset all counters
to zero and re-entry and continued
trading will be permitted. A NOM
Market Maker is subject to continuous
quoting obligations 24 despite the
removal of quotes and orders from the
System and approval process for reentry.
Today, the Exchange provides NOM
Market Makers with the PercentageBased Threshold in Rule 1093 to
monitor risk.25 The Exchange will
continue to require NOM Market Makers
to utilize the Percentage-Based
Threshold. The Volume-Based
Threshold and the Multi-Trigger
Threshold will be optional.
The Exchange reserved subsection
(f)(i) for future modifications to this
rule.
The Exchange proposes to implement
these rule changes within 30 days of the
operative day of this rule change.
Example #1 of the Volume-Based
Threshold is displayed below. Presume
the following Order Book:
Series of underlying XYZ
asabaliauskas on DSK5VPTVN1PROD with NOTICES
100
100
110
110
Strike
Strike
Strike
Strike
Call ....................
Put .....................
Call ....................
Put .....................
Size on bid ×
offer for MM1
300 × 300
50 × 50
200 × 200
150 × 150
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
22 See
proposed new Chapter VII, Section 6(f)(v).
Rules at Chapter VI, Section 20 permits
the Exchange to share NOM Market Maker
designated risk settings in the System with the
Clearing Firm.
24 See note 5.
25 An initial default value is set for each NOM
Market Maker.
23 NOM
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#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 further quotes or orders will
be executed until re-entry. The VolumeBased 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 reenter 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 further quotes or orders
will be executed until re-entry. The
Volume-Based Specified Time Period
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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
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 further quotes or
orders will be executed until re-entry.
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 26 in general, and furthers the
objectives of Section 6(b)(5) of the Act 27
in particular, in that it is designed to
promote just and equitable principles of
26 15
27 15
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U.S.C. 78f(b).
U.S.C. 78f(b)(5).
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Federal Register / Vol. 80, No. 134 / Tuesday, July 14, 2015 / Notices
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.
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 these risk tools to NOM
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
NOM Market Maker or to a number of
specified NOM Market Makers affiliated
with a member, it is important to note
that the risk to NOM Market Makers is
not limited to a single series in an
option but to all series in an option.
NOM 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 NOM 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 MultiTrigger Threshold functionality is
intended to assist NOM Market Makers
manage that risk at the Group level so
that NOM 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 NOM Market
Maker’s quotes that are received 28 by
the Exchange prior to the time either of
these functionalities are engaged will be
automatically executed at the price up
to the NOM Market Maker’s size,
regardless of whether such execution
results in executions in excess of the
NOM Market Maker’s pre-set
parameters.
With respect to providing risk settings
to the NOM 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 Participant 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 Participant, and therefore,
bear the risk associated with those
transactions, it is appropriate for
Clearing Members to have knowledge of
what risk settings a NOM Market Maker
may utilize within the System and
receive 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 NOM
Market Makers with the opportunity to
avail themselves of similar risk tools
which are currently available on other
exchanges.29 The proposal does not
impose a burden on inter-market
competition, because Participants may
choose to become market makers on a
number of other options exchanges,
which may have similar but not
identical features.30 The proposed rule
change is meant to protect NOM 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
NOM Market Makers to further reduce
their risk in the event the NOM 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
29 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.
30 See
28 The time of receipt for an order or quote is the
time such message is processed by the Exchange
book.
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41103
NOM Market Makers from inadvertent
exposure to excessive risk at the Group
level. Reducing such risk will enable
NOM 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
NOM Market Makers to enter values for
the Percentage-Based Threshold is not
unreasonably burdensome because
NOM Market Makers can enter an outof-range values so that the Exchangeprovided risk protections will not be
triggered. Reducing risk by utilizing the
proposed risk protections will enable
NOM 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 31 and
subparagraph (f)(6) of Rule 19b–4
thereunder.32 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
31 15
32 17
E:\FR\FM\14JYN1.SGM
U.S.C. 78s(b)(3)(a)(ii).
CFR 240.19b–4(f)(6).
14JYN1
41104
Federal Register / Vol. 80, No. 134 / Tuesday, July 14, 2015 / Notices
delay and designates the proposal
effective upon filing.33
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. The
Exchange has provided the Commission
written notice of its intent to file the
proposed rule change, along with a brief
description and text of the proposed
rule change, at least five business days
prior to the date of filing of the
proposed rule change.
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–
NASDAQ–2015–061 on the subject line.
asabaliauskas on DSK5VPTVN1PROD with NOTICES
Paper Comments
• Send paper comments in triplicate
to Brent J. Fields, Secretary, Securities
and Exchange Commission, 100 F Street
NE., Washington, DC 20549–1090.
All submissions should refer to File
Number SR–NASDAQ–2015–061. 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–
NASDAQ–2015–061 and should be
submitted on or before August 4, 2015.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.34
Brent J. Fields,
Secretary.
[FR Doc. 2015–17169 Filed 7–13–15; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–75397; File No. SR–EDGX–
2015–28]
Self-Regulatory Organizations; EDGX
Exchange, Inc.; Notice of Filing and
Immediate Effectiveness of a Proposed
Rule Change To Amend the Market
Data Section of Its Fee Schedule
July 8, 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, EDGX Exchange, Inc. (the
‘‘Exchange’’ or ‘‘EDGX’’) filed with the
Securities and Exchange Commission
(‘‘Commission’’) the proposed rule
change as described in Items I, II, and
III below, which Items have been
prepared by the Exchange. The
Exchange has designated the proposed
rule change as one establishing or
changing a member due, fee, or other
charge imposed by the Exchange under
Section 19(b)(3)(A)(ii) of the Act 3 and
Rule 19b–4(f)(2) thereunder,4 which
renders the proposed rule change
effective upon filing with the
Commission. The Commission is
publishing this notice to solicit
33 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).
VerDate Sep<11>2014
19:09 Jul 13, 2015
Jkt 235001
PO 00000
34 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 15 U.S.C. 78s(b)(3)(A)(ii).
4 17 CFR 240.19b–4(f)(2).
1 15
Frm 00114
Fmt 4703
Sfmt 4703
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 Exchange filed a proposal to
amend the Market Data section of its fee
schedule to: (i) Adopt User fees, an
Enterprise fee, and a Digital Media
Enterprise fee for the EDGX Top and
EDGX Last Sale feeds; and (ii) make a
non-substantive change to the
description of the BATS One Feed
Enterprise Fee as well as correct a crossreference within the definition of ‘‘NonProfessional User’’.
The text of the proposed rule change
is available at the Exchange’s Web site
at www.batstrading.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 parts of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The Exchange proposes to amend the
Market Data section of its fee schedule
to: (i) Adopt User fees, an Enterprise fee,
and a Digital Media Enterprise fee for
the EDGX Top and EDGX Last Sale
feeds; and (ii) make a non-substantive
change to the description of the BATS
One Feed Enterprise Fee as well as
correct a cross-reference within the
definition of ‘‘Non-Professional User’’.
EDGX Top and Last Sale Fees
EDGX Top is a market data feed that
includes top of book quotations and
execution information for all equity
securities traded on the Exchange.5
EDGX Last Sale is a market data feed
that includes last sale information for all
equity securities traded on Exchange.6
5 See
6 See
E:\FR\FM\14JYN1.SGM
Exchange Rule 13.8(c).
Exchange Rule 13.8(d).
14JYN1
]]>Agencies
[Federal Register Volume 80, Number 134 (Tuesday, July 14, 2015)]
[Notices]
[Pages 41100-41104]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-17169]
=======================================================================
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-75391; File No. SR-NASDAQ-2015-061]
Self-Regulatory Organizations; The NASDAQ Stock Market LLC;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change
Relating to the Volume-Based and Multi-Trigger Thresholds
July 8, 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 23, 2015, The NASDAQ Stock Market LLC (``NASDAQ'' 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 NASDAQ.
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
NASDAQ proposes to amend Chapter VII, Section 6, entitled ``Market
Maker Quotations,'' of the rules governing the NASDAQ Options Market
(``NOM'' or ``Exchange''). The Exchange proposes to adopt two new NOM
Market Maker \3\ optional risk protections, a volume-based threshold
and a multi-trigger threshold.\4\
---------------------------------------------------------------------------
\3\ The term ``NOM Market Maker'' means a Participant that has
registered as a Market Maker on NOM pursuant to Chapter VII, Section
2, and must also remain in good standing pursuant to Chapter VII,
Section 4.
\4\ Market Makers will be required to continue to utilize the
Risk Monitor Mechanism in Chapter VI, Section 19, as is the case
today.
---------------------------------------------------------------------------
The text of the proposed rule change is available on the Exchange's
Web site at https://www.nasdaq.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
NOM Market Maker's to monitor marketplace risk. These protections are
intended to assist NOM 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 NOM Market Makers, who are required to
continuously quote in assigned options, to potentially significant
market risk. Today, the Exchange's rules permit NOM Market Makers to
monitor risk arising from multiple executions across multiple options
series of a single underlying security.\6\
---------------------------------------------------------------------------
\5\ Pursuant to NOM Rules at Chapter VII, Section 5, entitled
``Obligations of Market Makers'', in registering as a market maker,
an Options Participant commits himself to various obligations.
Transactions of a NOM Market Maker must constitute a course of
dealings reasonably calculated to contribute to the maintenance of a
fair and orderly market, and Market Makers should not make bids or
offers or enter into transactions that are inconsistent with such
course of dealings. Further, all Market Makers are designated as
specialists on NOM for all purposes under the Act or rules
thereunder. See Chapter VII, Section 2.
\6\ See NOM Chapter VI, Section 19, ``Risk Monitor Mechanism.''
---------------------------------------------------------------------------
The Exchange is proposing to offer a new volume-based and multi-
trigger threshold protection to NOM Market Makers. The Exchange
proposes to amend NOM's Rules at Chapter VII, Section 6(f) to
establish: (1) A threshold used to calculate each NOM Market Maker's
total volume executed in all series of a given underlying security
within a specified time period and compares that to a pre-determined
threshold (``Volume-Based Threshold''), and (2) a threshold which
measures the number of times the System has triggered \7\ based on the
Risk Monitor Mechanism (``Percentage-Based Threshold'') pursuant to
Chapter VI, Section 19 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 and orders in all options series in
an underlying issue.
---------------------------------------------------------------------------
Volume-Based Threshold
In connection with offering these two new threshold protections, a
NOM Market Maker would provide a specified time period and volume
threshold by which the Exchange's System would automatically remove the
NOM Market Maker's quotes and orders in an options class, depending on
the threshold utilized, submitted through designated NOM protocols, as
specified by the Exchange. The Exchange counts Specialized Quote Feed
(``SQF'') \8\ quotes and OTTO \9\ orders only in determining the number
of contracts traded and removed by the System.\10\
---------------------------------------------------------------------------
\8\ SQF permits the receipt of quotes. SQF Auction Responses and
market sweeps are also not included.
\9\ OTTO immediate or cancel orders will not be included. OTTO
provides a method for subscribers to send orders and receive status
updates on those orders. OTTO accepts limit orders from System
subscribers, and if there is a matching order, the orders will
execute. Non-matching orders are added to the limit order book, a
database of available limit orders, where they are matched.
\10\ Financial Information Exchange (``FIX'') Orders are not
counted 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 NOM Market
[[Page 41101]]
Maker not to exceeds 15 seconds (``Volume-Based Specified Time
Period''), whether a NOM Market Maker executed a number of contracts
which equals or exceeds the designated number of contracts specified by
the NOM Market Maker in all series of an underlying security to
determine whether to remove the NOM Market Maker's quotes and orders in
all series of the underlying security.\11\ The Volume-Based Threshold
will be based on the total number of contracts executed in the market
in the same options series 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 NOM Market Maker
during the Volume-Based Specified Time Period, the System will remove
the NOM Market Maker's quotes and orders. The Volume-Based Specified
Time Period designated by the NOM Market Maker must be the same length
of time as designated for purposes of the Percentage-Based Threshold in
Rule 1093 [sic].\12\
---------------------------------------------------------------------------
\11\ The System counter is based on trading interest resting on
the Exchange book.
\12\ See proposed new Chapter VII, Section 6(f)(ii).
---------------------------------------------------------------------------
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 and orders as
described in newly proposed sections (f)(iv) or (f)(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.\13\
---------------------------------------------------------------------------
\13\ Id.
---------------------------------------------------------------------------
Multi-Trigger Threshold
A NOM Market Maker or NOM Market Maker Group, which is defined as
multiple affiliated NOM Market Makers,\14\ may provide the specified
time period and number of allowable triggers by which the Exchange will
automatically remove quotes and orders in all options series in all
underlying securities issues submitted through designated NOM
protocols, as specified by the Exchange (``Multi-Trigger Threshold'').
During a specified time period established by the NOM Market Maker not
to exceed 15 seconds (``Multi-Trigger Specified Time Period''), the
number of times the System automatically removes the NOM Market Maker's
or Group's quotes and orders in all options series will be based on the
number of triggers of the Percentage-Based Threshold, described in
proposed (f)(ii), as well as the Volume-Based Threshold described in
proposed (f)(ii).\15\ For purposes of this rule, a trigger shall be
defined as the event which causes the System to automatically remove
quotes and orders in all options series in an underlying issue. Once
the System determines that the number of triggers equals or exceeds a
number established by either the NOM Market Maker or Group, during a
Multi-Trigger Specified Time Period, the System will automatically
remove all quotes and orders in all options series in all underlying
issues for that NOM 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 and orders as described in section (f)(iv) of
the proposed rule or the Multi-Trigger Specified Time Period expires.
Participants may configure the Multi-Trigger Threshold at the badge
level (by NOM Market Maker) or by Group (multiple affiliated NOM Market
Makers), but not both. This is different as compared to the Percentage-
Based Threshold in Chapter VI, Section 19 or the newly proposed Volume-
Based Thresholds that are configured only on the badge level (by NOM
Market Maker).\16\ The System counts triggers within a Multi-Trigger
Specified Time Period across all options for the NOM Market Maker or
Group. A Multi-Trigger Specified Time Period operates in that there may
be multiple Multi-Trigger Specified Time Periods occurring
simultaneously and such Multi-Trigger Specified Time Periods may
overlap.
---------------------------------------------------------------------------
\14\ This would be more than one NOM Market Maker, but does not
require the aggregation of all of the Participant's Market Makers. A
Group would be comprised of NOM Market Makers affiliated with one
Participant. The Participant would be required to define a Group by
providing a list of such affiliated NOM Market Makers to the
Exchange.
\15\ 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).
\16\ See proposed new Chapter VII, Section 6(f)(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.\17\ The System will send a Purge Notification Message \18\ to
the NOM Market Maker for all affected options when the above thresholds
have been reached.
---------------------------------------------------------------------------
\17\ 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 Chapter VI, Section 19.
\18\ A message entitled ``Purge Notification Message'' is
systemically sent to the BX 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 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 and orders
will be automatically executed up to the NOM Market Maker's size
regardless of whether the quote exceeds the Volume-Based threshold.\19\
---------------------------------------------------------------------------
\19\ See proposed new Chapter VII, Section 6(f)(iii).
---------------------------------------------------------------------------
If a NOM Market Maker requests the System to remove quotes and
orders in all options series in an underlying issue, 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.\20\
---------------------------------------------------------------------------
\20\ See proposed new Chapter VII, Section 6(f)(iv).
---------------------------------------------------------------------------
When the System removes quotes and orders as a result of the
Volume-Based Threshold, the NOM Market Maker must send a re-entry
indicator to re-enter the System. When the System removes quotes and
orders as a result of the Multi-Trigger Threshold, the System will not
accept quotes and orders through designated protocols until the NOM
Market Maker manually requests re-entry.\21\ After quotes and orders
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 NOM
Market Maker for all options
[[Page 41102]]
series in all underlying issues.\22\ The NOM Market Maker's Clearing
Firm will be notified regarding the trigger and re-entry into the
System after quotes and orders are removed as a result of the Multi-
Trigger Threshold, provided the NOM Market Maker's Clearing Firm has
requested to receive such notification.\23\ The System will then reset
all counters to zero and re-entry and continued trading will be
permitted. A NOM Market Maker is subject to continuous quoting
obligations \24\ despite the removal of quotes and orders from the
System and approval process for re-entry.
---------------------------------------------------------------------------
\21\ In the interest of maintaining fair and orderly markets,
the Exchange believes it is important that NOM Market Makers
communicate their readiness to Exchange staff in a non-automated
manner, such as by email or telephone.
\22\ See proposed new Chapter VII, Section 6(f)(v).
\23\ NOM Rules at Chapter VI, Section 20 permits the Exchange to
share NOM Market Maker designated risk settings in the System with
the Clearing Firm.
\24\ See note 5.
---------------------------------------------------------------------------
Today, the Exchange provides NOM Market Makers with the Percentage-
Based Threshold in Rule 1093 to monitor risk.\25\ The Exchange will
continue to require NOM Market Makers to utilize the Percentage-Based
Threshold. The Volume-Based Threshold and the Multi-Trigger Threshold
will be optional.
---------------------------------------------------------------------------
\25\ An initial default value is set for each NOM Market Maker.
---------------------------------------------------------------------------
The Exchange reserved subsection (f)(i) for future modifications to
this rule.
The Exchange proposes to implement these rule changes within 30
days of the operative day of this rule change.
Example #1 of the Volume-Based Threshold is displayed below.
Presume the following Order Book:
------------------------------------------------------------------------
Size on bid x
Series of underlying XYZ offer for MM1
------------------------------------------------------------------------
100 Strike Call........................................ 300 x 300
100 Strike Put......................................... 50 x 50
110 Strike Call........................................ 200 x 200
110 Strike Put......................................... 150 x 150
------------------------------------------------------------------------
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 further quotes or orders will be
executed until re-entry. 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 further quotes or orders will be executed until re-entry. 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 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
further quotes or orders will be executed until re-entry. 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 \26\ in general, and furthers the objectives of Section
6(b)(5) of the Act \27\ in particular, in that it is designed to
promote just and equitable principles of
[[Page 41103]]
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.
---------------------------------------------------------------------------
\26\ 15 U.S.C. 78f(b).
\27\ 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 these risk tools to NOM 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 NOM Market Maker or to a number of specified NOM Market
Makers affiliated with a member, it is important to note that the risk
to NOM Market Makers is not limited to a single series in an option but
to all series in an option. NOM 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 NOM 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 NOM Market Makers manage
that risk at the Group level so that NOM 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
NOM Market Maker's quotes that are received \28\ by the Exchange prior
to the time either of these functionalities are engaged will be
automatically executed at the price up to the NOM Market Maker's size,
regardless of whether such execution results in executions in excess of
the NOM Market Maker's pre-set parameters.
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\28\ 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 NOM 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 Participant 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 Participant, and
therefore, bear the risk associated with those transactions, it is
appropriate for Clearing Members to have knowledge of what risk
settings a NOM Market Maker may utilize within the System and receive
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 NOM Market Makers with the opportunity to avail themselves
of similar risk tools which are currently available on other
exchanges.\29\ The proposal does not impose a burden on inter-market
competition, because Participants may choose to become market makers on
a number of other options exchanges, which may have similar but not
identical features.\30\ The proposed rule change is meant to protect
NOM Market Makers from inadvertent exposure to excessive risk.
Accordingly, the proposed rule change will have no impact on
competition.
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\29\ See Section 8 of the 19b4.
\30\ 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 NOM Market Makers to further reduce their risk in the event the
NOM 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 NOM Market
Makers from inadvertent exposure to excessive risk at the Group level.
Reducing such risk will enable NOM 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 NOM Market Makers to enter
values for the Percentage-Based Threshold is not unreasonably
burdensome because NOM Market Makers can enter an out-of-range values
so that the Exchange-provided risk protections will not be triggered.
Reducing risk by utilizing the proposed risk protections will enable
NOM 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 \31\ and
subparagraph (f)(6) of Rule 19b-4 thereunder.\32\ 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
[[Page 41104]]
delay and designates the proposal effective upon filing.\33\
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\31\ 15 U.S.C. 78s(b)(3)(a)(ii).
\32\ 17 CFR 240.19b-4(f)(6).
\33\ 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. The Exchange has
provided the Commission written notice of its intent to file the
proposed rule change, along with a brief description and text of the
proposed rule change, at least five business days prior to the date of
filing of the proposed rule change.
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-NASDAQ-2015-061 on the subject line.
Paper Comments
Send paper comments in triplicate to Brent J. Fields,
Secretary, Securities and Exchange Commission, 100 F Street NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number SR-NASDAQ-2015-061. 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-NASDAQ-2015-061 and should
be submitted on or before August 4, 2015.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\34\
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\34\ 17 CFR 200.30-3(a)(12).
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Brent J. Fields,
Secretary.
[FR Doc. 2015-17169 Filed 7-13-15; 8:45 am]
BILLING CODE 8011-01-P
