Self-Regulatory Organizations; Notice of Filing and Immediate Effectiveness of Proposed Rule Change by NASDAQ OMX BX, Inc. Relating to the Volume-Based and Multi-Trigger Threshold, 41114-41119 [2015-17170]
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Federal Register / Vol. 80, No. 134 / Tuesday, July 14, 2015 / Notices
information with respect to, and
facilitating transactions in securities, 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. The Commission also
finds that the proposal is designed to
not permit unfair discrimination
between customers, issuers, brokers, or
dealers pursuant to Section 6(b)(5) of
the Act.18 Further, the Commission
finds that the proposed rule change is
consistent with Section 6(b)(1) of the
Act,19 which provides that an exchange
must be so organized and have the
capacity to be able to carry out the
purposes of this Act and to comply, and
to enforce compliance by its members
and persons associated with its
members, with the Act, the rules and
regulations thereunder, and the rules of
the exchange.
The Commission believes that the
additional requirements prescribed by
CBOE Rules 3.4A, 6.20A, and 6.23A are
reasonably designed to assure the
Exchange that it will be able to obtain
the information necessary to perform its
self-regulatory obligations. In this
regard, the Commission notes that
certain foreign jurisdictions may have
laws, rules, or regulations that prohibit
or restrict the sharing of certain
information that would be necessary for
the Exchange to adequately oversee the
trading activity of Trading Permit
Holders from such jurisdictions.
Accordingly, the Commission believes
that it is appropriate and consistent
with the Act for the Exchange to require
Trading Permit Holders to be domiciled
in, or only directly access the System
from, jurisdictions that would not
impede the Exchange’s ability to carry
out its regulatory responsibilities, and
that Trading Permit Holders are
otherwise able to provide to CBOE
pertinent information regarding their
customers and their customers’ trading
activities in response to a regulatory
request.
The Commission believes that these
new CBOE requirements will help
facilitate the Exchange’s surveillance,
examinations, and inspections of
Trading Permit Holders by helping to
ensure that the Exchange has access to
information necessary for it to enforce
compliance by all Trading Permit
Holders with CBOE’s rules and the
federal securities laws, consistent with
the Act.20 With unencumbered access to
18 Id.
19 15
U.S.C. 78f(b)(1).
U.S.C. 78f(b). In this regard, as noted above,
the Rule provides that in approving a given
jurisdiction, among other things, the Exchange will
20 15
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the same level of information from each
member, without regard to whether
such members are located within or
outside the U.S., the proposal is
designed to support CBOE’s ability to
fulfil its regulatory mandate to prevent
fraudulent and manipulative acts and
practices, promote just and equitable
principles of trade, and protect investors
and the public interest, consistent with
Section 6(b)(5) of the Act.21
The Commission believes that the
factors enumerated in CBOE Rule
3.4A(a)(i) for determining whether to
approve a jurisdiction are objective and
reasonably designed to achieve the
purposes discussed above. Further, the
Commission notes that the Exchange
represents that it will consider all of the
factors for all of the jurisdictions in the
same manner and that such
consideration will include reviews of
the applicable laws, rules, and
regulations of a jurisdiction to
determine whether the factors
enumerated in the Rule can be
satisfied.22 In addition, while the Rule
allows the Exchange to limit approval to
specified categories of Trading Permit
Holders or activities in a jurisdiction or
impose other specified conditions, this
provision provides CBOE with limited
discretion as any such conditions must
be imposed on all applicants from a
given jurisdiction and only to the extent
that such limits or conditions are
necessary to satisfy the factors of CBOE
Rule 3.4A(a)(i)(A)–(D). For example, the
Exchange notes that a foreign
jurisdiction may permit only certain
activities on the Exchange by market
participants in that jurisdiction.23 This
provision would allow the Exchange to
permit Trading Permit Holders from
such a jurisdiction, subject to certain
conditions that enable the Exchange to
comply with the laws, rules, or
regulations of such jurisdiction. The
Commission also notes that the
consider whether: The applicant will be able to
supply the Exchange with such information with
respect to its dealings on the Exchange, the
Exchange will be able to examine the applicant’s
books and records to verify the accuracy of any
information so supplied, and other factors that the
Exchange reasonably and objectively determines
may impact the applicant’s ability to comply with
the Exchange’s rules and the Act. See CBOE Rule
3.4A(a)(i). Further, it requires that a Trading Permit
Holder, prior to acting as agent for a customer, must
be able to provide information regarding the
customer and the customer’s trading activities to
the Exchange in response to a regulatory request for
information. To the extent that an individual or
organization is required by an applicable, law, rule,
or regulation to obtain written consent from a
customer to permit the provision of this information
to the Exchange, the applicant must obtain such
consent. See CBOE Rule 3.4A(a)(iii).
21 15 U.S.C. 78f(b)(5).
22 See Notice, supra note 3, at 29133.
23 See id.
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Exchange represents that it will
determine in the same manner for all
jurisdictions whether to impose any
such limits or conditions on Trading
Permit Holders.24 The Commission
therefore believes that the proposed rule
is not designed to permit CBOE to apply
the new requirements in an arbitrary or
discriminatory manner and similarly
situated applicants should therefore be
treated consistently.
Further, the Commission notes that
the Exchange will publish a list of
approved jurisdictions in a Regulatory
Circular and on a dedicated Web site.
Making the jurisdictional
determinations available publicly will
provide transparency to CBOE’s
determinations under the proposed
Rule, as well as provide notice to market
participants and prospective Trading
Permit Holders of the approved
jurisdictions.
Finally, the Commission believes that
the requirement in CBOE Rule
3.4A(a)(ii) that an applicant be subject
to the jurisdiction of the federal courts
of the United States and the courts of
the state of Illinois is reasonable. Among
other things, this provision could be
useful to a U.S. person involved in a
dispute with a Trading Permit Holder or
Sponsored User as it may provide a
forum in which such aggrieved party
could pursue any available legal or
equitable remedies against such party.
IV. Conclusion
It is therefore ordered pursuant to
Section 19(b)(2) of the Act,25 that the
proposed rule change (SR–CBOE–2015–
012) be, and it hereby is, approved.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.26
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2015–17290 Filed 7–13–15; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–75392; File No. SR–BX–
2015–036]
Self-Regulatory Organizations; Notice
of Filing and Immediate Effectiveness
of Proposed Rule Change by NASDAQ
OMX BX, Inc. Relating to the VolumeBased and Multi-Trigger Threshold
July 8, 2015.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
24 See
id.
U.S.C. 78s(b)(2).
26 17 CFR 200.30–3(a)(12).
25 15
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(‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on June 23,
2015, NASDAQ OMX BX, Inc. (‘‘BX’’ or
‘‘Exchange’’) filed with the Securities
and Exchange Commission (‘‘SEC’’ or
‘‘Commission’’) the proposed rule
change as described in Items I 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
BX proposes to amend Chapter VII,
Section 6, entitled ‘‘Market Maker
Quotations,’’ of the rules governing BX.
The Exchange proposes to adopt two
new BX Market Maker 3 optional 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://
nasdaqomxbx.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
asabaliauskas on DSK5VPTVN1PROD with NOTICES
The purpose of the filing is to adopt
two new risk protections for BX Market
Maker’s to monitor marketplace risk.
These protections are intended to assist
BX Market Makers to control their
1 15
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 The term ‘‘BX Market Maker’’ means a
Participant that has registered as a Market Maker on
BX 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.
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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 BX
Market Makers, who are required to
continuously quote in assigned options,
to potentially significant market risk.
Today, the Exchange’s rules permit BX
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 BX Market
Makers. The Exchange proposes to
amend BX’s Rules at Chapter VII,
Section 6(f) to establish: (1) A threshold
used to calculate each BX 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 BX Market
Maker would provide a specified time
period and volume threshold number of
allowable triggers by which the
Exchange’s System would automatically
remove the BX Market Maker’s quotes in
all options series in an options class,
depending on the threshold utilized,
submitted through designated BX
protocols, as specified by the Exchange.
The Exchange counts Specialized Quote
Feed (‘‘SQF’’) 8 quotes only in
5 Pursuant to BX 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 BX 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
BX for all purposes under the Act or rules
thereunder. See Chapter VII, Section 2.
6 See BX Chapter VI, Section 19, ‘‘Risk Monitor
Mechanism.’’
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. SQF Auction
Responses and Market Sweeps are also not
included.
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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 BX Market
Maker not to exceed 15 seconds
(‘‘Volume-Based Specified Time
Period’’), whether a BX Marker Maker
executed a number of contracts which
equals or exceeds the designated
number of contracts specified by the BX
Market Maker in all series of an
underlying security to determine
whether to remove the BX Market
Maker’s quotes in all series of 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
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 BX Market
Maker during the Volume-Based
Specified Time Period, the System will
remove the BX Market Maker’s quotes.
The Volume-Based Specified Time
Period designated by the BX Market
Maker must be the same length of time
as designated for purposes of the
Percentage-Based Threshold in Chapter
VI, Section 19.10
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 (f)(iv) or (f)(v) or the VolumeBased 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.11
Multi-Trigger Threshold
A BX Market Maker or BX Market
Maker Group, which is defined as
multiple affiliated BX Market Makers,12
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 securities issues submitted
9 The System counter is based on trading interest
resting on the Exchange book.
10 See proposed new Chapter VII, Section 6(f)(ii).
11 Id.
12 This would be more than one BX Market
Maker, but does not require the aggregation of all
of the Participant’s Market Makers. A Group would
be comprised of BX Market Makers affiliated with
one Participant. The Participant would be required
to define a Group by providing a list of such
affiliated BX Market Makers to the Exchange.
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Federal Register / Vol. 80, No. 134 / Tuesday, July 14, 2015 / Notices
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through designated BX protocols, as
specified by the Exchange (‘‘MultiTrigger Threshold’’). During a specified
time period established by the BX
Market Maker not to exceed 15 seconds
(‘‘Multi-Trigger Specified Time
Period’’), the number of times the
System automatically removes the BX
Market Maker’s or Group’s quotes 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).13 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 an underlying issue.
Once the System determines that the
number of triggers equals or exceeds a
number established by either the BX
Market Maker or Group, during a MultiTrigger Specified Time Period, the
System will automatically remove all
quotes in all options series in all
underlying issues for that BX 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 (f)(iv) of
the proposed rule or the Multi-Trigger
Specified Time Period expires.
Participants may configure the MultiTrigger Threshold at the badge level (by
BX Market Maker) or by Group
(multiple affiliated BX 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 BX Market Maker).14
The System counts triggers within a
Multi-Trigger Specified Time Period
across all options for the BX Market
Maker or Group. A Multi-Trigger
Specified Time Period operates on a
13 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).
14 See proposed new Chapter VII, Section 6(f)(iii).
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rolling basis in that there may be
multiple Multi-Trigger 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.15 The
System will send a Purge Notification
Message 16 to the BX 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 will be automatically executed
up to the BX Market Maker’s size
regardless of whether the quote exceeds
the Volume-Based Threshold.17
If a BX Market Maker requests the
System to remove quotes 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.18
When the System removes quotes as
a result of the Volume-Based Threshold,
the BX Market Maker must send a reentry 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
BX Market Maker manually requests reentry.19 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
15 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.
16 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.
17 See proposed new Chapter VII, Section 6(f)(iii).
18 See proposed new Chapter VII, Section 6(f)(iv).
19 In the interest of maintaining fair and orderly
markets, the Exchange believes it is important that
BX Market Makers communicate their readiness to
Exchange staff in a non-automated manner, such as
by email or telephone.
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Reentry Notification Message to the BX
Market Maker for all options series in all
underlying issues.20 The BX 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 BX Market Maker’s
Clearing Firm has requested to receive
such notification.21 The System will
then reset all counters to zero and reentry and continued trading will be
permitted. A BX Market Maker is
subject to continuous quoting
obligations 22 despite the removal of
quotes from the System and approval
process for re-entry.
Today, the Exchange provides BX
Market Makers with the PercentageBased Threshold in Chapter VI, Section
19 to monitor risk.23 The Exchange will
continue to require BX 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
100
100
110
110
Strike
Strike
Strike
Strike
Call ......................
Put .......................
Call ......................
Put .......................
Size on bid x
offer for MM1
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,
20 See
proposed new Chapter VII, Section 6(f)(v).
Rules at Chapter VI, Section 20 permits the
Exchange to share BX MarketMaker designated risk
settings in the System with the Clearing Firm.
22 See note 5.
23 An initial default value is set for each BX
Market Maker.
21 BX
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Federal Register / Vol. 80, No. 134 / Tuesday, July 14, 2015 / Notices
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 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 will be
executed until re-entry. The Volume-
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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 reenter 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 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 further quotes 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 24 in general, and furthers the
objectives of Section 6(b)(5) of the Act 25
in particular, in that it is designed to
promote just and equitable principles of
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24 15
25 15
U.S.C. 78f(b).
U.S.C. 78(b)(5).
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41117
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 BX
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
BX Market Maker or to a number of
specified BX Market Makers affiliated
with a member, it is important to note
that the risk to BX Market Makers is not
limited to a single series in an option
but to all series in an option. BX 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
BX 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 BX Market Makers manage that
risk at the Group level so that BX
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 BX Market Maker’s
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quotes that are received 26 by the
Exchange prior to the time either of
these functionalities are engaged will be
automatically executed at the price up
to the BX Market Maker’s size,
regardless of whether such execution
results in executions in excess of the BX
Market Maker’s pre-set parameters.
With respect to providing risk settings
to the BX 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 BX Market Maker
may utilize within the System 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 BX
Market Makers with the opportunity to
avail themselves of similar risk tools
which are currently available on other
exchanges.27 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.28 The proposed rule
change is meant to protect BX 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 BX
Market Makers to further reduce their
risk in the event the BX Market Maker
is suffering from a systems issue or due
to the occurrence of unusual or
26 The time of receipt for an order or quote is the
time such message is processed by the Exchange
book.
27 See Section 8 of the 19b4.
28 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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unexpected market activity. The
proposed Group parameter for the
Multi-Trigger threshold will protect BX
Market Makers from inadvertent
exposure to excessive risk at the Group
level. Reducing such risk will enable BX
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
BX Market Makers to enter values for
the Percentage-Based Threshold is not
unreasonably burdensome because BX
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 BX 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.
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 29 and
subparagraph (f)(6) of Rule 19b–4
thereunder.30 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.31
U.S.C. 78s(b)(3)(a)(ii).
CFR 240.19b–4(f)(6).
31 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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29 15
30 17
Frm 00128
Fmt 4703
Sfmt 4703
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–
BX–2015–036 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–BX–2015–036. 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
E:\FR\FM\14JYN1.SGM
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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–BX–
2015–036 and should be submitted on
or before August 4, 2015.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.32
Brent J. Fields,
Secretary.
[FR Doc. 2015–17170 Filed 7–13–17; 8:45 am]
BILLING CODE 8011–01–P
Dated: July 9, 2015.
Brent J. Fields,
Secretary.
[FR Doc. 2015–17293 Filed 7–10–15; 11:15 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–75277]
U.S. Securities and Exchange
Commission.
ACTION: Notice.
AGENCY:
Sunshine Act Meeting
Notice is hereby given, pursuant to
the provisions of the Government in the
Sunshine Act, Public Law 94–409, that
the Securities and Exchange
Commission Investor Advisory
Committee will hold a meeting on
Thursday, July 16, 2015, in MultiPurpose Room LL–006 at the
Commission’s headquarters, 100 F
Street NE., Washington, DC. The
meeting will begin at 9:30 a.m. (ET) and
will be open to the public. Seating will
be on a first-come, first-served basis.
Doors will open at 9 a.m. Visitors will
be subject to security checks. The
meeting will be webcast on the
Commission’s Web site at www.sec.gov.
On June 22, 2015, the Commission
issued notice of the Committee meeting
(Release No. 33–9851), indicating that
the meeting is open to the public
(except during that portion of the
meeting reserved for an administrative
work session during lunch), and
inviting the public to submit written
comments to the Committee. This
Sunshine Act notice is being issued
because a quorum of the Commission
may attend the meeting.
The agenda for the meeting includes:
Remarks from Commissioners; a
discussion of background checks as a
means to address elder financial abuse
(which may include a recommendation);
a discussion of the Department of
Labor’s fiduciary rule proposal; a
shareholder rights update panel; a
report of the Committee chair regarding
Committee matters; an investment
management panel discussion on the
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–75394; File No. SR–FINRA–
2015–017]
Self-Regulatory Organizations;
Financial Industry Regulatory
Authority, Inc.; Notice of Filing of a
Proposed Rule Change To Establish
the Securities Trader and Securities
Trader Principal Registration
Categories
July 8, 2015.
Public Availability of the Securities and
Exchange Commission’s FY 2014
Service Contract Inventory
SECURITIES AND EXCHANGE
COMMISSION
asabaliauskas on DSK5VPTVN1PROD with NOTICES
disclosure of fees and risks in fund
products; and a nonpublic
administrative work session during
lunch.
For further information, please
contact the Office of the Secretary at
(202) 551–5400.
In accordance with Section
743 of Division C of the Consolidated
Appropriations Act of 2010 (Pub. L.
111–117), SEC is publishing this notice
to advise the public of the availability
of the FY2014 Service Contract
Inventory (SCI) and the FY2013 SCI
Analysis. The SCI provides information
on FY2014 actions over $25,000 for
service contracts. The inventory
organizes the information by function to
show how SEC distributes contracted
resources throughout the agency. SEC
developed the inventory per the
guidance issued on November 5, 2011
by the Office of Management and
Budget’s Office of Federal Procurement
Policy (OFPP). OFPP’s guidance is
available at https://www.whitehouse.gov/
sites/default/files/omb/procurement/
memo/service-contract-inventoriesguidance-11052010.pdf. The Service
Contract Inventory Analysis for FY2013
provides information based on the FY
2013 Inventory. The SEC has posted its
inventory, a summary of the inventory
and the FY2013 analysis on the SEC’s
homepage at https://www.sec.gov/about/
secreports.shtml and https://
www.sec.gov/open.
FOR FURTHER INFORMATION CONTACT:
Direct questions regarding the service
contract inventory to Vance Cathell,
Director Office of Acquisitions
202.551.8385 or CathellV@sec.gov.
SUMMARY:
Dated: June 24, 2015.
Brent J. Fields,
Secretary.
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 29,
2015, Financial Industry Regulatory
Authority, Inc. (‘‘FINRA’’) 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 FINRA. 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
FINRA is proposing to amend NASD
Rule 1032(f) (Limited Representative—
Equity Trader) to replace the Equity
Trader registration category and
qualification examination (Series 55)
with a Securities Trader registration
category and qualification examination
(Series 57). In addition, the proposed
rule change amends NASD Rule 1022(a)
(General Securities Principal) to
establish a Securities Trader Principal
registration category. The proposed rule
change also makes technical conforming
changes to the Form U4 (Uniform
Application for Securities Industry
Registration or Transfer).
The text of the proposed rule change
is available on FINRA’s Web site at
https://www.finra.org, at the principal
office of FINRA 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,
FINRA 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. FINRA has prepared
[FR Doc. 2015–17180 Filed 7–13–15; 8:45 am]
32 17
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41119
2 17
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U.S.C. 78s(b)(1).
CFR 240.19b–4.
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]]>Agencies
[Federal Register Volume 80, Number 134 (Tuesday, July 14, 2015)]
[Notices]
[Pages 41114-41119]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-17170]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-75392; File No. SR-BX-2015-036]
Self-Regulatory Organizations; Notice of Filing and Immediate
Effectiveness of Proposed Rule Change by NASDAQ OMX BX, Inc. Relating
to the Volume-Based and Multi-Trigger Threshold
July 8, 2015.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
[[Page 41115]]
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on June 23, 2015, NASDAQ OMX BX, Inc. (``BX'' or ``Exchange'') filed
with the Securities and Exchange Commission (``SEC'' or ``Commission'')
the proposed rule change as described in Items I 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
BX proposes to amend Chapter VII, Section 6, entitled ``Market
Maker Quotations,'' of the rules governing BX. The Exchange proposes to
adopt two new BX Market Maker \3\ optional risk protections, a volume-
based threshold and a multi-trigger threshold.\4\
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\3\ The term ``BX Market Maker'' means a Participant that has
registered as a Market Maker on BX 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://nasdaqomxbx.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
BX Market Maker's to monitor marketplace risk. These protections are
intended to assist BX 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 BX Market Makers, who are required to
continuously quote in assigned options, to potentially significant
market risk. Today, the Exchange's rules permit BX Market Makers to
monitor risk arising from multiple executions across multiple options
series of a single underlying security.\6\
---------------------------------------------------------------------------
\5\ Pursuant to BX 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 BX 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 BX for all purposes under the Act or rules
thereunder. See Chapter VII, Section 2.
\6\ See BX Chapter VI, Section 19, ``Risk Monitor Mechanism.''
---------------------------------------------------------------------------
The Exchange is proposing to offer a new volume-based and multi-
trigger threshold protection to BX Market Makers. The Exchange proposes
to amend BX's Rules at Chapter VII, Section 6(f) to establish: (1) A
threshold used to calculate each BX 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 in all options series in an
underlying issue.
---------------------------------------------------------------------------
Volume-Based Threshold
In connection with offering these two new threshold protections, a
BX Market Maker would provide a specified time period and volume
threshold number of allowable triggers by which the Exchange's System
would automatically remove the BX Market Maker's quotes in all options
series in an options class, depending on the threshold utilized,
submitted through designated BX 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. SQF Auction Responses and
Market Sweeps are also not included.
---------------------------------------------------------------------------
The Volume-Based Threshold will determine, during a specified time
period established by the BX Market Maker not to exceed 15 seconds
(``Volume-Based Specified Time Period''), whether a BX Marker Maker
executed a number of contracts which equals or exceeds the designated
number of contracts specified by the BX Market Maker in all series of
an underlying security to determine whether to remove the BX 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 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 BX Market Maker
during the Volume-Based Specified Time Period, the System will remove
the BX Market Maker's quotes. The Volume-Based Specified Time Period
designated by the BX Market Maker must be the same length of time as
designated for purposes of the Percentage-Based Threshold in Chapter
VI, Section 19.\10\
---------------------------------------------------------------------------
\9\ The System counter is based on trading interest resting on
the Exchange book.
\10\ 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 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.\11\
---------------------------------------------------------------------------
\11\ Id.
---------------------------------------------------------------------------
Multi-Trigger Threshold
A BX Market Maker or BX Market Maker Group, which is defined as
multiple affiliated BX Market Makers,\12\ 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
securities issues submitted
[[Page 41116]]
through designated BX protocols, as specified by the Exchange (``Multi-
Trigger Threshold''). During a specified time period established by the
BX Market Maker not to exceed 15 seconds (``Multi-Trigger Specified
Time Period''), the number of times the System automatically removes
the BX 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 (f)(ii), as well as the Volume-Based Threshold
described in proposed (f)(ii).\13\ 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 an underlying issue. Once the
System determines that the number of triggers equals or exceeds a
number established by either the BX 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 BX 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 (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 BX
Market Maker) or by Group (multiple affiliated BX 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 BX Market
Maker).\14\ The System counts triggers within a Multi-Trigger Specified
Time Period across all options for the BX 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.
---------------------------------------------------------------------------
\12\ This would be more than one BX Market Maker, but does not
require the aggregation of all of the Participant's Market Makers. A
Group would be comprised of BX Market Makers affiliated with one
Participant. The Participant would be required to define a Group by
providing a list of such affiliated BX Market Makers to the
Exchange.
\13\ 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).
\14\ 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.\15\ The System will send a Purge Notification Message \16\ to
the BX Market Maker for all affected options when the above thresholds
have been reached.
---------------------------------------------------------------------------
\15\ 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.
\16\ 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 will be
automatically executed up to the BX Market Maker's size regardless of
whether the quote exceeds the Volume-Based Threshold.\17\
---------------------------------------------------------------------------
\17\ See proposed new Chapter VII, Section 6(f)(iii).
---------------------------------------------------------------------------
If a BX Market Maker requests the System to remove quotes 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.\18\
---------------------------------------------------------------------------
\18\ See proposed new Chapter VII, Section 6(f)(iv).
---------------------------------------------------------------------------
When the System removes quotes as a result of the Volume-Based
Threshold, the BX 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 BX Market Maker manually requests re-
entry.\19\ 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 BX Market Maker for all options series in
all underlying issues.\20\ The BX 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 BX Market Maker's Clearing Firm has requested to receive such
notification.\21\ The System will then reset all counters to zero and
re-entry and continued trading will be permitted. A BX Market Maker is
subject to continuous quoting obligations \22\ despite the removal of
quotes from the System and approval process for re-entry.
---------------------------------------------------------------------------
\19\ In the interest of maintaining fair and orderly markets,
the Exchange believes it is important that BX Market Makers
communicate their readiness to Exchange staff in a non-automated
manner, such as by email or telephone.
\20\ See proposed new Chapter VII, Section 6(f)(v).
\21\ BX Rules at Chapter VI, Section 20 permits the Exchange to
share BX MarketMaker designated risk settings in the System with the
Clearing Firm.
\22\ See note 5.
---------------------------------------------------------------------------
Today, the Exchange provides BX Market Makers with the Percentage-
Based Threshold in Chapter VI, Section 19 to monitor risk.\23\ The
Exchange will continue to require BX Market Makers to utilize the
Percentage-Based Threshold. The Volume-Based Threshold and the Multi-
Trigger Threshold will be optional.
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\23\ An initial default value is set for each BX Market Maker.
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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......................................... 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,
[[Page 41117]]
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 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 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 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 \24\ in general, and furthers the objectives of Section
6(b)(5) of the Act \25\ 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.
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\24\ 15 U.S.C. 78f(b).
\25\ 15 U.S.C. 78(b)(5).
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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 these risk tools to BX 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 BX Market Maker or to a number of specified BX Market
Makers affiliated with a member, it is important to note that the risk
to BX Market Makers is not limited to a single series in an option but
to all series in an option. BX 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 BX 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 BX Market Makers manage
that risk at the Group level so that BX 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
BX Market Maker's
[[Page 41118]]
quotes that are received \26\ by the Exchange prior to the time either
of these functionalities are engaged will be automatically executed at
the price up to the BX Market Maker's size, regardless of whether such
execution results in executions in excess of the BX Market Maker's pre-
set parameters.
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\26\ 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 BX 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 BX Market Maker may utilize within the System 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 BX Market Makers with the opportunity to avail themselves
of similar risk tools which are currently available on other
exchanges.\27\ 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.\28\ The proposed rule change is meant to protect BX
Market Makers from inadvertent exposure to excessive risk. Accordingly,
the proposed rule change will have no impact on competition.
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\27\ See Section 8 of the 19b4.
\28\ 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 BX Market Makers to further reduce their risk in the event the
BX 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 BX Market Makers
from inadvertent exposure to excessive risk at the Group level.
Reducing such risk will enable BX 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 BX Market Makers to enter
values for the Percentage-Based Threshold is not unreasonably
burdensome because BX 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 BX
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.
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 \29\ and
subparagraph (f)(6) of Rule 19b-4 thereunder.\30\ 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.\31\
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\29\ 15 U.S.C. 78s(b)(3)(a)(ii).
\30\ 17 CFR 240.19b-4(f)(6).
\31\ 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-BX-2015-036 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-BX-2015-036. 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
[[Page 41119]]
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-BX-2015-036 and should be
submitted on or before August 4, 2015.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\32\
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\32\ 17 CFR 200.30-3(a)(12).
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Brent J. Fields,
Secretary.
[FR Doc. 2015-17170 Filed 7-13-17; 8:45 am]
BILLING CODE 8011-01-P
