Self-Regulatory Organizations; NYSE MKT LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Amending Rule 961 To Establish Exchange Rules Governing the Give Up of a Clearing Member by ATP Holders and Conforming Changes to Rules 960 and 954NY, 48594-48600 [2015-19872]
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48594
Federal Register / Vol. 80, No. 156 / Thursday, August 13, 2015 / 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–Phlx–2015–70. This file
number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
Internet Web site (https://www.sec.gov/
rules/sro.shtml).
Copies of the submission, all
subsequent amendments, all written
statements with respect to the proposed
rule change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for Web site viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE.,
Washington, DC 20549, on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the
filing also will be available for
inspection and copying at the principal
office of the Exchange. All comments
received will be posted without change;
the Commission does not edit personal
identifying information from
submissions. You should submit only
information that you wish to make
available publicly.
All submissions should refer to File
Number SR–Phlx–2015–70 and should
be submitted on or before September 3,
2015.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.7
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2015–19870 Filed 8–12–15; 8:45 am]
tkelley on DSK3SPTVN1PROD with NOTICES
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–75642; File No. SR–
NYSEMKT–2015–55]
Self-Regulatory Organizations; NYSE
MKT LLC; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change Amending Rule 961 To
Establish Exchange Rules Governing
the Give Up of a Clearing Member by
ATP Holders and Conforming Changes
to Rules 960 and 954NY
August 7, 2015
Pursuant to Section 19(b)(1) 1 of the
Securities Exchange Act of 1934 (the
‘‘Act’’) 2 and Rule 19b–4 thereunder,3
notice is hereby given that on July 27,
2015, NYSE MKT LLC (the ‘‘Exchange’’
or ‘‘NYSE MKT’’) filed with the
Securities and Exchange Commission
(the ‘‘Commission’’) the proposed rule
change as described in Items I and II
below, which Items have been prepared
by the self-regulatory organization. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of the Substance
of the Proposed Rule Change
The Exchange proposes to amend
Rule 961 to establish Exchange rules
governing the give up of a Clearing
Member by ATP Holders and proposes
conforming changes to Rules 960 and
954NY. The text of the proposed rule
change is available on the Exchange’s
Web site at www.nyse.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
self-regulatory organization included
statements concerning the purpose of,
and basis for, the proposed rule change
and discussed any comments it received
on the proposed rule change. The text
of those statements may be examined at
the places specified in Item IV below.
The Exchange has prepared summaries,
set forth in sections A, B, and C below,
of the most significant parts of such
statements.
1 15
U.S.C. 78s(b)(1).
U.S.C. 78a.
3 17 CFR 240.19b–4.
2 15
7 17
CFR 200.30–3(a)(12).
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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
Rule 961 to establish Exchange rules
governing the ‘‘give up’’ of a Clearing
Member 4 by ATP Holders. In addition,
the Exchange proposes changes to Rules
960 and 954NY to reflect proposed
amendments to Rule 961. The Exchange
believes that this proposal to include
the give-up process in Exchange rules
would result in the fair and reasonable
use of resources by both the Exchange
and ATP Holders. In addition, the
proposed change would align the
Exchange with competing options
exchanges that have recently adopted
rules consistent with this proposal.5
By way of background, to enter
transactions on the Exchange, an ATP
Holder must either be a Clearing
Member or must have a Clearing
Member agree to accept financial
responsibility for all of its transactions.
Specifically, Rule 961 provides that
every Clearing Member will be
responsible for the clearance of
Exchange option transactions of ATP
Holder that gives up the Clearing
Member’s name in an Exchange option
transaction, provided the clearing
member has authorized such member or
member organization to give up its
name with respect to Exchange option
transactions.6 In addition, Rule
954NY(a) (Order Identification)
provides that for each transaction in
which an ATP Holder participates, the
ATP Holder must give up the name of
the Clearing Member through whom the
transaction will be cleared. The
4 Rule 900.2NY (11) defines ‘‘Clearing Member’’
as an Exchange ATP Holder which has been
admitted to membership in the Options Clearing
Corporation pursuant to the provisions of the Rules
of the Options Clearing Corporation.
5 See Securities and Exchange Act Release No.
72668 (July 24, 2014), 79 FR 44229 (July 30, 2014)
(SR–CBOE–2014–048) (order approving proposed
rule change relating to the ‘‘give up’’ process, the
process by which a Trading Permit Holder ‘‘gives
up’’ or selects and indicates the Clearing Trading
Permit Holder responsible for the clearance of an
Exchange transaction). See also Securities Exchange
Act Release No. 72325 (June 5, 2014), 79 FR 33614
(June 11, 2014) (Notice). The Exchange notes that
this proposal is a copycat filing, which is
substantially similar in all material respects to the
give-up process approved on CBOE, except as noted
herein. See infra n. 14 (regarding rule text in
amended Rule 961(f) explicitly describing
procedures for Guarantors to reject a trade).
6 See also Rule 960 (General Comparison and
Clearance Rule) (providing that all Exchange
transactions shall be submitted to the Exchange for
comparison of trade information, and all compared
transactions shall be cleared through the Options
Clearing Corporation and shall be subject to the
Rules of the Options Clearing Corporation).
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Federal Register / Vol. 80, No. 156 / Thursday, August 13, 2015 / Notices
Exchange has determined that it would
be beneficial to amend Rule 961 and
specify in detail the give-up process and
to modify Rules 960 and 954NY, as
described below. The Exchange believes
the proposed changes would result in a
more comprehensive streamlined give
up process.
tkelley on DSK3SPTVN1PROD with NOTICES
Designated Give Ups and Guarantors
The Exchange proposes to amend
current Rule 961 by replacing the
current rule text 7 with details regarding
the give up procedure for ATP Holders
executing transactions on the Exchange,
and to re-title this rule ‘‘Give Up of a
Clearing Member.’’ 8 As amended, Rule
961 would provide that an ATP Holder
may only give up a ‘‘Designated Give
Up’’ or its ‘‘Guarantor,’’ as those roles
would be defined in the Rule.
Specifically, amended Rule 961
would introduce and define the term
‘‘Designated Give Up’’ as any Clearing
Member that an ATP Holder (other than
a Market Maker 9) identifies to the
Exchange, in writing, as a Clearing
Member the ATP Holder requests the
ability to give up. To designate a
‘‘Designated Give Up,’’ an ATP Holder
must submit written notification to the
Exchange, in a form and manner
prescribed by the Exchange
(‘‘Notification Form’’). A copy of the
proposed Notification Form is included
with this filing in Exhibit 3. Similarly,
should an ATP Holder no longer want
the ability to give up a particular
Designated Give Up, as proposed, the
ATP Holder would have to submit
written notification to the Exchange, in
a form and manner prescribed by the
Exchange.
The Exchange notes that, as proposed,
an ATP Holder may designate any
Clearing Member as a Designated Give
Up. Additionally, there would be no
7 See Rule 961 (Responsibility of Clearing
Members for Exchange Option Transactions)
(‘‘Every member organization which is a clearing
member of the Options Clearing Corporation shall
be responsible for the clearance of the Exchange
option transactions of such member organization
and of each member or member organization who
gives up the name of such clearing member in an
Exchange option transaction, provided the clearing
member has authorized such member or member
organization to give up its name with respect to
Exchange option transactions.’’).
8 As discussed below, proposed paragraph (h) of
amended Rule 961 addresses and clarifies the
financial responsibility of Clearing Members, and,
as such, the Exchange believes the original rule text
is rendered unnecessary.
9 For purposes of this rule, references to ‘‘Market
Maker’’ refer to ATP Holders acting in the capacity
of a Market Maker and include all Exchange Market
Maker capacities e.g., Lead Market Makers. As
explained below, Market Makers give up Guarantors
that have executed a Letter of Guarantee on behalf
of the Marker Maker, pursuant to Rule 932NY;
Market Makers need not give up Designated Give
Ups.
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minimum or maximum number of
Designated Give Ups that an ATP
Holder must identify. The Exchange
would notify a Clearing Member, in
writing and as soon as practicable, of
each ATP Holder that has identified it
as a Designated Give Up. The Exchange,
however, would not accept any
instructions, and would not give effect
to any previous instructions, from a
Clearing Member not to permit an ATP
Holder to designate the Clearing
Member as a Designated Give Up.
Further, the Exchange notes that there is
no subjective evaluation of an ATP
Holder’s list of proposed Designated
Give Ups by the Exchange. Rather, the
Exchange proposes to process each list
as submitted and ensure that the
Clearing Members identified as
Designated Give Ups are in fact current
Clearing Members, as well as confirm
that the Notification Forms are complete
(e.g., contain appropriate signatures)
and that the Options Clearing
Corporation (‘‘OCC’’) numbers listed for
each Clearing Member are accurate.
As amended, Rule 961 would also
define the term ‘‘Guarantor’’ as a
Clearing Member that has issued a
Letter of Guarantee or Letter of
Authorization for the executing ATP
Holder, pursuant to Rules of the
Exchange 10 that is in effect at the time
of the execution of the applicable trade.
An executing ATP Holder may give up
its Guarantor without such Guarantor
being a ‘‘Designated Give Up.’’ The
Exchange notes that Rule 924NY
provides that a Letter of Guarantee is
required to be issued and filed by each
Clearing Member through which a
Market Maker clears transactions.
Accordingly, a Market Maker would
only be enabled to give up a Guarantor
that had executed a Letter of Guarantee
on its behalf pursuant to Rule 932NY.
Thus, Market Makers would not identify
any Designated Give Ups.
As noted above, amended Rule 961
would provide that an ATP Holder may
give up only (i) the name of a Clearing
Member that has previously been
identified and processed by the
Exchange as a Designated Give Up for
that ATP Holder, if not a Market Maker
or (ii) its Guarantor.11 This proposed
requirement would be enforced by the
Exchange’s trading systems.
Specifically, the Exchange has
configured its trading systems to only
accept orders from an ATP Holder that
10 See Rule 924NY (Letters of Guarantees); Rule
932NY (Letters of Authorization).
11 As described below, amended Rule 961(f)
provides that a Designated Give Up or Guarantor
may, under certain circumstances, reject a trade on
which it is given up and another Clearing Member
may agree to accept the subject trade.
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48595
identifies a Designated Give Up or
Guarantor for that ATP Holder and
would reject any order entered by an
ATP Holder that designates a give up
that is not at the time a Designated Give
Up or Guarantor of the ATP Holder.12
The Exchange notes that it would notify
an ATP Holder in writing when an
identified Designated Give Up becomes
‘‘effective’’ (i.e., when a Clearing
Member that has been identified by the
ATP Holder as a Designated Give Up
has been enabled by the Exchange’s
trading systems to be given up). A
Guarantor for an ATP Holder, by virtue
of having an effective Letter of
Authorization or Letter of Guarantee on
file with the Exchange, would be
enabled to be given up for that ATP
Holder without any further action by the
ATP Holder. The Exchange notes that
this configuration (i.e., the trading
system accepting only orders that
identify a Designated Give Up or
Guarantor) is intended to help reduce
‘‘keypunch errors’’ and prevent ATP
Holders from mistakenly giving up the
name of a Clearing Member that it does
not have the ability to give up a trade.
Acceptance of a Trade
The Exchange proposes in paragraph
(e) of amended Rule 961 that a
Designated Give Up and a Guarantor
may, in certain circumstances,
determine not to accept a trade on
which its name was given up. If a
Designated Give Up or Guarantor
determines not to accept a trade, the
proposed Rule would provide that it
may reject the trade in accordance with
the procedures described more fully
below under ‘‘Procedures to Reject a
Trade.’’
As proposed, a Designated Give Up
may determine to not accept a trade on
which its name was given up so long as
it believes in good faith that it has a
valid reason not to accept the trade and
follows the procedures to reject a trade
in proposed paragraph (f) of the
amended Rule.13
The Exchange also proposes to
provide that a Guarantor may opt to not
accept (and thereby reject) a non-Market
Maker trade on which its name was
given up, provided that the following
steps are completed: (i) Another
Clearing Member agrees to be the give
up on the trade; (ii) that other Clearing
Member has notified both the Exchange
and executing ATP Holder in writing of
its intent to accept the trade; and (iii)
the procedures in Rule 961(f) are
12 See
id.
example of a valid reason to reject a trade
may be that the Designated Give Up does not have
a customer for that particular trade.
13 An
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Federal Register / Vol. 80, No. 156 / Thursday, August 13, 2015 / Notices
followed. In addition, the give up must
be changed to the Clearing Member that
has agreed to accept the trade in
accordance with the procedures in
paragraph (f) of Rule 961. A Guarantor
may not reject a trade given up by a
Market Maker.
The Exchange notes that only a
Designated Give Up or Guarantor whose
name was initially given up on a trade
is permitted to reject the trade, subject
to the conditions noted above. The
Clearing Member or Guarantor that
becomes the give up on a rejected trade
may not also reject the trade.
tkelley on DSK3SPTVN1PROD with NOTICES
Procedures to Reject a Trade
The Exchange proposes to include in
amended Rule 961 procedures that must
be followed and completed in order for
a Designated Give Up or Guarantor 14 to
reject a trade. Specifically, a Designated
Give Up can only change the give up to
(1) another Clearing Member that has
agreed to be the give up on the subject
trade (‘‘New Clearing Member’’),
provided the New Clearing Member has
notified the Exchange and the executing
ATP Holder in writing of its intent to
accept the trade in a form and manner
prescribed by the Exchange (‘‘Give-Up
Change Form for Accepting Clearing
Member’’);15 or (2) a Guarantor for the
executing ATP Holder, provided the
Designated Give Up has notified the
Guarantor in writing that it is changing
the give up on the trade to the
Guarantor.16 Further, as proposed, a
Guarantor, can only reject a non-Market
Maker trade17 for which its name was
the initial give up by an ATP Holder
and change the give up to another
Clearing Member that has agreed to be
the give up on the subject trade,
provided the New Clearing Member has
notified the Exchange and the executing
ATP Holder in writing of its intent to
accept the trade (i.e., by filling out a
14 The Exchange notes that amended Rule 961(f)
contains rule text explicitly describing procedures
for Guarantors to reject a trade that is not contained
in the rule text approved in SR–CBOE–2014–048.
See supra n. 5. The Exchange, however, believes
that this additional description serves only to
clarify, as opposed to alter, the procedure approved
in SR–CBOE–2014–048.
15 A copy of the proposed Give-Up Change Form
for Accepting Clearing Member is included with
this filing in Exhibit 3. Also, as noted above, a New
Clearing Member cannot later reject the trade.
Requiring the New Clearing Member to provide
notice to the Exchange of its intent to accept the
trade and prohibiting the New Clearing Member
from later rejecting the trade would provide finality
to the trade and ensure that the trade is not
repeatedly reassigned from one Clearing Member to
another.
16 The Guarantor would not need to notify the
Exchange of its intent to accept the trade.
17 A Guarantor of an ATP Holder that is a Market
Maker may not reject a trade for which its name was
given up in relation to such Market Maker.
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Give-Up Change Form for Accepting
Clearing Member). A Guarantor that
becomes the give up on a trade as a
result of the Designated Give Up
rejecting the trade is prohibited from not
accepting the trade/rejecting the trade.
This prohibition would provide finality
to the trade and ensure that the trade is
not repeatedly reassigned from one
Clearing Member to another.
As proposed, a Guarantor may only
reject a non-Market Maker trade for
which its name was the initial give up
by an ATP Holder, if another Clearing
Member has agreed to be the give up on
the trade and has notified the Exchange
and executing ATP Holder in writing of
its intent to accept the trade. If a
Guarantor of an ATP Holder decides to
reject a trade on the trade date, it must
follow the same procedures to change
the give up as would be followed by a
Designated Give Up. The ability to make
any changes, either by the Designated
Give Up or Guarantor, to the give up
pursuant to this procedure would end at
the Trade Date Cutoff Time.
Finally, once the give up on a trade
has been changed, the Designated Give
Up or Guarantor making the change
must immediately thereafter notify in
writing the Exchange, the parties to the
trade and the Clearing Member given up
of the change.
Rejection on Trade Date
As proposed, a trade may only be
rejected on (i) the trade date or (ii) the
business day following the trade date
(‘‘T+1’’) (except that transactions in
expiring options series on the last
trading day prior to expiration may not
be rejected on T+1).
If, on the trade date, a Designated
Give Up decides to reject a trade, or
another Clearing Member agrees to be
the give up on a trade for which a
Guarantor’s name was given up, the
Exchange proposes that the rejecting
Designated Give Up or Guarantor must
notify, in writing, the executing ATP
Holder or its designated agent, as soon
as possible and attempt to resolve the
disputed give up. This requirement puts
the executing ATP Holder on notice that
the give up on the trade may be changed
and provides the executing ATP Holder
and Designated Give Up or Guarantor an
opportunity to resolve the dispute. The
Exchange notes that a Designated Give
Up or Guarantor may request from the
Exchange the contact information of the
executing ATP Holder or its designated
agent for any trade it intends to reject.
Following notification to the
executing ATP Holder on the trade date,
a Designated Give Up or Guarantor may
request the ability from the Exchange to
change the give up on the trade, in a
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form and manner prescribed by the
Exchange (‘‘Give-Up Change Form’’). A
copy of the proposed Give-Up Change
Form is included with this filing in
Exhibit 3. Provided that the Exchange is
able to process the request prior to the
trade input cutoff time established by
the OCC (or the applicable later time if
the Exchange receives and is able to
process a request to extend its time of
final trade submission to the OCC)
(‘‘Trade Date Cutoff Time’’), the
Exchange would provide the Designated
Give Up or Guarantor the ability to
make the change to the give up on the
trade to either (1) another Clearing
Member or, as applicable, (2) the
executing ATP Holder’s Guarantor.
Rejection on T+1
The Exchange acknowledges that
some clearing firms may not reconcile
their trades until after the Trade Date
Cutoff Time. A clearing firm, therefore,
may not realize that a valid reason exists
to not accept a particular trade until
after the close of the trading day or until
the following morning. Accordingly, the
Exchange proposes to establish a
procedure for a Designated Give Up or
Guarantor of an ATP Holder that is not
a Market Maker to reject a trade on the
following trade day (‘‘T+1’’).18 The
Exchange notes that a separate
procedure must be established for T+1
changes because to effectively change
the give up on a trade on T+1 an
offsetting reversal must occur—as
opposed to merely identifying a
different Clearing Member on the trade.
Consistent with amended Rule 961(f),
a Designated Give Up or Guarantor 19
that wishes to reject a trade on T+1
would have to notify the executing ATP
Holder, in writing, to try to attempt and
resolve the dispute. In addition, a
Designated Give Up or Guarantor may
contact the Exchange and request the
ability to reject the trade on T+1.
Provided that the Exchange is receives
the request prior to 12:00 p.m. (ET) on
T+1 (‘‘T+1 Cutoff Time’’), the Exchange
would provide the Designated Give Up
or Guarantor the ability to enter trade
records into the Exchange’s systems that
would effect a transfer of the trade to
18 The Exchange proposes that no changes to the
give up on trades in expiring options series that
take place on the last trading day prior to their
expiration may take place on T+1. Rather, a
Designated Give Up or Guarantor may only reject
these transactions on the trade date until the Trade
Date Cutoff Time in accordance with the trade date
procedures described above.
19 The Exchange again notes that, as proposed,
only a Guarantor whose name was initially given
up is permitted to reject a trade (i.e., a Guarantor
cannot reject a trade on T+1 for which it has
become the give up as a result of a Designated Give
Up not accepting the trade).
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Federal Register / Vol. 80, No. 156 / Thursday, August 13, 2015 / Notices
another Clearing Member. As noted
above, if a New Clearing Member agrees
to the give up on a trade, it would be
required to inform the Exchange of its
acceptance via the Give-Up Change
Form for Accepting Clearing Members.
A Guarantor that becomes the new give
up on T+1 would not need to notify the
Exchange of its intent to accept the
trade, nor would it need to submit any
notification or form. The Designated
Give Up however, would be required to
provide written notice to the Guarantor
that it will be making this change on
T+1. The Exchange notes that the ability
for either a Designated Give Up or
Guarantor to make these changes would
end at the T+1 Cutoff Time and would
provide finality and certainty as to
which Clearing Member will be the give
up on the subject trade.
In addition, once any change to the
give up has been made, the Designated
Give Up or Guarantor making the
change would be required to
immediately thereafter notify, in
writing, the Exchange, the parties to the
trade and the Clearing Member given
up, of the change.
As discussed above, the Exchange
proposes to allow ATP Holders that are
not Market Makers to identify any
Clearing Member as a Designated Give
Up. The Exchange’s proposal does not
permit a Clearing Member to provide
the Exchange instructions to prohibit a
particular ATP Holder from giving up
the Clearing Member’s name. This
limitation prevents the Exchange from
being placed in the position of arbiter
among a Clearing Member, an ATP
Holder and a customer. The Exchange
recognizes, however, that ATP Holders
should not be given the ability to give
up any Clearing Member without also
providing a method of recourse to those
Clearing Members which, for the
prescribed reasons discussed above,20
should not be obligated to clear certain
trades for which they are given up.
Accordingly, the Exchange is proposing
to provide Designated Give Ups and
Guarantors the ability to reject a trade,
provided each has a good faith basis for
doing so. Ultimately, however, the trade
must clear with a clearing firm and
there must be finality to the trade. The
Exchange believes that the executing
ATP Holder’s Guarantor, absent a
Clearing Member that agrees to accept
the trade, should become the give up on
any trade which a Designated Give Up
determines to reject in accordance with
these proposed rule provisions, because
the Guarantor, by virtue of having
issued a Letter of Guarantee or Letter of
Authorization, has already accepted
20 See
supra n. 13.
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financial responsibility for all Exchange
transactions made by the executing ATP
Holder. The Exchange, however, does
not want to prevent a Clearing Member
that agrees to accept the trade from
being able to do so, and accordingly, the
Exchange also provides that a New
Clearing Member may become the give
up on a trade in accordance with the
procedure discussed above.
Other Give Up Changes
The Exchange proposes to modify the
text of Rule 954NY(a), related to the give
up requirement for ATP Holders, to
simply cross reference Rule 961 given
the detailed give up process proposed
by the Exchange in that Rule.
The Exchange also proposes in
paragraph (g) of amended Rule 961 three
scenarios in which a give up on a
transaction may be changed without
Exchange involvement. First, if an
executing ATP Holder has the ability
through an Exchange system to do so, it
could change the give up on a trade to
another Designated Give Up or its
Guarantor. The Exchange notes that
ATP Holders often make these changes
when, for example, there is a keypunch
error (i.e., an error that involves the
erroneous entry of an intended clearing
firm’s OCC clearing number). The
ability of the executing ATP Holder to
make any such change would end at the
Trade Date Cutoff Time.21
Next, the modified rule would
provide that, if a Designated Give Up
has the ability to do so, it may change
the give up on a transaction for which
it was given up to (i) another Clearing
Member affiliated with the Designated
Give Up or (ii) a Clearing Member for
which the Designated Give Up is a back
office agent. The ability to make such a
change would end at the Trade Date
Cutoff Time. The procedures to reject a
trade, as set forth in proposed
subparagraph (f) of Rule 961 and
described above, would not apply in
these instances. The Exchange notes
that often Clearing Members themselves
have the ability to change a give up on
a trade for which it was given up to
another Clearing Member affiliate or
Clearing Member for which the
Designated Give Up is a back office
agent. Therefore, Exchange involvement
in these instances is not necessary.
In addition, the proposed rule
provides that if both a Designated Give
Up or Guarantor and a Clearing Member
have the ability through an Exchange
system to do so, the Designated Give Up
or Guarantor and Clearing Member may
21 After that time, the ATP Holder would no
longer have the ability to make this type of change,
as the trade will have been submitted to OCC.
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48597
each enter trade records into the
Exchange’s systems on T+1 that would
effect a transfer of the trade in a nonexpired option series from that
Designated Give Up to that Clearing
Member. Likewise, if a Guarantor of an
ATP Holder trade (that is not a Market
Maker trade) and a Clearing Member
have the ability through an Exchange
system to do so, the Guarantor and
Clearing Member may each enter trade
records into the Exchange’s systems on
T+1 that would effect a transfer of the
trade in a non-expired option series
from that Guarantor to that Clearing
Member. The Designated Give Up or
Guarantor could not make any such
change after the T+1 Cutoff Time. The
Exchange notes that a Designated Give
Up (or Guarantor) must notify, in
writing, the Exchange and all the parties
to the trade, of any such change made
pursuant to this provision. This
notification alerts the parties and the
Exchange that a change to the give up
has been made. Finally, the Designated
Give Up (or Guarantor) would be
responsible for monitoring the trade and
ensuring that the other Clearing Member
has entered its side of the transaction
timely and correctly. If either a
Designated Give Up (or Guarantor) or
Clearing Member cannot themselves
enter trade records into the Exchange’s
systems to effect a transfer of the trade
from one to the other, the Designated
Give Up (or Guarantor) may request the
ability from the Exchange to enter both
sides of the transaction in accordance
with amended Rule 961 and pursuant to
the procedures set forth in subparagraph
(f)(3) of that Rule.
Responsibility
The Exchange proposes in paragraph
(h) of amended Rule 961 to state that a
Clearing Member would be financially
responsible for all trades for which it is
the give up at the Applicable Cutoff
Time (for purposes of the proposed rule,
the ‘‘Applicable Cutoff Time’’ shall refer
to the T+1 Cutoff Time for non-expiring
option series and to the Trade Date
Cutoff Time for expiring option series).
The Exchange notes, however, that
nothing in the proposed rule shall
preclude a different party from being
responsible for the trade outside of the
Rules of the Exchange pursuant to OCC
Rules, any agreement between the
applicable parties, other applicable
rules and regulations, arbitration, court
proceedings or otherwise.22 Moreover,
22 See proposed Commentary .01 to Rule 691
(‘‘Nothing herein will be deemed to preclude the
clearance of Exchange transactions by a non- ATP
Holder to the By-Laws of the Options Clearing
Corporation so long as a Clearing Member who is
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in processing a request to provide a
Designated Give Up the ability to
change a give up on a trade, the
Exchange would not consider or
validate whether the Designated Give
Up has satisfied the requirements of this
Rule in relation to having a good faith
belief that it has a valid reason not to
accept a trade or having notified the
executing ATP Holder and attempting to
resolve the disputed give up prior to
changing the give up. Rather, upon
request, the Exchange would always
provide a Designated Give Up or
Guarantor the ability to change the give
up or to reject a trade pursuant to the
proposed Rule so long as the Designated
Give Up or Guarantor, and New Clearing
Member, if applicable, have provided a
completed set of give up Change Forms
within the prescribed time period.
The Exchange notes that given the
inherent time constraints in making a
change to a give up on a transaction, the
Exchange would not be able to
adequately consider the abovementioned requirements and make a
determination within the prescribed
period of time. Rather, the Exchange
would examine trades for which a give
up was changed pursuant to
subparagraphs (e) and (f) after the fact
to ensure compliance with the
requirements set forth in amended Rule
961. Particularly, the Exchange notes
that the give up Change Forms that
Designated Give Ups, Guarantors and
New Clearing Members must submit,
would help to ensure that the Exchange
obtains, in a uniform format, the
information that it needs to monitor and
regulate this Rule and these give up
changes in particular. This information,
for example, would better allow the
Exchange to determine whether the
Designated Give Up had a valid reason
to reject the trade, as well as assist the
Exchange in cross checking and
confirming that what the Designated
Give Up or Guarantor said it was going
to do is what it actually did (e.g., check
that the New Clearing Member
identified in the give up Change Form
was the Clearing Member that actually
was identified on the trade as the give
up). Additionally, the proposed Rule
does not preclude these factors from
being considered in a different forum
(e.g., court or arbitration), nor does it
preclude any Clearing Member that
violates any provision of amended Rule
961 from being subject to discipline in
accordance with Exchange rules.
Finally, the Exchange proposes to
eliminate as obsolete the reference in
an ATP Holder is also designated as having
responsibility under these Rules for the clearance
and comparison of such transactions.’’).
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Rule 960 requiring that ‘‘[a]ll option
transactions involving orders stored in
the Opening Automated Report Service
shall be cleared and compared in
accordance with the provisions of Rule
950(m) and Commentary thereto,’’ 23
which the Exchange believes will add
clarity and consistency to Exchange
rules
Implementation
The Exchange proposes to announce
the implementation of the proposed rule
change via Trader Update, to be
published no later than thirty (30) days
following the effectiveness of this
proposal. The implementation date will
be no sooner than fourteen (14) day and
no later than thirty (30) days following
publication of the Trader Update. This
additional time would afford the
Exchange and ATP Holders the time to
submit and process the forms required
under the proposed rule.
2. Statutory Basis
The Exchange believes that the
proposed change is consistent with
Section 6(b) of the Act,24 in general, and
furthers the objectives of Section
6(b)(5),25 in particular, in that it is
designed to promote just and equitable
principles of trade, to foster cooperation
and coordination with persons engaged
in regulating, clearing, settling,
processing information with respect to,
and facilitation transactions in
securities, to remove impediments to,
and perfect the mechanism of a free and
open market and, in general, to protect
investors and the public interest.
Additionally, the Exchange believes the
proposed rule change is consistent with
the Section 6(b)(5) 26 requirement that
the rules of an exchange not be designed
to permit unfair discrimination between
customers, issuers, brokers, or dealers.
First, detailing in the rules how ATP
Holders would give up Clearing
Members and how Clearing Members
may ‘‘reject’’ a trade provides
transparency and operational certainty.
The Exchange believes additional
transparency removes a potential
impediment to, and would contribute to
perfecting, the mechanism for a free and
open market and a national market
system, and, in general, would protect
investors and the public interest.
Moreover, the Exchange notes that
amended Rule 961 requires ATP
23 The Exchange also proposes to capitalize the
two references to ‘‘clearing member’’ in this rule to
signify the defined term, which the Exchange
believes would add clarity and consistency to
Exchange rules.
24 15 U.S.C. 78f(b).
25 15 U.S.C. 78f(b)(5).
26 Id.
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Holders to adhere to a standardized
process to ensure a seamless
administration of the Rule. For example,
all notifications relating to a change in
give up must be made in writing. The
Exchange believes that these
requirements will aid the Exchange’s
efforts to monitor and regulate ATP
Holders and Clearing Members as they
relate to amended Rule 961 and changes
in give ups, thereby protecting investors
and the public interest.
Additionally, the Exchange believes
that its proposed give up rule strikes the
right balance between the various views
and interests of market participants. For
example, although the rule allows ATP
Holders that are not Market Makers to
identify any Clearing Member as a
Designated Give Up, it also provides
that ATP Holders would receive notice
of any ATP Holder that has designated
it as a Designated Give Up and provides
for a procedure for a Clearing Member
to ‘‘reject’’ a trade in accordance with
the Rules, both on the trade date and
T+1.
The Exchange recognizes that ATP
Holders should not be given the ability
to give up any Clearing Members
without also providing a method of
recourse to those Clearing Members
which, for the prescribed reasons
discussed above, should not be
obligated to clear certain trades for
which they are given up. The Exchange
believes that providing Designated Give
Ups the ability to reject a trade within
a reasonable amount of time is
consistent with the Act as, pursuant to
the proposed rule, the Designated Give
Ups may only do so if they have a valid
reason and because ultimately, the trade
can always be assigned to the Guarantor
of the executing ATP Holder if a New
Clearing Firm is not willing to step in
and accept the trade. A trade must clear
with a clearing firm and there must be
finality to the trade. Absent a New
Clearing Member that agrees to accept
the trade, the Exchange believes that the
executing ATP Holder’s Guarantor,
should become the give up on any trade
that a Designated Give Up determines to
reject, in accordance with the proposed
rule provisions, because the Guarantor,
by virtue of having issued a Letter of
Guarantee or Letter of Authorization,
has already accepted financial
responsibility for all Exchange
transactions made by the executing ATP
Holder. Therefore, amended Rule 961 is
reasonable and provides certainty that a
Clearing Member will always be
responsible for a trade, which protects
investors and the public interest.
The Exchange notes that amended
Rule 961 does not preclude a different
party than the party given up from being
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responsible for the trade outside of the
Rules of the Exchange, pursuant to OCC
Rules, any agreement between the
applicable parties, other applicable
rules and regulations, arbitration, court
proceedings or otherwise. The Exchange
acknowledges that it would not consider
whether the Designated Give Up has
satisfied the requirements of this Rule in
relation to having a good faith belief that
it has a valid reason not to accept a
trade or having notified the executing
ATP Holder and attempting to resolve
the disputed give up prior to changing
the give up, due to inherent time
restrictions. However, the Exchange
believes investor and public interest are
still protected as the Exchange will still
examine trades for which a give up was
changed pursuant to subparagraphs (e)
and (f) of amended Rule 961 after the
fact to ensure compliance with the
requirements set forth in the Rule. As
noted above, the implementation of a
standardized process and the
requirement that certain notices be in
writing would assist monitoring any
give up changes and enforcing amended
Rule 961.
Further, the Exchange notes that the
Rule does not preclude these factors
from being considered in a different
forum (e.g., court or arbitration) nor
does it preclude any ATP Holder or
Clearing Member that violates any
provision of amended Rule 961 from
being subject to discipline by the
Exchange.
Finally, the Exchange believes that
making non-substantive, technical
corrections to the rule text (i.e.,
capitalizing the defined term ‘‘clearing
member’’) and deleting obsolete
references in Rule 960 would add clarity
and consistency to Exchange rules to the
benefit of investors and the general
public.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
this proposed rule change would
impose any burden on competition not
necessary or appropriate in furtherance
of the purposes of the Act. The
Exchange does not believe that the
proposed rule change would impose an
unnecessary burden on intramarket
competition because it would apply
equally to all similarly situated ATP
Holders. The Exchange also notes that,
should the proposed changes make the
Exchange more attractive for trading,
market participants trading on other
exchanges can always elect to become
ATP Holders on the Exchange to take
advantage of the trading opportunities.
In addition, as noted above, the
Exchange believes the proposed rule
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change is pro-competitive and would
allow the Exchange to compete more
effectively with other options exchanges
that have already adopted changes to
their give up process that are
substantially identical to the changes
proposed by this filing.27
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
No written comments were solicited
or received with respect to the proposed
rule change.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Because the 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, the
proposed rule change has become
effective pursuant to Section 19(b)(3)(A)
of the Act 28 and Rule 19b–4(f)(6)
thereunder.29
A proposed rule change filed under
Rule 19b–4(f)(6) 30 normally does not
become operative prior to 30 days after
the date of the filing. However, pursuant
to Rule 19b4(f)(6)(iii),31 the Commission
may designate a shorter time if such
action is consistent with the protection
of investors and the public interest. The
Exchange has asked the Commission to
waive the 30-day operative delay so that
the proposal may become operative
immediately upon filing. The
Commission believes that waiver of the
operative delay is consistent with the
protection of investors and the public
interest because the proposal is
substantially similar to that of another
exchange that has been approved by the
Commission.32 Waiver of the 30-day
operative delay will allow the Exchange
to implement the proposed rule change,
which is designed to bring greater
operational certainty and efficiency to
the give up process, in accordance with
the implementation schedule outlined
above. Therefore, the Commission
27 See
supra n. 5.
U.S.C. 78s(b)(3)(A).
29 17 CFR 240.19b–4(f)(6). As required under Rule
19b–4(f)(6)(iii), the Exchange provided the
Commission with written notice of its intent to file
the proposed rule change, along with a brief
description and the text of the proposed rule
change, at least five business days prior to the date
of filing of the proposed rule change, or such
shorter time as designated by the Commission.
30 17 CFR 240.19b–4(f)(6).
31 17 CFR 240.19b–4(f)(6)(iii).
32 See supra n. 5.
28 15
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48599
designates the proposed rule change to
be operative upon filing.33
At any time within 60 days of the
filing of such proposed rule change, the
Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is necessary or appropriate in the
public interest, for the protection of
investors, or otherwise in furtherance of
the purposes of the Act. If the
Commission takes such action, the
Commission shall institute proceedings
under Section 19(b)(2)(B) 34 of the Act to
determine whether the proposed rule
change should be approved or
disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
NYSEMKT–2015–55 on the subject line.
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE.,
Washington, DC 20549–1090.
All submissions should refer to File
Number SR–NYSEMKT–2015–55. 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.,
33 For purposes only of waiving the 30-day
operative delay, the Commission has considered the
proposed rule’s impact on efficiency, competition,
and capital formation. See 15 U.S.C. 78c(f).
34 15 U.S.C. 78s(b)(2)(B).
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Washington, DC 20549 on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of such
filing also will be available for
inspection and copying at the principal
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–
NYSEMKT–2015–55, and should be
submitted on or before September 3,
2015.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.35
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2015–19872 Filed 8–12–15; 08:45 am]
BILLING CODE P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–75650; File No. SR–EDGX–
2015–18]
Self-Regulatory Organizations; EDGX
Exchange, Inc.; Notice of Filing of
Amendment Nos. 1 and 2 and Order
Granting Accelerated Approval of a
Proposed Rule Change, as Modified by
Amendment Nos. 1, 2, and 3 Thereto,
To Establish Rules Governing the
Trading of Options on the EDGX
Options Market
tkelley on DSK3SPTVN1PROD with NOTICES
August 7, 2015.
I. Introduction
On April 30, 2015, EDGX Exchange,
Inc. (‘‘EDGX’’ or ‘‘Exchange’’) filed with
the Securities and Exchange
Commission (the ‘‘Commission’’),
pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’) 1 and Rule 19b–4 thereunder,2 a
proposed rule change to adopt rules to
govern the trading of options on the
Exchange (referred to herein as ‘‘EDGX
Options Exchange’’ or ‘‘EDGX
Options’’). The proposed rule change
was published for comment in the
Federal Register on May 19, 2015.3 On
June 25, 2015, pursuant to Section
19(b)(2) of the Act,4 the Commission
designated a longer period within which
to approve the proposed rule change,
disapprove the proposed rule change, or
35 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 See Securities Exchange Act Release No. 74949
(May 13, 2015), 80 FR 28745 (‘‘Notice’’).
4 15 U.S.C. 78s(b)(2).
1 15
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institute proceedings to determine
whether to disapprove the proposed
rule change.5 On August 3, 2015, EDGX
filed Amendment No. 1 to the proposed
rule change.6 On August 6, 2015, EDGX
filed Amendment No. 2 to the proposed
rule change.7 On August 7, 2015, the
Exchange filed Amendment No. 3 to the
proposed rule change.8 The Commission
received three comment letters on the
proposal.9 On August 7, 2015, the
Exchange responded to the comment
letters.10 The Commission is publishing
this notice to solicit comment on
Amendment Nos. 1 and 2 to the
proposed rule change and is approving
the proposed rule change, as modified
by Amendment Nos. 1, 2, and 3 thereto,
on an accelerated basis.
II. Comment Summary
The Commission received three
comments letters regarding the proposal
and the Exchange’s Response thereto.11
5 See Securities Exchange Act Release No. 75297,
80 FR 37672 (July 1, 2015).
6 Amendment No. 1 deleted proposed EDGX
Options Rule 21.8(f)(2), which would have granted
participation entitlements to Directed Market
Makers trading against small size orders defined as
five or fewer contracts. In addition, Amendment
No. 1 provided more detailed information regarding
participation entitlements for Directed Market
Makers. Among other things, the Exchange
represented that the proposed rules provide the
necessary protections against coordinated action
between a Directed Market Maker and order entry
firms and that EDGX Options will proactively
conduct surveillance for, and enforce against, such
violations.
7 In Amendment No. 2, the Exchange represented
that it is a participant in the Plan for the Selection
and Reservation of Securities Symbols. Amendment
No. 2 also clarified that the Penny Pilot Program
(discussed below) is scheduled to expire on June
30, 2016 and the Exchange would be permitted to
replace any penny pilot issues that have been
delisted with the next most actively traded multiply
listed options classes that are not yet included in
the penny pilot, based on trading activity in the
previous six months. The replacement issues may
be added to the penny pilot on the second trading
day following July 1, 2015 and January 1, 2016.
8 Amendment No. 3 made technical changes to
Amendments Nos. 1 and 2. Because Amendment
No. 3 is technical in nature, the Commission is not
required to publish it for public comment.
9 See letters to Brent J. Fields, Secretary,
Commission, from Suzanne H. Shatto, dated July 7,
2015 (‘‘Shatto Letter’’); from Michael J. Simon,
Secretary and General Counsel, International
Securities Exchange, LLC (‘‘ISE’’), dated July 28,
2015 (‘‘ISE Letter’’); and from Mark D. Wilson,
Director of Technical Risk Management & Exchange
Relations and Brent E. Hippert, President and Chief
Compliance Officer, Hardcastle Trading USA, LLC,
dated August 3, 2015 (‘‘Hardcastle Letter’’).
10 See letter to Brent J. Fields, Secretary,
Commission, from Anders Franzon, VP, Associate
General Counsel, EDGX, dated August 7, 2015
(‘‘Response’’).
11 See supra notes 9 and 10. The ISE Letter
focused exclusively on the proposed five lot
entitlement for Directed Market Makers and did not
address any other aspect of the proposed EDGX
Options rules. The Exchange subsequently deleted
this provision from the proposed rule change and
therefore the Commission has not addressed the ISE
Letter in this order.
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One commenter opposed the proposal
because ‘‘we do not need additional
options exchanges.’’ 12 The commenter
stated that additional options exchanges
would lead to fragmentation causing ‘‘a
thinner order book at all options
exchange[s] and allows fast
intermediaries to take advantage of
retail orders.’’ 13
Another commenter stated that it
opposes any priority model for an
options exchange other than price-time
priority.14 The commenter believed that
‘‘pure price-time priority is the best and
fairest model for a healthy and robust
market.’’ 15 The commenter further
noted that price-time priority ‘‘is the
best and fairest model because it
rewards firms who are the first people
willing to trade at a better price.’’ 16 The
commenter states that exchanges with
pro-rata allocation models adopt rules
which allow directed orders and
preferences without justification.
According to the commenter, ‘‘[p]ro-rata
allocation rewards firms that simply
quote large size, for no particularly clear
benefit to the market.’’ 17
In response to the commenters’
concerns, EDGX notes that both the ISE
Letter and the Hardcastle Letter ‘‘raised
concerns with proposed paragraph (f)(2)
of proposed [EDGX Options] Rule 21.8,
which would have provided a small size
order . . . allocation to Directed Market
Makers . . . .’’ 18 The Exchange further
notes that it eliminated that
subparagraph from the proposed rule
change in Amendment No. 1.19 The
Response also states that the ‘‘additional
points raised in the Hardcastle Letter
and the Shatto Letter are either not
responsive to the issues raised in
Proposal or are aimed at existing
elements of U.S. market structure that
have been previously approved by the
Commission and are available on other
exchanges and in the marketplace
generally.’’ 20 Consequently, EDGX does
not believe these comments are
‘‘germane to the proposal.’’ 21
III. Discussion and Commission
Findings
After careful review of the proposal,
as modified by Amendment Nos. 1, 2,
12 See
Shatto Letter, supra note 9.
id.
14 See Hardcastle Letter, supra note 9, at 1.
15 Id.
16 See Hardcastle Letter, supra note 9, at 3.
17 See Hardcastle Letter, supra note 9, at 3. The
Hardcastle Letter was received after the expiration
of the comment period and raises broader market
structure policy concerns that are outside of the
scope of the present proposal.
18 See Response, supra note 10, at 2.
19 See id.
20 See id.
21 See id.
13 See
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]]>Agencies
[Federal Register Volume 80, Number 156 (Thursday, August 13, 2015)]
[Notices]
[Pages 48594-48600]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-19872]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-75642; File No. SR-NYSEMKT-2015-55]
Self-Regulatory Organizations; NYSE MKT LLC; Notice of Filing and
Immediate Effectiveness of Proposed Rule Change Amending Rule 961 To
Establish Exchange Rules Governing the Give Up of a Clearing Member by
ATP Holders and Conforming Changes to Rules 960 and 954NY
August 7, 2015
Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby
given that on July 27, 2015, NYSE MKT LLC (the ``Exchange'' or ``NYSE
MKT'') filed with the Securities and Exchange Commission (the
``Commission'') the proposed rule change as described in Items I and II
below, which Items have been prepared by the self-regulatory
organization. The Commission is publishing this notice to solicit
comments on the proposed rule change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 15 U.S.C. 78a.
\3\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of the
Substance of the Proposed Rule Change
The Exchange proposes to amend Rule 961 to establish Exchange rules
governing the give up of a Clearing Member by ATP Holders and proposes
conforming changes to Rules 960 and 954NY. The text of the proposed
rule change is available on the Exchange's Web site at www.nyse.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 self-regulatory organization
included statements concerning the purpose of, and basis for, the
proposed rule change and discussed any comments it received on the
proposed rule change. The text of those statements may be examined at
the places specified in Item IV below. The Exchange has prepared
summaries, set forth in sections A, B, and C below, of the most
significant parts of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to amend Rule 961 to establish Exchange rules
governing the ``give up'' of a Clearing Member \4\ by ATP Holders. In
addition, the Exchange proposes changes to Rules 960 and 954NY to
reflect proposed amendments to Rule 961. The Exchange believes that
this proposal to include the give-up process in Exchange rules would
result in the fair and reasonable use of resources by both the Exchange
and ATP Holders. In addition, the proposed change would align the
Exchange with competing options exchanges that have recently adopted
rules consistent with this proposal.\5\
---------------------------------------------------------------------------
\4\ Rule 900.2NY (11) defines ``Clearing Member'' as an Exchange
ATP Holder which has been admitted to membership in the Options
Clearing Corporation pursuant to the provisions of the Rules of the
Options Clearing Corporation.
\5\ See Securities and Exchange Act Release No. 72668 (July 24,
2014), 79 FR 44229 (July 30, 2014) (SR-CBOE-2014-048) (order
approving proposed rule change relating to the ``give up'' process,
the process by which a Trading Permit Holder ``gives up'' or selects
and indicates the Clearing Trading Permit Holder responsible for the
clearance of an Exchange transaction). See also Securities Exchange
Act Release No. 72325 (June 5, 2014), 79 FR 33614 (June 11, 2014)
(Notice). The Exchange notes that this proposal is a copycat filing,
which is substantially similar in all material respects to the give-
up process approved on CBOE, except as noted herein. See infra n. 14
(regarding rule text in amended Rule 961(f) explicitly describing
procedures for Guarantors to reject a trade).
---------------------------------------------------------------------------
By way of background, to enter transactions on the Exchange, an ATP
Holder must either be a Clearing Member or must have a Clearing Member
agree to accept financial responsibility for all of its transactions.
Specifically, Rule 961 provides that every Clearing Member will be
responsible for the clearance of Exchange option transactions of ATP
Holder that gives up the Clearing Member's name in an Exchange option
transaction, provided the clearing member has authorized such member or
member organization to give up its name with respect to Exchange option
transactions.\6\ In addition, Rule 954NY(a) (Order Identification)
provides that for each transaction in which an ATP Holder participates,
the ATP Holder must give up the name of the Clearing Member through
whom the transaction will be cleared. The
[[Page 48595]]
Exchange has determined that it would be beneficial to amend Rule 961
and specify in detail the give-up process and to modify Rules 960 and
954NY, as described below. The Exchange believes the proposed changes
would result in a more comprehensive streamlined give up process.
---------------------------------------------------------------------------
\6\ See also Rule 960 (General Comparison and Clearance Rule)
(providing that all Exchange transactions shall be submitted to the
Exchange for comparison of trade information, and all compared
transactions shall be cleared through the Options Clearing
Corporation and shall be subject to the Rules of the Options
Clearing Corporation).
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Designated Give Ups and Guarantors
The Exchange proposes to amend current Rule 961 by replacing the
current rule text \7\ with details regarding the give up procedure for
ATP Holders executing transactions on the Exchange, and to re-title
this rule ``Give Up of a Clearing Member.'' \8\ As amended, Rule 961
would provide that an ATP Holder may only give up a ``Designated Give
Up'' or its ``Guarantor,'' as those roles would be defined in the Rule.
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\7\ See Rule 961 (Responsibility of Clearing Members for
Exchange Option Transactions) (``Every member organization which is
a clearing member of the Options Clearing Corporation shall be
responsible for the clearance of the Exchange option transactions of
such member organization and of each member or member organization
who gives up the name of such clearing member in an Exchange option
transaction, provided the clearing member has authorized such member
or member organization to give up its name with respect to Exchange
option transactions.'').
\8\ As discussed below, proposed paragraph (h) of amended Rule
961 addresses and clarifies the financial responsibility of Clearing
Members, and, as such, the Exchange believes the original rule text
is rendered unnecessary.
---------------------------------------------------------------------------
Specifically, amended Rule 961 would introduce and define the term
``Designated Give Up'' as any Clearing Member that an ATP Holder (other
than a Market Maker \9\) identifies to the Exchange, in writing, as a
Clearing Member the ATP Holder requests the ability to give up. To
designate a ``Designated Give Up,'' an ATP Holder must submit written
notification to the Exchange, in a form and manner prescribed by the
Exchange (``Notification Form''). A copy of the proposed Notification
Form is included with this filing in Exhibit 3. Similarly, should an
ATP Holder no longer want the ability to give up a particular
Designated Give Up, as proposed, the ATP Holder would have to submit
written notification to the Exchange, in a form and manner prescribed
by the Exchange.
---------------------------------------------------------------------------
\9\ For purposes of this rule, references to ``Market Maker''
refer to ATP Holders acting in the capacity of a Market Maker and
include all Exchange Market Maker capacities e.g., Lead Market
Makers. As explained below, Market Makers give up Guarantors that
have executed a Letter of Guarantee on behalf of the Marker Maker,
pursuant to Rule 932NY; Market Makers need not give up Designated
Give Ups.
---------------------------------------------------------------------------
The Exchange notes that, as proposed, an ATP Holder may designate
any Clearing Member as a Designated Give Up. Additionally, there would
be no minimum or maximum number of Designated Give Ups that an ATP
Holder must identify. The Exchange would notify a Clearing Member, in
writing and as soon as practicable, of each ATP Holder that has
identified it as a Designated Give Up. The Exchange, however, would not
accept any instructions, and would not give effect to any previous
instructions, from a Clearing Member not to permit an ATP Holder to
designate the Clearing Member as a Designated Give Up. Further, the
Exchange notes that there is no subjective evaluation of an ATP
Holder's list of proposed Designated Give Ups by the Exchange. Rather,
the Exchange proposes to process each list as submitted and ensure that
the Clearing Members identified as Designated Give Ups are in fact
current Clearing Members, as well as confirm that the Notification
Forms are complete (e.g., contain appropriate signatures) and that the
Options Clearing Corporation (``OCC'') numbers listed for each Clearing
Member are accurate.
As amended, Rule 961 would also define the term ``Guarantor'' as a
Clearing Member that has issued a Letter of Guarantee or Letter of
Authorization for the executing ATP Holder, pursuant to Rules of the
Exchange \10\ that is in effect at the time of the execution of the
applicable trade. An executing ATP Holder may give up its Guarantor
without such Guarantor being a ``Designated Give Up.'' The Exchange
notes that Rule 924NY provides that a Letter of Guarantee is required
to be issued and filed by each Clearing Member through which a Market
Maker clears transactions. Accordingly, a Market Maker would only be
enabled to give up a Guarantor that had executed a Letter of Guarantee
on its behalf pursuant to Rule 932NY. Thus, Market Makers would not
identify any Designated Give Ups.
---------------------------------------------------------------------------
\10\ See Rule 924NY (Letters of Guarantees); Rule 932NY (Letters
of Authorization).
---------------------------------------------------------------------------
As noted above, amended Rule 961 would provide that an ATP Holder
may give up only (i) the name of a Clearing Member that has previously
been identified and processed by the Exchange as a Designated Give Up
for that ATP Holder, if not a Market Maker or (ii) its Guarantor.\11\
This proposed requirement would be enforced by the Exchange's trading
systems. Specifically, the Exchange has configured its trading systems
to only accept orders from an ATP Holder that identifies a Designated
Give Up or Guarantor for that ATP Holder and would reject any order
entered by an ATP Holder that designates a give up that is not at the
time a Designated Give Up or Guarantor of the ATP Holder.\12\ The
Exchange notes that it would notify an ATP Holder in writing when an
identified Designated Give Up becomes ``effective'' (i.e., when a
Clearing Member that has been identified by the ATP Holder as a
Designated Give Up has been enabled by the Exchange's trading systems
to be given up). A Guarantor for an ATP Holder, by virtue of having an
effective Letter of Authorization or Letter of Guarantee on file with
the Exchange, would be enabled to be given up for that ATP Holder
without any further action by the ATP Holder. The Exchange notes that
this configuration (i.e., the trading system accepting only orders that
identify a Designated Give Up or Guarantor) is intended to help reduce
``keypunch errors'' and prevent ATP Holders from mistakenly giving up
the name of a Clearing Member that it does not have the ability to give
up a trade.
---------------------------------------------------------------------------
\11\ As described below, amended Rule 961(f) provides that a
Designated Give Up or Guarantor may, under certain circumstances,
reject a trade on which it is given up and another Clearing Member
may agree to accept the subject trade.
\12\ See id.
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Acceptance of a Trade
The Exchange proposes in paragraph (e) of amended Rule 961 that a
Designated Give Up and a Guarantor may, in certain circumstances,
determine not to accept a trade on which its name was given up. If a
Designated Give Up or Guarantor determines not to accept a trade, the
proposed Rule would provide that it may reject the trade in accordance
with the procedures described more fully below under ``Procedures to
Reject a Trade.''
As proposed, a Designated Give Up may determine to not accept a
trade on which its name was given up so long as it believes in good
faith that it has a valid reason not to accept the trade and follows
the procedures to reject a trade in proposed paragraph (f) of the
amended Rule.\13\
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\13\ An example of a valid reason to reject a trade may be that
the Designated Give Up does not have a customer for that particular
trade.
---------------------------------------------------------------------------
The Exchange also proposes to provide that a Guarantor may opt to
not accept (and thereby reject) a non-Market Maker trade on which its
name was given up, provided that the following steps are completed: (i)
Another Clearing Member agrees to be the give up on the trade; (ii)
that other Clearing Member has notified both the Exchange and executing
ATP Holder in writing of its intent to accept the trade; and (iii) the
procedures in Rule 961(f) are
[[Page 48596]]
followed. In addition, the give up must be changed to the Clearing
Member that has agreed to accept the trade in accordance with the
procedures in paragraph (f) of Rule 961. A Guarantor may not reject a
trade given up by a Market Maker.
The Exchange notes that only a Designated Give Up or Guarantor
whose name was initially given up on a trade is permitted to reject the
trade, subject to the conditions noted above. The Clearing Member or
Guarantor that becomes the give up on a rejected trade may not also
reject the trade.
Procedures to Reject a Trade
The Exchange proposes to include in amended Rule 961 procedures
that must be followed and completed in order for a Designated Give Up
or Guarantor \14\ to reject a trade. Specifically, a Designated Give Up
can only change the give up to (1) another Clearing Member that has
agreed to be the give up on the subject trade (``New Clearing
Member''), provided the New Clearing Member has notified the Exchange
and the executing ATP Holder in writing of its intent to accept the
trade in a form and manner prescribed by the Exchange (``Give-Up Change
Form for Accepting Clearing Member'');\15\ or (2) a Guarantor for the
executing ATP Holder, provided the Designated Give Up has notified the
Guarantor in writing that it is changing the give up on the trade to
the Guarantor.\16\ Further, as proposed, a Guarantor, can only reject a
non-Market Maker trade\17\ for which its name was the initial give up
by an ATP Holder and change the give up to another Clearing Member that
has agreed to be the give up on the subject trade, provided the New
Clearing Member has notified the Exchange and the executing ATP Holder
in writing of its intent to accept the trade (i.e., by filling out a
Give-Up Change Form for Accepting Clearing Member). A Guarantor that
becomes the give up on a trade as a result of the Designated Give Up
rejecting the trade is prohibited from not accepting the trade/
rejecting the trade. This prohibition would provide finality to the
trade and ensure that the trade is not repeatedly reassigned from one
Clearing Member to another.
---------------------------------------------------------------------------
\14\ The Exchange notes that amended Rule 961(f) contains rule
text explicitly describing procedures for Guarantors to reject a
trade that is not contained in the rule text approved in SR-CBOE-
2014-048. See supra n. 5. The Exchange, however, believes that this
additional description serves only to clarify, as opposed to alter,
the procedure approved in SR-CBOE-2014-048.
\15\ A copy of the proposed Give-Up Change Form for Accepting
Clearing Member is included with this filing in Exhibit 3. Also, as
noted above, a New Clearing Member cannot later reject the trade.
Requiring the New Clearing Member to provide notice to the Exchange
of its intent to accept the trade and prohibiting the New Clearing
Member from later rejecting the trade would provide finality to the
trade and ensure that the trade is not repeatedly reassigned from
one Clearing Member to another.
\16\ The Guarantor would not need to notify the Exchange of its
intent to accept the trade.
\17\ A Guarantor of an ATP Holder that is a Market Maker may not
reject a trade for which its name was given up in relation to such
Market Maker.
---------------------------------------------------------------------------
As proposed, a Guarantor may only reject a non-Market Maker trade
for which its name was the initial give up by an ATP Holder, if another
Clearing Member has agreed to be the give up on the trade and has
notified the Exchange and executing ATP Holder in writing of its intent
to accept the trade. If a Guarantor of an ATP Holder decides to reject
a trade on the trade date, it must follow the same procedures to change
the give up as would be followed by a Designated Give Up. The ability
to make any changes, either by the Designated Give Up or Guarantor, to
the give up pursuant to this procedure would end at the Trade Date
Cutoff Time.
Finally, once the give up on a trade has been changed, the
Designated Give Up or Guarantor making the change must immediately
thereafter notify in writing the Exchange, the parties to the trade and
the Clearing Member given up of the change.
Rejection on Trade Date
As proposed, a trade may only be rejected on (i) the trade date or
(ii) the business day following the trade date (``T+1'') (except that
transactions in expiring options series on the last trading day prior
to expiration may not be rejected on T+1).
If, on the trade date, a Designated Give Up decides to reject a
trade, or another Clearing Member agrees to be the give up on a trade
for which a Guarantor's name was given up, the Exchange proposes that
the rejecting Designated Give Up or Guarantor must notify, in writing,
the executing ATP Holder or its designated agent, as soon as possible
and attempt to resolve the disputed give up. This requirement puts the
executing ATP Holder on notice that the give up on the trade may be
changed and provides the executing ATP Holder and Designated Give Up or
Guarantor an opportunity to resolve the dispute. The Exchange notes
that a Designated Give Up or Guarantor may request from the Exchange
the contact information of the executing ATP Holder or its designated
agent for any trade it intends to reject.
Following notification to the executing ATP Holder on the trade
date, a Designated Give Up or Guarantor may request the ability from
the Exchange to change the give up on the trade, in a form and manner
prescribed by the Exchange (``Give-Up Change Form''). A copy of the
proposed Give-Up Change Form is included with this filing in Exhibit 3.
Provided that the Exchange is able to process the request prior to the
trade input cutoff time established by the OCC (or the applicable later
time if the Exchange receives and is able to process a request to
extend its time of final trade submission to the OCC) (``Trade Date
Cutoff Time''), the Exchange would provide the Designated Give Up or
Guarantor the ability to make the change to the give up on the trade to
either (1) another Clearing Member or, as applicable, (2) the executing
ATP Holder's Guarantor.
Rejection on T+1
The Exchange acknowledges that some clearing firms may not
reconcile their trades until after the Trade Date Cutoff Time. A
clearing firm, therefore, may not realize that a valid reason exists to
not accept a particular trade until after the close of the trading day
or until the following morning. Accordingly, the Exchange proposes to
establish a procedure for a Designated Give Up or Guarantor of an ATP
Holder that is not a Market Maker to reject a trade on the following
trade day (``T+1'').\18\ The Exchange notes that a separate procedure
must be established for T+1 changes because to effectively change the
give up on a trade on T+1 an offsetting reversal must occur--as opposed
to merely identifying a different Clearing Member on the trade.
---------------------------------------------------------------------------
\18\ The Exchange proposes that no changes to the give up on
trades in expiring options series that take place on the last
trading day prior to their expiration may take place on T+1. Rather,
a Designated Give Up or Guarantor may only reject these transactions
on the trade date until the Trade Date Cutoff Time in accordance
with the trade date procedures described above.
---------------------------------------------------------------------------
Consistent with amended Rule 961(f), a Designated Give Up or
Guarantor \19\ that wishes to reject a trade on T+1 would have to
notify the executing ATP Holder, in writing, to try to attempt and
resolve the dispute. In addition, a Designated Give Up or Guarantor may
contact the Exchange and request the ability to reject the trade on
T+1. Provided that the Exchange is receives the request prior to 12:00
p.m. (ET) on T+1 (``T+1 Cutoff Time''), the Exchange would provide the
Designated Give Up or Guarantor the ability to enter trade records into
the Exchange's systems that would effect a transfer of the trade to
[[Page 48597]]
another Clearing Member. As noted above, if a New Clearing Member
agrees to the give up on a trade, it would be required to inform the
Exchange of its acceptance via the Give-Up Change Form for Accepting
Clearing Members. A Guarantor that becomes the new give up on T+1 would
not need to notify the Exchange of its intent to accept the trade, nor
would it need to submit any notification or form. The Designated Give
Up however, would be required to provide written notice to the
Guarantor that it will be making this change on T+1. The Exchange notes
that the ability for either a Designated Give Up or Guarantor to make
these changes would end at the T+1 Cutoff Time and would provide
finality and certainty as to which Clearing Member will be the give up
on the subject trade.
---------------------------------------------------------------------------
\19\ The Exchange again notes that, as proposed, only a
Guarantor whose name was initially given up is permitted to reject a
trade (i.e., a Guarantor cannot reject a trade on T+1 for which it
has become the give up as a result of a Designated Give Up not
accepting the trade).
---------------------------------------------------------------------------
In addition, once any change to the give up has been made, the
Designated Give Up or Guarantor making the change would be required to
immediately thereafter notify, in writing, the Exchange, the parties to
the trade and the Clearing Member given up, of the change.
As discussed above, the Exchange proposes to allow ATP Holders that
are not Market Makers to identify any Clearing Member as a Designated
Give Up. The Exchange's proposal does not permit a Clearing Member to
provide the Exchange instructions to prohibit a particular ATP Holder
from giving up the Clearing Member's name. This limitation prevents the
Exchange from being placed in the position of arbiter among a Clearing
Member, an ATP Holder and a customer. The Exchange recognizes, however,
that ATP Holders should not be given the ability to give up any
Clearing Member without also providing a method of recourse to those
Clearing Members which, for the prescribed reasons discussed above,\20\
should not be obligated to clear certain trades for which they are
given up. Accordingly, the Exchange is proposing to provide Designated
Give Ups and Guarantors the ability to reject a trade, provided each
has a good faith basis for doing so. Ultimately, however, the trade
must clear with a clearing firm and there must be finality to the
trade. The Exchange believes that the executing ATP Holder's Guarantor,
absent a Clearing Member that agrees to accept the trade, should become
the give up on any trade which a Designated Give Up determines to
reject in accordance with these proposed rule provisions, because the
Guarantor, by virtue of having issued a Letter of Guarantee or Letter
of Authorization, has already accepted financial responsibility for all
Exchange transactions made by the executing ATP Holder. The Exchange,
however, does not want to prevent a Clearing Member that agrees to
accept the trade from being able to do so, and accordingly, the
Exchange also provides that a New Clearing Member may become the give
up on a trade in accordance with the procedure discussed above.
---------------------------------------------------------------------------
\20\ See supra n. 13.
---------------------------------------------------------------------------
Other Give Up Changes
The Exchange proposes to modify the text of Rule 954NY(a), related
to the give up requirement for ATP Holders, to simply cross reference
Rule 961 given the detailed give up process proposed by the Exchange in
that Rule.
The Exchange also proposes in paragraph (g) of amended Rule 961
three scenarios in which a give up on a transaction may be changed
without Exchange involvement. First, if an executing ATP Holder has the
ability through an Exchange system to do so, it could change the give
up on a trade to another Designated Give Up or its Guarantor. The
Exchange notes that ATP Holders often make these changes when, for
example, there is a keypunch error (i.e., an error that involves the
erroneous entry of an intended clearing firm's OCC clearing number).
The ability of the executing ATP Holder to make any such change would
end at the Trade Date Cutoff Time.\21\
---------------------------------------------------------------------------
\21\ After that time, the ATP Holder would no longer have the
ability to make this type of change, as the trade will have been
submitted to OCC.
---------------------------------------------------------------------------
Next, the modified rule would provide that, if a Designated Give Up
has the ability to do so, it may change the give up on a transaction
for which it was given up to (i) another Clearing Member affiliated
with the Designated Give Up or (ii) a Clearing Member for which the
Designated Give Up is a back office agent. The ability to make such a
change would end at the Trade Date Cutoff Time. The procedures to
reject a trade, as set forth in proposed subparagraph (f) of Rule 961
and described above, would not apply in these instances. The Exchange
notes that often Clearing Members themselves have the ability to change
a give up on a trade for which it was given up to another Clearing
Member affiliate or Clearing Member for which the Designated Give Up is
a back office agent. Therefore, Exchange involvement in these instances
is not necessary.
In addition, the proposed rule provides that if both a Designated
Give Up or Guarantor and a Clearing Member have the ability through an
Exchange system to do so, the Designated Give Up or Guarantor and
Clearing Member may each enter trade records into the Exchange's
systems on T+1 that would effect a transfer of the trade in a non-
expired option series from that Designated Give Up to that Clearing
Member. Likewise, if a Guarantor of an ATP Holder trade (that is not a
Market Maker trade) and a Clearing Member have the ability through an
Exchange system to do so, the Guarantor and Clearing Member may each
enter trade records into the Exchange's systems on T+1 that would
effect a transfer of the trade in a non-expired option series from that
Guarantor to that Clearing Member. The Designated Give Up or Guarantor
could not make any such change after the T+1 Cutoff Time. The Exchange
notes that a Designated Give Up (or Guarantor) must notify, in writing,
the Exchange and all the parties to the trade, of any such change made
pursuant to this provision. This notification alerts the parties and
the Exchange that a change to the give up has been made. Finally, the
Designated Give Up (or Guarantor) would be responsible for monitoring
the trade and ensuring that the other Clearing Member has entered its
side of the transaction timely and correctly. If either a Designated
Give Up (or Guarantor) or Clearing Member cannot themselves enter trade
records into the Exchange's systems to effect a transfer of the trade
from one to the other, the Designated Give Up (or Guarantor) may
request the ability from the Exchange to enter both sides of the
transaction in accordance with amended Rule 961 and pursuant to the
procedures set forth in subparagraph (f)(3) of that Rule.
Responsibility
The Exchange proposes in paragraph (h) of amended Rule 961 to state
that a Clearing Member would be financially responsible for all trades
for which it is the give up at the Applicable Cutoff Time (for purposes
of the proposed rule, the ``Applicable Cutoff Time'' shall refer to the
T+1 Cutoff Time for non-expiring option series and to the Trade Date
Cutoff Time for expiring option series). The Exchange notes, however,
that nothing in the proposed rule shall preclude a different party from
being responsible for the trade outside of the Rules of the Exchange
pursuant to OCC Rules, any agreement between the applicable parties,
other applicable rules and regulations, arbitration, court proceedings
or otherwise.\22\ Moreover,
[[Page 48598]]
in processing a request to provide a Designated Give Up the ability to
change a give up on a trade, the Exchange would not consider or
validate whether the Designated Give Up has satisfied the requirements
of this Rule in relation to having a good faith belief that it has a
valid reason not to accept a trade or having notified the executing ATP
Holder and attempting to resolve the disputed give up prior to changing
the give up. Rather, upon request, the Exchange would always provide a
Designated Give Up or Guarantor the ability to change the give up or to
reject a trade pursuant to the proposed Rule so long as the Designated
Give Up or Guarantor, and New Clearing Member, if applicable, have
provided a completed set of give up Change Forms within the prescribed
time period.
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\22\ See proposed Commentary .01 to Rule 691 (``Nothing herein
will be deemed to preclude the clearance of Exchange transactions by
a non- ATP Holder to the By-Laws of the Options Clearing Corporation
so long as a Clearing Member who is an ATP Holder is also designated
as having responsibility under these Rules for the clearance and
comparison of such transactions.'').
---------------------------------------------------------------------------
The Exchange notes that given the inherent time constraints in
making a change to a give up on a transaction, the Exchange would not
be able to adequately consider the above-mentioned requirements and
make a determination within the prescribed period of time. Rather, the
Exchange would examine trades for which a give up was changed pursuant
to subparagraphs (e) and (f) after the fact to ensure compliance with
the requirements set forth in amended Rule 961. Particularly, the
Exchange notes that the give up Change Forms that Designated Give Ups,
Guarantors and New Clearing Members must submit, would help to ensure
that the Exchange obtains, in a uniform format, the information that it
needs to monitor and regulate this Rule and these give up changes in
particular. This information, for example, would better allow the
Exchange to determine whether the Designated Give Up had a valid reason
to reject the trade, as well as assist the Exchange in cross checking
and confirming that what the Designated Give Up or Guarantor said it
was going to do is what it actually did (e.g., check that the New
Clearing Member identified in the give up Change Form was the Clearing
Member that actually was identified on the trade as the give up).
Additionally, the proposed Rule does not preclude these factors from
being considered in a different forum (e.g., court or arbitration), nor
does it preclude any Clearing Member that violates any provision of
amended Rule 961 from being subject to discipline in accordance with
Exchange rules.
Finally, the Exchange proposes to eliminate as obsolete the
reference in Rule 960 requiring that ``[a]ll option transactions
involving orders stored in the Opening Automated Report Service shall
be cleared and compared in accordance with the provisions of Rule
950(m) and Commentary thereto,'' \23\ which the Exchange believes will
add clarity and consistency to Exchange rules
---------------------------------------------------------------------------
\23\ The Exchange also proposes to capitalize the two references
to ``clearing member'' in this rule to signify the defined term,
which the Exchange believes would add clarity and consistency to
Exchange rules.
---------------------------------------------------------------------------
Implementation
The Exchange proposes to announce the implementation of the
proposed rule change via Trader Update, to be published no later than
thirty (30) days following the effectiveness of this proposal. The
implementation date will be no sooner than fourteen (14) day and no
later than thirty (30) days following publication of the Trader Update.
This additional time would afford the Exchange and ATP Holders the time
to submit and process the forms required under the proposed rule.
2. Statutory Basis
The Exchange believes that the proposed change is consistent with
Section 6(b) of the Act,\24\ in general, and furthers the objectives of
Section 6(b)(5),\25\ in particular, in that it is designed to promote
just and equitable principles of trade, to foster cooperation and
coordination with persons engaged in regulating, clearing, settling,
processing information with respect to, and facilitation transactions
in securities, to remove impediments to, and perfect the mechanism of a
free and open market and, in general, to protect investors and the
public interest. Additionally, the Exchange believes the proposed rule
change is consistent with the Section 6(b)(5) \26\ requirement that the
rules of an exchange not be designed to permit unfair discrimination
between customers, issuers, brokers, or dealers.
---------------------------------------------------------------------------
\24\ 15 U.S.C. 78f(b).
\25\ 15 U.S.C. 78f(b)(5).
\26\ Id.
---------------------------------------------------------------------------
First, detailing in the rules how ATP Holders would give up
Clearing Members and how Clearing Members may ``reject'' a trade
provides transparency and operational certainty. The Exchange believes
additional transparency removes a potential impediment to, and would
contribute to perfecting, the mechanism for a free and open market and
a national market system, and, in general, would protect investors and
the public interest. Moreover, the Exchange notes that amended Rule 961
requires ATP Holders to adhere to a standardized process to ensure a
seamless administration of the Rule. For example, all notifications
relating to a change in give up must be made in writing. The Exchange
believes that these requirements will aid the Exchange's efforts to
monitor and regulate ATP Holders and Clearing Members as they relate to
amended Rule 961 and changes in give ups, thereby protecting investors
and the public interest.
Additionally, the Exchange believes that its proposed give up rule
strikes the right balance between the various views and interests of
market participants. For example, although the rule allows ATP Holders
that are not Market Makers to identify any Clearing Member as a
Designated Give Up, it also provides that ATP Holders would receive
notice of any ATP Holder that has designated it as a Designated Give Up
and provides for a procedure for a Clearing Member to ``reject'' a
trade in accordance with the Rules, both on the trade date and T+1.
The Exchange recognizes that ATP Holders should not be given the
ability to give up any Clearing Members without also providing a method
of recourse to those Clearing Members which, for the prescribed reasons
discussed above, should not be obligated to clear certain trades for
which they are given up. The Exchange believes that providing
Designated Give Ups the ability to reject a trade within a reasonable
amount of time is consistent with the Act as, pursuant to the proposed
rule, the Designated Give Ups may only do so if they have a valid
reason and because ultimately, the trade can always be assigned to the
Guarantor of the executing ATP Holder if a New Clearing Firm is not
willing to step in and accept the trade. A trade must clear with a
clearing firm and there must be finality to the trade. Absent a New
Clearing Member that agrees to accept the trade, the Exchange believes
that the executing ATP Holder's Guarantor, should become the give up on
any trade that a Designated Give Up determines to reject, in accordance
with the proposed rule provisions, because the Guarantor, by virtue of
having issued a Letter of Guarantee or Letter of Authorization, has
already accepted financial responsibility for all Exchange transactions
made by the executing ATP Holder. Therefore, amended Rule 961 is
reasonable and provides certainty that a Clearing Member will always be
responsible for a trade, which protects investors and the public
interest.
The Exchange notes that amended Rule 961 does not preclude a
different party than the party given up from being
[[Page 48599]]
responsible for the trade outside of the Rules of the Exchange,
pursuant to OCC Rules, any agreement between the applicable parties,
other applicable rules and regulations, arbitration, court proceedings
or otherwise. The Exchange acknowledges that it would not consider
whether the Designated Give Up has satisfied the requirements of this
Rule in relation to having a good faith belief that it has a valid
reason not to accept a trade or having notified the executing ATP
Holder and attempting to resolve the disputed give up prior to changing
the give up, due to inherent time restrictions. However, the Exchange
believes investor and public interest are still protected as the
Exchange will still examine trades for which a give up was changed
pursuant to subparagraphs (e) and (f) of amended Rule 961 after the
fact to ensure compliance with the requirements set forth in the Rule.
As noted above, the implementation of a standardized process and the
requirement that certain notices be in writing would assist monitoring
any give up changes and enforcing amended Rule 961.
Further, the Exchange notes that the Rule does not preclude these
factors from being considered in a different forum (e.g., court or
arbitration) nor does it preclude any ATP Holder or Clearing Member
that violates any provision of amended Rule 961 from being subject to
discipline by the Exchange.
Finally, the Exchange believes that making non-substantive,
technical corrections to the rule text (i.e., capitalizing the defined
term ``clearing member'') and deleting obsolete references in Rule 960
would add clarity and consistency to Exchange rules to the benefit of
investors and the general public.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that this proposed rule change would
impose any burden on competition not necessary or appropriate in
furtherance of the purposes of the Act. The Exchange does not believe
that the proposed rule change would impose an unnecessary burden on
intramarket competition because it would apply equally to all similarly
situated ATP Holders. The Exchange also notes that, should the proposed
changes make the Exchange more attractive for trading, market
participants trading on other exchanges can always elect to become ATP
Holders on the Exchange to take advantage of the trading opportunities.
In addition, as noted above, the Exchange believes the proposed rule
change is pro-competitive and would allow the Exchange to compete more
effectively with other options exchanges that have already adopted
changes to their give up process that are substantially identical to
the changes proposed by this filing.\27\
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\27\ See supra n. 5.
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C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were solicited or received with respect to the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Because the 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, the proposed rule change has become effective
pursuant to Section 19(b)(3)(A) of the Act \28\ and Rule 19b-4(f)(6)
thereunder.\29\
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\28\ 15 U.S.C. 78s(b)(3)(A).
\29\ 17 CFR 240.19b-4(f)(6). As required under Rule 19b-
4(f)(6)(iii), the Exchange provided the Commission with written
notice of its intent to file the proposed rule change, along with a
brief description and the text of the proposed rule change, at least
five business days prior to the date of filing of the proposed rule
change, or such shorter time as designated by the Commission.
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A proposed rule change filed under Rule 19b-4(f)(6) \30\ normally
does not become operative prior to 30 days after the date of the
filing. However, pursuant to Rule 19b4(f)(6)(iii),\31\ the Commission
may designate a shorter time if such action is consistent with the
protection of investors and the public interest. The Exchange has asked
the Commission to waive the 30-day operative delay so that the proposal
may become operative immediately upon filing. The Commission believes
that waiver of the operative delay is consistent with the protection of
investors and the public interest because the proposal is substantially
similar to that of another exchange that has been approved by the
Commission.\32\ Waiver of the 30-day operative delay will allow the
Exchange to implement the proposed rule change, which is designed to
bring greater operational certainty and efficiency to the give up
process, in accordance with the implementation schedule outlined above.
Therefore, the Commission designates the proposed rule change to be
operative upon filing.\33\
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\30\ 17 CFR 240.19b-4(f)(6).
\31\ 17 CFR 240.19b-4(f)(6)(iii).
\32\ See supra n. 5.
\33\ For purposes only of waiving the 30-day operative delay,
the Commission has considered the proposed rule's impact on
efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
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At any time within 60 days of the filing of such proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act. If the Commission
takes such action, the Commission shall institute proceedings under
Section 19(b)(2)(B) \34\ of the Act to determine whether the proposed
rule change should be approved or disapproved.
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\34\ 15 U.S.C. 78s(b)(2)(B).
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IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
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-NYSEMKT-2015-55 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.
All submissions should refer to File Number SR-NYSEMKT-2015-55. 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.,
[[Page 48600]]
Washington, DC 20549 on official business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of such filing also will be available
for inspection and copying at the principal 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-NYSEMKT-2015-55, and should
be submitted on or before September 3, 2015.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\35\
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\35\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2015-19872 Filed 8-12-15; 08:45 am]
BILLING CODE P
