Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change to Risk Monitor Mechanism, 68338-68342 [2015-28020]
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68338
Federal Register / Vol. 80, No. 213 / Wednesday, November 4, 2015 / Notices
members of FINRA, the amended Plan
provides that the member’s DEA would
serve as the DREA, provided that the
DEA exchange operates a national
securities exchange or facility that
trades NMS stocks and the common
member is a member of such exchange
or facility. Section 1(c) of the amended
Plan contains a list of proposed
principles that would be applicable to
the allocation of common members in
cases not specifically addressed in the
Plan. An exchange that does not trade
NMS stocks would have no regulatory
authority for covered Regulation NMS
rules pertaining to NMS stocks. For
covered rules that pertain to NMS
securities, and thus include options
(i.e., Rule 606), the proposed amended
Plan provides that the DREA will be the
same as the DREA for the rules
pertaining to NMS stocks. For common
members that are not members of an
exchange that trades NMS stocks, the
common member would be allocated
according to the principles set forth in
Section 1(c) of the Plan.
The text of the Plan delineates the
proposed regulatory responsibilities
with respect to the Parties. Included in
the proposed Plan is an exhibit (the
‘‘Covered Regulation NMS Rules’’) that
lists the federal securities laws, rules,
and regulations, for which the
applicable DREA would bear
examination and enforcement
responsibility under the proposed
amended Plan for Common Members of
the Participating Organization and their
associated persons.
Specifically, under the 17d–2 Plan,
the applicable DREA would assume
examination and enforcement
responsibility relating to compliance by
Common Members with the Covered
Regulation NMS Rules. Covered
Regulation NMS Rules would not
include the application of any rule of a
Participating Organization, or any rule
or regulation under the Act, to the
extent that it pertains to violations of
insider trading activities, because such
matters are covered by a separate
multiparty agreement under Rule
17d–2.9 Under the Plan, Participating
Organizations would retain full
responsibility for surveillance and
enforcement with respect to trading
activities or practices involving their
own marketplace.10
III. Discussion
The Commission finds that the
proposed Plan is consistent with the
factors set forth in Section 17(d) of the
Act 11 and Rule 17d–2(c) thereunder 12
in that the proposed Plan is necessary
or appropriate in the public interest and
for the protection of investors, fosters
cooperation and coordination among
SROs, and removes impediments to and
fosters the development of the national
market system. In particular, the
Commission believes that the proposed
Plan should reduce unnecessary
regulatory duplication by allocating to
the applicable DREA certain
examination and enforcement
responsibilities for Common Members
that would otherwise be performed by
multiple Parties. Accordingly, the
proposed Plan promotes efficiency by
reducing costs to Common Members.
Furthermore, because the Parties will
coordinate their regulatory functions in
accordance with the proposed Plan, the
Plan should promote investor
protection.
The Commission is hereby declaring
effective a plan that allocates regulatory
responsibility for certain provisions of
the federal securities laws, rules, and
regulations as set forth in Exhibit A to
the Plan. The Commission notes that
any amendment to the Plan must be
approved by the relevant Parties as set
forth in Paragraph 22 of the Plan and
must be filed with and approved by the
Commission before it may become
effective.13
IV. Conclusion
This Order gives effect to the Plan
filed with the Commission in File No.
4–618. The Parties shall notify all
members affected by the Plan of their
rights and obligations under the Plan.
It is therefore ordered, pursuant to
Section 17(d) of the Act, that the Plan
in File No. 4–618 is hereby approved
and declared effective.
It is further ordered that the Parties
who are not the DREA as to a particular
Common Member are relieved of those
regulatory responsibilities allocated to
the Common Member’s DREA under the
Plan to the extent of such allocation.
11 15
9 See
Securities Exchange Act Release No. 58350
(August 13, 2008), 73 FR 48247 (August 18, 2008)
(File No. 4–566) (notice of filing of proposed plan).
See also Securities Exchange Act Release No. 58536
(September 12, 2008) (File No. 4–566) (order
approving and declaring effective the plan).
10 See paragraph 1 of the proposed 17d–2 Plan.
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U.S.C. 78q(d).
CFR 240.17d–2(c).
13 See Paragraph 22 of the Plan. The Commission
notes, however, that changes to Exhibit B to the
Plan (the allocation of Common Members to
DREAs) are not required to be filed with, and
approved by, the Commission before they become
effective.
12 17
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For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.14
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2015–28068 Filed 11–3–15; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–76295; File No. SR–Phlx–
2015–83]
Self-Regulatory Organizations;
NASDAQ OMX PHLX LLC; Notice of
Filing and Immediate Effectiveness of
Proposed Rule Change to Risk Monitor
Mechanism
October 29, 2015.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on October
15, 2015, NASDAQ OMX PHLX LLC
(‘‘Phlx’’ or ‘‘Exchange’’) filed with the
Securities and Exchange Commission
(‘‘SEC’’ or ‘‘Commission’’) the proposed
rule change as described in Items I, II,
and III, below, which Items have been
prepared by the Exchange. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to amend
Rule 1093 entitled ‘‘Phlx XL Risk
Monitor Mechanism’’ by reserving this
rule and relocating the rule governing
the Risk Monitor Mechanism into Phlx
Rule 1095, entitled ‘‘Automated
Removal of Quotes’’ which contains
similar market maker 3 risk monitor
tools. The Exchange is also modifying
14 17
CFR 200.30–3(a)(34).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 A ‘‘Market Maker’’ includes Registered Options
Traders (‘‘ROTs’’) (Rule 1014(b)(i) and (ii)), which
includes Streaming Quote Traders (‘‘SQTs’’) (see
Rule 1014(b)(ii)(A)) and Remote Streaming Quote
Traders (‘‘RSQTs’’) (see Rule 1014(b)(ii)(B)). An
SQT is defined in Exchange Rule 1014(b)(ii)(A) as
an ROT who has received permission from the
Exchange to generate and submit option quotations
electronically in options to which such SQT is
assigned. An RSQT is defined in Exchange Rule
1014(b)(ii)(B) as an ROT that is a member or
member organization with no physical trading floor
presence who has received permission from the
Exchange to generate and submit option quotations
electronically in options to which such RSQT has
been assigned. An RSQT may only submit such
quotations electronically from off the floor of the
Exchange. A Market Maker also includes a
specialist, an Exchange member who is registered
as an options specialist pursuant to Rule 1020(a).
1 15
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the language currently contained in
Rule 1093.
The text of the proposed rule change
is available on the Exchange’s Web site
at https://
nasdaqomxphlx.cchwallstreet.com/, at
the principal office of the Exchange, and
at the Commission’s Public Reference
Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange included statements
concerning the purpose of and basis for
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. The
Exchange has prepared summaries, set
forth in sections A, B, and C below, of
the most significant aspects of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
asabaliauskas on DSK5VPTVN1PROD with NOTICES
1. Purpose
The purpose of the filing is to relocate
and amend the current rule text of the
Risk Monitor Mechanism Rule in 1093.4
The Exchange is proposing to relocate
the rule text into Rule 1095, which
currently describes two other risk
mechanisms offered to Market Makers
today.5 Quoting across many series in
an option creates the possibility of
‘‘rapid fire’’ executions that can create
large, unintended principal positions
that expose Market Makers, who are
required to continuously quote in
assigned options, to potentially
significant market risk. The Risk
Monitor Mechanism (hereinafter
‘‘Percentage-Based Threshold’’) permits
Market Makers to monitor risk arising
from multiple executions across
multiple options series of a single
underlying security.
The Exchange will require Market
Makers to utilize either the PercentageBased Threshold or the Volume-Based
Threshold.6 The Multi-Trigger
Threshold will be optional.7 Today,
4 The proposed amendments will conform the
rule text to the manner in which the Exchange’s
Phlx XL system (‘‘System’’) operates today.
5 The two risk protections, Volume-Based
Threshold and the Multi-Trigger Threshold, are
Market Maker protections, similar to the Risk
Monitor Mechanism to assist Market Makers to
control their trading risks.
6 The Volume-Based Threshold is offered only to
Market Makers.
7 The Multi-Trigger Threshold is offered only to
Market Makers.
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Market Makers are required to utilize
the Percentage-Based Threshold.
Current Rule Text in Rule 1093
Phlx Rule 1093 specifically describes
the counting program that is maintained
by the trading system (hereinafter
‘‘System’’) for each Phlx XL participant
(hereinafter ‘‘Market Maker’’), in a
particular option. Specifically, the
counting program counts the number of
contracts traded in an option by each
Market Maker within a specified time
period, not to exceed 15 seconds,
established by each Market Maker,
known in this rule as the ‘‘specified
time period.’’
The specified time period commences
for an option when a transaction occurs
in any series in such option. The
Exchange counts Specialized Quote
Feed (‘‘SQF’’) 8 quotes only in
determining the number of contracts
traded and removed by the System.
When a Market Maker trades the
Specified Engagement Size during the
specified time period, the PercentageBased Threshold is triggered 9 and the
System automatically removes such
Market Maker’s quotations from the
Exchange’s orders in all series of the
particular option. The Percentage-Based
Threshold is engaged when the counting
program determines that the Issue
Percentage equals or exceeds a
percentage established by the Market
Maker, not less than 100%.
The Specified Engagement Size is
automatically offset by a number of
contracts that are executed on the
opposite side of the market in the same
option issue during the specified time
period known as the ‘‘Net Offset
Specified Engagement Size.’’ Long call
positions are only offset by short call
positions, and long put positions are
only offset by short put positions. The
Percentage-Based Threshold is engaged
once the Net Offset Specified
Engagement Size represents a net
number of contracts executed among all
series in an option issue, during the
specified time period, where the issue
percentage is equal to or greater than the
Specified Percentage.10
8 SQF permits the receipt of quotes. SQF Auction
Responses and market sweeps are also not
included.
9 A trigger is defined as the event which causes
the System to automatically remove all quotes in all
options series in an underlying issue.
10 Any marketable orders or quotes that are
executable against a Market Maker’s disseminated
quotation that are received prior to the time the
Percentage-Based Threshold is engaged are
automatically executed at the disseminated price up
to the Market Maker’s disseminated size, regardless
of whether such an execution results in executions
in excess of the Market Maker’s Specified
Engagement Size. In the event that the specialist’s
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The System automatically resets the
counting program and commences a
new specified time period when: (i) A
previous counting period has expired
and a transaction occurs in any series in
such option; or (ii) the Market Maker
refreshes his/her quotation, in a series
for which an order has been executed
(thus commencing the specified time
period) prior to the expiration of the
specified time period.
Proposed Rule
The Exchange’s amendments to the
current rule text are described below in
greater detail. The Exchange proposes to
amend the current rule to first define a
specialist, Streaming Quote Trader or
Remote Streaming Quote Trader as a
Market Maker and replace the term
‘‘Phlx XL Participant’’ with the term
‘‘Market Maker.’’ 11 The proposed term
‘‘Market Maker’’ will be utilized
throughout proposed Rule 1095(i).
Counting Program
Proposed Rule 1095(i) provides, as in
the current rule, the Percentage-Based
Threshold determines: (i) The
percentage that the number of contracts
executed in that series represents
relative to the Market Maker’s
disseminated12 size of each side in that
series (‘‘Series Percentage’’); and (ii) the
sum of the Series Percentage in the
option issue (‘‘Issue Percentage’’). An
offset occurs during the PercentageBased Specified Time Period.13 The
Exchange proposes to amend the rule
text in proposed Rule 1095(i) to state
that the Percentage-Based Specified
Time Period operates on a rolling basis
among all series in an option in that
there may be multiple Percentage-Based
Specified Time Periods occurring
simultaneously and such PercentageBased Specified Time periods may
overlap. The Exchange proposes to
amend the rule text of proposed Rule
1095(i) to state that the Percentagequote is removed by the Percentage-Based
Threshold and there are no other Market Makers
quoting in the particular option, the System will
automatically provide two-sided quotes that comply
with the Exchange’s Rules concerning quote spread
parameters on behalf of the specialist until such
time as the specialist revises the quotation. All
quotations generated by the Exchange on behalf of
a specialist shall be considered ‘‘firm quotations’’
and shall be the obligation of the specialist.
11 The Exchange automatically removes a Market
Maker’s quotes in all series of an underlying
security submitted through designated Phlx
protocols, as specified by the Exchange, during a
specified time period established by the Market
Maker not to exceed 15 seconds, this time period
is not being amended.
12 The disseminated size is the original size
quoted by the Participant.
13 A specified time period is established by the
Market Maker and may not to exceed 15 seconds.
See proposed Rule 1095(i).
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Based Specified Time Period
commences for an option every time an
execution occurs in any series in such
option and continues until the System
removes quotes as described in current
Rule 1095(iv), which is being amended
to include the Percentage-Based
Specified Time Period, or the
Percentage-Based Specified Time Period
expires.
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Rounding
The Exchange proposes to add
amended rule text to proposed Rule
1095(i) to state that if the Issue
Percentage, rounded to the nearest
integer, equals or exceeds a percentage
established by a Market Maker, not less
than 100% (‘‘Specified Percentage’’), the
System automatically remove a Market
Maker’s quotes in all series of the
underlying security submitted through
designated Phlx protocols, as specified
by the Exchange, during the PercentageBased Specified Time Period.14 The
current text of Rule 1093 states that the
Percentage-Based Threshold is engaged
when the counting program determines
that the Issue Percentage equals or
exceeds a percentage established by the
Market Maker, not less than 100%. The
Exchange’s proposal adds amended rule
text to proposed Rule 1095(i) to state,
that if the Issue Percentage, rounded to
the nearest integer, equals or exceeds a
percentage established by the Market
Maker, not less than 100% (‘‘Specified
Percentage’’), the System automatically
removes a Market Maker’s quotes in all
series of an underlying security
submitted through designated Phlx
protocols, as specified by the Exchange,
during the Percentage-Based Specified
Time Period.
Today, the System tracks and
calculates the net impact of positions in
the same option issue during the
Percentage-Based Specified Time
Period. The System tracks transactions,
i.e., the sum of buy-side put
percentages, the sum of sell-side put
percentages, the sum of buy-side call
percentages, and the sum of sell-side
call percentages, and then calculates the
absolute value of the difference between
the buy-side puts and the sell-side puts
plus the absolute value of the difference
between the buy-side calls and the sellside calls. With this proposal, when
these values are rounded, if that number
14 The System’s count of the number of contracts
executed is based on trading interest resting on the
Exchange book. The Volume-Based Specified Time
Period, in current Rule 1095(ii), designated by the
Market Maker must be the same time period as
designated for purposes of the Percentage-Based
Threshold. The Exchange references protocols more
specifically in this rule. The Exchange counts SQF
quotes only in determining the number of contracts
traded and removed by the System. See note 8.
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is greater than the Specified Percentage,
the Percentage-Based Threshold would
be triggered.
Reset
The Exchange proposes to amend the
manner in which the System resets. The
System will automatically removes [sic]
quotes in all option series of an
underlying security when the
Percentage-Based Threshold is reached
and then the Percentage-Based Specified
Time Period is reset. The System will
send a Purge Notification Message 15 to
the Market Maker for all affected
options when the threshold has been
reached. Pursuant to this proposal,
when the System removes quotes as a
result of the Percentage-Based
Threshold, the Market Maker will be
required to send a re-entry indicator to
re-enter the System.16 If a Market Maker
requests the System to remove quotes in
all options series in an underlying issue,
the System will automatically reset the
Percentage–Based Specified Time
Period(s) and new Percentage-Based
Specified Time Period(s) will
commence for the Percentage-Based
Threshold. With this proposal, when the
System removes quotes as a result of the
Percentage-Based Threshold, the Market
Maker will be required to send a reentry indicator to re-enter the System.
The proposed rule text adds specificity
to the manner in which the Market
Maker re-enters the market after a
trigger.
Firm Quote
The Exchange represents that its
proposal operates consistently with the
firm quote obligations of a broker-dealer
pursuant to Rule 602 of Regulation
NMS.
2. Statutory Basis
The Exchange believes that its
proposal is consistent with Section 6(b)
of the Act 17 in general, and furthers the
objectives of Section 6(b)(5) of the Act 18
in particular, in that it is designed to
promote just and equitable principles of
trade, to remove impediments to and
perfect the mechanism of a free and
open market and a national market
system, and, in general to protect
investors and the public interest, by
enhancing the risk protections available
to Exchange members. Each of the
proposed amendments does not raise a
novel regulatory issue, rather these
15 A message entitled ‘‘Purge Notification
Message’’ is systemically sent to the Market Maker
upon the removal of quotes due to the PercentageBased Threshold. See proposed Rule 1095(iii).
16 The re-entry indicator must be marked as such
to cause the System to reset.
17 15 U.S.C. 78f(b).
18 15 U.S.C. 78f(b)(5).
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proposed amendments provide for
operational transparency.
The proposed rule text continues to
offer Market Makers a risk protection
tool, in addition to other available risk
tools,19 to decrease risk and increase
stability. The Exchange offers this risk
tool to Market Makers, in order to
encourage them to provide as much
liquidity as possible and encourage
market making generally, the proposal
removes impediments to and perfects
the mechanism of a free and open
market and a national market system
and protect investors and the public
interest. Further, it is important to note
that any interest that is executable
against a Market Maker’s quotes that are
received 20 by the Exchange prior to the
trigger of the Percentage-Based
Threshold, which is processed by the
System, automatically executes at the
price up to the Market Maker’s size.
Further, the Purge Notification Message
is accepted by the System in the order
of receipt in the queue and is processed
in that order so that interest that is
already accepted into the System is
processed prior to the message.
Counting Program
The Exchange’s amendment to the
operation of the counting program to
describe that it operates on rolling basis,
with a time window after each
transaction, not singular and sequential
time segments is consistent with the Act
because the purpose of the risk tool is
to provide Market Makers with the
ability to monitor its transactions. The
proposed counting program provides a
tracking method for Market Makers
related to the specified time period. The
System captures information to
determine whether a removal of quotes
is necessary. The proposed function of
this counting program will enable the
Exchange to provide the Market Maker
with information relative to that Market
Maker’s interest currently at risk in the
market.
Rounding
The Exchange’s amendment which
states that if the Issue Percentage,
rounded to the nearest integer, equals or
exceeds the Specified Percentage, the
System automatically removes a Market
Maker’s quotes in all series of an
underlying security is consistent with
the Act because investors will be
protected by providing Market Makers
with a risk tool which allows Market
Makers to properly set their risk
19 See
note 5.
time of receipt for an order or quote is the
time such message is processed by the Exchange
book.
20 The
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protections at a level that they are able
to meet their obligations and also
manage their risk. This specificity
provides more detail so that Market
Makers may properly set their risk
controls. Understanding the manner in
which the System will round is
important in determining when the
System will trigger a risk control. Also,
today, Phlx discusses rounding in its
Rulebook.21 Rounding to the nearest
integer is not novel.
Reset
The Exchange’s proposal to amend
the rule text related to resets provides
guidance to Market Makers as to the
manner in which they may re-enter the
System after a removal of quotes. This
amendment is consistent with the Act
because the Exchange desires to provide
Market Makers with access to the
market at all times. Market Makers
perform an important function in the
marketplace and the Exchange desires to
provide its market participants with
access to the market. If the Market
Maker is removed from the market due
to a trigger of the Percentage-Based risk
tool, the Exchange will permit re-entry
to the market provided the Market
Maker sends a re-entry indicator to reenter the System. This is important
because it informs the Exchange that the
Market Maker is ready to re-enter the
market. Also, the Exchange currently
has risk mechanisms in place which
provides guidance as to the manner in
which a Market Maker may re-enter the
System after a removal of quotes.22
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Quoting Obligations—Market Makers
The Exchange further represents that
the System operates consistently with
the firm quote obligations of a brokerdealer pursuant to Rule 602 of
Regulation NMS. Specifically, with
respect to Market Makers, their
obligation to provide continuous twosided quotes on a daily basis is not
diminished by the removal of such
quotes by the Percentage-Based
Threshold. Market Makers are required
to provide continuous two-sided quotes
on a daily basis.23 Market Makers that
utilize the Percentage-Based Threshold
will not be relieved of the obligation to
provide continuous two-sided quotes on
a daily basis, nor will it prohibit the
Exchange from taking disciplinary
action against a Market Maker for failing
21 See Phlx Rule at 1014 regarding Market Maker
allocations.
22 See Phlx Rule 1095(vi).
23 See Rule 1014 titled ‘‘Obligations and
Restrictions Applicable to Specialists and
Registered Options Traders.’’
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to meet the continuous quoting
obligation each trading day.
Finally, the Exchange believes that its
proposal to provide Market Makers the
optionality to either select the
Percentage-Based Threshold or VolumeBased Threshold as one of their risk
tools will also protect investors and is
consistent with the Act. Today, Market
Makers are required to utilize the
Percentage-Based Threshold. With this
proposal, Market Makers will have the
ability to select their mandatory risk as
between the Percentage-Based
Threshold or Volume-Based Threshold.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change will impose
any burden on competition not
necessary or appropriate in furtherance
of the purposes of the Act. The
Percentage-Based Threshold is meant to
protect Market Makers from inadvertent
exposure to excessive risk. Accordingly,
this proposal will have no impact on
competition. Specifically, the proposal
does not impose a burden on intramarket or inter-market competition,
rather, it provides Market Makers with
the opportunity to avail themselves of
similar risk tools which are currently
available on other exchanges.24 Market
Makers quote across many series in an
option creates the possibility of ‘‘rapid
fire’’ executions that can create large,
unintended principal positions that
expose Market Makers. The PercentageBased Threshold permits Market Makers
to monitor risk arising from multiple
executions across multiple options
series of a single underlying security.
The Exchange is proposing this rule
change to continue to permit Market
Makers to reduce their risk in the event
the Market Maker is suffering from a
system issue or due to the occurrence of
unusual or unexpected market activity.
Reducing such risk will enable Market
Makers to enter quotations without any
fear of inadvertent exposure to excessive
risk, which in turn will benefit investors
through increased liquidity for the
execution of their orders. Such
increased liquidity benefits investors
because they receive better prices and
because it lowers volatility in the
options market. Reducing risk by
utilizing the proposed risk protections
enables Market Makers, specifically, to
enter quotations with larger size, which
in turn will benefit investors through
increased liquidity for the execution of
their orders. Such increased liquidity
benefits investors because they receive
24 See
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68341
better prices and because it lowers
volatility in the options market.
Counting Program
The Exchange’s amendment to the
operation of the counting program to
describe that it operates on rolling basis,
with a time window after each
transaction, not singular and sequential
time segments does not create an undue
burden on competition, rather, it
provides the Market Maker with clarity
as to the manner in which the System
counts quotes and thereby provides
Market Makers with an increased ability
to monitor transactions.
Rounding
The Exchange’s amendment to add
that if the Issue Percentage, rounded to
the nearest integer, equals or exceeds
the Specified Percentage, the System
automatically removes a Market Maker’s
quotes in all series of an underlying
security does not create an undue
burden on competition because this
amendment also provides the Market
Maker with clarity as to the manner in
which the System will remove quotes
and thereby provides Market Makers
with an increased ability to monitor
transactions and set risk limits.
Reset
The amendment to the rule text
concerning resetting does not create an
undue burden on competition. The
Exchange proposes to amend the
manner in which a Market Maker may
re-enter the System after a removal of
quotes. This amendment provides
information to Market Makers as to the
procedure to re-enter the System after a
trigger. This information is intended to
provide Market Makers with access to
the market.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
No written comments were either
solicited or received.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule
change does not: (i) Significantly affect
the protection of investors or the public
interest; (ii) impose any significant
burden on competition; and (iii) become
operative for 30 days from the date on
which it was filed, or such shorter time
as the Commission may designate, it has
become effective pursuant to Section
19(b)(3)(A)(iii) of the Act 25 and
25 15
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U.S.C. 78s(b)(3)(a)(iii).
04NON1
68342
Federal Register / Vol. 80, No. 213 / Wednesday, November 4, 2015 / Notices
subparagraph (f)(6) of Rule 19b–4
thereunder.26
At any time within 60 days of the
filing of the proposed rule change, the
Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is: (i) Necessary or appropriate in
the public interest; (ii) for the protection
of investors; or (iii) otherwise in
furtherance of the purposes of the Act.
If the Commission takes such action, the
Commission shall institute proceedings
to determine whether the proposed rule
should be approved or disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
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–2015–83 and should
be submitted on or before November 25,
2015.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.27
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2015–28020 Filed 11–3–15; 8:45 am]
BILLING CODE 8011–01–P
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SRPhlx-2015–83 on the subject line.
asabaliauskas on DSK5VPTVN1PROD with NOTICES
Paper Comments
• Send paper comments in triplicate
to Brent J. Fields, Secretary, Securities
and Exchange Commission, 100 F Street
NE., Washington, DC 20549–1090.
All submissions should refer to File
Number SR–Phlx–2015–83. 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
26 17 CFR 240.19b–4(f)(6). In addition, Rule 19b–
4(f)(6) requires a self-regulatory organization to give
the Commission written notice of its intent to file
the proposed rule change at least five business days
prior to the date of filing of the proposed rule
change, or such shorter time as designated by the
Commission. The Exchange has satisfied this
requirement.
VerDate Sep<11>2014
17:00 Nov 03, 2015
Jkt 238001
in terminology to Nasdaq Rule 4120,
Nasdaq Rule 5615, and IM–5615–4.
The text of the proposed rule change
is available at https://
nasdaq.cchwallstreet.com/, at Nasdaq’s
principal office, and at the
Commission’s Public Reference Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange included statements
concerning the purpose of and basis for
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. The
Exchange has prepared summaries, set
forth in sections A, B, and C below, of
the most significant aspects of such
statements.
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–76297; File No. SR–
NASDAQ–2015–121]
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
Self-Regulatory Organizations; The
NASDAQ Stock Market LLC; Notice of
Filing and Immediate Effectiveness of
Proposed Rule Change To Amend
Terminology in Nasdaq Rules 4120,
5615 and 5745 and IM–5615–4
October 29, 2015.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on October
21, 2015, The NASDAQ Stock Market
LLC (‘‘Nasdaq’’ or the ‘‘Exchange’’) filed
with the Securities and Exchange
Commission (‘‘Commission’’) the
proposed rule change as described in in
Items I, II, and III below, which Items
have been prepared by Nasdaq. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of the Substance
of the Proposed Rule Change
The Exchange proposes to amend
Nasdaq Rule 5745 to replace the term
‘‘ETMF Shares’’ with ‘‘NextShares’’ and
to make appropriate conforming
changes in terminology. Consistent with
the proposed change in terminology in
Nasdaq Rule 5745, the Exchange also
proposes to make conforming changes
27 17
CFR 200.30–3(a)(12).
1 15 U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
PO 00000
Frm 00051
Fmt 4703
Sfmt 4703
The Exchange proposes to amend
Nasdaq Rule 5745 to replace references
to ‘‘ETMF Shares’’ with ‘‘NextShares,’’
and to make conforming changes in
terminology.3 As the marketplace for
exchange-traded managed funds has
developed since the adoption of Nasdaq
Rule 5745, market participants have
been utilizing the term NextShares
instead of ETMF Shares. The Exchange
seeks to align the terminology of its
rules with marketplace practices to help
avoid potential confusion in
terminology for investors and market
participants with respect to this new
product.
Specifically, the Exchange would
replace references in Nasdaq Rule 5745
to ‘‘ETMF Shares’’ with ‘‘NextShares’’
and to ‘‘ETMF’’ with ‘‘NextShares
Fund.’’ The Exchange would make
corresponding changes in terminology
to other affected Nasdaq rules. The
Exchange believes that these proposed
changes are non-controversial and
technical in nature, and are consistent
with the Act.
2. Statutory Basis
Nasdaq Exchange believes the
proposed rule change is consistent with
the Act and the rules and regulations
thereunder, including the requirements
3 The Commission approved Nasdaq Rule 5745 in
Securities Exchange Act Release No. 34–73562
(Nov. 7, 2014), 79 FR 68309 (Nov. 14, 2014) (SR–
NASDAQ–2014–020).
E:\FR\FM\04NON1.SGM
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]]>Agencies
[Federal Register Volume 80, Number 213 (Wednesday, November 4, 2015)]
[Notices]
[Pages 68338-68342]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-28020]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-76295; File No. SR-Phlx-2015-83]
Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of
Filing and Immediate Effectiveness of Proposed Rule Change to Risk
Monitor Mechanism
October 29, 2015.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on October 15, 2015, NASDAQ OMX PHLX LLC (``Phlx'' or ``Exchange'')
filed with the Securities and Exchange Commission (``SEC'' or
``Commission'') the proposed rule change as described in Items I, II,
and III, below, which Items have been prepared by the Exchange. The
Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to amend Rule 1093 entitled ``Phlx XL Risk
Monitor Mechanism'' by reserving this rule and relocating the rule
governing the Risk Monitor Mechanism into Phlx Rule 1095, entitled
``Automated Removal of Quotes'' which contains similar market maker \3\
risk monitor tools. The Exchange is also modifying
[[Page 68339]]
the language currently contained in Rule 1093.
---------------------------------------------------------------------------
\3\ A ``Market Maker'' includes Registered Options Traders
(``ROTs'') (Rule 1014(b)(i) and (ii)), which includes Streaming
Quote Traders (``SQTs'') (see Rule 1014(b)(ii)(A)) and Remote
Streaming Quote Traders (``RSQTs'') (see Rule 1014(b)(ii)(B)). An
SQT is defined in Exchange Rule 1014(b)(ii)(A) as an ROT who has
received permission from the Exchange to generate and submit option
quotations electronically in options to which such SQT is assigned.
An RSQT is defined in Exchange Rule 1014(b)(ii)(B) as an ROT that is
a member or member organization with no physical trading floor
presence who has received permission from the Exchange to generate
and submit option quotations electronically in options to which such
RSQT has been assigned. An RSQT may only submit such quotations
electronically from off the floor of the Exchange. A Market Maker
also includes a specialist, an Exchange member who is registered as
an options specialist pursuant to Rule 1020(a).
---------------------------------------------------------------------------
The text of the proposed rule change is available on the Exchange's
Web site at https://nasdaqomxphlx.cchwallstreet.com/, at the principal
office of the Exchange, and at the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The purpose of the filing is to relocate and amend the current rule
text of the Risk Monitor Mechanism Rule in 1093.\4\ The Exchange is
proposing to relocate the rule text into Rule 1095, which currently
describes two other risk mechanisms offered to Market Makers today.\5\
Quoting across many series in an option creates the possibility of
``rapid fire'' executions that can create large, unintended principal
positions that expose Market Makers, who are required to continuously
quote in assigned options, to potentially significant market risk. The
Risk Monitor Mechanism (hereinafter ``Percentage-Based Threshold'')
permits Market Makers to monitor risk arising from multiple executions
across multiple options series of a single underlying security.
---------------------------------------------------------------------------
\4\ The proposed amendments will conform the rule text to the
manner in which the Exchange's Phlx XL system (``System'') operates
today.
\5\ The two risk protections, Volume-Based Threshold and the
Multi-Trigger Threshold, are Market Maker protections, similar to
the Risk Monitor Mechanism to assist Market Makers to control their
trading risks.
---------------------------------------------------------------------------
The Exchange will require Market Makers to utilize either the
Percentage-Based Threshold or the Volume-Based Threshold.\6\ The Multi-
Trigger Threshold will be optional.\7\ Today, Market Makers are
required to utilize the Percentage-Based Threshold.
---------------------------------------------------------------------------
\6\ The Volume-Based Threshold is offered only to Market Makers.
\7\ The Multi-Trigger Threshold is offered only to Market
Makers.
---------------------------------------------------------------------------
Current Rule Text in Rule 1093
Phlx Rule 1093 specifically describes the counting program that is
maintained by the trading system (hereinafter ``System'') for each Phlx
XL participant (hereinafter ``Market Maker''), in a particular option.
Specifically, the counting program counts the number of contracts
traded in an option by each Market Maker within a specified time
period, not to exceed 15 seconds, established by each Market Maker,
known in this rule as the ``specified time period.''
The specified time period commences for an option when a
transaction occurs in any series in such option. The Exchange counts
Specialized Quote Feed (``SQF'') \8\ quotes only in determining the
number of contracts traded and removed by the System. When a Market
Maker trades the Specified Engagement Size during the specified time
period, the Percentage-Based Threshold is triggered \9\ and the System
automatically removes such Market Maker's quotations from the
Exchange's orders in all series of the particular option. The
Percentage-Based Threshold is engaged when the counting program
determines that the Issue Percentage equals or exceeds a percentage
established by the Market Maker, not less than 100%.
---------------------------------------------------------------------------
\8\ SQF permits the receipt of quotes. SQF Auction Responses and
market sweeps are also not included.
\9\ A trigger is defined as the event which causes the System to
automatically remove all quotes in all options series in an
underlying issue.
---------------------------------------------------------------------------
The Specified Engagement Size is automatically offset by a number
of contracts that are executed on the opposite side of the market in
the same option issue during the specified time period known as the
``Net Offset Specified Engagement Size.'' Long call positions are only
offset by short call positions, and long put positions are only offset
by short put positions. The Percentage-Based Threshold is engaged once
the Net Offset Specified Engagement Size represents a net number of
contracts executed among all series in an option issue, during the
specified time period, where the issue percentage is equal to or
greater than the Specified Percentage.\10\
---------------------------------------------------------------------------
\10\ Any marketable orders or quotes that are executable against
a Market Maker's disseminated quotation that are received prior to
the time the Percentage-Based Threshold is engaged are automatically
executed at the disseminated price up to the Market Maker's
disseminated size, regardless of whether such an execution results
in executions in excess of the Market Maker's Specified Engagement
Size. In the event that the specialist's quote is removed by the
Percentage-Based Threshold and there are no other Market Makers
quoting in the particular option, the System will automatically
provide two-sided quotes that comply with the Exchange's Rules
concerning quote spread parameters on behalf of the specialist until
such time as the specialist revises the quotation. All quotations
generated by the Exchange on behalf of a specialist shall be
considered ``firm quotations'' and shall be the obligation of the
specialist.
---------------------------------------------------------------------------
The System automatically resets the counting program and commences
a new specified time period when: (i) A previous counting period has
expired and a transaction occurs in any series in such option; or (ii)
the Market Maker refreshes his/her quotation, in a series for which an
order has been executed (thus commencing the specified time period)
prior to the expiration of the specified time period.
Proposed Rule
The Exchange's amendments to the current rule text are described
below in greater detail. The Exchange proposes to amend the current
rule to first define a specialist, Streaming Quote Trader or Remote
Streaming Quote Trader as a Market Maker and replace the term ``Phlx XL
Participant'' with the term ``Market Maker.'' \11\ The proposed term
``Market Maker'' will be utilized throughout proposed Rule 1095(i).
---------------------------------------------------------------------------
\11\ The Exchange automatically removes a Market Maker's quotes
in all series of an underlying security submitted through designated
Phlx protocols, as specified by the Exchange, during a specified
time period established by the Market Maker not to exceed 15
seconds, this time period is not being amended.
---------------------------------------------------------------------------
Counting Program
Proposed Rule 1095(i) provides, as in the current rule, the
Percentage-Based Threshold determines: (i) The percentage that the
number of contracts executed in that series represents relative to the
Market Maker's disseminated\12\ size of each side in that series
(``Series Percentage''); and (ii) the sum of the Series Percentage in
the option issue (``Issue Percentage''). An offset occurs during the
Percentage-Based Specified Time Period.\13\ The Exchange proposes to
amend the rule text in proposed Rule 1095(i) to state that the
Percentage-Based Specified Time Period operates on a rolling basis
among all series in an option in that there may be multiple Percentage-
Based Specified Time Periods occurring simultaneously and such
Percentage-Based Specified Time periods may overlap. The Exchange
proposes to amend the rule text of proposed Rule 1095(i) to state that
the Percentage-
[[Page 68340]]
Based Specified Time Period commences for an option every time an
execution occurs in any series in such option and continues until the
System removes quotes as described in current Rule 1095(iv), which is
being amended to include the Percentage-Based Specified Time Period, or
the Percentage-Based Specified Time Period expires.
---------------------------------------------------------------------------
\12\ The disseminated size is the original size quoted by the
Participant.
\13\ A specified time period is established by the Market Maker
and may not to exceed 15 seconds. See proposed Rule 1095(i).
---------------------------------------------------------------------------
Rounding
The Exchange proposes to add amended rule text to proposed Rule
1095(i) to state that if the Issue Percentage, rounded to the nearest
integer, equals or exceeds a percentage established by a Market Maker,
not less than 100% (``Specified Percentage''), the System automatically
remove a Market Maker's quotes in all series of the underlying security
submitted through designated Phlx protocols, as specified by the
Exchange, during the Percentage-Based Specified Time Period.\14\ The
current text of Rule 1093 states that the Percentage-Based Threshold is
engaged when the counting program determines that the Issue Percentage
equals or exceeds a percentage established by the Market Maker, not
less than 100%. The Exchange's proposal adds amended rule text to
proposed Rule 1095(i) to state, that if the Issue Percentage, rounded
to the nearest integer, equals or exceeds a percentage established by
the Market Maker, not less than 100% (``Specified Percentage''), the
System automatically removes a Market Maker's quotes in all series of
an underlying security submitted through designated Phlx protocols, as
specified by the Exchange, during the Percentage-Based Specified Time
Period.
---------------------------------------------------------------------------
\14\ The System's count of the number of contracts executed is
based on trading interest resting on the Exchange book. The Volume-
Based Specified Time Period, in current Rule 1095(ii), designated by
the Market Maker must be the same time period as designated for
purposes of the Percentage-Based Threshold. The Exchange references
protocols more specifically in this rule. The Exchange counts SQF
quotes only in determining the number of contracts traded and
removed by the System. See note 8.
---------------------------------------------------------------------------
Today, the System tracks and calculates the net impact of positions
in the same option issue during the Percentage-Based Specified Time
Period. The System tracks transactions, i.e., the sum of buy-side put
percentages, the sum of sell-side put percentages, the sum of buy-side
call percentages, and the sum of sell-side call percentages, and then
calculates the absolute value of the difference between the buy-side
puts and the sell-side puts plus the absolute value of the difference
between the buy-side calls and the sell-side calls. With this proposal,
when these values are rounded, if that number is greater than the
Specified Percentage, the Percentage-Based Threshold would be
triggered.
Reset
The Exchange proposes to amend the manner in which the System
resets. The System will automatically removes [sic] quotes in all
option series of an underlying security when the Percentage-Based
Threshold is reached and then the Percentage-Based Specified Time
Period is reset. The System will send a Purge Notification Message \15\
to the Market Maker for all affected options when the threshold has
been reached. Pursuant to this proposal, when the System removes quotes
as a result of the Percentage-Based Threshold, the Market Maker will be
required to send a re-entry indicator to re-enter the System.\16\ If a
Market Maker requests the System to remove quotes in all options series
in an underlying issue, the System will automatically reset the
Percentage-Based Specified Time Period(s) and new Percentage-Based
Specified Time Period(s) will commence for the Percentage-Based
Threshold. With this proposal, when the System removes quotes as a
result of the Percentage-Based Threshold, the Market Maker will be
required to send a re-entry indicator to re-enter the System. The
proposed rule text adds specificity to the manner in which the Market
Maker re-enters the market after a trigger.
---------------------------------------------------------------------------
\15\ A message entitled ``Purge Notification Message'' is
systemically sent to the Market Maker upon the removal of quotes due
to the Percentage-Based Threshold. See proposed Rule 1095(iii).
\16\ The re-entry indicator must be marked as such to cause the
System to reset.
---------------------------------------------------------------------------
Firm Quote
The Exchange represents that its proposal operates consistently
with the firm quote obligations of a broker-dealer pursuant to Rule 602
of Regulation NMS.
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act \17\ in general, and furthers the objectives of Section
6(b)(5) of the Act \18\ in particular, in that it is designed to
promote just and equitable principles of trade, to remove impediments
to and perfect the mechanism of a free and open market and a national
market system, and, in general to protect investors and the public
interest, by enhancing the risk protections available to Exchange
members. Each of the proposed amendments does not raise a novel
regulatory issue, rather these proposed amendments provide for
operational transparency.
---------------------------------------------------------------------------
\17\ 15 U.S.C. 78f(b).
\18\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
The proposed rule text continues to offer Market Makers a risk
protection tool, in addition to other available risk tools,\19\ to
decrease risk and increase stability. The Exchange offers this risk
tool to Market Makers, in order to encourage them to provide as much
liquidity as possible and encourage market making generally, the
proposal removes impediments to and perfects the mechanism of a free
and open market and a national market system and protect investors and
the public interest. Further, it is important to note that any interest
that is executable against a Market Maker's quotes that are received
\20\ by the Exchange prior to the trigger of the Percentage-Based
Threshold, which is processed by the System, automatically executes at
the price up to the Market Maker's size. Further, the Purge
Notification Message is accepted by the System in the order of receipt
in the queue and is processed in that order so that interest that is
already accepted into the System is processed prior to the message.
---------------------------------------------------------------------------
\19\ See note 5.
\20\ The time of receipt for an order or quote is the time such
message is processed by the Exchange book.
---------------------------------------------------------------------------
Counting Program
The Exchange's amendment to the operation of the counting program
to describe that it operates on rolling basis, with a time window after
each transaction, not singular and sequential time segments is
consistent with the Act because the purpose of the risk tool is to
provide Market Makers with the ability to monitor its transactions. The
proposed counting program provides a tracking method for Market Makers
related to the specified time period. The System captures information
to determine whether a removal of quotes is necessary. The proposed
function of this counting program will enable the Exchange to provide
the Market Maker with information relative to that Market Maker's
interest currently at risk in the market.
Rounding
The Exchange's amendment which states that if the Issue Percentage,
rounded to the nearest integer, equals or exceeds the Specified
Percentage, the System automatically removes a Market Maker's quotes in
all series of an underlying security is consistent with the Act because
investors will be protected by providing Market Makers with a risk tool
which allows Market Makers to properly set their risk
[[Page 68341]]
protections at a level that they are able to meet their obligations and
also manage their risk. This specificity provides more detail so that
Market Makers may properly set their risk controls. Understanding the
manner in which the System will round is important in determining when
the System will trigger a risk control. Also, today, Phlx discusses
rounding in its Rulebook.\21\ Rounding to the nearest integer is not
novel.
---------------------------------------------------------------------------
\21\ See Phlx Rule at 1014 regarding Market Maker allocations.
---------------------------------------------------------------------------
Reset
The Exchange's proposal to amend the rule text related to resets
provides guidance to Market Makers as to the manner in which they may
re-enter the System after a removal of quotes. This amendment is
consistent with the Act because the Exchange desires to provide Market
Makers with access to the market at all times. Market Makers perform an
important function in the marketplace and the Exchange desires to
provide its market participants with access to the market. If the
Market Maker is removed from the market due to a trigger of the
Percentage-Based risk tool, the Exchange will permit re-entry to the
market provided the Market Maker sends a re-entry indicator to re-enter
the System. This is important because it informs the Exchange that the
Market Maker is ready to re-enter the market. Also, the Exchange
currently has risk mechanisms in place which provides guidance as to
the manner in which a Market Maker may re-enter the System after a
removal of quotes.\22\
---------------------------------------------------------------------------
\22\ See Phlx Rule 1095(vi).
---------------------------------------------------------------------------
Quoting Obligations--Market Makers
The Exchange further represents that the System operates
consistently with the firm quote obligations of a broker-dealer
pursuant to Rule 602 of Regulation NMS. Specifically, with respect to
Market Makers, their obligation to provide continuous two-sided quotes
on a daily basis is not diminished by the removal of such quotes by the
Percentage-Based Threshold. Market Makers are required to provide
continuous two-sided quotes on a daily basis.\23\ Market Makers that
utilize the Percentage-Based Threshold will not be relieved of the
obligation to provide continuous two-sided quotes on a daily basis, nor
will it prohibit the Exchange from taking disciplinary action against a
Market Maker for failing to meet the continuous quoting obligation each
trading day.
---------------------------------------------------------------------------
\23\ See Rule 1014 titled ``Obligations and Restrictions
Applicable to Specialists and Registered Options Traders.''
---------------------------------------------------------------------------
Finally, the Exchange believes that its proposal to provide Market
Makers the optionality to either select the Percentage-Based Threshold
or Volume-Based Threshold as one of their risk tools will also protect
investors and is consistent with the Act. Today, Market Makers are
required to utilize the Percentage-Based Threshold. With this proposal,
Market Makers will have the ability to select their mandatory risk as
between the Percentage-Based Threshold or Volume-Based Threshold.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition not necessary or appropriate in
furtherance of the purposes of the Act. The Percentage-Based Threshold
is meant to protect Market Makers from inadvertent exposure to
excessive risk. Accordingly, this proposal will have no impact on
competition. Specifically, the proposal does not impose a burden on
intra-market or inter-market competition, rather, it provides Market
Makers with the opportunity to avail themselves of similar risk tools
which are currently available on other exchanges.\24\ Market Makers
quote across many series in an option creates the possibility of
``rapid fire'' executions that can create large, unintended principal
positions that expose Market Makers. The Percentage-Based Threshold
permits Market Makers to monitor risk arising from multiple executions
across multiple options series of a single underlying security.
---------------------------------------------------------------------------
\24\ See Section 8 of the 19b-4.
---------------------------------------------------------------------------
The Exchange is proposing this rule change to continue to permit
Market Makers to reduce their risk in the event the Market Maker is
suffering from a system issue or due to the occurrence of unusual or
unexpected market activity. Reducing such risk will enable Market
Makers to enter quotations without any fear of inadvertent exposure to
excessive risk, which in turn will benefit investors through increased
liquidity for the execution of their orders. Such increased liquidity
benefits investors because they receive better prices and because it
lowers volatility in the options market. Reducing risk by utilizing the
proposed risk protections enables Market Makers, specifically, to enter
quotations with larger size, which in turn will benefit investors
through increased liquidity for the execution of their orders. Such
increased liquidity benefits investors because they receive better
prices and because it lowers volatility in the options market.
Counting Program
The Exchange's amendment to the operation of the counting program
to describe that it operates on rolling basis, with a time window after
each transaction, not singular and sequential time segments does not
create an undue burden on competition, rather, it provides the Market
Maker with clarity as to the manner in which the System counts quotes
and thereby provides Market Makers with an increased ability to monitor
transactions.
Rounding
The Exchange's amendment to add that if the Issue Percentage,
rounded to the nearest integer, equals or exceeds the Specified
Percentage, the System automatically removes a Market Maker's quotes in
all series of an underlying security does not create an undue burden on
competition because this amendment also provides the Market Maker with
clarity as to the manner in which the System will remove quotes and
thereby provides Market Makers with an increased ability to monitor
transactions and set risk limits.
Reset
The amendment to the rule text concerning resetting does not create
an undue burden on competition. The Exchange proposes to amend the
manner in which a Market Maker may re-enter the System after a removal
of quotes. This amendment provides information to Market Makers as to
the procedure to re-enter the System after a trigger. This information
is intended to provide Market Makers with access to the market.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were either solicited or received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule change does not: (i)
Significantly affect the protection of investors or the public
interest; (ii) impose any significant burden on competition; and (iii)
become operative for 30 days from the date on which it was filed, or
such shorter time as the Commission may designate, it has become
effective pursuant to Section 19(b)(3)(A)(iii) of the Act \25\ and
[[Page 68342]]
subparagraph (f)(6) of Rule 19b-4 thereunder.\26\
---------------------------------------------------------------------------
\25\ 15 U.S.C. 78s(b)(3)(a)(iii).
\26\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)
requires a self-regulatory organization to give the Commission
written notice of its intent to file the proposed rule change at
least five business days prior to the date of filing of the proposed
rule change, or such shorter time as designated by the Commission.
The Exchange has satisfied this requirement.
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At any time within 60 days of the filing of the proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is: (i)
Necessary or appropriate in the public interest; (ii) for the
protection of investors; or (iii) otherwise in furtherance of the
purposes of the Act. If the Commission takes such action, the
Commission shall institute proceedings to determine whether the
proposed rule should be approved or disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to rule-comments@sec.gov. Please include
File Number SR-Phlx-2015-83 on the subject line.
Paper Comments
Send paper comments in triplicate to Brent J. Fields,
Secretary, Securities and Exchange Commission, 100 F Street NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number SR-Phlx-2015-83. 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-2015-83 and
should be submitted on or before November 25, 2015.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\27\
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\27\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2015-28020 Filed 11-3-15; 8:45 am]
BILLING CODE 8011-01-P
