Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Relating to Risk Monitor Mechanism, 68595-68599 [2015-28143]

Download as PDF Federal Register / Vol. 80, No. 214 / Thursday, November 5, 2015 / Notices jstallworth on DSK7TPTVN1PROD with NOTICES supersede certain of the broker-dealer Recordkeeping and Reporting Responsibilities of Rule 13h–1.59 Specifically, the Commission stated: ‘‘[t]o the extent that . . . data reported to the central repository under Rule 613 obviates the need for the EBS system, the Commission expects that the separate [trade] reporting requirements of Rule 13h–1 related to the EBS system would be eliminated.’’ 60 The SROs submitted the initial CAT NMS plan to the Commission on September 30, 2014, and filed an amended plan on February 27, 2015.61 As of the date of this Order, an NMS plan for a CAT has not yet been published for notice and comment. Accordingly, the Commission continues to rely on, among other things, information available through the Recordkeeping and Reporting Responsibilities as implemented through Phases One and Two. In light of the fact that there is no approved CAT NMS plan, the Commission is hesitant at this time to require brokerdealers to incur the costs associated with the remaining Phase Three Large Trader data while the timing of a CAT remains unclear. However, the Commission finds that it is consistent with the purposes of the Exchange Act to delay Phase Three, temporarily exempting broker-dealers until November 1, 2017 from the Recordkeeping and Reporting Responsibilities, except for: (1) The clearing broker-dealer for a large trader, with respect to (a) proprietary transactions by a large trader brokerdealer; (b) transactions effected pursuant to a ‘‘sponsored access’’ arrangement; and (c) transactions effected pursuant to a ‘‘direct market access’’ arrangement; and (2) a brokerdealer that carries an account for a large trader, with respect to transactions other than those set forth above, and for Transaction Data other than the execution time. While FIF and SIFMA have requested a permanent exemption, or alternatively an additional 5-year deferment of the compliance date for Phase Three,62 the Commission believes 59 See Securities Exchange Act Release No. 67457 (July 18, 2012), 77 FR 45722, 45734 (August 1, 2012). 60 Id., text accompanying n.95. 61 Pursuant to Rule 613, the SROs were required to file the CAT NMS Plan on or before April 28, 2013. At the SROs’ request, the Commission granted exemptions to extend the deadline for filing the CAT NMS Plan to December 6, 2013, and then to September 30, 2014. See Securities Exchange Act Release Nos. 69060 (Mar. 7, 2013), 78 FR 15771 (Mar. 12, 2013) and 71018 (Dec. 6, 2013), 78 FR 75669 (Dec. 12, 2013). 62 See FIF Letter, supra note 6, at 3 and SIFMA Letter, supra note 9, at 2–3. VerDate Sep<11>2014 15:06 Nov 04, 2015 Jkt 238001 68595 at this time that a 2-year extension of the Phase Three compliance date provides sufficient time for the Commission to consider whether to revisit compliance with all of the Recordkeeping and Reporting Responsibilities. Specifically, two years will give the Commission enough time to evaluate future developments, including any investment in or progress on a CAT.63 By the Commission. Jill M. Peterson, Assistant Secretary. III. Conclusion Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Relating to Risk Monitor Mechanism It is hereby ordered, pursuant to Section 13(h)(6) of the Exchange Act and Rule 13h–1(g) thereunder, that: (1) Persons transacting in equity options are exempt from the SelfIdentification Requirements if: (1) The aggregate value of their equity option transactions, calculated based on premium paid, combined with the aggregate value of their transactions in all other NMS securities (if any), does not reach or exceed the fair market value thresholds of the identifying activity level; and (2) they also do not reach or exceed the share volume thresholds of the identifying activity level. (2) A large trader whose transactions in NMS securities since October 3, 2011 reached the identifying activity level one or more times because of the fair market value of its equity options transactions and who would have qualified in each instance for relief under this exemption is exempt from its responsibilities under Rule 13h– 1(b)(1)(ii), 13h–1(b)(1)(iii), and 13h– 1(b)(2), if such trader files for inactive status by submitting Form 13H and does not subsequently effect transactions that reach or exceed the identifying activity threshold using premium paid to calculate the fair market value of equity options transactions. (3) Broker-dealers are exempted temporarily until November 1, 2017 from the recordkeeping and reporting requirements of Rule 13h–1(d) and (e), except for (1) clearing broker-dealers for large traders with respect to (a) proprietary transactions by a large trader broker-dealer, (b) transactions effected pursuant to a ‘‘sponsored access’’ arrangement, and (c) transactions effected pursuant to a ‘‘direct market access’’ arrangement; and, for other types of transactions, (2) broker-dealers that carry an account for a large trader for Transaction Data other than the execution time. 63 See PO 00000 note 60, supra, and accompanying text. Frm 00104 Fmt 4703 Sfmt 4703 [FR Doc. 2015–28147 Filed 11–4–15; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–76316; File No. SR– NASDAQ–2015–122] October 30, 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 16, 2015, The NASDAQ Stock Market LLC (‘‘NASDAQ’’ or ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘SEC’’ or ‘‘Commission’’) the proposed rule change as described in Items I, II, and III, below, which Items have been prepared by NASDAQ. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change NASDAQ proposes to amend Chapter VI, Section 19 entitled ‘‘Risk Monitor Mechanism’’ by reserving this rule and relocating the rule governing the Risk Monitor Mechanism into NOM Rule at Chapter VII, Section 6(f)(i), entitled ‘‘Market Maker Quotations’’ which contains similar market maker 3 risk monitor tools. The Exchange is also modifying the language currently contained in Chapter VI, Section 19. The text of the proposed rule change is available on the Exchange’s Web site at https:// www.nasdaq.cchwallstreet.com, at the principal office of the Exchange, and at the Commission’s Public Reference Room. 1 15 U.S.C. 78s(b)(1). CFR 240.19b–4. 3 Pursuant to NOM Rules at Chapter VII, Section 5, entitled ‘‘Obligations of Market Makers’’, in registering as a market maker, an Options Participant commits himself to various obligations. Transactions of a NOM Market Maker must constitute a course of dealings reasonably calculated to contribute to the maintenance of a fair and orderly market, and Market Makers should not make bids or offers or enter into transactions that are inconsistent with such course of dealings. Further, all Market Makers are designated as specialists on NOM for all purposes under the Act or rules thereunder. See Chapter VII, Section 5. 2 17 E:\FR\FM\05NON1.SGM 05NON1 68596 Federal Register / Vol. 80, No. 214 / Thursday, November 5, 2015 / Notices 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 at Chapter VI, Section 19.4 The Exchange is proposing to relocate the rule text into Chapter VII, Section 6, which currently describes two other risk mechanisms offered to NOM 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 NOM 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 NOM Market Makers to monitor risk arising from multiple executions across multiple options series of a single underlying security. The Exchange will require NOM Market Makers to utilize either the Percentage-Based Threshold or the Volume-Based Threshold.6 The MultiTrigger Threshold will be optional.7 Today, NOM Market Makers are required to utilize the Percentage-Based Threshold. jstallworth on DSK7TPTVN1PROD with NOTICES Current Rule Text in Chapter VI, Section 19 NOM Rules at Chapter VI, Section 19 specifically describes the counting 4 The proposed amendments will conform the rule text to the manner in which the System operates today. 5 The two risk protections, Volume-Based Threshold and the Multi-Trigger Threshold, are NOM Market Maker protections, similar to the Risk Monitor Mechanism to assist NOM Market Makers to control their trading risks. 6 The Volume-Based Threshold is offered only to NOM Market Makers. 7 The Multi-Trigger Threshold is offered only to NOM Market Makers. VerDate Sep<11>2014 15:06 Nov 04, 2015 Jkt 238001 program that is maintained by the System for each Participant in a particular option. Specifically, the counting program counts the number of contracts traded in an option by each Participant within a specified time period, not to exceed 15 seconds, established by each Participant 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 and OTTO 9 orders only in determining the number of contracts traded and removed by the System. When a Participant trades the Specified Engagement Size during the specified time period, the PercentageBased Threshold is triggered 10 and the System automatically removes such Participant’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 Participant, 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.11 8 SQF permits the receipt of quotes. SQF Auction Responses and market sweeps are also not included. 9 OTTO immediate or cancel orders will not be included. OTTO provides a method for subscribers to send orders and receive status updates on those orders. OTTO accepts limit orders from System subscribers, and if there is a matching order, the orders will execute. Non-matching orders are added to the limit order book, a database of available limit orders, where they are matched. All NOM Participants have the ability to utilize OTTO; although non-NOM Market Makers are automatically set at a default value. OTTO does not permit non-NOM Market Makers to adjust the default setting. NOM Market Makers are able to adjust the setting. 10 A trigger is defined as the event which causes the System to automatically remove all quotes and orders in all options series in an underlying issue. 11 Any marketable orders or quotes that are executable against a Participant’s disseminated quotation that are received prior to the time the Percentage-Based Threshold is engaged are PO 00000 Frm 00105 Fmt 4703 Sfmt 4703 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 Participant 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 offer the Percentage-Based Threshold to NOM Market Makers only. Today, the Percentage-Based Threshold is offered to all Participants. No other market participants, other than NOM Market Makers, currently utilize the PercentageBased Threshold today.12 The proposed term ‘‘NOM Market Maker’’ will be utilized throughout proposed Chapter VII, Section 6(f)(i). Counting Program Proposed Rule Chapter VII, Section 6(f)(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 13 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.14 The Exchange proposes to amend the rule text in proposed Rule Chapter VII, Section 6(f)(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 automatically executed at the disseminated price up to the Participant’s disseminated size, regardless of whether such an execution results in executions in excess of the Participant’s Specified Engagement Size. In the event that the specialist’s quote is removed by the Percentage-Based Threshold and there are no other Participants 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. 12 The System counts SQF quotes and OTTO orders. See notes 8 and 9. 13 The disseminated size is the original size quoted by the Participant. 14 A specified time period is established by the NOM Market Maker and may not to exceed 15 seconds. See proposed Chapter VII, Section 6(f)(i). E:\FR\FM\05NON1.SGM 05NON1 Federal Register / Vol. 80, No. 214 / Thursday, November 5, 2015 / Notices Time periods may overlap. The Exchange proposes to amend the rule text of proposed Rule Chapter VII, Section 6(f)(i) to state that the Percentage-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 and orders as described in current Chapter VII, Section 6(f)(iv), which is being amended to include the Percentage-Based Specified Time Period, or the Percentage-Based Specified Time Period expires. jstallworth on DSK7TPTVN1PROD with NOTICES Rounding The Exchange proposes to add amended rule text to proposed Rule Chapter VII, Section 6(f)(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 removes a Market Maker’s quotes in all series of the underlying security submitted through designated NOM protocols, as specified by the Exchange, during the Percentage-Based Specified Time Period.15 The current text of Chapter IV, Section 6 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 Chapter VII, Section 6(f)(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 and orders in all series of an underlying security submitted through designated NASDAQ 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 15 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 Chapter VII, Section 6(f)(ii), designated by the NOM 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 and OTTO orders only in determining the number of contracts traded and removed by the System. See notes 8 and 9. VerDate Sep<11>2014 15:06 Nov 04, 2015 Jkt 238001 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 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 remove quotes and orders 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 16 to the Market Maker for all affected options when the threshold has been reached. Pursuant to this proposal, when the System removes quotes and orders as a result of the PercentageBased Threshold, the Market Maker will be required to send a re-entry indicator to re-enter the System.17 If a Market Maker requests the System to remove quotes and orders in all options series in an underlying issue, the System will automatically reset the PercentageBased 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 and orders 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 18 in general, and furthers the objectives of Section 6(b)(5) of the Act 19 in particular, in that it is designed to 16 A message entitled ‘‘Purge Notification Message’’ is systemically sent to the NOM Market Maker upon the removal of quotes and orders due to the Percentage-Based Threshold. See proposed Chapter VI, Section 6(f)(iii). 17 The re-entry indicator must be marked as such to cause the System to reset. 18 15 U.S.C. 78f(b). 19 15 U.S.C. 78f(b)(5). PO 00000 Frm 00106 Fmt 4703 Sfmt 4703 68597 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 do not raise a novel regulatory issue, rather these proposed amendments provide for operational transparency. The proposed rule text continues to offer NOM Market Makers a risk protection tool, in addition to other available risk tools,20 to decrease risk and increase stability. The Exchange offers this risk tool to NOM Market Makers, in order to encourage them to provide as much liquidity as possible and encourage market making generally, the proposal removes impediments to and perfects the mechanism of a free and open market and a national market system and protect investors and the public interest. Further, it is important to note that any interest that is executable against a NOM Market Maker’s quotes and orders that are received 21 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. Offering the Risk Tool to Market Makers The Exchange believes that offering the risk tool to NOM Market Makers as compared to all Participants is just and equitable because quoting across many series in an option creates the possibility of ‘‘rapid fire’’ executions that can create large, unintended principal positions that expose NOM Market Makers, who are required to continuously quote in assigned options, to potentially significant market risk. The Percentage-Based Threshold permits NOM Market Makers to monitor risk arising from multiple executions across multiple options series of a single underlying security. Other NOM Participants do not bear the burden of the risk and do not have the obligations that NOM Market Makers are obligated by rule to comply with on a continuous basis.22 Also, NOM Market Makers are 20 See note 5. time of receipt for an order or quote is the time such message is processed by the Exchange book. 22 See note 3. 21 The E:\FR\FM\05NON1.SGM 05NON1 68598 Federal Register / Vol. 80, No. 214 / Thursday, November 5, 2015 / Notices the only participants that utilize the risk tool today and therefore no other market participant is being denied access to this risk tool. 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 NOM Market Makers with the ability to monitor its transactions. The proposed counting program provides a tracking method for NOM Market Makers related to the specified time period. The System captures information to determine whether a removal of quotes and orders is necessary. The proposed function of this counting program will enable the Exchange to provide the NOM Market Maker with information relative to that NOM Market Maker’s interest currently at risk in the market. jstallworth on DSK7TPTVN1PROD with NOTICES 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 and orders in all series of an underlying security is consistent with the Act because investors will be protected by providing NOM Market Makers with a risk tool which allows NOM Market Makers to properly set their risk protections at a level that they are able to meet their obligations and also manage their risk. This specificity provides more detail so that NOM 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, NOM discusses rounding in its Rulebook.23 Rounding to the nearest integer is not novel. Reset The Exchange’s proposal to amend the rule text related to resets provides guidance to NOM Market Makers as to the manner in which they may re-enter the System after a removal of quotes and orders. This amendment is consistent with the Act because the Exchange desires to provide NOM Market Makers with access to the market at all times. NOM Market Makers perform an important function in the marketplace and the Exchange desires to provide its 23 See NOM Rules at Chapter VII, Section 5 regarding Market Maker allocations. VerDate Sep<11>2014 15:06 Nov 04, 2015 Jkt 238001 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 provide guidance as to the manner in which a Market Maker may re-enter the System after a removal of quotes and orders.24 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 NOM 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. NOM Market Makers are required to provide continuous twosided quotes on a daily basis.25 NOM 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. Finally, the Exchange believes that its proposal to provide NOM 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, NOM Market Makers are required to utilize the Percentage-Based Threshold. With this proposal, NOM Market Makers will have the ability to select their mandatory risk as between the Percentage-Based Threshold or VolumeBased 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 NOM Market Makers from inadvertent exposure to excessive risk. Accordingly, this proposal will have no impact on competition. Specifically, the 24 See 25 See PO 00000 NOM Chapter VI, Section 6(f)(vi). note 3. Frm 00107 Fmt 4703 Sfmt 4703 proposal does not impose a burden on intra-market or inter-market competition, rather, it provides NOM Market Makers with the opportunity to avail themselves of similar risk tools which are currently available on other exchanges.26 NOM 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 NOM Market Makers. The Percentage-Based Threshold permits NOM 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 NOM 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 NOM Market Makers to enter quotations without any fear of inadvertent exposure to excessive risk, which in turn will benefit investors through increased liquidity for the execution of their orders. Such increased liquidity benefits investors because they receive better prices and because it lowers volatility in the options market. Reducing risk by utilizing the proposed risk protections enables NOM 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. Offering the Risk Tool to Market Makers The Exchange believes that offering the risk tool to NOM Market Makers as compared to all Participants does not create an undue burden on competition because other NOM Participants do not bear the burden of the risk and do not have the obligations that NOM Market Makers are obligated by rule to comply with on a continuous basis.27 Also, NOM Market Makers are the only participants that utilize the risk tool today and therefore no other market participant is being denied access to this risk tool. 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 26 See 27 See E:\FR\FM\05NON1.SGM Section 8 of the 19b4. note 3. 05NON1 Federal Register / Vol. 80, No. 214 / Thursday, November 5, 2015 / Notices 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 orders and thereby provides NOM 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 and orders 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 orders and thereby provides NOM 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 and orders. This amendment provides information to NOM Market Makers as to the procedure to re-enter the System after a trigger. This information is intended to provide NOM Market Makers with access to the market. jstallworth on DSK7TPTVN1PROD with NOTICES 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 28 and subparagraph (f)(6) of Rule 19b–4 thereunder.29 At any time within 60 days of the filing of the proposed rule change, the Commission summarily may 28 15 29 17 U.S.C. 78s(b)(3)(a)(iii). CFR 240.19b–4(f)(6). VerDate Sep<11>2014 15:06 Nov 04, 2015 Jkt 238001 temporarily suspend such rule change if it appears to the Commission that such action is: (i) Necessary or appropriate in the public interest; (ii) for the protection of investors; or (iii) otherwise in furtherance of the purposes of the Act. If the Commission takes such action, the Commission shall institute proceedings to determine whether the proposed rule should be approved or disapproved. The Exchange has provided the Commission written notice of its intent to file the proposed rule change, along with a brief description and text of the proposed rule change, at least five business days prior to the date of filing of the proposed rule change. IV. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: Electronic Comments • Use the Commission’s Internet comment form (https://www.sec.gov/ rules/sro.shtml); or • Send an email to rule-comments@ sec.gov. Please include File Number SR– NASDAQ–2015–122 on the subject line. Paper Comments • Send paper comments in triplicate to Brent J. Fields, Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549–1090. All submissions should refer to File Number SR–NASDAQ–2015–122. 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 PO 00000 Frm 00108 Fmt 4703 Sfmt 4703 68599 office of the Exchange. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR– NASDAQ–2015–122 and should be submitted on or before November 27, 2015. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.30 Jill M. Peterson, Assistant Secretary. [FR Doc. 2015–28143 Filed 11–4–15; 8:45 am] BILLING CODE 8011–01–P DEPARTMENT OF TRANSPORTATION Federal Aviation Administration Aviation Rulemaking Advisory Committee—New Task Federal Aviation Administration (FAA), DOT. ACTION: Notice of a new task assignment for the Aviation Rulemaking Advisory Committee. AGENCY: The FAA assigned the Aviation Rulemaking Advisory Committee (ARAC) a new task to provide recommendations regarding occupant protection rulemaking in normal and transport category rotorcraft for older certification basis type designs that are still in production. The FAA amended regulations to incorporate occupant protection rules, including those for emergency landing conditions and fuel system crash resistance, for new type designs in the 1980s and 1990s. These rule changes do not apply to newly manufactured rotorcraft with older type designs or to derivative type designs that keep the certification basis of the original type design. This approach has resulted in a very low incorporation rate of occupant protection features into the rotorcraft fleet, and fatal accidents remain unacceptably high. At the end of 2014, only 16% of U.S. fleet had complied with the crash resistant fuel system requirements effective 20 years earlier, and only 10% had complied with the emergency landing requirements effective 25 years earlier. A recent fatal accident study has shown these measures would have been effective in saving lives. This notice informs the public of the new ARAC activity and solicits SUMMARY: 30 17 E:\FR\FM\05NON1.SGM CFR 200.30–3(a)(12). 05NON1

Agencies

[Federal Register Volume 80, Number 214 (Thursday, November 5, 2015)]
[Notices]
[Pages 68595-68599]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-28143]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-76316; File No. SR-NASDAQ-2015-122]


Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change 
Relating to Risk Monitor Mechanism

October 30, 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 16, 2015, The NASDAQ Stock Market LLC (``NASDAQ'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``SEC'' or ``Commission'') the proposed rule change as described in 
Items I, II, and III, below, which Items have been prepared by NASDAQ. 
The Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    NASDAQ proposes to amend Chapter VI, Section 19 entitled ``Risk 
Monitor Mechanism'' by reserving this rule and relocating the rule 
governing the Risk Monitor Mechanism into NOM Rule at Chapter VII, 
Section 6(f)(i), entitled ``Market Maker Quotations'' which contains 
similar market maker \3\ risk monitor tools. The Exchange is also 
modifying the language currently contained in Chapter VI, Section 19.
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    \3\ Pursuant to NOM Rules at Chapter VII, Section 5, entitled 
``Obligations of Market Makers'', in registering as a market maker, 
an Options Participant commits himself to various obligations. 
Transactions of a NOM Market Maker must constitute a course of 
dealings reasonably calculated to contribute to the maintenance of a 
fair and orderly market, and Market Makers should not make bids or 
offers or enter into transactions that are inconsistent with such 
course of dealings. Further, all Market Makers are designated as 
specialists on NOM for all purposes under the Act or rules 
thereunder. See Chapter VII, Section 5.
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    The text of the proposed rule change is available on the Exchange's 
Web site at https://www.nasdaq.cchwallstreet.com, at the principal 
office of the Exchange, and at the Commission's Public Reference Room.

[[Page 68596]]

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 at Chapter VI, Section 19.\4\ The 
Exchange is proposing to relocate the rule text into Chapter VII, 
Section 6, which currently describes two other risk mechanisms offered 
to NOM 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 NOM 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 NOM Market Makers 
to monitor risk arising from multiple executions across multiple 
options series of a single underlying security.
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    \4\ The proposed amendments will conform the rule text to the 
manner in which the System operates today.
    \5\ The two risk protections, Volume-Based Threshold and the 
Multi-Trigger Threshold, are NOM Market Maker protections, similar 
to the Risk Monitor Mechanism to assist NOM Market Makers to control 
their trading risks.
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    The Exchange will require NOM Market Makers to utilize either the 
Percentage-Based Threshold or the Volume-Based Threshold.\6\ The Multi-
Trigger Threshold will be optional.\7\ Today, NOM Market Makers are 
required to utilize the Percentage-Based Threshold.
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    \6\ The Volume-Based Threshold is offered only to NOM Market 
Makers.
    \7\ The Multi-Trigger Threshold is offered only to NOM Market 
Makers.
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Current Rule Text in Chapter VI, Section 19
    NOM Rules at Chapter VI, Section 19 specifically describes the 
counting program that is maintained by the System for each Participant 
in a particular option. Specifically, the counting program counts the 
number of contracts traded in an option by each Participant within a 
specified time period, not to exceed 15 seconds, established by each 
Participant 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 and OTTO \9\ orders only in 
determining the number of contracts traded and removed by the System. 
When a Participant trades the Specified Engagement Size during the 
specified time period, the Percentage-Based Threshold is triggered \10\ 
and the System automatically removes such Participant'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 Participant, not less than 100%.
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    \8\ SQF permits the receipt of quotes. SQF Auction Responses and 
market sweeps are also not included.
    \9\ OTTO immediate or cancel orders will not be included. OTTO 
provides a method for subscribers to send orders and receive status 
updates on those orders. OTTO accepts limit orders from System 
subscribers, and if there is a matching order, the orders will 
execute. Non-matching orders are added to the limit order book, a 
database of available limit orders, where they are matched. All NOM 
Participants have the ability to utilize OTTO; although non-NOM 
Market Makers are automatically set at a default value. OTTO does 
not permit non-NOM Market Makers to adjust the default setting. NOM 
Market Makers are able to adjust the setting.
    \10\ A trigger is defined as the event which causes the System 
to automatically remove all quotes and orders in all options series 
in an underlying issue.
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    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.\11\
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    \11\ Any marketable orders or quotes that are executable against 
a Participant'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 Participant's 
disseminated size, regardless of whether such an execution results 
in executions in excess of the Participant's Specified Engagement 
Size. In the event that the specialist's quote is removed by the 
Percentage-Based Threshold and there are no other Participants 
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.
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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 Participant 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 offer the Percentage-Based Threshold to NOM Market Makers 
only. Today, the Percentage-Based Threshold is offered to all 
Participants. No other market participants, other than NOM Market 
Makers, currently utilize the Percentage-Based Threshold today.\12\ The 
proposed term ``NOM Market Maker'' will be utilized throughout proposed 
Chapter VII, Section 6(f)(i).
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    \12\ The System counts SQF quotes and OTTO orders. See notes 8 
and 9.
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Counting Program
    Proposed Rule Chapter VII, Section 6(f)(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 \13\ 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.\14\ 
The Exchange proposes to amend the rule text in proposed Rule Chapter 
VII, Section 6(f)(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

[[Page 68597]]

Time periods may overlap. The Exchange proposes to amend the rule text 
of proposed Rule Chapter VII, Section 6(f)(i) to state that the 
Percentage-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 and orders as described in current 
Chapter VII, Section 6(f)(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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    \13\ The disseminated size is the original size quoted by the 
Participant.
    \14\ A specified time period is established by the NOM Market 
Maker and may not to exceed 15 seconds. See proposed Chapter VII, 
Section 6(f)(i).
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Rounding
    The Exchange proposes to add amended rule text to proposed Rule 
Chapter VII, Section 6(f)(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 removes a Market Maker's quotes 
in all series of the underlying security submitted through designated 
NOM protocols, as specified by the Exchange, during the Percentage-
Based Specified Time Period.\15\ The current text of Chapter IV, 
Section 6 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 
Chapter VII, Section 6(f)(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 
and orders in all series of an underlying security submitted through 
designated NASDAQ protocols, as specified by the Exchange, during the 
Percentage-Based Specified Time Period.
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    \15\ 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 Chapter VII, Section 
6(f)(ii), designated by the NOM 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 and OTTO orders only in determining 
the number of contracts traded and removed by the System. See notes 
8 and 9.
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    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 remove quotes and orders 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 \16\ 
to the Market Maker for all affected options when the threshold has 
been reached. Pursuant to this proposal, when the System removes quotes 
and orders 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.\17\ If a Market Maker requests the System to remove quotes and 
orders 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 and orders 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.
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    \16\ A message entitled ``Purge Notification Message'' is 
systemically sent to the NOM Market Maker upon the removal of quotes 
and orders due to the Percentage-Based Threshold. See proposed 
Chapter VI, Section 6(f)(iii).
    \17\ The re-entry indicator must be marked as such to cause the 
System to reset.
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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 \18\ in general, and furthers the objectives of Section 
6(b)(5) of the Act \19\ 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 do not raise a novel 
regulatory issue, rather these proposed amendments provide for 
operational transparency.
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    \18\ 15 U.S.C. 78f(b).
    \19\ 15 U.S.C. 78f(b)(5).
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    The proposed rule text continues to offer NOM Market Makers a risk 
protection tool, in addition to other available risk tools,\20\ to 
decrease risk and increase stability. The Exchange offers this risk 
tool to NOM Market Makers, in order to encourage them to provide as 
much liquidity as possible and encourage market making generally, the 
proposal removes impediments to and perfects the mechanism of a free 
and open market and a national market system and protect investors and 
the public interest. Further, it is important to note that any interest 
that is executable against a NOM Market Maker's quotes and orders that 
are received \21\ 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.
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    \20\ See note 5.
    \21\ The time of receipt for an order or quote is the time such 
message is processed by the Exchange book.
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Offering the Risk Tool to Market Makers
    The Exchange believes that offering the risk tool to NOM Market 
Makers as compared to all Participants is just and equitable because 
quoting across many series in an option creates the possibility of 
``rapid fire'' executions that can create large, unintended principal 
positions that expose NOM Market Makers, who are required to 
continuously quote in assigned options, to potentially significant 
market risk. The Percentage-Based Threshold permits NOM Market Makers 
to monitor risk arising from multiple executions across multiple 
options series of a single underlying security. Other NOM Participants 
do not bear the burden of the risk and do not have the obligations that 
NOM Market Makers are obligated by rule to comply with on a continuous 
basis.\22\ Also, NOM Market Makers are

[[Page 68598]]

the only participants that utilize the risk tool today and therefore no 
other market participant is being denied access to this risk tool.
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    \22\ See note 3.
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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 NOM Market Makers with the ability to monitor its transactions. 
The proposed counting program provides a tracking method for NOM Market 
Makers related to the specified time period. The System captures 
information to determine whether a removal of quotes and orders is 
necessary. The proposed function of this counting program will enable 
the Exchange to provide the NOM Market Maker with information relative 
to that NOM 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 
and orders in all series of an underlying security is consistent with 
the Act because investors will be protected by providing NOM Market 
Makers with a risk tool which allows NOM Market Makers to properly set 
their risk protections at a level that they are able to meet their 
obligations and also manage their risk. This specificity provides more 
detail so that NOM 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, 
NOM discusses rounding in its Rulebook.\23\ Rounding to the nearest 
integer is not novel.
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    \23\ See NOM Rules at Chapter VII, Section 5 regarding Market 
Maker allocations.
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Reset
    The Exchange's proposal to amend the rule text related to resets 
provides guidance to NOM Market Makers as to the manner in which they 
may re-enter the System after a removal of quotes and orders. This 
amendment is consistent with the Act because the Exchange desires to 
provide NOM Market Makers with access to the market at all times. NOM 
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 provide guidance 
as to the manner in which a Market Maker may re-enter the System after 
a removal of quotes and orders.\24\
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    \24\ See NOM Chapter VI, Section 6(f)(vi).
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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 
NOM 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. NOM Market Makers are required to 
provide continuous two-sided quotes on a daily basis.\25\ NOM 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.
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    \25\ See note 3.
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    Finally, the Exchange believes that its proposal to provide NOM 
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, NOM 
Market Makers are required to utilize the Percentage-Based Threshold. 
With this proposal, NOM 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 NOM 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 NOM 
Market Makers with the opportunity to avail themselves of similar risk 
tools which are currently available on other exchanges.\26\ NOM 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 NOM Market Makers. The Percentage-Based Threshold 
permits NOM Market Makers to monitor risk arising from multiple 
executions across multiple options series of a single underlying 
security.
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    \26\ See Section 8 of the 19b4.
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    The Exchange is proposing this rule change to continue to permit 
NOM 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 NOM Market 
Makers to enter quotations without any fear of inadvertent exposure to 
excessive risk, which in turn will benefit investors through increased 
liquidity for the execution of their orders. Such increased liquidity 
benefits investors because they receive better prices and because it 
lowers volatility in the options market. Reducing risk by utilizing the 
proposed risk protections enables NOM 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.
Offering the Risk Tool to Market Makers
    The Exchange believes that offering the risk tool to NOM Market 
Makers as compared to all Participants does not create an undue burden 
on competition because other NOM Participants do not bear the burden of 
the risk and do not have the obligations that NOM Market Makers are 
obligated by rule to comply with on a continuous basis.\27\ Also, NOM 
Market Makers are the only participants that utilize the risk tool 
today and therefore no other market participant is being denied access 
to this risk tool.
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    \27\ See note 3.
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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

[[Page 68599]]

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 orders and thereby provides NOM 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 
and orders 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 orders and thereby provides NOM 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 and orders. This amendment provides information to NOM Market 
Makers as to the procedure to re-enter the System after a trigger. This 
information is intended to provide NOM 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 \28\ and 
subparagraph (f)(6) of Rule 19b-4 thereunder.\29\
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    \28\ 15 U.S.C. 78s(b)(3)(a)(iii).
    \29\ 17 CFR 240.19b-4(f)(6).
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is: (i) 
Necessary or appropriate in the public interest; (ii) for the 
protection of investors; or (iii) otherwise in furtherance of the 
purposes of the Act. If the Commission takes such action, the 
Commission shall institute proceedings to determine whether the 
proposed rule should be approved or disapproved. The Exchange has 
provided the Commission written notice of its intent to file the 
proposed rule change, along with a brief description and text of the 
proposed rule change, at least five business days prior to the date of 
filing of the proposed rule change.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (https://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-NASDAQ-2015-122 on the subject line.

Paper Comments

     Send paper comments in triplicate to Brent J. Fields, 
Secretary, Securities and Exchange Commission, 100 F Street NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-NASDAQ-2015-122. This 
file number should be included on the subject line if email is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (https://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for Web site viewing and 
printing in the Commission's Public Reference Room, 100 F Street NE., 
Washington, DC 20549, on official business days between the hours of 
10:00 a.m. and 3:00 p.m. Copies of the filing also will be available 
for inspection and copying at the principal office of the Exchange. All 
comments received will be posted without change; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File Number SR-NASDAQ-2015-122 and should 
be submitted on or before November 27, 2015.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\30\
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    \30\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2015-28143 Filed 11-4-15; 8:45 am]
 BILLING CODE 8011-01-P
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