Self-Regulatory Organizations; NASDAQ OMX BX, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change to the Risk Monitor Mechanism, 68586-68590 [2015-28144]
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Federal Register / Vol. 80, No. 214 / Thursday, November 5, 2015 / Notices
Commission has received two other
comment letters in response to the
Order Instituting Proceedings.8
Section 19(b)(2) of the Act 9 provides
that, after initiating disapproval
proceedings, the Commission shall issue
an order approving or disapproving the
proposed rule change not later than 180
days after the date of publication of
notice of the filing of the proposed rule
change.10 The Commission may extend
the period for issuing an order
approving or disapproving the proposed
rule change, however, by not more than
60 days if the Commission determines
that a longer period is appropriate and
publishes the reasons for such
determination.11 The proposed rule
change was published for comment in
the Federal Register on May 6, 2015.
November 2, 2015 is 180 days from that
date, and January 1, 2016 (which is a
Federal holiday) is an additional 60
days from that date.
The Commission finds it appropriate
to designate a longer period within
which to issue an order approving or
disapproving the proposed rule change
so that it has sufficient time to consider
the comment letters and take action on
the Exchange’s proposed rule change.
Accordingly, the Commission,
pursuant to Section 19(b)(2) of the
Act,12 designates December 31, 2015, as
the date by which the Commission
should either approve or disapprove the
proposed rule change (File No. SR–
NYSE–2015–02).
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.13
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2015–28148 Filed 11–4–15; 8:45 am]
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BILLING CODE 8011–01–P
proposed rule change dated August 31, 2015. In
Amendment No. 1 the Exchange stated that it
believed there was a potential ambiguity in the
proposed rule language submitted as part of the
original proposal. Amendment No. 1 amends the
original proposed rule language to clarify that the
proposed exemption from shareholder approval
transactions involving the sale of stock for cash by
an early stage company applies not only to a related
party, as originally proposed, but also to a
subsidiary, affiliate or other closely-related person
of a related party; or any company or entity in
which a related party has a substantial direct or
indirect interest.
8 See memorandum to the Commission from Rick.
A. Fleming, Office of the Investor Advocate,
Commission, dated October 16, 2015; and public
comment email from Suzanne Shatto, dated October
16, 2015.
9 15 U.S.C. 78s(b)(2).
10 15 U.S.C. 78s(b)(2)(B)(ii)(I).
11 15 U.S.C. 78s(b)(2)(B)(ii)(II).
12 15 U.S.C. 78s(b)(2).
13 17 CFR 200.30–3(a)(31).
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SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–76317; File No. SR–BX–
2015–060]
Self-Regulatory Organizations;
NASDAQ OMX BX, Inc.; Notice of Filing
and Immediate Effectiveness of
Proposed Rule Change to the 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, NASDAQ OMX BX, Inc. (‘‘BX’’
or ‘‘Exchange’’) filed with the Securities
and Exchange Commission (‘‘SEC’’ or
‘‘Commission’’) the proposed rule
change as described in Items I, 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
Chapter VI, Section 19 entitled ‘‘Risk
Monitor Mechanism’’ by reserving this
rule and relocating the rule governing
the Risk Monitor Mechanism into BX
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
The text of the proposed rule change
is available on the Exchange’s Web site
at https://
nasdaqomxbx.cchwallstreet.com/, at the
principal office of the Exchange, and at
the Commission’s Public Reference
Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange included statements
concerning the purpose of and basis for
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 Pursuant to BX Rules at Chapter VII, Section 5,
entitled ‘‘Obligations of Market Makers’’, in
registering as a market maker, an Options
Participant commits himself to various obligations.
Transactions of a BX Market Maker must constitute
a course of dealings reasonably calculated to
contribute to the maintenance of a fair and orderly
market, and Market Makers should not make bids
or offers or enter into transactions that are
inconsistent with such course of dealings. Further,
all Market Makers are designated as specialists on
BX for all purposes under the Act or rules
thereunder. See Chapter VII, Section 5.
2 17
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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
BX 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 BX
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 BX Market Makers
to monitor risk arising from multiple
executions across multiple options
series of a single underlying security.
The Exchange will require BX Market
Makers to utilize either the PercentageBased Threshold or the Volume-Based
Threshold.6 The Multi-Trigger
Threshold will be optional.7 Today, BX
Market Makers are required to utilize
the Percentage-Based Threshold.
Current Rule Text in Chapter VI, Section
19
BX 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
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 BX
Market Maker protections, similar to the Risk
Monitor Mechanism to assist BX Market Makers to
control their trading risks.
6 The Volume-Based Threshold is offered only to
BX Market Makers.
7 The Multi-Trigger Threshold is offered only to
BX Market Makers.
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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 Participant trades the Specified
Engagement Size during the specified
time period, the Percentage-Based
Threshold is triggered 9 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.10
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
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 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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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 BX
Market Makers only. Today, the
Percentage-Based Threshold is offered
to all Participants. No other market
participants, other than BX Market
Makers, currently utilize the PercentageBased Threshold today.11 The proposed
term ‘‘BX 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 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 PercentageBased Specified Time Period.13 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
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 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.
Rounding
The Exchange proposes to add
amended rule text to proposed Rule
Chapter VII, Section 6(f)(i) to state that
11 The System counts SQF quotes. SQF is
available only to BX Market Makers.
12 The disseminated size is the original size
quoted by the Participant.
13 A specified time period is established by the
BX Market Maker and may not to exceed 15
seconds. See proposed Chapter VII, Section 6(f)(i).
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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 BX
protocols, as specified by the Exchange,
during the Percentage-Based Specified
Time Period.14 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 in all
series of an underlying security
submitted through designated BX
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
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 in all option series of an
underlying security when the
Percentage-Based Threshold is reached
and then the Percentage-Based Specified
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 Chapter VII, Section 6(f)(ii),
designated by the BX 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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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.
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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 do not raise a
novel regulatory issue, rather these
proposed amendments provide for
operational transparency.
The proposed rule text continues to
offer BX 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 BX Market Makers, in order to
encourage them to provide as much
15 A message entitled ‘‘Purge Notification
Message’’ is systemically sent to the BX Market
Maker upon the removal of quotes due to the
Percentage-Based Threshold. See proposed Chapter
VI, Section 6(f)(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).
19 See note 5.
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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 BX 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.
Offering the Risk Tool to Market Makers
The Exchange believes that offering
the risk tool to BX 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 BX
Market Makers, who are required to
continuously quote in assigned options,
to potentially significant market risk.
The Percentage-Based Threshold
permits BX Market Makers to monitor
risk arising from multiple executions
across multiple options series of a single
underlying security. Other BX
Participants do not bear the burden of
the risk and do not have the obligations
that BX Market Makers are obligated by
rule to comply with on a continuous
basis.21 Also, BX Market Makers are the
only participants that utilize the risk
tool today and therefore no other market
participant is being denied access to a
tool as they never had the ability to
utilize the risk tool because only SQF
quotes are impacted.
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 BX Market Makers with the
ability to monitor its transactions. The
proposed counting program provides a
tracking method for BX Market Makers
related to the specified time period. The
System captures information to
20 The time of receipt for an order or quote is the
time such message is processed by the Exchange
book.
21 See note 3.
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determine whether a removal of quotes
is necessary. The proposed function of
this counting program will enable the
Exchange to provide the BX Market
Maker with information relative to that
BX 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 BX Market
Makers with a risk tool which allows BX
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 BX 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, BX discusses rounding in its
Rulebook.22 Rounding to the nearest
integer is not novel.
Reset
The Exchange’s proposal to amend
the rule text related to resets provides
guidance to BX 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
BX Market Makers with access to the
market at all times. BX 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
provide guidance as to the manner in
which a Market Maker may re-enter the
System after a removal of quotes.23
Quoting Obligations—Market Makers
The Exchange further represents that
the System operates consistently with
the firm quote obligations of a broker22 See BX Rules at Chapter VII, Section 5
regarding Market Maker allocations.
23 See BX Chapter VI, Section 6(f)(vi).
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dealer pursuant to Rule 602 of
Regulation NMS. Specifically, with
respect to BX 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. BX Market Makers are
required to provide continuous twosided quotes on a daily basis.24 BX
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 BX 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, BX
Market Makers are required to utilize
the Percentage-Based Threshold. With
this proposal, BX 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 BX 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 BX
Market Makers with the opportunity to
avail themselves of similar risk tools
which are currently available on other
exchanges.25 BX 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 BX
Market Makers. The Percentage-Based
Threshold permits BX 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 BX Market
Makers to reduce their risk in the event
the Market Maker is suffering from a
24 See
25 See
note 3.
Section 8 of the 19b–4.
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system issue or due to the occurrence of
unusual or unexpected market activity.
Reducing such risk will enable BX
Market Makers to enter quotations
without any fear of inadvertent
exposure to excessive risk, which in
turn will benefit investors through
increased liquidity for the execution of
their orders. Such increased liquidity
benefits investors because they receive
better prices and because it lowers
volatility in the options market.
Reducing risk by utilizing the proposed
risk protections enables BX 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 BX Market Makers as
compared to all Participants does not
create an undue burden on competition
because other BX Participants do not
bear the burden of the risk and do not
have the obligations that BX Market
Makers are obligated by rule to comply
with on a continuous basis.26 Also, BX
Market Makers are the only participants
that utilize the risk tool today and
therefore no other market participant is
being denied access to a tool as they
never had the ability to utilize the risk
tool because only SQF quotes are
impacted.
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 BX
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
26 See
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68589
and thereby provides BX 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 BX Market Makers as to
the procedure to re-enter the System
after a trigger. This information is
intended to provide BX 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 27 and
subparagraph (f)(6) of Rule 19b–4
thereunder.28
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.
27 15
U.S.C. 78s(b)(3)(a)(iii).
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.
28 17
E:\FR\FM\05NON1.SGM
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68590
Federal Register / Vol. 80, No. 214 / Thursday, November 5, 2015 / Notices
Comments may be submitted by any of
the following methods:
SECURITIES AND EXCHANGE
COMMISSION
Electronic Comments
[Release No. 34–76322]
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
BX–2015–060 on the subject line.
Order Exempting Certain Large
Traders From the Self-Identification
Requirements of Rule 13h–1 Under the
Securities Exchange Act of 1934, and
Exempting Certain Broker-Dealers
From the Recordkeeping, Reporting,
and Monitoring Responsibilities Under
the Rule
Paper Comments
• Send paper comments in triplicate
to Brent J. Fields, Secretary, Securities
and Exchange Commission, 100 F Street
NE., Washington, DC 20549–1090.
jstallworth on DSK7TPTVN1PROD with NOTICES
All submissions should refer to File
Number SR–BX–2015–060. 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–BX–
2015–060 and should be submitted on
or before November 27, 2015.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.29
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2015–28144 Filed 11–4–15; 8:45 am]
BILLING CODE 8011–01–P
29 17
CFR 200.30–3(a)(12).
VerDate Sep<11>2014
15:06 Nov 04, 2015
Jkt 238001
October 30, 2015.
On July 27, 2011, the Securities and
Exchange Commission (‘‘Commission’’)
adopted Rule 13h–1 (the ‘‘Rule’’) under
the Securities Exchange Act of 1934
(‘‘Exchange Act’’) to assist the
Commission in both identifying and
obtaining information on market
participants that conduct a substantial
amount of trading activity, as measured
by volume or market value, in U.S.
securities (such persons are referred to
as ‘‘large traders’’).1 The Rule requires
certain large traders to identify
themselves to the Commission by filing
Form 13H and separately requires
certain broker-dealers to maintain
records of large trader transaction
information and report such information
to the Commission upon request as well
as monitor customer trading to help
promote compliance with the Rule by
traders. Since December 1, 2011,
persons whose trading activity reached
or exceeded the identifying activity
level specified in the Rule have been
required to identify themselves to the
Commission by filing Form 13H through
the Commission’s EDGAR system. The
Commission implemented the brokerdealer recordkeeping, reporting, and
monitoring requirements of the Rule in
phases through a series of exemptive
orders establishing certain delayed
compliance dates,2 and currently certain
broker-dealers are required to keep
records of and report to the Commission
upon request transaction data for certain
of their customers that are either a large
trader or an Unidentified Large Trader.3
1 See Securities Exchange Act Release No. 64976
(July 27, 2011), 76 FR 46960 (Aug. 3, 2011)
(‘‘Adopting Release’’). The effective date of Rule
13h–1 was October 3, 2011.
2 See Securities Exchange Act Release Nos. 70150
(August 8, 2013), 78 FR 49556 (August 14, 2013)
(establishing Phase Two and providing for Phase
Three); 69281 (April 3, 2013), 78 FR 20960 (April
8, 2013) (extension of the compliance date); and
66839 (April 20, 2012), 77 FR 25007 (April 26,
2012) (establishing Phase One).
3 Rule 13h–1(a)(9) defines ‘‘Unidentified Large
Trader’’ as ‘‘each person who has not complied
with the identification requirements of paragraphs
(b)(1) and (b)(2) of this rule that a registered brokerdealer knows or has reason to know is a large
trader.’’ The Rule provides that, for purposes of
determining whether a registered broker-dealer has
PO 00000
Frm 00099
Fmt 4703
Sfmt 4703
Most recently, the Commission
established a compliance date of
November 1, 2013 for Phase Two of the
Rule, which, among other things,
implemented the recordkeeping and
reporting responsibilities for an
additional category of traders and also
implemented the monitoring
requirements under the Rule to require
certain broker-dealers to monitor their
customers’ trading activity in order to
promote awareness of and foster
compliance with the self-identification
requirements of the Rule.4 At that time,
the Commission stated that the
compliance date for Phase Three of the
Rule would be November 1, 2015.5
The Commission has received a
request from the Financial Information
Forum (‘‘FIF’’) to exempt options traders
from the requirements of the Rule
conditioned upon such traders not
exceeding the ‘‘identifying activity
level’’ (i.e., the threshold at which a
person triggers the self-identification
requirements of the Rule) as calculated
based on the gross premium of the
options trades.6 FIF asserts that such
relief would appropriately limit the
identification requirements of the Rule
by exempting from the Rule a class of
persons whose options trading is
unlikely to have a market impact.7 In
addition, FIF requested that the
Commission permanently exempt
broker-dealers from the recordkeeping
and reporting requirements of Phase
Three of the Rule, or alternatively
postpone the compliance date of the
Phase Three requirements until
November 1, 2020.8 The Securities
Industry and Financial Markets
Association (‘‘SIFMA’’) also has
requested that the Commission
permanently exempt broker-dealers
from the recordkeeping and reporting
reason to know that a person is a large trader, ‘‘a
registered broker-dealer need take into account only
transactions in NMS securities effected by or
through such broker-dealer.’’ Rule 13h–1(a)(9).
4 See Securities Exchange Act Release No. 70150,
supra note 2 (establishing the November 1, 2013
compliance date for customer monitoring
responsibilities). See also note 27, infra, and
accompanying text.
5 Phase Three includes all of the remaining
requirements of Rule 13h–1 that were not
implemented in either Phase One or Phase Two. In
particular, Phase Three would require reporting of
execution time on trades for additional categories
of persons beyond those covered in Phases One and
Two.
6 See Letter from Mary Lou VonKaenel, Managing
Director, FIF, to Stephen Luparello, Director of the
Division of Trading and Markets, Commission,
dated March 27, 2015 (‘‘FIF Letter’’), available at:
https://www.sec.gov/comments/s7-10-10/
s71010.shtml. Currently, the fair market value of
equity options is calculated based on the value of
the underlying securities. See Rule 13h–1(c)(1)(i).
7 See FIF Letter, supra note 6, at 2–3.
8 See FIF Letter, supra note 6, at 3.
E:\FR\FM\05NON1.SGM
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]]>Agencies
[Federal Register Volume 80, Number 214 (Thursday, November 5, 2015)]
[Notices]
[Pages 68586-68590]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-28144]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-76317; File No. SR-BX-2015-060]
Self-Regulatory Organizations; NASDAQ OMX BX, Inc.; Notice of
Filing and Immediate Effectiveness of Proposed Rule Change to the 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, NASDAQ OMX BX, Inc. (``BX'' or ``Exchange'')
filed with the Securities and Exchange Commission (``SEC'' or
``Commission'') the proposed rule change as described in Items I, 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 Chapter VI, Section 19 entitled
``Risk Monitor Mechanism'' by reserving this rule and relocating the
rule governing the Risk Monitor Mechanism into BX 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
---------------------------------------------------------------------------
\3\ Pursuant to BX Rules at Chapter VII, Section 5, entitled
``Obligations of Market Makers'', in registering as a market maker,
an Options Participant commits himself to various obligations.
Transactions of a BX Market Maker must constitute a course of
dealings reasonably calculated to contribute to the maintenance of a
fair and orderly market, and Market Makers should not make bids or
offers or enter into transactions that are inconsistent with such
course of dealings. Further, all Market Makers are designated as
specialists on BX for all purposes under the Act or rules
thereunder. See Chapter VII, Section 5.
---------------------------------------------------------------------------
The text of the proposed rule change is available on the Exchange's
Web site at https://nasdaqomxbx.cchwallstreet.com/, at the principal
office of the Exchange, and at the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The purpose of the filing is to 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 BX 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 BX 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 BX 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 System operates today.
\5\ The two risk protections, Volume-Based Threshold and the
Multi-Trigger Threshold, are BX Market Maker protections, similar to
the Risk Monitor Mechanism to assist BX Market Makers to control
their trading risks.
---------------------------------------------------------------------------
The Exchange will require BX Market Makers to utilize either the
Percentage-Based Threshold or the Volume-Based Threshold.\6\ The Multi-
Trigger Threshold will be optional.\7\ Today, BX Market Makers are
required to utilize the Percentage-Based Threshold.
---------------------------------------------------------------------------
\6\ The Volume-Based Threshold is offered only to BX Market
Makers.
\7\ The Multi-Trigger Threshold is offered only to BX Market
Makers.
---------------------------------------------------------------------------
Current Rule Text in Chapter VI, Section 19
BX 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
[[Page 68587]]
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
Participant trades the Specified Engagement Size during the specified
time period, the Percentage-Based Threshold is triggered \9\ 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%.
---------------------------------------------------------------------------
\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 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.
---------------------------------------------------------------------------
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 BX Market Makers
only. Today, the Percentage-Based Threshold is offered to all
Participants. No other market participants, other than BX Market
Makers, currently utilize the Percentage-Based Threshold today.\11\ The
proposed term ``BX Market Maker'' will be utilized throughout proposed
Chapter VII, Section 6(f)(i).
---------------------------------------------------------------------------
\11\ The System counts SQF quotes. SQF is available only to BX
Market Makers.
---------------------------------------------------------------------------
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 \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 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 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 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.
---------------------------------------------------------------------------
\12\ The disseminated size is the original size quoted by the
Participant.
\13\ A specified time period is established by the BX Market
Maker and may not to exceed 15 seconds. See proposed Chapter VII,
Section 6(f)(i).
---------------------------------------------------------------------------
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
BX protocols, as specified by the Exchange, during the Percentage-Based
Specified Time Period.\14\ 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 in all series of an
underlying security submitted through designated BX 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 Chapter VII, Section
6(f)(ii), designated by the BX 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 remove quotes in all option
series of an underlying security when the Percentage-Based Threshold is
reached and then the Percentage-Based Specified
[[Page 68588]]
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 BX Market Maker upon the removal of quotes
due to the Percentage-Based Threshold. See proposed Chapter VI,
Section 6(f)(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 do 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 BX 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 BX Market Makers, in order to encourage them to provide as much
liquidity as possible and encourage market making generally, the
proposal removes impediments to and perfects the mechanism of a free
and open market and a national market system and protect investors and
the public interest. Further, it is important to note that any interest
that is executable against a BX 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.
---------------------------------------------------------------------------
Offering the Risk Tool to Market Makers
The Exchange believes that offering the risk tool to BX 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 BX Market Makers, who are required to
continuously quote in assigned options, to potentially significant
market risk. The Percentage-Based Threshold permits BX Market Makers to
monitor risk arising from multiple executions across multiple options
series of a single underlying security. Other BX Participants do not
bear the burden of the risk and do not have the obligations that BX
Market Makers are obligated by rule to comply with on a continuous
basis.\21\ Also, BX Market Makers are the only participants that
utilize the risk tool today and therefore no other market participant
is being denied access to a tool as they never had the ability to
utilize the risk tool because only SQF quotes are impacted.
---------------------------------------------------------------------------
\21\ See note 3.
---------------------------------------------------------------------------
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 BX Market Makers with the ability to monitor its transactions.
The proposed counting program provides a tracking method for BX 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 BX Market Maker with information relative to that BX 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 BX Market Makers with a risk
tool which allows BX 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
BX 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, BX discusses
rounding in its Rulebook.\22\ Rounding to the nearest integer is not
novel.
---------------------------------------------------------------------------
\22\ See BX Rules at Chapter VII, Section 5 regarding Market
Maker allocations.
---------------------------------------------------------------------------
Reset
The Exchange's proposal to amend the rule text related to resets
provides guidance to BX 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 BX
Market Makers with access to the market at all times. BX 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.\23\
---------------------------------------------------------------------------
\23\ See BX Chapter VI, Section 6(f)(vi).
---------------------------------------------------------------------------
Quoting Obligations--Market Makers
The Exchange further represents that the System operates
consistently with the firm quote obligations of a broker-
[[Page 68589]]
dealer pursuant to Rule 602 of Regulation NMS. Specifically, with
respect to BX 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. BX Market Makers are
required to provide continuous two-sided quotes on a daily basis.\24\
BX 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.
---------------------------------------------------------------------------
\24\ See note 3.
---------------------------------------------------------------------------
Finally, the Exchange believes that its proposal to provide BX
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, BX Market
Makers are required to utilize the Percentage-Based Threshold. With
this proposal, BX 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 BX 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 BX Market
Makers with the opportunity to avail themselves of similar risk tools
which are currently available on other exchanges.\25\ BX 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 BX Market Makers. The Percentage-Based Threshold
permits BX Market Makers to monitor risk arising from multiple
executions across multiple options series of a single underlying
security.
---------------------------------------------------------------------------
\25\ See Section 8 of the 19b-4.
---------------------------------------------------------------------------
The Exchange is proposing this rule change to continue to permit BX
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 BX Market
Makers to enter quotations without any fear of inadvertent exposure to
excessive risk, which in turn will benefit investors through increased
liquidity for the execution of their orders. Such increased liquidity
benefits investors because they receive better prices and because it
lowers volatility in the options market. Reducing risk by utilizing the
proposed risk protections enables BX 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 BX Market
Makers as compared to all Participants does not create an undue burden
on competition because other BX Participants do not bear the burden of
the risk and do not have the obligations that BX Market Makers are
obligated by rule to comply with on a continuous basis.\26\ Also, BX
Market Makers are the only participants that utilize the risk tool
today and therefore no other market participant is being denied access
to a tool as they never had the ability to utilize the risk tool
because only SQF quotes are impacted.
---------------------------------------------------------------------------
\26\ See note 3.
---------------------------------------------------------------------------
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 BX 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 BX 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 BX Market Makers as
to the procedure to re-enter the System after a trigger. This
information is intended to provide BX 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 \27\ and
subparagraph (f)(6) of Rule 19b-4 thereunder.\28\
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\27\ 15 U.S.C. 78s(b)(3)(a)(iii).
\28\ 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.
[[Page 68590]]
Comments may be submitted by any of the following methods:
Electronic Comments
Use the Commission's Internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to rule-comments@sec.gov. Please include
File Number SR-BX-2015-060 on the subject line.
Paper Comments
Send paper comments in triplicate to Brent J. Fields,
Secretary, Securities and Exchange Commission, 100 F Street NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number SR-BX-2015-060. 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-BX-2015-060 and should be
submitted on or before November 27, 2015.
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\29\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\29\
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2015-28144 Filed 11-4-15; 8:45 am]
BILLING CODE 8011-01-P
