Self-Regulatory Organizations; EDGX Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend Rule 21.16, Risk Monitor Mechanism, Relating to the EDGX Equity Options Trading Platform, 7848-7851 [2016-02984]
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Federal Register / Vol. 81, No. 30 / Tuesday, February 16, 2016 / Notices
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mstockstill on DSK4VPTVN1PROD with NOTICES
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[FR Doc. 2016–03125 Filed 2–12–16; 8:45 am]
BILLING CODE 6325–53–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–77091; File No. SR–EDGX–
2016–02]
Self-Regulatory Organizations; EDGX
Exchange, Inc.; Notice of Filing and
Immediate Effectiveness of a Proposed
Rule Change To Amend Rule 21.16,
Risk Monitor Mechanism, Relating to
the EDGX Equity Options Trading
Platform
February 9, 2016.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (the
‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on January
27, 2016, EDGX Exchange, Inc. (the
‘‘Exchange’’ or ‘‘EDGX’’) filed with the
Securities and Exchange Commission
(‘‘Commission’’) the proposed rule
change as described in Items I and II
below, which Items have been prepared
by the Exchange. The Exchange has
designated this proposal as a ‘‘noncontroversial’’ proposed rule change
pursuant to Section 19(b)(3)(A) of the
Act 3 and Rule 19b–4(f)(6)(iii)
thereunder,4 which renders it effective
upon filing with the Commission. 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 filed a proposal to
amend Rule 21.16, entitled ‘‘Risk
Monitor Mechanism’’, in order to
modify the risk monitoring functionality
offered to all Users 5 of the EDGX equity
options trading platform (‘‘EDGX
Options’’).
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 15 U.S.C. 78s(b)(3)(A).
4 17 CFR 240.19b–4(f)(6)(iii).
5 As defined in Exchange Rule 16.1(a)(63), a User
is any Exchange member or sponsored participant
authorized to obtain access to the Exchange.
The text of the proposed rule change
is available at the Exchange’s Web site
at www.batstrading.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 parts of such
statements.
(A) Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The purpose of the proposed rule
change is to amend Exchange Rule 21.16
to modify the method by which the BZX
Options Risk Monitor Mechanism
measures risk and to modify the ability
of a User to reset the Risk Monitor
Mechanism when risk has been
triggered in the Firm Category, as
described below.
Background
Currently, the Exchange’s Risk
Monitor Mechanism operates by
maintaining a counting program for
each User. A User may configure a
single counting program or multiple
counting programs to govern its trading
activity (i.e., on a port by port basis).
The System engages the Risk Monitor
Mechanism in a particular option when
the counting program has determined
that a User’s trading has reached one of
several specified triggers (‘‘Specified
Engagement Trigger’’) established by
such User during a specified time
period or on an absolute basis.
Elimination of Option Categories
The current counting program counts
executions in the following ‘‘Option
Categories’’: Front-month puts, frontmonth calls, back-month puts, and backmonth calls (each an ‘‘Option
Category’’).6 The counting program also
2 17
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6 For the purposes of Rule 21.16, a front-month
put or call is an option that expires within the next
two calendar months, including weeklies and other
non-standard expirations, and a back-month put or
call is an option that expires in any month more
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counts a User’s executions, contract
volume and notional value across all
options which a User trades (‘‘Firm
Category’’). The Exchange proposes to
eliminate the concept of the Option
Category, such that the counting
program will instead operate per option
across all Option Categories (i.e., all
front-month puts, front-month calls,
back-month puts, and back-month
calls). The Exchange does not propose
to amend the Firm Category of the Risk
Monitor Mechanism.
The Exchange believes that the
change will result in a Risk Monitor
Mechanism that is more consistent with
that offered by other options exchanges.
Although the Exchange implemented its
Risk Monitor Mechanism with the
concept of Option Categories for
technical reasons, the Exchange is not
aware of any other options exchange
that uses the concept of Option
Event/Series
Categories in the context of its risk
mechanism.
Calculation of Percentage-Based
Engagement Trigger
The Exchange currently offers a
Specified Engagement Trigger to the
Risk Monitor Mechanism based on
percentage under Exchange Rule
21.16(b)(ii) (the ‘‘percentage trigger’’).
The percentage trigger is triggered
whenever a trade counter has calculated
that the User has traded a set percentage
within a set time period against the
User’s orders in a specified class. The
set percentage is specified by the User
(the ‘‘Specified Percentage’’) and is
proposed to be calculated as follows
(and as shown in the examples below):
(1) A counting program would first
calculate, for each series of an option
class, the percentage of each User’s
orders or Market Maker’s quotes that are
Bid size
Quotes Entered: Series 1 ........................
Quotes Entered: Series 2 ........................
Sell order for 40 contracts: Series 1 ........
Buy order for 50 contracts: Series 1 .......
Sell order for 5 contracts: Series 2 ..........
Buy order for 10 contracts: Series 2 .......
Number of
contracts
executed—
bids
100
100
100
60
100
95
Offer size
0
0
40
0
5
0
executed on each side of the market;
and (2) the counting program would
then sum the overall series percentages
for the entire option class to calculate
the percentage trigger. The Exchange
proposes to specify this methodology in
Rule 21.16. As proposed, the Exchange
would no longer aggregate all bids and
offers in each series for purposes of
counting the percentage trigger, as it
currently does, but would instead count
bids and offers in each series separately.
For example, assume a User enters
100 contract orders at both the National
Best Bid (‘‘NBB’’) and National Best
Offer (‘‘NBO’’) in two series of a class,
its Specified Percentage is 100%, and
the four executions in the example
below occur within the time period
specified by the User. The counting
program would calculate the percentage
of quote risk mechanism as follows:
Number of
contracts
executed—
offers
100
100
100
100
100
100
Percentage of
quote of
execution
Aggregate
percentage of
quote following
execution
0
0
40
50
5
10
0
0
40
90
95
105
0
0
0
50
0
10
their re-entry to the market rather than
needing to contact the Exchange.
Under current Rule 21.16, when a
Specified Engagement Trigger is reached
in the Firm Category, the Risk Monitor
Mechanism will automatically remove
such User’s orders in all series of all
options and reject any additional orders
from a User until the counting program
has been reset in accordance with
paragraph (d) of the rule. The Risk
Monitor Mechanism will also attempt to
cancel any orders that have been routed
away to other options exchanges on
behalf of the User. The Exchange
proposes to further amend Rule 21.16 so
that unless otherwise instructed by a
User, in the event a Specified
Engagement Trigger is reached in the
Firm Category, the Exchange will not
allow a User to automatically reset the
counting program and Users will
instead need to contact the Exchange to
request a reset. Because reaching a
Specified Engagement Trigger in the
Firm Category should be a rare event,
the Exchange believes that most Users
will prefer to pause in the event of a
trigger, review the circumstances, and
then slowly re-enter the market. The
Exchange is proposing to maintain the
ability to automatically reset the
counting program, however, because
that is how the Risk Monitor
Mechanism operates today and because
it is possible that a User’s risk
management program is established in a
way where the User would take the
trigger into account but prefers the
ability to automatically reset to control
The rule change proposed in this
submission is consistent with the
requirements of the Act and the rules
and regulations thereunder that are
applicable to a national securities
exchange, and, in particular, with the
requirements of Section 6(b) of the Act.8
Specifically, the proposed change is
consistent with Section 6(b)(5) of the
Act,9 because it is designed to prevent
fraudulent and manipulative acts and
practices, to promote just and equitable
principles of trade, to foster cooperation
and coordination with persons engaged
in facilitating transactions in securities,
and to remove impediments to, and
perfect the mechanism of, a free and
open market and a national market
system. The Exchange believes that the
proposal is appropriate and reasonable
than two calendar months away from the current
month.
7 As set forth in the table and consistent with the
methodology as proposed to be defined in Rule
21.16, the percentage trigger is calculated by
individually calculating the percentage of each
execution in each series on each of the bid and the
offer and then summing each of these percentages
together. The percentage, thus, does not calculate
the actual percentage as a whole in the options class
over the time period—in the example, 105 contracts
out of 400 contracts were executed over the time
period yet this does not result in a percentage
calculation of 26.25%. Instead, 40% of the quoted
bid in Series 1 is executed, then 50% of the quoted
offer in Series 1 is executed, then 5% of the quoted
bid in Series 2 is executed, and finally 10% of the
quoted offer in Series 2 is executed. By summing
these percentages, the percentage trigger equals
105%. As set forth elsewhere in the proposal, the
Exchange believes that this counting methodology
is similar to that offered by other options
exchanges.
8 15 U.S.C. 78f(b).
9 15 U.S.C. 78f(b)(5).
In this example, the aggregate
percentages of the User’s quotes on each
side in all series during the time period
is 105%,7 thus exceeding the specified
percentage of 100%, at which point the
percentage trigger would be triggered
and the User’s remaining orders in the
appointed class would be cancelled.
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Re-Setting of Risk Monitor Mechanism
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2. Statutory Basis
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because it offers additional functionality
for Users to manage their risk.
Modifying the Risk Monitor
Mechanism to eliminate the Option
Category concept will allow Users to
manage their risk in each option class in
a way that is more consistent with the
way they manage risk on other option
exchanges. As noted above, although the
Exchange implemented its Risk Monitor
Mechanism with the concept of Option
Categories for technical reasons, the
Exchange is not aware of any other
options exchange that uses the concept
of Option Categories in the context of its
risk mechanism.
Offering the percentage trigger
without aggregation across the bid and
the offer as part of the Risk Monitor
Mechanism will provide Market Makers
and other Users with greater control and
flexibility with respect to managing risk
and the manner in which they enter
orders and quotes, which removes
impediments to a free and open market
and benefits all Users of BZX Options.
The Exchange notes that similar
functionality is offered by NYSE Arca,
Inc. (‘‘NYSE Arca Options’’) and NYSE
Amex Options, Inc. (‘‘NYSE Amex
Options’’).10
Finally, creating a default that
prevents the automatic reset of the
counting program in the event a
Specified Engagement Trigger is reached
in the Firm Category will provide
additional controls to Users that are
trying to manage their risk. At the same
time, allowing Users to maintain the
ability to automatically reset the
counting program will maintain the
status quo with respect to the current
Risk Monitor Mechanism and will allow
Users to tailor their risk management
programs as appropriate to their
operations. The Exchange believes that
this change is a modest extension of the
current rule, that it is consistent with
the overall purpose of the rule (i.e., to
mitigate risk), and that it does not raise
any policy issues particularly because a
User can still optionally use the same
functionality offered today by informing
the Exchange that it still wishes to
utilize the feature to automatically reset
the counting program even if a Specified
Engagement Trigger has been reached in
the Firm Category.
(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. To the
10 See NYSE Arca Options Rule 6.40(d); see also
NYSE Amex Options Rule 928NY(d).
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22:15 Feb 12, 2016
Jkt 238001
contrary, the proposed changes to the
Exchange’s Risk Monitor Mechanism
will generally make the Exchange’s
offering more consistent with that
offered by other exchanges. Thus, the
proposed rule change will promote
competition because it will allow the
Exchange to offer its Users similar
features as are available at other
exchanges and thus further compete
with other exchanges for order flow.
(C) Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants or Others
The Exchange has not solicited, and
does not intend to solicit, comments on
this proposed rule change. The
Exchange has not received any written
comments from members or other
interested parties.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule
change does not: (A) Significantly affect
the protection of investors or the public
interest; (B) impose any significant
burden on competition; and (C) by its
terms, 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) of the
Act 11 and paragraph (f)(6) of Rule 19b–
4 thereunder,12 the Exchange has
designated this rule filing as noncontroversial. The Exchange has given
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, or such
shorter time as designated by the
Commission.
A proposed rule change filed under
Rule 19b–4(f)(6) normally does not
become operative prior to 30 days after
the date of filing. Rule 19b–4(f)(6)(iii),
however, permits the Commission to
designate a shorter time if such action
is consistent with the protection of
investors and the public interest. The
Exchange has asked the Commission to
waive the noted operative delay so that
the Exchange may implement the
proposal on or about February 8, 2016,
when the Exchange anticipates that the
features will be available. The Exchange
has stated that such a waiver would,
without undue delay, provide its Users
with a risk mechanism that is more
similar to that offered by other options
11 15
12 17
PO 00000
U.S.C. 78s(b)(3)(A).
CFR 240.19b–4.
Frm 00109
Fmt 4703
Sfmt 4703
exchanges and that may assist its Users
in providing liquidity on the Exchange
consistent with their risk profile. The
Commission believes that waiving the
thirty day delay is consistent with the
protection of investors and the public
interest. Therefore, the Commission
hereby waives the thirty-day operative
delay.13
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: (1)Necessary or appropriate in
the public interest; (2) for the protection
of investors; or (3) 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 proposal 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 No. SR–
EDGX–2016–02 on the subject line.
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE.,
Washington, DC 20549–1090.
All submissions should refer to File No.
SR–EDGX–2016–02. 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
13 For purposes of waiving the 30-day operative
delay, the Commission has considered the proposed
rule’s impact on efficiency, competition, and capital
formation. See 15 U.S.C. 78c(f).
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Federal Register / Vol. 81, No. 30 / Tuesday, February 16, 2016 / Notices
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 such
filing will also 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 No. SR–EDGX–
2016–02 and should be submitted on or
before March 8, 2016.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.14
Brent J. Fields,
Secretary.
[FR Doc. 2016–02984 Filed 2–12–16; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–77090; File No. SR–BATS–
2016–06]
Self-Regulatory Organizations; BATS
Exchange, Inc.; Notice of Filing and
Immediate Effectiveness of a Proposed
Rule Change To Amend Rule 21.16,
Risk Monitor Mechanism, Relating to
the BATS Equity Options Trading
Platform
mstockstill on DSK4VPTVN1PROD with NOTICES
February 9, 2016.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (the
‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on January
27, 2016, BATS Exchange, Inc. (the
‘‘Exchange’’ or ‘‘BATS’’) filed with the
Securities and Exchange Commission
(‘‘Commission’’) the proposed rule
change as described in Items I and II
below, which Items have been prepared
by the Exchange. The Exchange has
designated this proposal as a ‘‘noncontroversial’’ proposed rule change
pursuant to Section 19(b)(3)(A) of the
Act 3 and Rule 19b–4(f)(6)(iii)
thereunder,4 which renders it effective
upon filing with the Commission. The
Commission is publishing this notice to
14 17
CFR 200.30–3(a)(12).
1 15 U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 15 U.S.C. 78s(b)(3)(A).
4 17 CFR 240.19b–4(f)(6)(iii).
VerDate Sep<11>2014
22:15 Feb 12, 2016
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 filed a proposal to
amend Rule 21.16, entitled ‘‘Risk
Monitor Mechanism’’, in order to
modify the risk monitoring functionality
offered to all Users 5 of the BATS equity
options trading platform (‘‘BZX
Options’’).
The text of the proposed rule change
is available at the Exchange’s Web site
at www.batstrading.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 parts of such
statements.
(A) Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The purpose of the proposed rule
change is to amend Exchange Rule 21.16
to modify the method by which the BZX
Options Risk Monitor Mechanism
measures risk and to modify the ability
of a User to reset the Risk Monitor
Mechanism when risk has been
triggered in the Firm Category, as
described below.
Background
Currently, the Exchange’s Risk
Monitor Mechanism operates by
maintaining a counting program for
each User. A User may configure a
single counting program or multiple
counting programs to govern its trading
activity (i.e., on a port by port basis).
The System engages the Risk Monitor
Mechanism in a particular option when
the counting program has determined
that a User’s trading has reached one of
several specified triggers (‘‘Specified
5 As defined in Exchange Rule 16.1(a)(63), a User
is any Exchange member or sponsored participant
authorized to obtain access to the Exchange.
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7851
Engagement Trigger’’) established by
such User during a specified time
period or on an absolute basis.
Elimination of Option Categories
The current counting program counts
executions in the following ‘‘Option
Categories’’: front-month puts, frontmonth calls, back-month puts, and backmonth calls (each an ‘‘Option
Category’’).6 The counting program also
counts a User’s executions, contract
volume and notional value across all
options which a User trades (‘‘Firm
Category’’). The Exchange proposes to
eliminate the concept of the Option
Category, such that the counting
program will instead operate per option
across all Option Categories (i.e., all
front-month puts, front-month calls,
back-month puts, and back-month
calls). The Exchange does not propose
to amend the Firm Category of the Risk
Monitor Mechanism.
The Exchange believes that the
change will result in a Risk Monitor
Mechanism that is more consistent with
that offered by other options exchanges.
Although the Exchange implemented its
Risk Monitor Mechanism with the
concept of Option Categories for
technical reasons, the Exchange is not
aware of any other options exchange
that uses the concept of Option
Categories in the context of its risk
mechanism.
Calculation of Percentage-Based
Engagement Trigger
The Exchange currently offers a
Specified Engagement Trigger to the
Risk Monitor Mechanism based on
percentage under Exchange Rule
21.16(b)(ii) (the ‘‘percentage trigger’’).
The percentage trigger is triggered
whenever a trade counter has calculated
that the User has traded a set percentage
within a set time period against the
User’s orders in a specified class. The
set percentage is specified by the User
(the ‘‘Specified Percentage’’) and is
proposed to be calculated as follows
(and as shown in the examples below):
(1) A counting program would first
calculate, for each series of an option
class, the percentage of each User’s
orders or Market Maker’s quotes that are
executed on each side of the market,
including both displayed and nondisplayed size; and (2) the counting
program would then sum the overall
series percentages for the entire option
6 For the purposes of Rule 21.16, a front-month
put or call is an option that expires within the next
two calendar months, including weeklies and other
non-standard expirations, and a back-month put or
call is an option that expires in any month more
than two calendar months away from the current
month.
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]]>Agencies
[Federal Register Volume 81, Number 30 (Tuesday, February 16, 2016)]
[Notices]
[Pages 7848-7851]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-02984]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-77091; File No. SR-EDGX-2016-02]
Self-Regulatory Organizations; EDGX Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change To Amend
Rule 21.16, Risk Monitor Mechanism, Relating to the EDGX Equity Options
Trading Platform
February 9, 2016.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given
that on January 27, 2016, EDGX Exchange, Inc. (the ``Exchange'' or
``EDGX'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in Items I and
II below, which Items have been prepared by the Exchange. The Exchange
has designated this proposal as a ``non-controversial'' proposed rule
change pursuant to Section 19(b)(3)(A) of the Act \3\ and Rule 19b-
4(f)(6)(iii) thereunder,\4\ which renders it effective upon filing with
the Commission. 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.
\3\ 15 U.S.C. 78s(b)(3)(A).
\4\ 17 CFR 240.19b-4(f)(6)(iii).
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange filed a proposal to amend Rule 21.16, entitled ``Risk
Monitor Mechanism'', in order to modify the risk monitoring
functionality offered to all Users \5\ of the EDGX equity options
trading platform (``EDGX Options'').
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\5\ As defined in Exchange Rule 16.1(a)(63), a User is any
Exchange member or sponsored participant authorized to obtain access
to the Exchange.
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The text of the proposed rule change is available at the Exchange's
Web site at www.batstrading.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 parts of such
statements.
(A) Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The purpose of the proposed rule change is to amend Exchange Rule
21.16 to modify the method by which the BZX Options Risk Monitor
Mechanism measures risk and to modify the ability of a User to reset
the Risk Monitor Mechanism when risk has been triggered in the Firm
Category, as described below.
Background
Currently, the Exchange's Risk Monitor Mechanism operates by
maintaining a counting program for each User. A User may configure a
single counting program or multiple counting programs to govern its
trading activity (i.e., on a port by port basis). The System engages
the Risk Monitor Mechanism in a particular option when the counting
program has determined that a User's trading has reached one of several
specified triggers (``Specified Engagement Trigger'') established by
such User during a specified time period or on an absolute basis.
Elimination of Option Categories
The current counting program counts executions in the following
``Option Categories'': Front-month puts, front-month calls, back-month
puts, and back-month calls (each an ``Option Category'').\6\ The
counting program also
[[Page 7849]]
counts a User's executions, contract volume and notional value across
all options which a User trades (``Firm Category''). The Exchange
proposes to eliminate the concept of the Option Category, such that the
counting program will instead operate per option across all Option
Categories (i.e., all front-month puts, front-month calls, back-month
puts, and back-month calls). The Exchange does not propose to amend the
Firm Category of the Risk Monitor Mechanism.
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\6\ For the purposes of Rule 21.16, a front-month put or call is
an option that expires within the next two calendar months,
including weeklies and other non-standard expirations, and a back-
month put or call is an option that expires in any month more than
two calendar months away from the current month.
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The Exchange believes that the change will result in a Risk Monitor
Mechanism that is more consistent with that offered by other options
exchanges. Although the Exchange implemented its Risk Monitor Mechanism
with the concept of Option Categories for technical reasons, the
Exchange is not aware of any other options exchange that uses the
concept of Option Categories in the context of its risk mechanism.
Calculation of Percentage-Based Engagement Trigger
The Exchange currently offers a Specified Engagement Trigger to the
Risk Monitor Mechanism based on percentage under Exchange Rule
21.16(b)(ii) (the ``percentage trigger''). The percentage trigger is
triggered whenever a trade counter has calculated that the User has
traded a set percentage within a set time period against the User's
orders in a specified class. The set percentage is specified by the
User (the ``Specified Percentage'') and is proposed to be calculated as
follows (and as shown in the examples below): (1) A counting program
would first calculate, for each series of an option class, the
percentage of each User's orders or Market Maker's quotes that are
executed on each side of the market; and (2) the counting program would
then sum the overall series percentages for the entire option class to
calculate the percentage trigger. The Exchange proposes to specify this
methodology in Rule 21.16. As proposed, the Exchange would no longer
aggregate all bids and offers in each series for purposes of counting
the percentage trigger, as it currently does, but would instead count
bids and offers in each series separately.
For example, assume a User enters 100 contract orders at both the
National Best Bid (``NBB'') and National Best Offer (``NBO'') in two
series of a class, its Specified Percentage is 100%, and the four
executions in the example below occur within the time period specified
by the User. The counting program would calculate the percentage of
quote risk mechanism as follows:
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Aggregate
Number of Number of Percentage of percentage of
Event/Series Bid size contracts Offer size contracts quote of quote
executed-- executed-- execution following
bids offers execution
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Quotes Entered: Series 1................................ 100 0 100 0 0 0
Quotes Entered: Series 2................................ 100 0 100 0 0 0
Sell order for 40 contracts: Series 1................... 100 40 100 0 40 40
Buy order for 50 contracts: Series 1.................... 60 0 100 50 50 90
Sell order for 5 contracts: Series 2.................... 100 5 100 0 5 95
Buy order for 10 contracts: Series 2.................... 95 0 100 10 10 105
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In this example, the aggregate percentages of the User's quotes on
each side in all series during the time period is 105%,\7\ thus
exceeding the specified percentage of 100%, at which point the
percentage trigger would be triggered and the User's remaining orders
in the appointed class would be cancelled.
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\7\ As set forth in the table and consistent with the
methodology as proposed to be defined in Rule 21.16, the percentage
trigger is calculated by individually calculating the percentage of
each execution in each series on each of the bid and the offer and
then summing each of these percentages together. The percentage,
thus, does not calculate the actual percentage as a whole in the
options class over the time period--in the example, 105 contracts
out of 400 contracts were executed over the time period yet this
does not result in a percentage calculation of 26.25%. Instead, 40%
of the quoted bid in Series 1 is executed, then 50% of the quoted
offer in Series 1 is executed, then 5% of the quoted bid in Series 2
is executed, and finally 10% of the quoted offer in Series 2 is
executed. By summing these percentages, the percentage trigger
equals 105%. As set forth elsewhere in the proposal, the Exchange
believes that this counting methodology is similar to that offered
by other options exchanges.
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Re-Setting of Risk Monitor Mechanism
Under current Rule 21.16, when a Specified Engagement Trigger is
reached in the Firm Category, the Risk Monitor Mechanism will
automatically remove such User's orders in all series of all options
and reject any additional orders from a User until the counting program
has been reset in accordance with paragraph (d) of the rule. The Risk
Monitor Mechanism will also attempt to cancel any orders that have been
routed away to other options exchanges on behalf of the User. The
Exchange proposes to further amend Rule 21.16 so that unless otherwise
instructed by a User, in the event a Specified Engagement Trigger is
reached in the Firm Category, the Exchange will not allow a User to
automatically reset the counting program and Users will instead need to
contact the Exchange to request a reset. Because reaching a Specified
Engagement Trigger in the Firm Category should be a rare event, the
Exchange believes that most Users will prefer to pause in the event of
a trigger, review the circumstances, and then slowly re-enter the
market. The Exchange is proposing to maintain the ability to
automatically reset the counting program, however, because that is how
the Risk Monitor Mechanism operates today and because it is possible
that a User's risk management program is established in a way where the
User would take the trigger into account but prefers the ability to
automatically reset to control their re-entry to the market rather than
needing to contact the Exchange.
2. Statutory Basis
The rule change proposed in this submission is consistent with the
requirements of the Act and the rules and regulations thereunder that
are applicable to a national securities exchange, and, in particular,
with the requirements of Section 6(b) of the Act.\8\ Specifically, the
proposed change is consistent with Section 6(b)(5) of the Act,\9\
because it is designed to prevent fraudulent and manipulative acts and
practices, to promote just and equitable principles of trade, to foster
cooperation and coordination with persons engaged in facilitating
transactions in securities, and to remove impediments to, and perfect
the mechanism of, a free and open market and a national market system.
The Exchange believes that the proposal is appropriate and reasonable
[[Page 7850]]
because it offers additional functionality for Users to manage their
risk.
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\8\ 15 U.S.C. 78f(b).
\9\ 15 U.S.C. 78f(b)(5).
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Modifying the Risk Monitor Mechanism to eliminate the Option
Category concept will allow Users to manage their risk in each option
class in a way that is more consistent with the way they manage risk on
other option exchanges. As noted above, although the Exchange
implemented its Risk Monitor Mechanism with the concept of Option
Categories for technical reasons, the Exchange is not aware of any
other options exchange that uses the concept of Option Categories in
the context of its risk mechanism.
Offering the percentage trigger without aggregation across the bid
and the offer as part of the Risk Monitor Mechanism will provide Market
Makers and other Users with greater control and flexibility with
respect to managing risk and the manner in which they enter orders and
quotes, which removes impediments to a free and open market and
benefits all Users of BZX Options. The Exchange notes that similar
functionality is offered by NYSE Arca, Inc. (``NYSE Arca Options'') and
NYSE Amex Options, Inc. (``NYSE Amex Options'').\10\
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\10\ See NYSE Arca Options Rule 6.40(d); see also NYSE Amex
Options Rule 928NY(d).
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Finally, creating a default that prevents the automatic reset of
the counting program in the event a Specified Engagement Trigger is
reached in the Firm Category will provide additional controls to Users
that are trying to manage their risk. At the same time, allowing Users
to maintain the ability to automatically reset the counting program
will maintain the status quo with respect to the current Risk Monitor
Mechanism and will allow Users to tailor their risk management programs
as appropriate to their operations. The Exchange believes that this
change is a modest extension of the current rule, that it is consistent
with the overall purpose of the rule (i.e., to mitigate risk), and that
it does not raise any policy issues particularly because a User can
still optionally use the same functionality offered today by informing
the Exchange that it still wishes to utilize the feature to
automatically reset the counting program even if a Specified Engagement
Trigger has been reached in the Firm Category.
(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. To the contrary, the proposed
changes to the Exchange's Risk Monitor Mechanism will generally make
the Exchange's offering more consistent with that offered by other
exchanges. Thus, the proposed rule change will promote competition
because it will allow the Exchange to offer its Users similar features
as are available at other exchanges and thus further compete with other
exchanges for order flow.
(C) Self-Regulatory Organization's Statement on Comments on the
Proposed Rule Change Received From Members, Participants or Others
The Exchange has not solicited, and does not intend to solicit,
comments on this proposed rule change. The Exchange has not received
any written comments from members or other interested parties.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule change does not: (A)
Significantly affect the protection of investors or the public
interest; (B) impose any significant burden on competition; and (C) by
its terms, 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) of the Act \11\ and
paragraph (f)(6) of Rule 19b-4 thereunder,\12\ the Exchange has
designated this rule filing as non-controversial. The Exchange has
given 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, or such shorter time as designated by the
Commission.
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\11\ 15 U.S.C. 78s(b)(3)(A).
\12\ 17 CFR 240.19b-4.
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A proposed rule change filed under Rule 19b-4(f)(6) normally does
not become operative prior to 30 days after the date of filing. Rule
19b-4(f)(6)(iii), however, permits the Commission to designate a
shorter time if such action is consistent with the protection of
investors and the public interest. The Exchange has asked the
Commission to waive the noted operative delay so that the Exchange may
implement the proposal on or about February 8, 2016, when the Exchange
anticipates that the features will be available. The Exchange has
stated that such a waiver would, without undue delay, provide its Users
with a risk mechanism that is more similar to that offered by other
options exchanges and that may assist its Users in providing liquidity
on the Exchange consistent with their risk profile. The Commission
believes that waiving the thirty day delay is consistent with the
protection of investors and the public interest. Therefore, the
Commission hereby waives the thirty-day operative delay.\13\
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\13\ For purposes of waiving the 30-day operative delay, the
Commission has considered the proposed rule's impact on efficiency,
competition, and capital formation. See 15 U.S.C. 78c(f).
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At any time within 60 days of the filing of the proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is:
(1)Necessary or appropriate in the public interest; (2) for the
protection of investors; or (3) 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 proposal 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 No. SR-EDGX-2016-02 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.
All submissions should refer to File No. SR-EDGX-2016-02. 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
[[Page 7851]]
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
such filing will also 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 No. SR-EDGX-2016-02 and should be submitted on or before March 8,
2016.
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\14\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\14\
Brent J. Fields,
Secretary.
[FR Doc. 2016-02984 Filed 2-12-16; 8:45 am]
BILLING CODE 8011-01-P
