Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Amending Rule 6.61 Regarding Price Protection for Market Maker Quotes, 27178-27180 [2016-10471]
Download as PDF
27178
Federal Register / Vol. 81, No. 87 / Thursday, May 5, 2016 / Notices
Mail Contract 212 to Competitive
Product List. Documents are available at
www.prc.gov, Docket Nos. MC2016–127,
CP2016–161.
Dated: April 29, 2016.
Brent J. Fields,
Secretary.
Stanley F. Mires,
Attorney, Federal Compliance.
BILLING CODE 8011–01–P
[FR Doc. 2016–10485 Filed 5–4–16; 8:45 am]
[FR Doc. 2016–10474 Filed 5–3–16; 11:15 am]
BILLING CODE 7710–12–P
SECURITIES AND EXCHANGE
COMMISSION
POSTAL SERVICE
[Release No. 34–77748; File No. SR–
NYSEARCA–2016–57]
Product Change—Priority Mail
Negotiated Service Agreement
Postal ServiceTM.
ACTION: Notice.
AGENCY:
The Postal Service gives
notice of filing a request with the Postal
Regulatory Commission to add a
domestic shipping services contract to
the list of Negotiated Service
Agreements in the Mail Classification
Schedule’s Competitive Products List.
DATES: Effective Date: May 5, 2016.
FOR FURTHER INFORMATION CONTACT:
Elizabeth A. Reed, 202–268–3179.
SUPPLEMENTARY INFORMATION: The
United States Postal Service® hereby
gives notice that, pursuant to 39 U.S.C.
3642 and 3632(b)(3), on April 29, 2016,
it filed with the Postal Regulatory
Commission a Request of the United
States Postal Service to Add Priority
Mail Contract 209 to Competitive
Product List. Documents are available at
www.prc.gov, Docket Nos. MC2016–124,
CP2016–158.
SUMMARY:
[FR Doc. 2016–10498 Filed 5–4–16; 8:45 am]
BILLING CODE 7710–12–P
SECURITIES AND EXCHANGE
COMMISSION
Sunshine Act Meeting; Additional Item
FEDERAL REGISTER CITATION OF PREVIOUS
ANNOUNCEMENT: 81 FR 26600, May 3,
2016.
PREVIOUSLY ANNOUNCED TIME AND DATE OF
THE MEETING: Thursday, May 5, 2016 at
2 p.m.
The following
matter will also be considered during
the 2 p.m. closed meeting scheduled for
Thursday, May 5, 2016:
Adjudicatory matter
CONTACT PERSON FOR MORE INFORMATION:
For further information and to ascertain
what, if any, matters have been added,
deleted or postponed, please contact
Brent J. Fields, Secretary, Office of the
Secretary at (202) 551–5400.
mstockstill on DSK3G9T082PROD with NOTICES
VerDate Sep<11>2014
18:06 May 04, 2016
Jkt 238001
April 29, 2016.
Pursuant to Section 19(b)(1) 1 of the
Securities Exchange Act of 1934 (the
‘‘Act’’) 2 and Rule 19b-4 thereunder,3
notice is hereby given that, on April 27,
2016, NYSE Arca, Inc. (the ‘‘Exchange’’
or ‘‘NYSE Arca’’) filed with the
Securities and Exchange Commission
(the ‘‘Commission’’) the proposed rule
change as described in Items I and II
below, which Items have been prepared
by the self-regulatory organization. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to amend
Rule 6.61 regarding price protection for
Market Maker quotes. The proposed rule
change is available on the Exchange’s
Web site at www.nyse.com, at the
principal office of the Exchange, and at
the Commission’s Public Reference
Room.
Stanley F. Mires,
Attorney, Federal Compliance.
CHANGES IN THE MEETING:
Self-Regulatory Organizations; NYSE
Arca, Inc.; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change Amending Rule 6.61
Regarding Price Protection for Market
Maker Quotes
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
self-regulatory organization included
statements concerning the purpose of,
and basis for, the proposed rule change
and discussed any comments it received
on the proposed rule change. The text
of those statements may be examined at
the places specified in Item IV below.
The Exchange has prepared summaries,
set forth in sections A, B, and C below,
of the most significant parts of such
statements.
1 15
U.S.C.78s(b)(1).
U.S.C. 78a.
3 17 CFR 240.19b–4.
2 15
PO 00000
Frm 00096
Fmt 4703
Sfmt 4703
A. Self-Regulatory Organization’s
Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The Exchange is proposing to amend
Rule 6.61 regarding price protection for
Market Maker quotes.
Rule 6.61 provides two layers of price
protection to incoming Market Maker
quotes, rejecting those Market Maker
quotes that exceed certain parameters,
as a risk mitigation tool.4 The Exchange
proposes to modify Rule 6.61(a)(2) and
(3), which relates to the second layer of
protection, the ‘‘Underlying Price
Check,’’ which assesses the price of call
or put bids against a specified
benchmark. The Underlying Price Check
applies to bids in call options or put
options when (1) there is no NBBO
available, for example, during preopening or prior to conducting a reopening after a trading halt, or (2) if the
NBBO is so wide as to not reflect an
appropriate price for the respective
options series.5
To date, the Exchange has not
implemented the Underlying Price
Check because of technological issues
discovered shortly after the Exchange
adopted the rule. However, the
Exchange has finalized the technology
related to this aspect of the Rule and
proposes to modify the Rule as it relates
to the Underlying Price Check.6
Specifically, the Exchange proposes to
exclude certain securities that do not
have reliable (or, in some cases, any
available) underlying consolidated last
sale information (‘‘last sale’’) against
4 The first layer of protection, referred to as the
NBBO Reasonability Check, assesses incoming sell
quotes against the National Best Bid (‘‘NBB’’) and
incoming buy quotes against the National Best Offer
(‘‘NBO’’). Specifically, per Rule 6.61(a)(1), provided
that an NBBO is available, a Market Maker quote
would be rejected if it is priced a specified dollar
amount or percentage through the contra-side
NBBO. The Exchange has implemented the NBBO
Reasonability Check and does not propose to
modify rule text related to this feature.
5 See Rule 6.61, Commentary .01 (directing OTP
Holders and OTP Firms to consult Trader Updates
for additional information regarding the
implementation schedule for paragraphs (a)(2) and
(a)(3) of the Rule, with final implementation of such
paragraphs to be completed by no later than July
31, 2016).
6 See Securities Exchange Act Release No. 74441
(March 4, 2015), 80 FR 12664 (March 10, 2015) (SR–
NYSEArca–2014–150) (Approval Order); see also
Securities Exchange Act Release No. 74018 (January
8, 2015), 80 FR 1982 (January 14, 2015) (SR–
NYSEArca-2014–150) (Notice). See also Securities
Exchange Act Release Nos. 75156 (June 11, 2015),
80 FR 34756 (June 17, 2015) (SR–NYSEArca-2015–
45) (modifying rule related to the Underlying Price
Check to allow for implementation of the feature by
March 4, 2016); 77357 (March 14, 2016), 81 FR
14912 (March 18, 2015) (SR–NYSEArca–2016–41)
(extending March 4, 2016 deadline until July 31,
2016).
E:\FR\FM\05MYN1.SGM
05MYN1
Federal Register / Vol. 81, No. 87 / Thursday, May 5, 2016 / Notices
mstockstill on DSK3G9T082PROD with NOTICES
which to perform the Underlying Price
Check because, in the absence of
reliable price data, the Underlying Price
Check may result in Market Maker
quotes being rejected too frequently.
Accordingly, the Exchange proposes to
modify Commentary .01 to the Rule to
provide that the Underlying Price Check
would not apply to ‘‘(i) any options
series for which the underlying security
has a non-standard cash or stock
deliverable as part of a corporate action;
(ii) any options series for which the
underlying security is identified as overthe-counter (‘‘OTC’’) 7; (iii) any option
series on an index; (iv) Binary Return
Derivatives (‘‘ByRDs’’)’’ (the ‘‘Excluded
Options’’).8 The proposed change would
enable the Exchange to implement this
price protection feature and apply it to
securities for which there is reliable
price data for the underlying security to
perform the check. Specifically, the
Exchange would exclude any options
series for which the underlying security
has a non-standard cash or stock
deliverable as part of a corporate action
because the last sale information would
not have been adjusted for the nonstandard deliverable, and would
therefore be unreliable.9 Options in OTC
would be considered Excluded Options
because unlike listed securities, the
Exchange does not receive an active
data feed with last sale information for
OTC securities. The Exchange would
exclude any options series overlying a
stock index because such indices do not
have last sale information. Similarly, the
Exchange would exclude options on
ByRDs because ByRDS track a value
weighted average price (‘‘VWAP’’) and
not the last sale of the underlying
security.10 The Exchange notes the
Excluded Options would continue to be
subject to the NBBO Reasonability
Check, which is the first layer of price
protection (see supra n. 4) when there
is a reliable NBBO and, thus, Market
Maker quotes in these securities are not
7 Options on OTC securities, which are not
considered NMS stocks, are subject to trading
pursuant to Rule 5.4(b)(6) (Withdrawal of Approval
of Underlying Securities). The Commission notes
that Rule 5.4 provides for the continued listing of
options on underlying securities that no longer
meet the criteria for listing and trading on the
Exchange.
8 See proposed Rule 6.61, Commentary .01. See
also proposed Rule 6.61(a)(2) and (3) (providing
that the Underlying Price Check would apply,
‘‘except as provided in Commentary .01 to this
Rule’’).
9 Corporate actions such as mergers or
reorganizations can result in options being adjusted
to a non-standard deliverable.
10 See generally Section 8, Binary Return
Derivatives, Rules 5.82–5.95. ByRDs are Europeanstyle option contracts on individual stocks,
exchange-traded funds and Index-Linked Securities
that have a fixed return in cash based on a set strike
price
VerDate Sep<11>2014
18:06 May 04, 2016
Jkt 238001
without price protection on the
Exchange.
The Exchange also proposes to
exempt from the Underlying Price
Check any option series for which the
Exchange determines it is necessary to
exclude underlying securities in the
interests of maintaining a fair and
orderly market.11 The Exchange believes
this proposed change would enable the
Exchange to exclude option series, other
than Excluded Options, from the
Underlying Price Check if the Exchange
determines that the price protection
feature would not function as
intended.12 For example, if the last sale
is zero, for whatever reason, the
Exchange would have the discretion to
forego the Underlying Price Check for a
particular call bid. Similarly, if there
was some other event or change that
impacted the underlying security (for
example if there was a change to the
ticker symbol for the underlying
security), the Exchange would retain
discretion to exclude the affected
options series from the Underlying Price
Check. The Exchange notes that another
options exchange likewise has retained
discretion to withhold price protection
features consistent with the Underlying
Price Check.13 If the Exchange
determines that the Underlying Price
Check should not apply in the interest
of maintaining a fair and orderly market,
as proposed, the Exchange would
announce this decision by electronic
message to OTP Holders and OTP Firms
that request to receive such messages.
Implementation
The Exchange will announce the
implementation date of the proposed
rule change, which will be before July
31, 2016, by Trader Update.14
2. Statutory Basis
The statutory basis for the proposed
rule change is Section 6(b)(5) of the
Securities Exchange Act of 1934 (the
‘‘Act’’),15 which requires the rules of an
11 See proposed Rule 6.61, Commentary .01. See
also proposed Rule 6.61(a)(2) and (3) (providing
that the Underlying Price Check would apply,
‘‘except as provided in Commentary .01 to this
Rule’’).
12 The Exchange would document, retain, and
periodically review any Exchange decision to not
apply the Underlying Price Check, including the
reason for the decision.
13 See Securities Exchange Act Release No. 76960
(January 21, 2016), 81 FR 4728 (January 27, 2016)
(SR–CBOE–2015–107) (approving price protection
mechanisms for quotes and orders, which includes
the Chicago Board Options Exchange, Inc. retaining
discretion to withhold its Put Strike Price and Call
Underlying Value Checks).
14 See supra n. 5. Once implemented, the
Exchange will file a separate proposed rule change
to delete text in Commentary .01 regarding the July
31, 2016 implementation deadline.
15 15 U.S.C. 78f(b).
PO 00000
Frm 00097
Fmt 4703
Sfmt 4703
27179
exchange 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.
The Exchange believes the proposed
modifications would remove
impediments to and perfect the
mechanism of a free and open market
and would protect investors and the
public interest because it would exempt
from the Underlying Price Check those
Excluded Options for which there is no
reliable pricing data for the underlying
security or index to perform the Check
properly. Similarly, the Exchange
believes the proposal to exclude any
option series for which the Exchange
determines it is necessary to exclude
underlying securities in the interests of
maintaining a fair and orderly market
would likewise protect investors and
the public interest because this change
would enable the Exchange to ensure
that the Underlying Price Check
operates as intended (i.e., when there is
reliable price data against which to
perform the Check). Absent the
proposed modification, otherwise
acceptable Market Maker quotes would
be erroneously rejected upon arrival
because the Underlying Price Check
would deem such quotes to be at prices
that are through the (unreliable) last sale
price, which would be disruptive to
Market Makers that provide necessary
liquidity to the Exchange. Thus, the
Exchange believes that this proposal
meets these requirements because it
would assist with the maintenance of a
fair and orderly market by allowing the
Exchange to implement the Underlying
Price Check to work as intended—to
reduce the risk of Market Maker quotes
sweeping through multiple price points
resulting in executions at prices that are
through the last sale price and
potentially erroneous.
Finally, the Exchange believes the
proposed change would promote just
and equitable principles of trade
because it would enable the Exchange to
implement the second layer of price
protection for when an NBBO is not
available, which would further assist
the Exchange in avoiding the processing
of erroneous quotes that otherwise may
cause price dislocation before such
quotes could cause harm to the market.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change would impose
any burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Act. The
E:\FR\FM\05MYN1.SGM
05MYN1
27180
Federal Register / Vol. 81, No. 87 / Thursday, May 5, 2016 / Notices
Exchange believes the proposal would
not unduly burden any particular group
of market participants trading on the
`
Exchange vis-a-vis another group (i.e.,
Market Markers versus non-Market
Makers) as the Underlying Price Check,
as modified, is designed to address the
unique role of Market Makers to enter
two-sided quotations in their
appointments and would apply equally
to all Market Makers. Moreover, the
Exchange believes the proposal would
provide market participants with
additional protection from anomalous
executions while ensuring that the
Underlying Price Check would not be
performed in instances where the
Exchange lacks reliable pricing data for
the underlying security. Thus, the
Exchange does not believe the proposal
creates any significant impact on
competition. The Exchange believes this
proposal is pro-competitive as it allows
the Exchange to implement the second
layer of price protection, which may
encourage Market Makers to quote
tighter deeper markets, which will
increase liquidity and enhance
competition.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
No written comments were solicited
or received with respect to the proposed
rule change.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
mstockstill on DSK3G9T082PROD with NOTICES
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) 16 of the Act and Rule 19b–
4(f)(6) thereunder.17
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
16 15
U.S.C. 78s(b)(3)(A).
17 17 CFR 240.19b–4(f)(6). In addition, Rule 19b–
4(f)(6) requires a self-regulatory organization to give
the Commission written notice of its intent to file
the proposed rule change at least five business days
prior to the date of filing of the proposed rule
change, or such shorter time as designated by the
Commission. The Exchange has satisfied this
requirement.
VerDate Sep<11>2014
18:06 May 04, 2016
Jkt 238001
furtherance of the purposes of the Act.
If the Commission takes such action, the
Commission shall institute proceedings
to determine whether the proposed rule
should be approved or disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE.,
Washington, DC 20549–1090.
All submissions should refer to File
Number SR–NYSEARCA–2016–57. 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–
Frm 00098
Fmt 4703
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.18
Brent J. Fields,
Secretary.
[FR Doc. 2016–10471 Filed 5–4–16; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[File No. 500–1]
• 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–
NYSEARCA–2016–57 on the subject
line.
PO 00000
NYSEARCA–2016–57, and should be
submitted on or before May 26, 2016.
Sfmt 9990
In the Matter of Solarbrook Water and
Power Corp.; Order of Suspension of
Trading
May 3, 2016.
It appears to the Securities and
Exchange Commission that there is a
lack of current and accurate information
concerning the securities of Solarbrook
Water and Power Corp. (‘‘Solarbrook’’)
because of concerns regarding the
accuracy and adequacy of information
in the marketplace and potentially
manipulative transactions in Solarbrook
common stock. Solarbrook was a North
Carolina corporation with its principal
place of business located in Cary, NC,
until April 4, 2012, when it was
administratively dissolved by the state
for failure to file required annual
reports. Its stock is quoted on OTC Link
(previously ‘‘Pink Sheets’’), operated by
OTC Markets Group Inc. (‘‘OTC Link’’),
under the ticker symbol SLRW.
The Commission is of the opinion that
the public interest and the protection of
investors require a suspension of trading
in the securities of the above-listed
company.
Therefore, it is ordered, pursuant to
Section 12(k) of the Securities Exchange
Act of 1934, that trading in the
securities of the above-listed company is
suspended for the period from 9:30 a.m.
EDT on May 3, 2016, through 11:59 p.m.
EDT on May 16, 2016.
By the Commission.
Brent J. Fields,
Secretary.
[FR Doc. 2016–10677 Filed 5–3–16; 4:15 pm]
BILLING CODE 8011–01–P
18 17
E:\FR\FM\05MYN1.SGM
CFR 200.30–3(a)(12).
05MYN1
Agencies
[Federal Register Volume 81, Number 87 (Thursday, May 5, 2016)]
[Notices]
[Pages 27178-27180]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-10471]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-77748; File No. SR-NYSEARCA-2016-57]
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change Amending Rule 6.61
Regarding Price Protection for Market Maker Quotes
April 29, 2016.
Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby
given that, on April 27, 2016, NYSE Arca, Inc. (the ``Exchange'' or
``NYSE Arca'') filed with the Securities and Exchange Commission (the
``Commission'') the proposed rule change as described in Items I and II
below, which Items have been prepared by the self-regulatory
organization. The Commission is publishing this notice to solicit
comments on the proposed rule change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C.78s(b)(1).
\2\ 15 U.S.C. 78a.
\3\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to amend Rule 6.61 regarding price protection
for Market Maker quotes. The proposed rule change is available on the
Exchange's Web site at www.nyse.com, at the principal office of the
Exchange, and at the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the self-regulatory organization
included statements concerning the purpose of, and basis for, the
proposed rule change and discussed any comments it received on the
proposed rule change. The text of those statements may be examined at
the places specified in Item IV below. The Exchange has prepared
summaries, set forth in sections A, B, and C below, of the most
significant parts of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange is proposing to amend Rule 6.61 regarding price
protection for Market Maker quotes.
Rule 6.61 provides two layers of price protection to incoming
Market Maker quotes, rejecting those Market Maker quotes that exceed
certain parameters, as a risk mitigation tool.\4\ The Exchange proposes
to modify Rule 6.61(a)(2) and (3), which relates to the second layer of
protection, the ``Underlying Price Check,'' which assesses the price of
call or put bids against a specified benchmark. The Underlying Price
Check applies to bids in call options or put options when (1) there is
no NBBO available, for example, during pre-opening or prior to
conducting a re-opening after a trading halt, or (2) if the NBBO is so
wide as to not reflect an appropriate price for the respective options
series.\5\
---------------------------------------------------------------------------
\4\ The first layer of protection, referred to as the NBBO
Reasonability Check, assesses incoming sell quotes against the
National Best Bid (``NBB'') and incoming buy quotes against the
National Best Offer (``NBO''). Specifically, per Rule 6.61(a)(1),
provided that an NBBO is available, a Market Maker quote would be
rejected if it is priced a specified dollar amount or percentage
through the contra-side NBBO. The Exchange has implemented the NBBO
Reasonability Check and does not propose to modify rule text related
to this feature.
\5\ See Rule 6.61, Commentary .01 (directing OTP Holders and OTP
Firms to consult Trader Updates for additional information regarding
the implementation schedule for paragraphs (a)(2) and (a)(3) of the
Rule, with final implementation of such paragraphs to be completed
by no later than July 31, 2016).
---------------------------------------------------------------------------
To date, the Exchange has not implemented the Underlying Price
Check because of technological issues discovered shortly after the
Exchange adopted the rule. However, the Exchange has finalized the
technology related to this aspect of the Rule and proposes to modify
the Rule as it relates to the Underlying Price Check.\6\ Specifically,
the Exchange proposes to exclude certain securities that do not have
reliable (or, in some cases, any available) underlying consolidated
last sale information (``last sale'') against
[[Page 27179]]
which to perform the Underlying Price Check because, in the absence of
reliable price data, the Underlying Price Check may result in Market
Maker quotes being rejected too frequently. Accordingly, the Exchange
proposes to modify Commentary .01 to the Rule to provide that the
Underlying Price Check would not apply to ``(i) any options series for
which the underlying security has a non-standard cash or stock
deliverable as part of a corporate action; (ii) any options series for
which the underlying security is identified as over-the-counter
(``OTC'') \7\; (iii) any option series on an index; (iv) Binary Return
Derivatives (``ByRDs'')'' (the ``Excluded Options'').\8\ The proposed
change would enable the Exchange to implement this price protection
feature and apply it to securities for which there is reliable price
data for the underlying security to perform the check. Specifically,
the Exchange would exclude any options series for which the underlying
security has a non-standard cash or stock deliverable as part of a
corporate action because the last sale information would not have been
adjusted for the non-standard deliverable, and would therefore be
unreliable.\9\ Options in OTC would be considered Excluded Options
because unlike listed securities, the Exchange does not receive an
active data feed with last sale information for OTC securities. The
Exchange would exclude any options series overlying a stock index
because such indices do not have last sale information. Similarly, the
Exchange would exclude options on ByRDs because ByRDS track a value
weighted average price (``VWAP'') and not the last sale of the
underlying security.\10\ The Exchange notes the Excluded Options would
continue to be subject to the NBBO Reasonability Check, which is the
first layer of price protection (see supra n. 4) when there is a
reliable NBBO and, thus, Market Maker quotes in these securities are
not without price protection on the Exchange.
---------------------------------------------------------------------------
\6\ See Securities Exchange Act Release No. 74441 (March 4,
2015), 80 FR 12664 (March 10, 2015) (SR-NYSEArca-2014-150) (Approval
Order); see also Securities Exchange Act Release No. 74018 (January
8, 2015), 80 FR 1982 (January 14, 2015) (SR-NYSEArca-2014-150)
(Notice). See also Securities Exchange Act Release Nos. 75156 (June
11, 2015), 80 FR 34756 (June 17, 2015) (SR-NYSEArca-2015-45)
(modifying rule related to the Underlying Price Check to allow for
implementation of the feature by March 4, 2016); 77357 (March 14,
2016), 81 FR 14912 (March 18, 2015) (SR-NYSEArca-2016-41) (extending
March 4, 2016 deadline until July 31, 2016).
\7\ Options on OTC securities, which are not considered NMS
stocks, are subject to trading pursuant to Rule 5.4(b)(6)
(Withdrawal of Approval of Underlying Securities). The Commission
notes that Rule 5.4 provides for the continued listing of options on
underlying securities that no longer meet the criteria for listing
and trading on the Exchange.
\8\ See proposed Rule 6.61, Commentary .01. See also proposed
Rule 6.61(a)(2) and (3) (providing that the Underlying Price Check
would apply, ``except as provided in Commentary .01 to this Rule'').
\9\ Corporate actions such as mergers or reorganizations can
result in options being adjusted to a non-standard deliverable.
\10\ See generally Section 8, Binary Return Derivatives, Rules
5.82-5.95. ByRDs are European-style option contracts on individual
stocks, exchange-traded funds and Index-Linked Securities that have
a fixed return in cash based on a set strike price
---------------------------------------------------------------------------
The Exchange also proposes to exempt from the Underlying Price
Check any option series for which the Exchange determines it is
necessary to exclude underlying securities in the interests of
maintaining a fair and orderly market.\11\ The Exchange believes this
proposed change would enable the Exchange to exclude option series,
other than Excluded Options, from the Underlying Price Check if the
Exchange determines that the price protection feature would not
function as intended.\12\ For example, if the last sale is zero, for
whatever reason, the Exchange would have the discretion to forego the
Underlying Price Check for a particular call bid. Similarly, if there
was some other event or change that impacted the underlying security
(for example if there was a change to the ticker symbol for the
underlying security), the Exchange would retain discretion to exclude
the affected options series from the Underlying Price Check. The
Exchange notes that another options exchange likewise has retained
discretion to withhold price protection features consistent with the
Underlying Price Check.\13\ If the Exchange determines that the
Underlying Price Check should not apply in the interest of maintaining
a fair and orderly market, as proposed, the Exchange would announce
this decision by electronic message to OTP Holders and OTP Firms that
request to receive such messages.
---------------------------------------------------------------------------
\11\ See proposed Rule 6.61, Commentary .01. See also proposed
Rule 6.61(a)(2) and (3) (providing that the Underlying Price Check
would apply, ``except as provided in Commentary .01 to this Rule'').
\12\ The Exchange would document, retain, and periodically
review any Exchange decision to not apply the Underlying Price
Check, including the reason for the decision.
\13\ See Securities Exchange Act Release No. 76960 (January 21,
2016), 81 FR 4728 (January 27, 2016) (SR-CBOE-2015-107) (approving
price protection mechanisms for quotes and orders, which includes
the Chicago Board Options Exchange, Inc. retaining discretion to
withhold its Put Strike Price and Call Underlying Value Checks).
---------------------------------------------------------------------------
Implementation
The Exchange will announce the implementation date of the proposed
rule change, which will be before July 31, 2016, by Trader Update.\14\
---------------------------------------------------------------------------
\14\ See supra n. 5. Once implemented, the Exchange will file a
separate proposed rule change to delete text in Commentary .01
regarding the July 31, 2016 implementation deadline.
---------------------------------------------------------------------------
2. Statutory Basis
The statutory basis for the proposed rule change is Section 6(b)(5)
of the Securities Exchange Act of 1934 (the ``Act''),\15\ which
requires the rules of an exchange 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.
---------------------------------------------------------------------------
\15\ 15 U.S.C. 78f(b).
---------------------------------------------------------------------------
The Exchange believes the proposed modifications would remove
impediments to and perfect the mechanism of a free and open market and
would protect investors and the public interest because it would exempt
from the Underlying Price Check those Excluded Options for which there
is no reliable pricing data for the underlying security or index to
perform the Check properly. Similarly, the Exchange believes the
proposal to exclude any option series for which the Exchange determines
it is necessary to exclude underlying securities in the interests of
maintaining a fair and orderly market would likewise protect investors
and the public interest because this change would enable the Exchange
to ensure that the Underlying Price Check operates as intended (i.e.,
when there is reliable price data against which to perform the Check).
Absent the proposed modification, otherwise acceptable Market Maker
quotes would be erroneously rejected upon arrival because the
Underlying Price Check would deem such quotes to be at prices that are
through the (unreliable) last sale price, which would be disruptive to
Market Makers that provide necessary liquidity to the Exchange. Thus,
the Exchange believes that this proposal meets these requirements
because it would assist with the maintenance of a fair and orderly
market by allowing the Exchange to implement the Underlying Price Check
to work as intended--to reduce the risk of Market Maker quotes sweeping
through multiple price points resulting in executions at prices that
are through the last sale price and potentially erroneous.
Finally, the Exchange believes the proposed change would promote
just and equitable principles of trade because it would enable the
Exchange to implement the second layer of price protection for when an
NBBO is not available, which would further assist the Exchange in
avoiding the processing of erroneous quotes that otherwise may cause
price dislocation before such quotes could cause harm to the market.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change would
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act. The
[[Page 27180]]
Exchange believes the proposal would not unduly burden any particular
group of market participants trading on the Exchange vis-[agrave]-vis
another group (i.e., Market Markers versus non-Market Makers) as the
Underlying Price Check, as modified, is designed to address the unique
role of Market Makers to enter two-sided quotations in their
appointments and would apply equally to all Market Makers. Moreover,
the Exchange believes the proposal would provide market participants
with additional protection from anomalous executions while ensuring
that the Underlying Price Check would not be performed in instances
where the Exchange lacks reliable pricing data for the underlying
security. Thus, the Exchange does not believe the proposal creates any
significant impact on competition. The Exchange believes this proposal
is pro-competitive as it allows the Exchange to implement the second
layer of price protection, which may encourage Market Makers to quote
tighter deeper markets, which will increase liquidity and enhance
competition.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were solicited or received with respect to the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Because the 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) \16\ of the Act and Rule 19b-
4(f)(6) thereunder.\17\
---------------------------------------------------------------------------
\16\ 15 U.S.C. 78s(b)(3)(A).
\17\ 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.
---------------------------------------------------------------------------
At any time within 60 days of the filing of the proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is: (i)
Necessary or appropriate in the public interest; (ii) for the
protection of investors; or (iii) otherwise in furtherance of the
purposes of the Act. If the Commission takes such action, the
Commission shall institute proceedings to determine whether the
proposed rule should be approved or disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to rule-comments@sec.gov. Please include
File Number SR-NYSEARCA-2016-57 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.
All submissions should refer to File Number SR-NYSEARCA-2016-57. 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-NYSEARCA-2016-57, and should
be submitted on or before May 26, 2016.
---------------------------------------------------------------------------
\18\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\18\
Brent J. Fields,
Secretary.
[FR Doc. 2016-10471 Filed 5-4-16; 8:45 am]
BILLING CODE 8011-01-P