Self-Regulatory Organizations; Bats EDGX Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change to Rule 22.3, Continuing Options Market Maker Registration, of Bats EDGX Exchange, Inc., 70198-70200 [2016-24426]
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<![CDATA[
70198
Federal Register / Vol. 81, No. 196 / Tuesday, October 11, 2016 / Notices
SECURITIES AND EXCHANGE
COMMISSION
the most significant parts of such
statements.
[Release No. 34–79041; File No. SR–
BatsEDGX–2016–53]
A. Self-Regulatory Organization’s
Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule
Change
Self-Regulatory Organizations; Bats
EDGX Exchange, Inc.; Notice of Filing
and Immediate Effectiveness of a
Proposed Rule Change to Rule 22.3,
Continuing Options Market Maker
Registration, of Bats EDGX Exchange,
Inc.
October 4, 2016.
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
September 28, 2016, Bats EDGX
Exchange, Inc. (‘‘EDGX’’ or the
‘‘Exchange’’) filed with the Securities
and Exchange Commission
(‘‘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.
asabaliauskas on DSK3SPTVN1PROD with NOTICES
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange is proposing to make a
modification to Exchange Rule 22.3,
Continuing Options Market Maker
Registration, to remove the provision of
the rule that requires termination of a
Member’s Options Market Maker
registration in an option series if the
Options Market Maker fails to enter
quotations in the series within five
business days after the Options Market
Maker’s registration in the series
becomes effective.
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
1 15
2 17
U.S.C. 78s(b)(1).
CFR 240.19b–4.
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20:12 Oct 07, 2016
Jkt 241001
1. Purpose
The Exchange proposes to amend
Exchange Rule 22.3 to remove
subparagraph (c), which currently
requires the Exchange to terminate a
firm’s Options Market Maker
registration if it does not enter
quotations in an option series in which
it is registered within five business days
after the Options Market Maker’s
registration in the series becomes
effective. Currently, the Exchange
surveils whether a newly registered
Options Market Maker enters quotations
in the series within five business days
of registration. If an Options Market
Maker does not, the Exchange is
required by Exchange Rule 22.3(c) to
automatically deregister the Options
Market Maker in that series. The
Exchange views Exchange Rule 22.3(c)
as largely duplicative of other Exchange
Rules and excessively rigid in view of
other Exchange Rules that allow the
Exchange discretion and flexibility in
determining an appropriate remedy.
Exchange Rule 22.5(a)(6) provides
that Options Market Makers are
expected to ‘‘maintain active markets’’
in all series in which they are registered.
Both Rule 22.3(c) and Rule 22.5(a)(6)
impose an obligation upon registered
Options Market Maker to maintain
active markets. The main difference is
that Exchange Rule 22.3(c) applies only
to the first five days that an Options
Market Maker is registered, whereas
Exchange Rule 22.5(a)(6) applies during
the first five days and continues for as
long as the Options Market Maker is
registered in a series. The Exchange
believes that there is no benefit to
imposing stricter quoting obligations on
a newly registered Options Market
Maker than those imposed on existing
registered Options Market Makers.
Instead, in the Exchange’s view, the
requirement to maintain active markets
should be the same from when an
Options Market Maker first registers as
any time after registration.
The Exchange notes that it will
continue to be permitted to deregister a
registered Options Market Maker under
Exchange Rule 22.2(b) if it is found that
the Options Market Maker has failed in
its obligation to maintain active markets
under Exchange Rule 22.5(a)(6) or fails
its obligation to provide continuous
PO 00000
Frm 00114
Fmt 4703
Sfmt 4703
two-sided quotes under Rule 22.6(d).3
Removing Exchange Rule 22.3(c) would
simply remove the non-discretionary
requirement that the Exchange must
deregister an Options Market Maker’s
registration in a series if it does not
enter quotations in the series within five
business days of registration.
The Exchange currently conducts
surveillance to monitor and enforce
compliance with the ‘‘active markets’’
provision of Exchange Rule 22.5(a)(6)
for all Options Market Makers. A
registered Options Market Maker is
subject to the Exchange Rule 22.5(a)(6)
surveillance for the entire time the
Options Market Maker is registered,
including the first five days covered by
Exchange Rule 22.3(c). If a registered
Options Market Maker is found by
surveillance not to be maintaining
active markets in the option series in
which it is registered, the Exchange will
determine the appropriate course of
action against such Options Market
Maker. The Exchange may take actions
of escalating severity against the
offending Options Market Maker from
an informal warning up to deregistering
the Options Market Maker in the
options in which it fails to maintain
active markets or bringing formal
action.4 The Exchange has found that
this discretion has allowed for effective
enforcement of Options Market Maker
obligations while allowing the Exchange
to consider the facts and circumstances
of each case in determining the
appropriate remedy.
On the other hand, current Exchange
Rule 22.3(c) is non-discretionary and its
enforcement can lead to potentially
arbitrary results, as it does not permit
the Exchange to consider the facts and
circumstances of each case in enforcing
the rule. While as a general matter an
Options Market Maker should enter
quotations in a series in which it is
registered as soon as practicable,
experience has shown that many factors
can affect when a newly registered
Options Market Maker will be in a
position to begin entering quotations.
Further, as discussed above [sic],
Exchange Rule 22.6(d) contemplates
certain acceptable periods of inactivity.
Just as the Exchange is provided
discretion to enforce all Options Market
Maker obligations under Exchange Rule
22.2(b), the Exchange believes that it
should be afforded the same discretion
to evaluate the facts and circumstances
of each case in which an Options
3 See Exchange Rule 22.2(b) (‘‘The registration of
any Member as a Market Maker may be suspended
or terminated by the Exchange upon a
determination that such Member has failed to
properly perform as a Market Maker.’’).
4 See Exchange Rules 22.2(b) and 22.5(c).
E:\FR\FM\11OCN1.SGM
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Federal Register / Vol. 81, No. 196 / Tuesday, October 11, 2016 / Notices
Market Maker is not active in a series
within the first five days of registration
and determine the appropriate remedy.
Finally, other national options
exchanges do not require automatic
deregistration of a registered Options
Market Maker from an options series
when the Options Market Maker fails to
submit a quote within the first five days
of registration. Other exchanges allow
considerably more discretion in
determining the appropriate remedy for
a registered Options Market Maker that
fails its quoting obligations. For
example, neither the Chicago Board
Options Exchange (‘‘CBOE’’), nor the
Miami International Securities
Exchange (‘‘MIAX’’), nor NYSE Arca,
Inc. Options (‘‘NYSE Arca’’), has a
requirement to automatically deregister
an options market maker if it fails in its
quoting or other obligations within five
days of registration. Instead, each of the
above exchanges appears to rely on a
rule substantively identical to Exchange
Rule 22.2(b) that gives the respective
exchange discretion as to the
appropriate remedy for Options Market
Makers that do not meet their
obligations.5
The Exchange, therefore, proposes to
amend Exchange Rule 22.3 to remove
subparagraph (c) and to enforce its
Options Market Maker ‘‘active market’’
obligations with the remedies permitted
in Exchange Rule 22.2(b) and Exchange
Rule 22.5(c).
asabaliauskas on DSK3SPTVN1PROD with NOTICES
2. Statutory Basis
The Exchange believes that its
proposal 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.6
In particular, the proposal is
consistent with Section 6(b)(1) 7 in that
it enables the Exchange to be so
organized as to have the capacity to be
able to carry out the purposes of the
Exchange Act and to comply, and to
enforce compliance by its exchange
5 See CBOE Rule 8.2(b) (‘‘The registration of a
Market-Maker may be suspended or terminated by
the Exchange upon a determination that the MarketMaker has failed to properly perform as a MarketMaker.’’); MIAX Rule 600(c) (‘‘The registration of
any Member as a Lead Market Maker, Primary Lead
Market Maker, or as a Registered Market Maker may
be suspended or terminated by the Exchange upon
a determination that such Member has failed to
properly perform as a Market Maker’’); NYSE Arca
Options Rule 6.33 (‘‘The registration of any person
as a Market Maker may be suspended or terminated
by the Exchange upon a determination of any
substantial or continued failure by such Market
Maker to engage in dealings in accordance with
[Market Maker Obligations].’’).
6 15 U.S.C. 78f(b).
7 15 U.S.C. 78f(b)(1).
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20:12 Oct 07, 2016
Jkt 241001
members and persons associated with
its exchange members, with the
provisions of the Exchange Act, the
rules and regulations thereunder, and
the rules of the Exchange. The proposal
allows the Exchange the discretion so
that it may appropriately and equitably
enforce compliance by its members with
the rules of the Exchange—in particular,
the Exchange’s Options Market Maker
obligations.
Additionally, the proposal is
consistent with Section 6(b)(5) of the
Act 8 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,
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 proposed
amendment to remove Exchange Rule
22.3(c) will permit the Exchange to
consider all facts and circumstances in
instances where it appears that a
registered Options Market Maker does
not meet its obligations and to exercise
discretion in applying the appropriate
remedy for such failure.
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 that is not
necessary or appropriate in furtherance
of the purposes of the Act. The
proposed rule change does not
introduce any burden on competition,
but rather, removes the automatic
deregistration requirement of Exchange
Rule 22.3(c) to allow the Exchange to
apply the obligation to maintain active
markets to all registered Options Market
Makers equally.
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 9 and paragraph (f)(6) of Rule 19b–
4 thereunder,10 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.
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 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–
BatsEDGX–2016–53 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–BatsEDGX–2016–53. 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
9 15
8 15
PO 00000
U.S.C. 78f(b)(5).
Frm 00115
Fmt 4703
U.S.C. 78s(b)(3)(A).
CFR 240.19b–4.
10 17
Sfmt 4703
70199
E:\FR\FM\11OCN1.SGM
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70200
Federal Register / Vol. 81, No. 196 / Tuesday, October 11, 2016 / Notices
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 such
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–
BatsEDGX–2016–53, and should be
submitted on or before November 1,
2016.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.11
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016–24426 Filed 10–7–16; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–79046; File No. SR–DTC–
2016–008]
Self-Regulatory Organizations; The
Depository Trust Company; Notice of
Filing of Proposed Rule Change
Relating to Processing of Transactions
in Money Market Instruments
October 5, 2016.
asabaliauskas on DSK3SPTVN1PROD with NOTICES
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’) 1 and Rule 19b–4,2 notice is
hereby given that on September 23,
2016, The Depository Trust Company
(‘‘DTC’’) 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 DTC.3 The
11 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 On September 23, 2016, DTC filed this proposed
rule change as an advance notice (SR–DTC–2016–
802) with the Commission pursuant to Section
806(e)(1) of the Dodd-Frank Wall Street Reform and
Consumer Protection Act entitled the Payment,
Clearing, and Settlement Supervision Act of 2010,
12 U.S.C. 5465(e)(1), and Rule 19b–4(n)(1)(i) of the
1 15
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20:12 Oct 07, 2016
Jkt 241001
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
I. Clearing Agency’s Statement of the
Terms of Substance of the Proposed
Rule Change
The proposed rule change would
establish a change in the processing of
transactions in money market
instruments (‘‘MMI’’) that are processed
in DTC’s MMI Program (‘‘MMI
Securities’’) by modifying (i) the DTC
Rules, By-laws and Organization
Certificate (‘‘Rules’’),4 (ii) the DTC
Settlement Service Guide (‘‘Settlement
Guide’’),5 and (iii) the DTC Distributions
Service Guide (‘‘Distributions Guide’’),6
as described below.7 The proposed rule
change would affect DTC’s processing of
issuances of MMI Securities
(‘‘Issuances’’) by issuers of MMI
Securities (‘‘Issuers’’) as well as
Maturity Presentments, Income
Presentments, Principal Presentments,
and Reorganization Presentments
(collectively, ‘‘Presentments’’)
(Issuances and Presentments,
collectively ‘‘MMI Obligations’’). The
proposed rule change would amend the
Rules and Settlement Guide to (i)
eliminate intra-day reversals of
processed but not yet settled MMI
Obligations resulting from an Issuing
and Paying Agent (‘‘IPA’’) notifying DTC
of its refusal to pay (‘‘RTP’’) for
Presentments of an Issuer’s maturing
MMI Securities for a designated
Acronym; 8 (ii) eliminate the Largest
Act, 17 CFR 240.19b–4(n)(1)(i). A copy of the
advance notice is available at https://www.dtcc.com/
legal/sec-rule-filings.aspx.
4 Available at https://www.dtcc.com/legal/rulesand-procedures.aspx.
5 Available at https://www.dtcc.com/∼/media/
Files/Downloads/legal/service-guides/
Settlement.pdf.
6 Available at https://www.dtcc.com/∼/media/
Files/Downloads/legal/service-guides/
Distributions%20Service%20Guide%20FINAL%20
November%202014.pdf.
7 Eligibility for inclusion in the MMI Program
covers MMI, which are short-term debt Securities
that generally mature 1 to 270 days from their
original issuance date. MMI include, but are not
limited to, commercial paper, banker’s acceptances
and short-term bank notes and are issued by
financial institutions, large corporations, or state
and local governments. Most MMI trade in large
denominations (typically, $250,000 to $50 million)
and are purchased by institutional investors.
Eligibility for inclusion in the MMI Program also
covers medium term notes that mature over a longer
term.
8 Rule 1, supra note 4. MMI of an Issuer are
designated by DTC using unique four-character
identifiers employed by DTC referred to as
Acronyms. An MMI Issuer can have multiple
Acronyms representing its Securities. MMI
Transactions and other functions relating to MMI
(e.g., confirmations and RTP) instructed and/or
performed by IPAs, Participants and/or DTC as
described herein are performed on an ‘‘Acronymby-Acronym’’ basis.
PO 00000
Frm 00116
Fmt 4703
Sfmt 4703
Provisional Net Credit (‘‘LPNC’’) risk
management control; (iii) provide that
the IPA must acknowledge its funding
obligations for Presentments and that
Receivers of Issuances must approve
their receipt of those Issuances in DTC’s
Receiver Authorized Delivery (‘‘RAD’’)
system before DTC would process MMI
Presentments; (iv) implement an
enhanced process to test risk
management controls under certain
conditions with respect to an Acronym
(to be referred to as MMI Optimization,
as defined below); (v) make updates and
revisions to the Settlement Processing
Schedule in the Settlement Guide
(‘‘Processing Schedule’’), as described
below, (vi) eliminate the ‘‘receive versus
payment NA’’ control (‘‘RVPNA’’), as
described below, and (vii) make other
technical and clarifying changes to the
text, as more fully described below. In
addition, the proposed rule change
would amend the Distributions Guide to
make changes to text relating to the
processing of Income Presentments so
that it is consistent with the changes
proposed in the Settlement Guide in
that regard, as more fully described
below.9
II. Clearing Agency’s Statement of the
Purpose of, and Statutory Basis for, the
Proposed Rule Change
In its filing with the Commission, the
clearing agency 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
clearing agency has prepared
summaries, set forth in sections A, B,
and C below, of the most significant
aspects of such statements.
(A) Clearing Agency’s Statement of the
Purpose of, and Statutory Basis for, the
Proposed Rule Change
1. Purpose
The purpose of this proposed rule
change is to (i) mitigate risk to DTC and
Participants relating to intra-day
reversals of processed MMI Obligations
in the event of an IPA’s RTP with
respect to maturing obligations
(‘‘Maturing Obligations’’) 10 for an
Acronym and/or income payments 11
9 Capitalized terms not otherwise defined herein
have the respective meanings set forth in the Rules,
the Settlement Guide, and the Distributions Guide.
10 A Maturing Obligation is a payment owed in
settlement by the IPA to the Participant on whose
behalf DTC presents the matured MMI Securities.
11 Principal and income for an Acronym are
distributed by an IPA according to a cycle
determined by the terms of the issue (e.g., monthly,
quarterly, and semi-annually). Such distributions
E:\FR\FM\11OCN1.SGM
11OCN1
]]>Agencies
[Federal Register Volume 81, Number 196 (Tuesday, October 11, 2016)]
[Notices]
[Pages 70198-70200]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-24426]
[[Page 70198]]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-79041; File No. SR-BatsEDGX-2016-53]
Self-Regulatory Organizations; Bats EDGX Exchange, Inc.; Notice
of Filing and Immediate Effectiveness of a Proposed Rule Change to Rule
22.3, Continuing Options Market Maker Registration, of Bats EDGX
Exchange, Inc.
October 4, 2016.
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 September 28, 2016, Bats EDGX Exchange, Inc. (``EDGX'' or the
``Exchange'') filed with the Securities and Exchange Commission
(``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 is proposing to make a modification to Exchange Rule
22.3, Continuing Options Market Maker Registration, to remove the
provision of the rule that requires termination of a Member's Options
Market Maker registration in an option series if the Options Market
Maker fails to enter quotations in the series within five business days
after the Options Market Maker's registration in the series becomes
effective.
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 the
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to amend Exchange Rule 22.3 to remove
subparagraph (c), which currently requires the Exchange to terminate a
firm's Options Market Maker registration if it does not enter
quotations in an option series in which it is registered within five
business days after the Options Market Maker's registration in the
series becomes effective. Currently, the Exchange surveils whether a
newly registered Options Market Maker enters quotations in the series
within five business days of registration. If an Options Market Maker
does not, the Exchange is required by Exchange Rule 22.3(c) to
automatically deregister the Options Market Maker in that series. The
Exchange views Exchange Rule 22.3(c) as largely duplicative of other
Exchange Rules and excessively rigid in view of other Exchange Rules
that allow the Exchange discretion and flexibility in determining an
appropriate remedy.
Exchange Rule 22.5(a)(6) provides that Options Market Makers are
expected to ``maintain active markets'' in all series in which they are
registered. Both Rule 22.3(c) and Rule 22.5(a)(6) impose an obligation
upon registered Options Market Maker to maintain active markets. The
main difference is that Exchange Rule 22.3(c) applies only to the first
five days that an Options Market Maker is registered, whereas Exchange
Rule 22.5(a)(6) applies during the first five days and continues for as
long as the Options Market Maker is registered in a series. The
Exchange believes that there is no benefit to imposing stricter quoting
obligations on a newly registered Options Market Maker than those
imposed on existing registered Options Market Makers. Instead, in the
Exchange's view, the requirement to maintain active markets should be
the same from when an Options Market Maker first registers as any time
after registration.
The Exchange notes that it will continue to be permitted to
deregister a registered Options Market Maker under Exchange Rule
22.2(b) if it is found that the Options Market Maker has failed in its
obligation to maintain active markets under Exchange Rule 22.5(a)(6) or
fails its obligation to provide continuous two-sided quotes under Rule
22.6(d).\3\ Removing Exchange Rule 22.3(c) would simply remove the non-
discretionary requirement that the Exchange must deregister an Options
Market Maker's registration in a series if it does not enter quotations
in the series within five business days of registration.
---------------------------------------------------------------------------
\3\ See Exchange Rule 22.2(b) (``The registration of any Member
as a Market Maker may be suspended or terminated by the Exchange
upon a determination that such Member has failed to properly perform
as a Market Maker.'').
---------------------------------------------------------------------------
The Exchange currently conducts surveillance to monitor and enforce
compliance with the ``active markets'' provision of Exchange Rule
22.5(a)(6) for all Options Market Makers. A registered Options Market
Maker is subject to the Exchange Rule 22.5(a)(6) surveillance for the
entire time the Options Market Maker is registered, including the first
five days covered by Exchange Rule 22.3(c). If a registered Options
Market Maker is found by surveillance not to be maintaining active
markets in the option series in which it is registered, the Exchange
will determine the appropriate course of action against such Options
Market Maker. The Exchange may take actions of escalating severity
against the offending Options Market Maker from an informal warning up
to deregistering the Options Market Maker in the options in which it
fails to maintain active markets or bringing formal action.\4\ The
Exchange has found that this discretion has allowed for effective
enforcement of Options Market Maker obligations while allowing the
Exchange to consider the facts and circumstances of each case in
determining the appropriate remedy.
---------------------------------------------------------------------------
\4\ See Exchange Rules 22.2(b) and 22.5(c).
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On the other hand, current Exchange Rule 22.3(c) is non-
discretionary and its enforcement can lead to potentially arbitrary
results, as it does not permit the Exchange to consider the facts and
circumstances of each case in enforcing the rule. While as a general
matter an Options Market Maker should enter quotations in a series in
which it is registered as soon as practicable, experience has shown
that many factors can affect when a newly registered Options Market
Maker will be in a position to begin entering quotations. Further, as
discussed above [sic], Exchange Rule 22.6(d) contemplates certain
acceptable periods of inactivity. Just as the Exchange is provided
discretion to enforce all Options Market Maker obligations under
Exchange Rule 22.2(b), the Exchange believes that it should be afforded
the same discretion to evaluate the facts and circumstances of each
case in which an Options
[[Page 70199]]
Market Maker is not active in a series within the first five days of
registration and determine the appropriate remedy.
Finally, other national options exchanges do not require automatic
deregistration of a registered Options Market Maker from an options
series when the Options Market Maker fails to submit a quote within the
first five days of registration. Other exchanges allow considerably
more discretion in determining the appropriate remedy for a registered
Options Market Maker that fails its quoting obligations. For example,
neither the Chicago Board Options Exchange (``CBOE''), nor the Miami
International Securities Exchange (``MIAX''), nor NYSE Arca, Inc.
Options (``NYSE Arca''), has a requirement to automatically deregister
an options market maker if it fails in its quoting or other obligations
within five days of registration. Instead, each of the above exchanges
appears to rely on a rule substantively identical to Exchange Rule
22.2(b) that gives the respective exchange discretion as to the
appropriate remedy for Options Market Makers that do not meet their
obligations.\5\
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\5\ See CBOE Rule 8.2(b) (``The registration of a Market-Maker
may be suspended or terminated by the Exchange upon a determination
that the Market-Maker has failed to properly perform as a Market-
Maker.''); MIAX Rule 600(c) (``The registration of any Member as a
Lead Market Maker, Primary Lead Market Maker, or as a Registered
Market Maker may be suspended or terminated by the Exchange upon a
determination that such Member has failed to properly perform as a
Market Maker''); NYSE Arca Options Rule 6.33 (``The registration of
any person as a Market Maker may be suspended or terminated by the
Exchange upon a determination of any substantial or continued
failure by such Market Maker to engage in dealings in accordance
with [Market Maker Obligations].'').
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The Exchange, therefore, proposes to amend Exchange Rule 22.3 to
remove subparagraph (c) and to enforce its Options Market Maker
``active market'' obligations with the remedies permitted in Exchange
Rule 22.2(b) and Exchange Rule 22.5(c).
2. Statutory Basis
The Exchange believes that its proposal 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.\6\
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\6\ 15 U.S.C. 78f(b).
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In particular, the proposal is consistent with Section 6(b)(1) \7\
in that it enables the Exchange to be so organized as to have the
capacity to be able to carry out the purposes of the Exchange Act and
to comply, and to enforce compliance by its exchange members and
persons associated with its exchange members, with the provisions of
the Exchange Act, the rules and regulations thereunder, and the rules
of the Exchange. The proposal allows the Exchange the discretion so
that it may appropriately and equitably enforce compliance by its
members with the rules of the Exchange--in particular, the Exchange's
Options Market Maker obligations.
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\7\ 15 U.S.C. 78f(b)(1).
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Additionally, the proposal is consistent with Section 6(b)(5) of
the Act \8\ 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, 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 proposed amendment to remove Exchange Rule
22.3(c) will permit the Exchange to consider all facts and
circumstances in instances where it appears that a registered Options
Market Maker does not meet its obligations and to exercise discretion
in applying the appropriate remedy for such failure.
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\8\ 15 U.S.C. 78f(b)(5).
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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 that is not necessary or appropriate
in furtherance of the purposes of the Act. The proposed rule change
does not introduce any burden on competition, but rather, removes the
automatic deregistration requirement of Exchange Rule 22.3(c) to allow
the Exchange to apply the obligation to maintain active markets to all
registered Options Market Makers equally.
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 \9\ and
paragraph (f)(6) of Rule 19b-4 thereunder,\10\ 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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\9\ 15 U.S.C. 78s(b)(3)(A).
\10\ 17 CFR 240.19b-4.
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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 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-BatsEDGX-2016-53 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-BatsEDGX-2016-53. 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
[[Page 70200]]
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 such 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-BatsEDGX-2016-53, and should
be submitted on or before November 1, 2016.
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\11\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\11\
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-24426 Filed 10-7-16; 8:45 am]
BILLING CODE 8011-01-P
