Self-Regulatory Organizations; NYSE MKT LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Amending Commentary .05 to Rule 980NY, 78219-78224 [2016-26795]
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Federal Register / Vol. 81, No. 215 / Monday, November 7, 2016 / Notices
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.13
Brent J. Fields,
Secretary.
[FR Doc. 2016–26788 Filed 11–4–16; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–79213; File No. SR–
NYSEMKT–2016–98]
Self-Regulatory Organizations; NYSE
MKT LLC; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change Amending Commentary
.05 to Rule 980NY
November 1, 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 October
25, 2016, NYSE MKT LLC (the
‘‘Exchange’’ or ‘‘NYSE MKT’’) 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 Exchange. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to amend
Commentary .05 to Rule
980NY(Electronic Complex Order
Trading) to enhance the price protection
filters applicable to electronically
entered Complex Orders. 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.
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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,
13 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 15 U.S.C. 78a.
3 17 CFR 240.19b–4.
1 15
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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
Commentary .05 to Rule 980NY to
enhance the Exchange’s price protection
filters applicable to electronically
entered Complex Orders,4 including by
clarifying how the functionality
operates and expanding its application,
as described below.
Clarifying the Description of the Filter
Commentary .05 to Rule 980NY
currently sets forth the Price Protection
Filter (the ‘‘Filter’’) applicable to each
incoming ‘‘Electronic Complex Order’’
(or ‘‘ECO’’).5 The Filter automatically
rejects incoming ECOs with a price that
deviates from the current market by the
Specified Amount,6 which varies
depending on the smallest MPV of any
leg in the ECO.7
First, the Exchange proposes to
modify its description of how the Filter
operates to make it easier for market
participants to understand. Commentary
.05 to Rule 980NY currently describes
the Filter as rejecting an ECO if ‘‘the net
debit/credit limit price of the order is
greater (less) than the derived net debit/
credit NBBO for the contra-side of that
4 Rule 900.3NY(e) defines a Complex Order as
any order involving the simultaneous purchase
and/or sale of two or more different option series
in the same underlying security, for the same
account, in a ratio that is equal to or greater than
one-to-three (.333) and less than or equal to threeto-one (3.00) and for the purpose of executing
particular investment strategy.
5 Per Rule 980NY, an ECO is a Complex Order
that has been entered into the NYSE Amex Options
System (‘‘System’’) and routed to the Complex
Matching Engine (‘‘CME’’) for possible execution.
The CME is the mechanism in which ECOs are
executed against each other or against individual
quotes and orders in the Consolidated Book. ECOs
that are not immediately executed by the CME are
ranked in the Consolidated Book. See Rule
980NY(a).
6 The Specified Amount is defined as: (i) .10 for
orders where the smallest Minimum Price Variation
(‘‘MPV’’) of any leg of the Electronic Complex Order
is .01; (ii) .15 for orders where the smallest MPV
of any leg of the Electronic Complex Order is .05;
and.30 for orders where the smallest MPV of any
leg of the Electronic Complex Order is .10. See
Commentary .05 to Rule 980NY.
7 See Commentary .05 to Rule 980NY(a). The
Exchange notes that each ECO is entered into the
System at a net debit (credit) price for the entire
strategy and does not include specified prices for
any single series component (‘‘leg’’) of the ECO. See
also Securities and Exchange Act Release No. 70674
(October 11, 2013), 78 FR 62917 (October 22, 2013)
(SR–NYSEMKT–2013–80) (Notice of filing, which
describes the operation of the Filter) (herein
referred to as the ‘‘Original Release’’).
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same strategy by an amount specified by
the Exchange (‘Specified Amount’).’’
The Exchange proposes to replace
references to the ‘‘derived contra-side
net debit/credit NBBO’’ with the
‘‘contra-side Complex NBBO,’’ as the
Exchange has defined Complex NBBO
since implementing the Filter.8 This
proposed modification would not affect
the operation of the rule. Rather, the
Exchange believes this change would
reduce redundancy and add internal
consistency to Exchange rules. Further,
regarding the description of how the
Filter operates, the Exchange proposes
to provide that the Filter would reject an
ECO back to the submitting ATP Holder
if the sum of the following would be
less than zero ($0.00):
(i) The net debit (credit) limit price of
the order,
(ii) the contra-side Complex NBBO for
that same Complex Order, and
(iii) the Specified Amount.9
The proposed modification does not
alter how the Filter is applied. The
Filter would continue to help prevent
the execution of aggressively-priced
ECOs (i.e., priced so far away from the
prevailing contra-side NBBO market for
the same strategy) that could cause
significant price dislocation in the
market. The Exchange would continue
to apply the Filter to help ensure that
market participants do not receive an
execution at a price significantly
inferior to the contra-side NBBO.
However, the proposed modification
would add specificity and more clearly
convey the operation of the Filter. The
Exchange believes this proposed change
would add clarity and transparency to
the rule text and enable market
participants to better understand the
operation of the Filter, and the
calculation that the Exchange applies to
incoming ECOs without altering the
operation of the Filter.
Second, the Exchange proposes to
modify its explanation of how the
Specified Amount may be adjusted
based on the characteristics of the ECO.
Currently, paragraphs (b)–(d) of
Commentary .05 describe how the Filter
‘‘will be applied by’’ the Specified
Amount, which Specified Amount is
multiplied by the component of the leg
ratio that the leg of the order
8 See Rule 900.2NY(41)(b) (defining Complex
NBBO as ‘‘the NBBO for a given complex order
strategy as derived from the national best bid and
national best offer for each individual component
series of a Complex Order’’). See also Securities and
Exchange Act Release No. 73284 (October 1, 2014),
79 FR 60560 (October 7, 2014) (SR–NYSEMKT–
2014–84) (Notice of filing and immediate
effectiveness of proposed rule change to codify the
term Complex NBBO).
9 See proposed Commentary .05(a) to Rule
980NY.
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represents.10 The result is that the
Specified Amount may change
depending on the product of
multiplying it by the component of the
ECO ratio that the leg of the order
represents, although the rule text does
not explicitly state this fact.11 The
Exchange proposes to modify the rule
text to make clear that the Specified
Amount may be adjusted, which, in turn
may affect how the Filter ‘‘will be
applied.’’ As with the proposed
modification to the description of how
the Filter operates, this modification
further clarifies (but does not alter) the
operation of the Filter. The Filter would
continue to prevent the execution of
aggressively-priced ECOs that may
cause significant price dislocation in the
market. Specifically, the Exchange
proposes to add new paragraph (b) to
Commentary .05 to provide that ‘‘[t]he
Specified Amount may be adjusted
based on the ratios and the MPVs of the
legs of the [ECO].’’ 12 The Exchange then
proposes to renumber current
paragraphs (b)–(d) of Commentary .05 to
be sub-points (i)–(iii) to new paragraph
(b) and to clarify in each sub-point how
the Specified Amount will be
adjusted.13
Current paragraph (b) to Commentary
.05 provides that for ECOs ‘‘that are
entered on a 1x1 ratio, the Price
Protection Filter will be applied by the
Specified Amount (.10, .15, or .30),’’
which, as noted above, means the Filter
would be multiplied by the Specified
Amount. In ECOs with a 1x1 ratio, the
product of this multiplication would
always result in .10, .15, or .30. Thus,
the Exchange proposes to clarify this
paragraph to provide that for ECOs ‘‘that
are entered on a 1x1 ratio, the Specified
Amount is not adjusted (.10, .15, or
.30).’’ 14 The Exchange believes this
proposed modification makes clear that
the Specified Amount remains
unadjusted for ECOs entered on a 1x1
ratio, which is consistent with the
current rule text, but not explicitly
stated.
In addition, current paragraph (c) to
Commentary .05 provides that for ECOs
‘‘that are entered on an uneven ratio
(2x3 for example) where the MPV on all
legs is the same, the Price Protection
10 See
Commentary .05(b)–(d) to Rule 980NY.
id. See also supra note 7, Original Release
78 FR at 62919 (providing examples of how the
Filter operates depending upon the leg ratio of the
ECO).
12 See proposed Commentary .05(b) to Rule
980NY.
13 Consistent with this proposed change, the
Exchange also proposes to redesignate paragraphs
(e) and (f) of Commentary .05 to be paragraphs (c)
and (d), respectively.
14 See proposed Commentary .05(b)(i) to Rule
980NY.
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11 See
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Filter will be applied by the Specified
Amount multiplied by the smallest
contract size leg of the ratio (.20, .30, or
.60 on a 2x3 for example)’’.15 Rather
than state that ‘‘the Filter will be
applied by the Specified Amount
multiplied by the smallest contract size
leg of the ratio,’’ the Exchange proposes
to clarify how the Specified Amount is
adjusted, which is a more
straightforward construction that the
Exchange believes is easier to
comprehend. Specifically, the Exchange
proposes to clarify that for ECOs that are
entered on an uneven ratio (2x3 for
example) where the MPV on all legs is
the same, ‘‘the Specified Amount is
adjusted by multiplying the component
of the ratio represented by the smallest
leg of the order by the Specified
Amount (i.e., .20 is the adjusted
Specified Amount for a 2x3 Electronic
Complex Order with an MPV of .01 on
both legs because .20 (2 × .10) is less
than .30 (3 × .10) for example).’’ 16
Further, current paragraph (d) to
Commentary .05 provides that for ECOs
‘‘that are entered on an uneven ratio
where the MPV of the legs are not the
same (2x3 ratio with a .10 MPV and .05
MPV for example), the Price Protection
Filter will be applied by taking the
lesser of; the Specified Amount
applicable to the smallest size leg of the
Electronic Complex Order multiplied by
the contract size of that leg (.60 in this
example), or the Specified Amount of
the largest size leg of the Electronic
Complex Order multiplied by the
contract size of that leg (.45 in this
example).’’ 17 Utilizing the same
calculation set forth in proposed
paragraph (b)(ii) to Commentary .05, the
Exchange likewise proposes to clarify
how the Specified Amount is adjusted
for ECOs that are entered on an uneven
ratio where the MPV of the legs is not
the same (a two-legged order with a 2x3
ratio where the first leg has a .10 MPV
and the second leg has a .05 MPV for
example). As proposed, ‘‘the Specified
Amount is equal to the smallest amount
calculated by multiplying, for each leg
of the order, the Specified Amount for
the leg of the order by the component
of the ratio represented by that leg of the
order (i.e., .45 is the adjusted Specified
Amount in this example because .45 (3
× .15) is less than .60 (2 × .30).’’ 18
The Exchange believes that proposed
paragraph (b) and sub-paragraphs (i)–
(iii) clarify that the Specified Amount is
15 See
16 See
Commentary .05(c) to Rule 980NY.
proposed Commentary .05(b)(ii) to Rule
980NY.
17 See Commentary .05(c) to Rule 980NY.
18 See proposed paragraph (b)(iii) of Commentary
.05 to Rule 980NY.
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adjusted based on the characteristics of
the ECO, which is consistent with the
current rule text but not stated
explicitly. The Exchange believes this
change, in turn, further clarifies (but
does not alter) the operation of the Filter
making it easier for market participants
to understand.
To illustrate that the proposed
modifications do not alter the operation
of the Filter, the Exchange has applied
the description of the Filter to the
examples that the Exchange relied upon
when the [sic] it introduced the Filter in
2013.19
Example #1: Proposed Rule
980NY(a),(b)
Jan 20 calls—NBBO 2.00–2.10
Jan 25 calls—NBBO 1.05–1.20
The Exchange receives an incoming
ECO to buy Jan 20 calls and sell Jan 25
calls on a 1x1 ratio, with a net debit
price of 1.25. All legs have an MPV of
.05. In this case the contra-side Complex
NBBO is offered at a net credit of 1.05
(this price is established by selling one
Jan 20 for 2.10 and buying one Jan 25
for 1.05).
The ECO would be automatically
rejected if the sum of the following is
less than zero ($0.00):
(i) The net debit limit price of the
order, in this case ¥1.25;
(ii) the contra-side Complex NBBO for
that same Complex Order, in this case
a net credit of 1.05;
(iii) and Specified Amount, in this
case .15, as all legs have an MPV of .05.
The Filter would reject the ECO in
this example back to the entering ATP
holder because the sum is less than zero
(¥1.25 + 1.05 + .15 = ¥.05).20
Example #2: Proposed Rule
980NY(a),(b)(i)
Jan 20 calls—NBBO 5.00–5.30
Jan 25 calls—NBBO 2.10–2.20
The Exchange receives an incoming
ECO to buy Jan 20 calls and sell Jan 25
calls on a 1x1 ratio, with a net debit
price of 3.60. The leg markets have
different MPVs—.05. and .10. In this
case, the contra-side Complex NBBO is
offered at a net credit of 3.20 (this price
is established by selling one Jan 20 for
5.30 and buying one Jan 25 for 2.10).
The ECO would be automatically
rejected if the sum of the following is
less than zero ($0.00):
19 See supra note 7, Original Release, 78 FR at
62918–19 (setting froth [sic] five examples to
illustrate the operation of the Filter).
20 Per the Original Release, the ECO in this
example was rejected by the Filter because the
‘‘contra-side [Complex] NBBO of 1.05 is better than
the limit price of the [ECO] by .20, which exceeds
the Filter setting of .15.’’ See supra, note 7, Original
Release, 78 FR at 62918.
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(i) The net debit limit price of the
order, in this case ¥3.60;
(ii) the contra-side Complex NBBO for
that same Complex Order, in this case
a net credit of 3.20;
(iii) and Specified Amount, in this
case .15 (i.e., because the smallest MPV
of any leg of the 1x1 ECO is .05; the
other leg of the ECO has a larger MPV
of .10).
The Exchange notes that, in this
example, where the ECO is on a 1x1
ratio and the first leg has a .05 MPV and
the second leg has a .10 MPV, the
Specified Amount would be determined
by the smallest MPV of any leg of the
ECO. Thus, because the smallest MPV of
this ECO is .05, the Specified Amount
is .15 (as opposed to a Specified
Amount of .30, which would be the
Specified Amount if the smallest MPV
of any leg of an ECO is .10). The Filter
would reject the ECO in this example
back to the entering ATP holder because
the sum is less than zero (¥3.60 + 3.20
+ .15 = ¥.25).21
Example #3: Proposed Rule
980NY(a),(b)(i)
Jan 20 calls—NBBO 2.03–2.08
Jan 25 calls—NBBO 1.00–1.01
The Exchange receives an incoming
Electronic Complex Order to sell Jan 20
calls and buy Jan 25 calls on a 1x1 ratio,
with a net credit price of .90. All legs
have the same MPV of .01: In this case
the contra-side Complex NBBO market
is priced at a net debit of 1.02 (this price
is established by buying one Jan 20 for
2.03 and selling one Jan 25 for 1.01).
The ECO would be automatically
rejected if the sum of the following is
less than zero ($0.00):
(i) The net credit limit price of the
order, in this case .90;
(ii) the contra-side Complex NBBO for
that same Complex Order, in this case
a net debit of ¥1.02;
(iii) and Specified Amount, in this
case .10, because all legs have an MPV
of .01.
The Filter would reject the ECO in
this example back to the entering ATP
holder because the sum is less than zero
(.90 + (¥1.02) + .10 = ¥.02).22
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Example #4: Proposed Rule
980NY(a),(b)(ii)
Jan 20 calls—NBBO 2.03–2.08
21 Per the Original Release, the ECO in this
example was rejected by the Filter because the
‘‘contra-side [Complex] NBBO of 1.05 is better than
the limit price of the [ECO] by .40, which exceeds
the Filter setting of .15.’’ See supra, note 7, Original
Release, 78 FR at 62918.
22 Per the Original Release, the ECO in this
example was rejected by the Filter because the
‘‘contra-side [Complex] NBBO of 1.02 is better than
the limit price of the [ECO] by .12, which exceeds
the Filter setting of .10.’’ See supra, note 7, Original
Release, 78 FR at 62919.
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Jan 25 calls—NBBO 1.00–1.02
The Exchange receives an incoming
ECO to sell Jan 20 calls and buy Jan 25
calls, on a 2x3 ratio, with a net credit
price of .75. All legs have the same MPV
of .01. In this case the contra-side
Complex NBBO market is priced at a net
debit of 1.00 (this price is established by
buying two Jan 20s for 2.03 each and
selling three Jan 25s for 1.02 each (4.06–
3.06 = 1.00)).
The ECO would be automatically
rejected if the sum of the following is
less than zero ($0.00):
(i) The net credit limit price of the
order, in this case .75;
(ii) the contra-side Complex NBBO for
that same Complex Order, in this case
a net debit of ¥1.00;
(iii) and Specified Amount, in this
case .20 (i.e., .10 (as the MPV of both
legs is .01) × 2 (the component of the
ratio represented by the smallest leg of
the order) = .20).
The Exchange notes that, in this
example, where the ECO is on a 2x3
ratio and the MPVs on all legs is the
same, the Specified Amount is adjusted
by multiplying the component of the
ratio represented by the smallest leg of
the order by the Specified Amount (i.e.,
.20 in this example where the MPV on
both legs is .01 because .20 (2 × .10) is
less than .30 (3 × .10).
The Filter would reject the ECO in
this example back to the entering ATP
holder because the sum is less than zero
(.75 + (¥1.00) + .20 = ¥.05).23
Example #5: Proposed Rule
980NY(a),(b)(iii)
Jan 20 calls—NBBO 4.10–4.20
Jan 25 calls—NBBO 1.90–2.00
The Exchange receives an incoming
ECO to sell Jan 20 calls and buy Jan 25
calls, on a 2x3 ratio, with a net credit
price of 1.50. The leg markets have
different MPVs—.05. and .10,
respectively. In this case the contra-side
Complex NBBO market is priced at a net
debit of 2.20 (this price is established by
buying two Jan 20s for 4.10 each and
selling three Jan 25s for 2.00 each
(8.20¥6.00 = 2.20)).
The ECO would be automatically
rejected if the sum of the following is
less than zero ($0.00):
(i) The net credit limit price of the
order, in this case 1.50;
(ii) the contra-side Complex NBBO for
that same Complex Order, in this case
a net debit of ¥2.20;
(iii) and Specified Amount, in this
case .45 (i.e.,.45 is equal to the smallest
23 Per the Original Release, the ECO in this
example was rejected by the Filter because the
‘‘contra-side [Complex] NBBO of 1.00 is better than
the limit price of the [ECO] by .25, which exceeds
the Filter setting of .20.’’ See supra, note 7, Original
Release, 78 FR at 62919.
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78221
amount calculated by multiplying, for
each leg of the order, the Specified
Amount for the leg of the order by the
component of the ratio represented by
that leg of the order, which yields either
.60 (2 × .30 = .60) or .45 (3 × .15 = .45)).
The Exchange notes that, in this
example, where the ECO is on a 2x3
ratio and the MPV of the legs is not the
same, the Specified Amount is equal to
the smallest amount calculated by
multiplying, for each leg of the order,
the Specified Amount for the leg of the
order by the component of the ratio
represented by that leg of the order (i.e.,
.45 is the adjusted Specified Amount in
this example because .45 (3 × .15) is less
than .60 (2 × .30)).
The Filer would reject this order back
to the entering ATP holder because the
sum is less than zero (1.50 + (¥2.20 +
.45 = ¥.25).24
Example #6: Proposed 980NY(a),(b) 25
Jan 20 calls—NBBO 2.00–2.10
Jan 25 calls—NBBO 1.05–1.20
The Exchange receives an incoming
ECO to buy Jan 20 calls and sell Jan 25
calls on a 1x1 ratio, with a net debit
price of 1.19. All legs have an MPV of
.05. In this case the contra-side Complex
NBBO is offered at a net credit of 1.05
(this price is established by selling one
Jan 20 for 2.10 and buying one Jan 25
for 1.05).
The ECO would be automatically
rejected if the sum of the following is
less than zero ($0.00):
(i) the net debit limit price of the
order, in this case ¥1.19;
(ii) the contra-side Complex NBBO for
that same Complex Order, in this case
a net credit of 1.05;
(iii) and Specified Amount, in this
case .15, as all legs have an MPV of .05.
The Filter would not reject the ECO
in this example because the sum is zero
or greater (¥1.19 + 1.05 + .15 = .01).26
The ECO would be sent to the CME for
processing and potential execution.27
24 Per the Original Release, the ECO in this
example was rejected by the Filter because the
‘‘contra-side [Complex] NBBO of 2.20 is better than
the limit price of the [ECO] by .70, which exceeds
the Filter setting of .45.’’ See supra, note 7, Original
Release, 78 FR at 62919.
25 The Exchange notes that Example #6 is new to
this filing and was not included in the Original
Release, as the Original Release did not include an
example of an ECO that was not rejected by the
Filter.
26 Per the Original Release, the ECO in this
example was rejected by the Filter because the
‘‘contra-side [Complex] NBBO of 1.05 is better than
the limit price of the [ECO] by .20, which exceeds
the Filter setting of .15.’’ See supra, note 7, Original
Release, 78 FR at 62923.
27 See supra, note 5 (citing Rule 980NY(a)
regarding processing of incoming ECOs).
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Extending the Operation of the Filter
The Exchange also proposes to modify
paragraph (a) of Commentary .05 to Rule
980NY to expand the application of the
Filter to ECOs received prior to the
opening of trading or during a trading
halt. The current Filter is applied only
to those ECOs entered during Core
Trading Hours.28 As proposed, for each
ECO received pre-open or during a
trading halt, the Exchange would apply
the Filter at the time all the individual
component option series open or
reopen, provided there is an NBBO
market disseminated by OPRA for all
individual component option series of
the ECO. In this regard, the Exchange
proposes to modify paragraph (e) of
Commentary .05 of the Rule to remove
reference to ‘‘incoming’’ and ‘‘at the
time the order is received by the
Exchange,’’ to signify that the Filter is
being applied to ECOs received outside
of Core Trading Hours.29 Further,
because ECOs received pre-open or
during a halt cannot immediately
execute, these ECOs would be placed in
the Consolidated Book until the series
opens or resumes trading, at which time
the Filter would be applied before the
ECO is eligible to trade.30 Any ECOs
that deviate from the current market by
too great an amount, as set forth in the
rule, would be canceled, as opposed to
being immediately rejected upon receipt
(as are ECOs received during Core
Trading Hours).31 The reason such
ECOs would be cancelled (and not
rejected) is because the CME would
accept these orders and, once accepted
but not immediately executed, they
would be placed on the Consolidated
Book until the individual component
option series open or reopen.32 The
CME would not reject an ECO that it
had previously accepted, and therefore
such ECOs would be cancelled instead.
The order sender would be notified of
the cancellation. The proposed
enhancement to the Filter is designed to
provide the same level of protection to
market participants who enter ECOs
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28 Rule
900.3NY(15) defines Core Trading Hours
as the regular trading hours for business set forth
in the rules of the primary markets underlying those
option classes listed on the Exchange. An order
received prior to the opening of trading would be
outside of Core Trading Hours. Rule 953NY
describes halts and suspensions of trading, which
may occur during Core Trading Hours.
29 See also proposed Commentary .05(e) to Rule
980NY. For internal consistency, the Exchange also
proposes to refer to ‘‘individual component option
series’’ in the proposed paragraph. See id.
30 See, e.g., Rule 980NY(a) (‘‘[ECOs] that are not
immediately executed by the CME are routed to the
Consolidated Book’’).
31 See proposed Commentary .05(a) to Rule
980NY.
32 See supra note 30.
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before the open or during a trading halt
as is currently provided to ECOs
received during Core Trading Hours. As
proposed, the enhanced Filter would
further assist the Exchange in
preventing the execution of ECOs priced
so far away from the prevailing contraside NBBO market for the same strategy
that the execution of such order could
cause significant price dislocation in the
market.
Additional Conforming Changes
Finally, the Exchange proposes to
make several conforming changes to
Rule 980NY(c)(i)(B) (Execution of
Complex Orders at the Open), which are
consistent with the proposal to
incorporate the defined term Complex
NBBO in proposed Commentary .05(a).
First, the Exchange proposes to delete as
duplicative the definition of the
Complex NBBO that appears in Rule
980NY(c)(i)(B), as the term is now a
defined in Rule 900.2NY(41)(b).33 The
Exchange also proposes to delete as
extraneous the word ‘‘derived,’’ which
precedes references to ‘‘Complex
NBBO.’’ 34 The Exchange notes that Rule
980NY(c)(i)(B) was updated to include
the concept of the Complex NBBO
before the Exchange codified this
definition and the proposed changes
would therefore streamline the rule text
and remove redundancy from Exchange
rules.35
Implementation
The Exchange will announce by
Trader Update the implementation date
of the proposed rule change to expand
the application of the Filter to ECOs
received prior to the opening of trading
or during a trading halt.
2. Statutory Basis
The Exchange believes that its
proposal is consistent with Section 6(b)
of the Securities Exchange Act of 1934
(the ‘‘Act’’),36 in general, and furthers
the objectives of Section 6(b)(5) of the
Act,37 in particular, in that it is designed
33 Specifically, the Exchange proposes to delete
the following text from Rule 980NY(c)(i)(B): ‘‘The
derived Complex NBBO is calculated by using best
prices for the individual leg markets comprising the
Electronic Complex Order as disseminated by
OPRA that when aggregated create a derived
Complex NBBO for that same strategy The
Exchange believes these changes would add clarity,
transparency and internal consistency to Exchange
rules.’’
34 See proposed Rule 980NY(c)(i)(B).
35 See Securities and Exchange Act Release No.
72084 (May 2, 2014) 79 FR 26470(May 8, 2014)
(SR–NYSEMKT–2014–42) (Notice of filing and
immediate effectiveness of proposed rule change to
adopt rules governing an opening auction process
for ECOs, including reference to the ‘‘Complex
NBBO’’).
36 15 U.S.C. 78f(b).
37 15 U.S.C. 78f(b)(5).
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Sfmt 4703
to prevent fraudulent and manipulative
acts and practices, 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 that this
proposed rule change would allow the
Filter to continue to assist with the
maintenance of fair and orderly market
by helping to mitigate the risks
associated with the execution of ECOs
priced away from the current market by
the Specified Amount, which protects
investors from receiving potentially
erroneous executions. In addition, the
proposed modifications would add
specificity and more clearly convey the
operation of the Filter, which added
clarity and transparency would enable
market participants to better understand
the operation of the Filter. Specifically,
the proposal to modify existing rule text
to more clearly state how the Filter is
applied and to consistently incorporate
the defined term ‘‘Complex NBBO’’
would remove impediments to and
perfect the mechanism of a free and
open market and protect investors and
the public interest because such changes
would reduce redundancy and add
clarity, transparency and internal
consistency to Exchange rules.
Further, the Exchange believes the
proposal to make explicit that the
Specified Amount is adjusted based on
the characteristics of the ECO, which is
consistent with the current rule text,
would further clarify (without altering)
the operation of the Filter making it
easier for market participants to
understand, which would protect
investors and the public interest.
The proposal to extend the
application of the Filter beyond ECOs
entered during Core Trading Hours is
designed to help maintain a fair and
orderly market by providing market
participants entering ECOs with
additional protection from anomalous
executions. Because the proposed Filter
would apply to all ECOs, not just those
entered during Core Trading Hours
(absent a trading halt), the proposal
would enhance the protection offered by
the Filter and aid in mitigating the
potential risks associated with the
execution of any ECOs that are priced a
Specified Amount away from the
prevailing contra-side market. The
proposed rule change would therefore
remove impediments to and perfect the
mechanism of a free and open market
and national market system by ensuring
that an existing price protection would
be applicable to all ECOs, regardless of
when they are entered.
E:\FR\FM\07NON1.SGM
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Federal Register / Vol. 81, No. 215 / Monday, November 7, 2016 / Notices
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 Exchange is proposing to enhance
an existing price protection Filter to
provide greater protections from
potentially erroneous executions and
potentially reduce the attendant risks of
such executions to market participants.
Therefore, the Exchange believes that
the proposal should provide an
incentive for market participants to
enter executable interest in the CME
that can help foster price discovery and
transparency thereby benefiting all
market participants. The proposal is
structured to offer the same
enhancement to all market participants,
regardless of account type, and will not
impose a competitive burden on any
participant.
The Exchange does not believe that
the proposed enhancement would
impose a burden on competing options
exchanges. Rather, the availability of
this enhanced Filter may foster more
competition. Specifically, the Exchange
notes that it operates in a highly
competitive market in which market
participants can readily favor competing
venues. When an exchange offers
enhanced functionality that
distinguishes it from the competition
and participants find it useful, it has
been the Exchange’s experience that
competing exchanges will move to
adopt similar functionality. Thus, the
Exchange believes that this type of
competition amongst exchanges is
beneficial to the market place as a whole
as it can result in enhanced processes,
functionality, and technologies.
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.
sradovich on DSK3GMQ082PROD with NOTICES
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
The Exchange has filed the proposed
rule change pursuant to Section
19(b)(3)(A) of the Act 38 and Rule 19b–
4(f)(6) thereunder.39 Because the
38 15
U.S.C. 78s(b)(3)(A).
CFR 240.19b–4(f)(6). In addition, Rule
19b&4(f)(6)(iii) requires the Exchange to give the
Commission written notice of the Exchange’s intent
to file the proposed rule change, along with a brief
description and text of the proposed rule change,
39 17
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16:02 Nov 04, 2016
Jkt 241001
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
prior to 30 days from the date on which
it was filed, or such shorter time as the
Commission may designate, if
consistent with the protection of
investors and the public interest, the
proposed rule change has become
effective pursuant to Section 19(b)(3)(A)
of the Act and Rule 19b&4(f)(6)(iii)
thereunder.
A proposed rule change filed under
Rule 19b–4(f)(6) 40 normally does not
become operative prior to 30 days after
the date of the filing. However, pursuant
to Rule 19b–4(f)(6)(iii),41 the
Commission may 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 30-day
operative delay so that the proposal may
become operative immediately upon
filing. The Exchange believes that
waiver of the operative delay would be
consistent with the protection of
investors and the public interest
because it would enable the Exchange to
enhance an existing price protection
Filter. Although the Exchange would
cancel, as opposed to reject, an ECO
received pre-open or during a halt that
was deemed too aggressively priced by
the Filter, the Exchange does not believe
this operational distinction would
prevent waiver of the operative delay.
Rather, the Exchange believes that the
proposed change would allow for the
expansion of the Filter so that it would
apply to ECOs submitted prior to the
open of trading or during a trading halt
when the individual component option
series open or reopen. Thus, the
Exchange believes that waiver of the
operative delay would protect investors
by enabling the Exchange to provide
greater protections from potentially
erroneous executions and potentially
reduce the attendant risks of such
executions to market participants. In
addition, the Exchange could
implement, without delay, the proposed
clarifications to add transparency
regarding how the Filter operates,
including how the Specified Amount
may be adjusted based on the
characteristics of the ECO.
The Commission believes that
waiving the 30-day operative delay is
consistent with the protection of
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.
40 17 CFR 240.19b–4(f)(6).
41 17 CFR 240.19b–4(f)(6)(iii).
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Fmt 4703
Sfmt 4703
78223
investors and the public interest. The
Commission notes that the proposal will
extend the existing price protection
Filter, which currently applies only to
ECOs received during Core Trading
Hours, to ECOs received during the preopen or during a trading halt. As noted
above, the Filter is designed to protect
investors from receiving anomalous or
potentially erroneous executions. The
proposal also provides for consistent
use of defined terms in the Exchange’s
rules and clarifies the operation of the
Filter, including the calculation of the
Specified Amount, without altering the
operation of the Filter. Accordingly, the
Commission finds that waiving the 30day operative delay is consistent with
investors and the public interest and
designates the proposal operative upon
filing.42
At any time within 60 days of the
filing of such proposed rule change, the
Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is necessary or appropriate in the
public interest, for the protection of
investors, or otherwise in furtherance of
the purposes of the Act. If the
Commission takes such action, the
Commission shall institute proceedings
under Section 19(b)(2)(B) 43 of the Act to
determine whether the proposed rule
change 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 rulecomments@sec.gov. Please include File
Number SR–NYSEMKT–2016–98 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–NYSEMKT–2016–98. This
file number should be included on the
subject line if email is used. To help the
42 For purposes only of waiving the 30-day
operative delay, the Commission has considered the
proposed rule’s impact on efficiency, competition,
and capital formation. 15 U.S.C. 78c(f).
43 15 U.S.C. 78s(b)(2)(B).
E:\FR\FM\07NON1.SGM
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78224
Federal Register / Vol. 81, No. 215 / Monday, November 7, 2016 / Notices
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–
NYSEMKT–2016–98 and should be
submitted on or before November 28,
2016.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.44
Brent J. Fields,
Secretary.
[FR Doc. 2016–26795 Filed 11–4–16; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–79212; File No. SR–OCC–
2016–013]
Self-Regulatory Organizations; The
Options Clearing Corporation; Notice
of Filing of Proposed Rule Change
Concerning the Options Clearing
Corporation’s Margin Coverage During
Times of Increase Volatility
sradovich on DSK3GMQ082PROD with NOTICES
November 1, 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 October
18, 2016, The Options Clearing
Corporation (‘‘OCC’’) filed with the
Securities and Exchange Commission
44 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
VerDate Sep<11>2014
16:02 Nov 04, 2016
Jkt 241001
(‘‘Commission’’) the proposed rule
change as described in Items I, II and III
below, which Items have been prepared
by OCC. The Commission is publishing
this notice to solicit comments on the
rule change from interested persons.
I. Clearing Agency’s Statement of the
Terms of Substance of the Proposed
Rule Change
This proposed rule change by OCC
would modify the current process for
systematically monitoring market
conditions and performing adjustments
to its margin coverage when current
market volatility increases beyond
historically observed levels.
II. Clearing Agency’s Statement of the
Purpose of, and Statutory Basis for, the
Proposed Rule Change
In its filing with the Commission,
OCC 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. OCC has prepared
summaries, set forth in sections (A), (B),
and (C) below, of the most significant
aspects of these statements.
(A) Clearing Agency’s Statement of the
Purpose of, and Statutory Basis for, the
Proposed Rule Change
1. Purpose
OCC’s margin methodology, the
System for Theoretical Analysis and
Numerical Simulations (‘‘STANS’’), is
OCC’s proprietary risk management
system that calculates Clearing
Members’ 3 margin requirements.4
STANS utilizes large-scale Monte Carlo
simulations to forecast price movement
and correlations in determining a
Clearing Member’s margin
requirement.5 The STANS margin
requirement is a portfolio calculation at
the level of Clearing Member legal entity
marginable net positions tier account
(tiers can be customer, firm, or market
marker) and consists of an estimate of
99% 2-day expected shortfall and an
add-on for model risk (the
concentration/dependence stress test
charge).
The majority of risk factors utilized in
the STANS methodology are total
returns on individual equity securities.
Other risk factors considered include:
Returns on equity indices; changes in
3 See
OCC By-Laws Article 1(C)(14).
Securities Exchange Act Release No. 53322
(February 15, 2006), 71 FR 9403 (February 23, 2006)
(SR–OCC–2004–20). A detailed description of the
STANS methodology is available at https://
optionsclearing.com/risk-management/margins/.
5 See OCC Rule 601.
4 See
PO 00000
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Sfmt 4703
the calibrated coefficients of a model
describing the yield curve for U.S.
government securities; ‘‘returns’’ on the
nearest-to-expiration futures contracts of
various kinds; and changes in foreign
exchange rates. For the volatility of each
risk factor, the Monte Carlo simulations
use the greater of: (i) The short-term
volatility level predicted by the model;
and (ii) an estimate of its longer-run
level. In between the monthly reestimations of all the models, volatilities
are automatically re-scaled to the greater
of the short-term or the longer-run levels
to mitigate pro-cyclicality 6 in the
margin levels. (This daily volatility
measure is called the ‘‘uniform scale
factor.’’) The uniform scale factor is a
multiplier used in connection with
STANS calculations to account for,
among other things, the difference
between short-term and long-term
volatility forecasts for equities. It is
specifically defined as the ratio of longrun volatility (10Y+) over short-run
volatility (2Y). It is used to ‘‘scale up’’
the short-run volatility of the securities
(e.g., IBM) that are subject to monthly
update, in order to estimate long-run
volatility. It is also used to capture data
gaps between monthly updates.
An approach employed by OCC to
mitigate pro-cyclicality within STANS
is to estimate market volatility based on
current market conditions (‘‘current
market estimate’’) and compare this
current market estimate to a long-run
estimate of market volatility (‘‘long-run
market estimate’’). This comparison
utilizes certain market benchmarks (or
factors), which serve as proxies for the
overall volatility of an asset class or
group of products. If the long-run
market estimate for a factor is found to
be greater than the current market
estimate, the volatility estimates for all
products tied to that factor are adjusted
(or scaled) up in a manner proportionate
to the relationship between the current
market volatility and the long-run
market volatility for that factor.
Current STANS includes a single
factor (‘‘uniform scale factor’’), which
serves as the proxy for the equity asset
class. This uniform scale factor is
calibrated based on changes in the
volatility of the Standard & Poor’s 500®
Index (‘‘SPX’’) and applied to all
‘‘equity-based products’’ in the manner
described above. Currently, the uniform
scale factor is the only scale factor used
in STANS. The proposed change is
intended to enhance the STANS margin
calculations by providing for the
capability to increase the number of
6 A quality that is positively correlated with the
overall state of the economy is deemed to be procyclical.
E:\FR\FM\07NON1.SGM
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]]>Agencies
[Federal Register Volume 81, Number 215 (Monday, November 7, 2016)]
[Notices]
[Pages 78219-78224]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-26795]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-79213; File No. SR-NYSEMKT-2016-98]
Self-Regulatory Organizations; NYSE MKT LLC; Notice of Filing and
Immediate Effectiveness of Proposed Rule Change Amending Commentary .05
to Rule 980NY
November 1, 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 October 25, 2016, NYSE MKT LLC (the ``Exchange'' or
``NYSE MKT'') 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 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\ 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 Commentary .05 to Rule
980NY(Electronic Complex Order Trading) to enhance the price protection
filters applicable to electronically entered Complex Orders. 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 Commentary .05 to Rule 980NY to
enhance the Exchange's price protection filters applicable to
electronically entered Complex Orders,\4\ including by clarifying how
the functionality operates and expanding its application, as described
below.
---------------------------------------------------------------------------
\4\ Rule 900.3NY(e) defines a Complex Order as any order
involving the simultaneous purchase and/or sale of two or more
different option series in the same underlying security, for the
same account, in a ratio that is equal to or greater than one-to-
three (.333) and less than or equal to three-to-one (3.00) and for
the purpose of executing particular investment strategy.
---------------------------------------------------------------------------
Clarifying the Description of the Filter
Commentary .05 to Rule 980NY currently sets forth the Price
Protection Filter (the ``Filter'') applicable to each incoming
``Electronic Complex Order'' (or ``ECO'').\5\ The Filter automatically
rejects incoming ECOs with a price that deviates from the current
market by the Specified Amount,\6\ which varies depending on the
smallest MPV of any leg in the ECO.\7\
---------------------------------------------------------------------------
\5\ Per Rule 980NY, an ECO is a Complex Order that has been
entered into the NYSE Amex Options System (``System'') and routed to
the Complex Matching Engine (``CME'') for possible execution. The
CME is the mechanism in which ECOs are executed against each other
or against individual quotes and orders in the Consolidated Book.
ECOs that are not immediately executed by the CME are ranked in the
Consolidated Book. See Rule 980NY(a).
\6\ The Specified Amount is defined as: (i) .10 for orders where
the smallest Minimum Price Variation (``MPV'') of any leg of the
Electronic Complex Order is .01; (ii) .15 for orders where the
smallest MPV of any leg of the Electronic Complex Order is .05;
and.30 for orders where the smallest MPV of any leg of the
Electronic Complex Order is .10. See Commentary .05 to Rule 980NY.
\7\ See Commentary .05 to Rule 980NY(a). The Exchange notes that
each ECO is entered into the System at a net debit (credit) price
for the entire strategy and does not include specified prices for
any single series component (``leg'') of the ECO. See also
Securities and Exchange Act Release No. 70674 (October 11, 2013), 78
FR 62917 (October 22, 2013) (SR-NYSEMKT-2013-80) (Notice of filing,
which describes the operation of the Filter) (herein referred to as
the ``Original Release'').
---------------------------------------------------------------------------
First, the Exchange proposes to modify its description of how the
Filter operates to make it easier for market participants to
understand. Commentary .05 to Rule 980NY currently describes the Filter
as rejecting an ECO if ``the net debit/credit limit price of the order
is greater (less) than the derived net debit/credit NBBO for the
contra-side of that same strategy by an amount specified by the
Exchange (`Specified Amount').'' The Exchange proposes to replace
references to the ``derived contra-side net debit/credit NBBO'' with
the ``contra-side Complex NBBO,'' as the Exchange has defined Complex
NBBO since implementing the Filter.\8\ This proposed modification would
not affect the operation of the rule. Rather, the Exchange believes
this change would reduce redundancy and add internal consistency to
Exchange rules. Further, regarding the description of how the Filter
operates, the Exchange proposes to provide that the Filter would reject
an ECO back to the submitting ATP Holder if the sum of the following
would be less than zero ($0.00):
---------------------------------------------------------------------------
\8\ See Rule 900.2NY(41)(b) (defining Complex NBBO as ``the NBBO
for a given complex order strategy as derived from the national best
bid and national best offer for each individual component series of
a Complex Order''). See also Securities and Exchange Act Release No.
73284 (October 1, 2014), 79 FR 60560 (October 7, 2014) (SR-NYSEMKT-
2014-84) (Notice of filing and immediate effectiveness of proposed
rule change to codify the term Complex NBBO).
---------------------------------------------------------------------------
(i) The net debit (credit) limit price of the order,
(ii) the contra-side Complex NBBO for that same Complex Order, and
(iii) the Specified Amount.\9\
---------------------------------------------------------------------------
\9\ See proposed Commentary .05(a) to Rule 980NY.
---------------------------------------------------------------------------
The proposed modification does not alter how the Filter is applied.
The Filter would continue to help prevent the execution of
aggressively-priced ECOs (i.e., priced so far away from the prevailing
contra-side NBBO market for the same strategy) that could cause
significant price dislocation in the market. The Exchange would
continue to apply the Filter to help ensure that market participants do
not receive an execution at a price significantly inferior to the
contra-side NBBO. However, the proposed modification would add
specificity and more clearly convey the operation of the Filter. The
Exchange believes this proposed change would add clarity and
transparency to the rule text and enable market participants to better
understand the operation of the Filter, and the calculation that the
Exchange applies to incoming ECOs without altering the operation of the
Filter.
Second, the Exchange proposes to modify its explanation of how the
Specified Amount may be adjusted based on the characteristics of the
ECO. Currently, paragraphs (b)-(d) of Commentary .05 describe how the
Filter ``will be applied by'' the Specified Amount, which Specified
Amount is multiplied by the component of the leg ratio that the leg of
the order
[[Page 78220]]
represents.\10\ The result is that the Specified Amount may change
depending on the product of multiplying it by the component of the ECO
ratio that the leg of the order represents, although the rule text does
not explicitly state this fact.\11\ The Exchange proposes to modify the
rule text to make clear that the Specified Amount may be adjusted,
which, in turn may affect how the Filter ``will be applied.'' As with
the proposed modification to the description of how the Filter
operates, this modification further clarifies (but does not alter) the
operation of the Filter. The Filter would continue to prevent the
execution of aggressively-priced ECOs that may cause significant price
dislocation in the market. Specifically, the Exchange proposes to add
new paragraph (b) to Commentary .05 to provide that ``[t]he Specified
Amount may be adjusted based on the ratios and the MPVs of the legs of
the [ECO].'' \12\ The Exchange then proposes to renumber current
paragraphs (b)-(d) of Commentary .05 to be sub-points (i)-(iii) to new
paragraph (b) and to clarify in each sub-point how the Specified Amount
will be adjusted.\13\
---------------------------------------------------------------------------
\10\ See Commentary .05(b)-(d) to Rule 980NY.
\11\ See id. See also supra note 7, Original Release 78 FR at
62919 (providing examples of how the Filter operates depending upon
the leg ratio of the ECO).
\12\ See proposed Commentary .05(b) to Rule 980NY.
\13\ Consistent with this proposed change, the Exchange also
proposes to redesignate paragraphs (e) and (f) of Commentary .05 to
be paragraphs (c) and (d), respectively.
---------------------------------------------------------------------------
Current paragraph (b) to Commentary .05 provides that for ECOs
``that are entered on a 1x1 ratio, the Price Protection Filter will be
applied by the Specified Amount (.10, .15, or .30),'' which, as noted
above, means the Filter would be multiplied by the Specified Amount. In
ECOs with a 1x1 ratio, the product of this multiplication would always
result in .10, .15, or .30. Thus, the Exchange proposes to clarify this
paragraph to provide that for ECOs ``that are entered on a 1x1 ratio,
the Specified Amount is not adjusted (.10, .15, or .30).'' \14\ The
Exchange believes this proposed modification makes clear that the
Specified Amount remains unadjusted for ECOs entered on a 1x1 ratio,
which is consistent with the current rule text, but not explicitly
stated.
---------------------------------------------------------------------------
\14\ See proposed Commentary .05(b)(i) to Rule 980NY.
---------------------------------------------------------------------------
In addition, current paragraph (c) to Commentary .05 provides that
for ECOs ``that are entered on an uneven ratio (2x3 for example) where
the MPV on all legs is the same, the Price Protection Filter will be
applied by the Specified Amount multiplied by the smallest contract
size leg of the ratio (.20, .30, or .60 on a 2x3 for example)''.\15\
Rather than state that ``the Filter will be applied by the Specified
Amount multiplied by the smallest contract size leg of the ratio,'' the
Exchange proposes to clarify how the Specified Amount is adjusted,
which is a more straightforward construction that the Exchange believes
is easier to comprehend. Specifically, the Exchange proposes to clarify
that for ECOs that are entered on an uneven ratio (2x3 for example)
where the MPV on all legs is the same, ``the Specified Amount is
adjusted by multiplying the component of the ratio represented by the
smallest leg of the order by the Specified Amount (i.e., .20 is the
adjusted Specified Amount for a 2x3 Electronic Complex Order with an
MPV of .01 on both legs because .20 (2 x .10) is less than .30 (3 x
.10) for example).'' \16\
---------------------------------------------------------------------------
\15\ See Commentary .05(c) to Rule 980NY.
\16\ See proposed Commentary .05(b)(ii) to Rule 980NY.
---------------------------------------------------------------------------
Further, current paragraph (d) to Commentary .05 provides that for
ECOs ``that are entered on an uneven ratio where the MPV of the legs
are not the same (2x3 ratio with a .10 MPV and .05 MPV for example),
the Price Protection Filter will be applied by taking the lesser of;
the Specified Amount applicable to the smallest size leg of the
Electronic Complex Order multiplied by the contract size of that leg
(.60 in this example), or the Specified Amount of the largest size leg
of the Electronic Complex Order multiplied by the contract size of that
leg (.45 in this example).'' \17\ Utilizing the same calculation set
forth in proposed paragraph (b)(ii) to Commentary .05, the Exchange
likewise proposes to clarify how the Specified Amount is adjusted for
ECOs that are entered on an uneven ratio where the MPV of the legs is
not the same (a two-legged order with a 2x3 ratio where the first leg
has a .10 MPV and the second leg has a .05 MPV for example). As
proposed, ``the Specified Amount is equal to the smallest amount
calculated by multiplying, for each leg of the order, the Specified
Amount for the leg of the order by the component of the ratio
represented by that leg of the order (i.e., .45 is the adjusted
Specified Amount in this example because .45 (3 x .15) is less than .60
(2 x .30).'' \18\
---------------------------------------------------------------------------
\17\ See Commentary .05(c) to Rule 980NY.
\18\ See proposed paragraph (b)(iii) of Commentary .05 to Rule
980NY.
---------------------------------------------------------------------------
The Exchange believes that proposed paragraph (b) and sub-
paragraphs (i)-(iii) clarify that the Specified Amount is adjusted
based on the characteristics of the ECO, which is consistent with the
current rule text but not stated explicitly. The Exchange believes this
change, in turn, further clarifies (but does not alter) the operation
of the Filter making it easier for market participants to understand.
To illustrate that the proposed modifications do not alter the
operation of the Filter, the Exchange has applied the description of
the Filter to the examples that the Exchange relied upon when the [sic]
it introduced the Filter in 2013.\19\
---------------------------------------------------------------------------
\19\ See supra note 7, Original Release, 78 FR at 62918-19
(setting froth [sic] five examples to illustrate the operation of
the Filter).
---------------------------------------------------------------------------
Example #1: Proposed Rule 980NY(a),(b)
Jan 20 calls--NBBO 2.00-2.10
Jan 25 calls--NBBO 1.05-1.20
The Exchange receives an incoming ECO to buy Jan 20 calls and sell
Jan 25 calls on a 1x1 ratio, with a net debit price of 1.25. All legs
have an MPV of .05. In this case the contra-side Complex NBBO is
offered at a net credit of 1.05 (this price is established by selling
one Jan 20 for 2.10 and buying one Jan 25 for 1.05).
The ECO would be automatically rejected if the sum of the following
is less than zero ($0.00):
(i) The net debit limit price of the order, in this case -1.25;
(ii) the contra-side Complex NBBO for that same Complex Order, in
this case a net credit of 1.05;
(iii) and Specified Amount, in this case .15, as all legs have an
MPV of .05.
The Filter would reject the ECO in this example back to the
entering ATP holder because the sum is less than zero (-1.25 + 1.05 +
.15 = -.05).\20\
---------------------------------------------------------------------------
\20\ Per the Original Release, the ECO in this example was
rejected by the Filter because the ``contra-side [Complex] NBBO of
1.05 is better than the limit price of the [ECO] by .20, which
exceeds the Filter setting of .15.'' See supra, note 7, Original
Release, 78 FR at 62918.
---------------------------------------------------------------------------
Example #2: Proposed Rule 980NY(a),(b)(i)
Jan 20 calls--NBBO 5.00-5.30
Jan 25 calls--NBBO 2.10-2.20
The Exchange receives an incoming ECO to buy Jan 20 calls and sell
Jan 25 calls on a 1x1 ratio, with a net debit price of 3.60. The leg
markets have different MPVs--.05. and .10. In this case, the contra-
side Complex NBBO is offered at a net credit of 3.20 (this price is
established by selling one Jan 20 for 5.30 and buying one Jan 25 for
2.10).
The ECO would be automatically rejected if the sum of the following
is less than zero ($0.00):
[[Page 78221]]
(i) The net debit limit price of the order, in this case -3.60;
(ii) the contra-side Complex NBBO for that same Complex Order, in
this case a net credit of 3.20;
(iii) and Specified Amount, in this case .15 (i.e., because the
smallest MPV of any leg of the 1x1 ECO is .05; the other leg of the ECO
has a larger MPV of .10).
The Exchange notes that, in this example, where the ECO is on a 1x1
ratio and the first leg has a .05 MPV and the second leg has a .10 MPV,
the Specified Amount would be determined by the smallest MPV of any leg
of the ECO. Thus, because the smallest MPV of this ECO is .05, the
Specified Amount is .15 (as opposed to a Specified Amount of .30, which
would be the Specified Amount if the smallest MPV of any leg of an ECO
is .10). The Filter would reject the ECO in this example back to the
entering ATP holder because the sum is less than zero (-3.60 + 3.20 +
.15 = -.25).\21\
---------------------------------------------------------------------------
\21\ Per the Original Release, the ECO in this example was
rejected by the Filter because the ``contra-side [Complex] NBBO of
1.05 is better than the limit price of the [ECO] by .40, which
exceeds the Filter setting of .15.'' See supra, note 7, Original
Release, 78 FR at 62918.
---------------------------------------------------------------------------
Example #3: Proposed Rule 980NY(a),(b)(i)
Jan 20 calls--NBBO 2.03-2.08
Jan 25 calls--NBBO 1.00-1.01
The Exchange receives an incoming Electronic Complex Order to sell
Jan 20 calls and buy Jan 25 calls on a 1x1 ratio, with a net credit
price of .90. All legs have the same MPV of .01: In this case the
contra-side Complex NBBO market is priced at a net debit of 1.02 (this
price is established by buying one Jan 20 for 2.03 and selling one Jan
25 for 1.01).
The ECO would be automatically rejected if the sum of the following
is less than zero ($0.00):
(i) The net credit limit price of the order, in this case .90;
(ii) the contra-side Complex NBBO for that same Complex Order, in
this case a net debit of -1.02;
(iii) and Specified Amount, in this case .10, because all legs have
an MPV of .01.
The Filter would reject the ECO in this example back to the
entering ATP holder because the sum is less than zero (.90 + (-1.02) +
.10 = -.02).\22\
---------------------------------------------------------------------------
\22\ Per the Original Release, the ECO in this example was
rejected by the Filter because the ``contra-side [Complex] NBBO of
1.02 is better than the limit price of the [ECO] by .12, which
exceeds the Filter setting of .10.'' See supra, note 7, Original
Release, 78 FR at 62919.
---------------------------------------------------------------------------
Example #4: Proposed Rule 980NY(a),(b)(ii)
Jan 20 calls--NBBO 2.03-2.08
Jan 25 calls--NBBO 1.00-1.02
The Exchange receives an incoming ECO to sell Jan 20 calls and buy
Jan 25 calls, on a 2x3 ratio, with a net credit price of .75. All legs
have the same MPV of .01. In this case the contra-side Complex NBBO
market is priced at a net debit of 1.00 (this price is established by
buying two Jan 20s for 2.03 each and selling three Jan 25s for 1.02
each (4.06-3.06 = 1.00)).
The ECO would be automatically rejected if the sum of the following
is less than zero ($0.00):
(i) The net credit limit price of the order, in this case .75;
(ii) the contra-side Complex NBBO for that same Complex Order, in
this case a net debit of -1.00;
(iii) and Specified Amount, in this case .20 (i.e., .10 (as the MPV
of both legs is .01) x 2 (the component of the ratio represented by the
smallest leg of the order) = .20).
The Exchange notes that, in this example, where the ECO is on a 2x3
ratio and the MPVs on all legs is the same, the Specified Amount is
adjusted by multiplying the component of the ratio represented by the
smallest leg of the order by the Specified Amount (i.e., .20 in this
example where the MPV on both legs is .01 because .20 (2 x .10) is less
than .30 (3 x .10).
The Filter would reject the ECO in this example back to the
entering ATP holder because the sum is less than zero (.75 + (-1.00) +
.20 = -.05).\23\
---------------------------------------------------------------------------
\23\ Per the Original Release, the ECO in this example was
rejected by the Filter because the ``contra-side [Complex] NBBO of
1.00 is better than the limit price of the [ECO] by .25, which
exceeds the Filter setting of .20.'' See supra, note 7, Original
Release, 78 FR at 62919.
---------------------------------------------------------------------------
Example #5: Proposed Rule 980NY(a),(b)(iii)
Jan 20 calls--NBBO 4.10-4.20
Jan 25 calls--NBBO 1.90-2.00
The Exchange receives an incoming ECO to sell Jan 20 calls and buy
Jan 25 calls, on a 2x3 ratio, with a net credit price of 1.50. The leg
markets have different MPVs--.05. and .10, respectively. In this case
the contra-side Complex NBBO market is priced at a net debit of 2.20
(this price is established by buying two Jan 20s for 4.10 each and
selling three Jan 25s for 2.00 each (8.20-6.00 = 2.20)).
The ECO would be automatically rejected if the sum of the following
is less than zero ($0.00):
(i) The net credit limit price of the order, in this case 1.50;
(ii) the contra-side Complex NBBO for that same Complex Order, in
this case a net debit of -2.20;
(iii) and Specified Amount, in this case .45 (i.e.,.45 is equal to
the smallest amount calculated by multiplying, for each leg of the
order, the Specified Amount for the leg of the order by the component
of the ratio represented by that leg of the order, which yields either
.60 (2 x .30 = .60) or .45 (3 x .15 = .45)).
The Exchange notes that, in this example, where the ECO is on a 2x3
ratio and the MPV of the legs is not the same, the Specified Amount is
equal to the smallest amount calculated by multiplying, for each leg of
the order, the Specified Amount for the leg of the order by the
component of the ratio represented by that leg of the order (i.e., .45
is the adjusted Specified Amount in this example because .45 (3 x .15)
is less than .60 (2 x .30)).
The Filer would reject this order back to the entering ATP holder
because the sum is less than zero (1.50 + (-2.20 + .45 = -.25).\24\
---------------------------------------------------------------------------
\24\ Per the Original Release, the ECO in this example was
rejected by the Filter because the ``contra-side [Complex] NBBO of
2.20 is better than the limit price of the [ECO] by .70, which
exceeds the Filter setting of .45.'' See supra, note 7, Original
Release, 78 FR at 62919.
---------------------------------------------------------------------------
Example #6: Proposed 980NY(a),(b) \25\
---------------------------------------------------------------------------
\25\ The Exchange notes that Example #6 is new to this filing
and was not included in the Original Release, as the Original
Release did not include an example of an ECO that was not rejected
by the Filter.
---------------------------------------------------------------------------
Jan 20 calls--NBBO 2.00-2.10
Jan 25 calls--NBBO 1.05-1.20
The Exchange receives an incoming ECO to buy Jan 20 calls and sell
Jan 25 calls on a 1x1 ratio, with a net debit price of 1.19. All legs
have an MPV of .05. In this case the contra-side Complex NBBO is
offered at a net credit of 1.05 (this price is established by selling
one Jan 20 for 2.10 and buying one Jan 25 for 1.05).
The ECO would be automatically rejected if the sum of the following
is less than zero ($0.00):
(i) the net debit limit price of the order, in this case -1.19;
(ii) the contra-side Complex NBBO for that same Complex Order, in
this case a net credit of 1.05;
(iii) and Specified Amount, in this case .15, as all legs have an
MPV of .05.
The Filter would not reject the ECO in this example because the sum
is zero or greater (-1.19 + 1.05 + .15 = .01).\26\ The ECO would be
sent to the CME for processing and potential execution.\27\
---------------------------------------------------------------------------
\26\ Per the Original Release, the ECO in this example was
rejected by the Filter because the ``contra-side [Complex] NBBO of
1.05 is better than the limit price of the [ECO] by .20, which
exceeds the Filter setting of .15.'' See supra, note 7, Original
Release, 78 FR at 62923.
\27\ See supra, note 5 (citing Rule 980NY(a) regarding
processing of incoming ECOs).
---------------------------------------------------------------------------
[[Page 78222]]
Extending the Operation of the Filter
The Exchange also proposes to modify paragraph (a) of Commentary
.05 to Rule 980NY to expand the application of the Filter to ECOs
received prior to the opening of trading or during a trading halt. The
current Filter is applied only to those ECOs entered during Core
Trading Hours.\28\ As proposed, for each ECO received pre-open or
during a trading halt, the Exchange would apply the Filter at the time
all the individual component option series open or reopen, provided
there is an NBBO market disseminated by OPRA for all individual
component option series of the ECO. In this regard, the Exchange
proposes to modify paragraph (e) of Commentary .05 of the Rule to
remove reference to ``incoming'' and ``at the time the order is
received by the Exchange,'' to signify that the Filter is being applied
to ECOs received outside of Core Trading Hours.\29\ Further, because
ECOs received pre-open or during a halt cannot immediately execute,
these ECOs would be placed in the Consolidated Book until the series
opens or resumes trading, at which time the Filter would be applied
before the ECO is eligible to trade.\30\ Any ECOs that deviate from the
current market by too great an amount, as set forth in the rule, would
be canceled, as opposed to being immediately rejected upon receipt (as
are ECOs received during Core Trading Hours).\31\ The reason such ECOs
would be cancelled (and not rejected) is because the CME would accept
these orders and, once accepted but not immediately executed, they
would be placed on the Consolidated Book until the individual component
option series open or reopen.\32\ The CME would not reject an ECO that
it had previously accepted, and therefore such ECOs would be cancelled
instead. The order sender would be notified of the cancellation. The
proposed enhancement to the Filter is designed to provide the same
level of protection to market participants who enter ECOs before the
open or during a trading halt as is currently provided to ECOs received
during Core Trading Hours. As proposed, the enhanced Filter would
further assist the Exchange in preventing the execution of ECOs priced
so far away from the prevailing contra-side NBBO market for the same
strategy that the execution of such order could cause significant price
dislocation in the market.
---------------------------------------------------------------------------
\28\ Rule 900.3NY(15) defines Core Trading Hours as the regular
trading hours for business set forth in the rules of the primary
markets underlying those option classes listed on the Exchange. An
order received prior to the opening of trading would be outside of
Core Trading Hours. Rule 953NY describes halts and suspensions of
trading, which may occur during Core Trading Hours.
\29\ See also proposed Commentary .05(e) to Rule 980NY. For
internal consistency, the Exchange also proposes to refer to
``individual component option series'' in the proposed paragraph.
See id.
\30\ See, e.g., Rule 980NY(a) (``[ECOs] that are not immediately
executed by the CME are routed to the Consolidated Book'').
\31\ See proposed Commentary .05(a) to Rule 980NY.
\32\ See supra note 30.
---------------------------------------------------------------------------
Additional Conforming Changes
Finally, the Exchange proposes to make several conforming changes
to Rule 980NY(c)(i)(B) (Execution of Complex Orders at the Open), which
are consistent with the proposal to incorporate the defined term
Complex NBBO in proposed Commentary .05(a). First, the Exchange
proposes to delete as duplicative the definition of the Complex NBBO
that appears in Rule 980NY(c)(i)(B), as the term is now a defined in
Rule 900.2NY(41)(b).\33\ The Exchange also proposes to delete as
extraneous the word ``derived,'' which precedes references to ``Complex
NBBO.'' \34\ The Exchange notes that Rule 980NY(c)(i)(B) was updated to
include the concept of the Complex NBBO before the Exchange codified
this definition and the proposed changes would therefore streamline the
rule text and remove redundancy from Exchange rules.\35\
---------------------------------------------------------------------------
\33\ Specifically, the Exchange proposes to delete the following
text from Rule 980NY(c)(i)(B): ``The derived Complex NBBO is
calculated by using best prices for the individual leg markets
comprising the Electronic Complex Order as disseminated by OPRA that
when aggregated create a derived Complex NBBO for that same strategy
The Exchange believes these changes would add clarity, transparency
and internal consistency to Exchange rules.''
\34\ See proposed Rule 980NY(c)(i)(B).
\35\ See Securities and Exchange Act Release No. 72084 (May 2,
2014) 79 FR 26470(May 8, 2014) (SR-NYSEMKT-2014-42) (Notice of
filing and immediate effectiveness of proposed rule change to adopt
rules governing an opening auction process for ECOs, including
reference to the ``Complex NBBO'').
---------------------------------------------------------------------------
Implementation
The Exchange will announce by Trader Update the implementation date
of the proposed rule change to expand the application of the Filter to
ECOs received prior to the opening of trading or during a trading halt.
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Securities Exchange Act of 1934 (the ``Act''),\36\ in
general, and furthers the objectives of Section 6(b)(5) of the Act,\37\
in particular, in that it is designed to prevent fraudulent and
manipulative acts and practices, 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.
---------------------------------------------------------------------------
\36\ 15 U.S.C. 78f(b).
\37\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
The Exchange believes that this proposed rule change would allow
the Filter to continue to assist with the maintenance of fair and
orderly market by helping to mitigate the risks associated with the
execution of ECOs priced away from the current market by the Specified
Amount, which protects investors from receiving potentially erroneous
executions. In addition, the proposed modifications would add
specificity and more clearly convey the operation of the Filter, which
added clarity and transparency would enable market participants to
better understand the operation of the Filter. Specifically, the
proposal to modify existing rule text to more clearly state how the
Filter is applied and to consistently incorporate the defined term
``Complex NBBO'' would remove impediments to and perfect the mechanism
of a free and open market and protect investors and the public interest
because such changes would reduce redundancy and add clarity,
transparency and internal consistency to Exchange rules.
Further, the Exchange believes the proposal to make explicit that
the Specified Amount is adjusted based on the characteristics of the
ECO, which is consistent with the current rule text, would further
clarify (without altering) the operation of the Filter making it easier
for market participants to understand, which would protect investors
and the public interest.
The proposal to extend the application of the Filter beyond ECOs
entered during Core Trading Hours is designed to help maintain a fair
and orderly market by providing market participants entering ECOs with
additional protection from anomalous executions. Because the proposed
Filter would apply to all ECOs, not just those entered during Core
Trading Hours (absent a trading halt), the proposal would enhance the
protection offered by the Filter and aid in mitigating the potential
risks associated with the execution of any ECOs that are priced a
Specified Amount away from the prevailing contra-side market. The
proposed rule change would therefore remove impediments to and perfect
the mechanism of a free and open market and national market system by
ensuring that an existing price protection would be applicable to all
ECOs, regardless of when they are entered.
[[Page 78223]]
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 Exchange is proposing to enhance an existing price protection
Filter to provide greater protections from potentially erroneous
executions and potentially reduce the attendant risks of such
executions to market participants. Therefore, the Exchange believes
that the proposal should provide an incentive for market participants
to enter executable interest in the CME that can help foster price
discovery and transparency thereby benefiting all market participants.
The proposal is structured to offer the same enhancement to all market
participants, regardless of account type, and will not impose a
competitive burden on any participant.
The Exchange does not believe that the proposed enhancement would
impose a burden on competing options exchanges. Rather, the
availability of this enhanced Filter may foster more competition.
Specifically, the Exchange notes that it operates in a highly
competitive market in which market participants can readily favor
competing venues. When an exchange offers enhanced functionality that
distinguishes it from the competition and participants find it useful,
it has been the Exchange's experience that competing exchanges will
move to adopt similar functionality. Thus, the Exchange believes that
this type of competition amongst exchanges is beneficial to the market
place as a whole as it can result in enhanced processes, functionality,
and technologies.
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
The Exchange has filed the proposed rule change pursuant to Section
19(b)(3)(A) of the Act \38\ and Rule 19b-4(f)(6) thereunder.\39\
Because the 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 prior to
30 days from the date on which it was filed, or such shorter time as
the Commission may designate, if consistent with the protection of
investors and the public interest, the proposed rule change has become
effective pursuant to Section 19(b)(3)(A) of the Act and Rule
19b&4(f)(6)(iii) thereunder.
---------------------------------------------------------------------------
\38\ 15 U.S.C. 78s(b)(3)(A).
\39\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b&4(f)(6)(iii)
requires the Exchange to give the Commission written notice of the
Exchange's 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. The
Exchange has satisfied this requirement.
---------------------------------------------------------------------------
A proposed rule change filed under Rule 19b-4(f)(6) \40\ normally
does not become operative prior to 30 days after the date of the
filing. However, pursuant to Rule 19b-4(f)(6)(iii),\41\ the Commission
may 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 30-day operative delay so that the proposal
may become operative immediately upon filing. The Exchange believes
that waiver of the operative delay would be consistent with the
protection of investors and the public interest because it would enable
the Exchange to enhance an existing price protection Filter. Although
the Exchange would cancel, as opposed to reject, an ECO received pre-
open or during a halt that was deemed too aggressively priced by the
Filter, the Exchange does not believe this operational distinction
would prevent waiver of the operative delay. Rather, the Exchange
believes that the proposed change would allow for the expansion of the
Filter so that it would apply to ECOs submitted prior to the open of
trading or during a trading halt when the individual component option
series open or reopen. Thus, the Exchange believes that waiver of the
operative delay would protect investors by enabling the Exchange to
provide greater protections from potentially erroneous executions and
potentially reduce the attendant risks of such executions to market
participants. In addition, the Exchange could implement, without delay,
the proposed clarifications to add transparency regarding how the
Filter operates, including how the Specified Amount may be adjusted
based on the characteristics of the ECO.
---------------------------------------------------------------------------
\40\ 17 CFR 240.19b-4(f)(6).
\41\ 17 CFR 240.19b-4(f)(6)(iii).
---------------------------------------------------------------------------
The Commission believes that waiving the 30-day operative delay is
consistent with the protection of investors and the public interest.
The Commission notes that the proposal will extend the existing price
protection Filter, which currently applies only to ECOs received during
Core Trading Hours, to ECOs received during the pre-open or during a
trading halt. As noted above, the Filter is designed to protect
investors from receiving anomalous or potentially erroneous executions.
The proposal also provides for consistent use of defined terms in the
Exchange's rules and clarifies the operation of the Filter, including
the calculation of the Specified Amount, without altering the operation
of the Filter. Accordingly, the Commission finds that waiving the 30-
day operative delay is consistent with investors and the public
interest and designates the proposal operative upon filing.\42\
---------------------------------------------------------------------------
\42\ For purposes only of waiving the 30-day operative delay,
the Commission has considered the proposed rule's impact on
efficiency, competition, and capital formation. 15 U.S.C. 78c(f).
---------------------------------------------------------------------------
At any time within 60 days of the filing of such proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act. If the Commission
takes such action, the Commission shall institute proceedings under
Section 19(b)(2)(B) \43\ of the Act to determine whether the proposed
rule change should be approved or disapproved.
---------------------------------------------------------------------------
\43\ 15 U.S.C. 78s(b)(2)(B).
---------------------------------------------------------------------------
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-NYSEMKT-2016-98 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-NYSEMKT-2016-98. This
file number should be included on the subject line if email is used. To
help the
[[Page 78224]]
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-NYSEMKT-2016-98 and should
be submitted on or before November 28, 2016.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\44\
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\44\ 17 CFR 200.30-3(a)(12).
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Brent J. Fields,
Secretary.
[FR Doc. 2016-26795 Filed 11-4-16; 8:45 am]
BILLING CODE 8011-01-P
