Self-Regulatory Organizations; Bats EDGX Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change Related to Functionality Offered by the Exchange's Options Platform To Adopt Qualified Contingent Cross Orders, 9804-9807 [2017-02545]

Download as PDF 9804 Federal Register / Vol. 82, No. 25 / Wednesday, February 8, 2017 / Notices III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action make clear that its provisions do not apply to security futures. The Exchange is also re-lettering certain paragraphs in Rule 415 to accommodate for the new provisions that are being added. 2. Statutory Basis The Exchange believes that the proposed rule change is consistent with Section 6(b) of the Act,4 in general, and furthers the objectives of Sections 6(b)(5) 5 and 6(b)(7) 6 in particular in that it is designed: • To prevent fraudulent and manipulative acts and practices, • to promote just and equitable principles of trade, and • 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 the proposed rule change would provide additional guidance to CFE market participants related to the front running of Block Trades. The proposed rule change would also contribute to enhanced protection of CFE’s market and market participants. B. Self-Regulatory Organization’s Statement on Burden on Competition CFE does not believe that the proposed rule change will impose any burden on competition not necessary or appropriate in furtherance of the purposes of the Act, in that the proposed rule change is consistent with similar guidance provided by other designated contracts markets.7 The Exchange believes that the proposed rule change is equitable and not unfairly discriminatory in that the rule amendments included in the proposed rule change would apply equally to all market participants. C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others asabaliauskas on DSK3SPTVN1PROD with NOTICES No written comments were solicited or received with respect to the proposed rule change. 4 15 U.S.C. 78f(b). U.S.C. 78f(b)(5). 6 15 U.S.C. 78f(b)(7). 7 These designated contract markets are Chicago Mercantile Exchange, Inc. (‘‘CME’’), The Board of Trade of the City of Chicago, Inc., New York Mercantile Exchange, Inc., New York Mercantile Exchange, Inc., and Commodity Exchange, Inc. See, CME Submission No. 16–470 (November 15, 2016), which is available on the CFTC’s Web site. 5 15 VerDate Sep<11>2014 17:36 Feb 07, 2017 Jkt 241001 The proposed rule change will become operative on February 2, 2017. At any time within 60 days of the date of effectiveness of the proposed rule change, the Commission, after consultation with the CFTC, may summarily abrogate the proposed rule change and require that the proposed rule change be refiled in accordance with the provisions of Section 19(b)(1) of the Act.8 IV. Solicitation of Comments Electronic Comments • Use the Commission’s Internet comment form (http://www.sec.gov/ rules/sro.shtml); or • Send an email to rule-comments@ sec.gov. Please include File Number SR– CFE–2017–001 on the subject line. Paper Comments • Send paper comments in triplicate to Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549–1090. All submissions should refer to File Number SR–CFE–2017–001. 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 (http://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 such filing also will be available for inspection and copying at the principal PO 00000 U.S.C. 78s(b)(1). Frm 00096 Fmt 4703 Sfmt 4703 For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.9 Robert W. Errett, Deputy Secretary. [FR Doc. 2017–02536 Filed 2–7–17; 8:45 am] 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: 8 15 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–CFE– 2017–001, and should be submitted on or before March 1, 2017. BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–79942; File No. SR– BatsEDGX–2017–11] Self-Regulatory Organizations; Bats EDGX Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change Related to Functionality Offered by the Exchange’s Options Platform To Adopt Qualified Contingent Cross Orders February 2, 2017. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (the ‘‘Act’’),1 and Rule 19b–4 thereunder,2 notice is hereby given that on February 1, 2017, Bats EDGX Exchange, Inc. (the ‘‘Exchange’’ or ‘‘EDGX’’) filed with the Securities and Exchange Commission (the ‘‘Commission’’) the proposed rule change as described in Items I, II, and III below, which Items have been prepared by the Exchange. The Exchange has designated this proposal as a ‘‘non-controversial’’ proposed rule change pursuant to Section 19(b)(3)(A) of the Act 3 and Rule 19b–4(f)(6)(iii) thereunder,4 which renders it effective upon filing with the Commission. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. I. Self-Regulatory Organization’s Statement of the Terms of the Substance of the Proposed Rule Change The Exchange filed a proposal related to functionality offered by the Exchange’s options platform (‘‘EDGX Options’’) to adopt Qualified Contingent Cross Orders, as described below. 9 17 CFR 200.30–3(a)(73). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 3 15 U.S.C. 78s(b)(3)(A). 4 17 CFR 240.19b–4(f)(6)(iii). 1 15 E:\FR\FM\08FEN1.SGM 08FEN1 Federal Register / Vol. 82, No. 25 / Wednesday, February 8, 2017 / Notices The text of the proposed rule change is available at the Exchange’s Web site at www.bats.com, at the principal office of the Exchange, and at the Commission’s Public Reference Room. II. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the Exchange included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in Sections A, B, and C below, of the most significant parts of such statements. A. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change asabaliauskas on DSK3SPTVN1PROD with NOTICES 1. Purpose The Exchange is filing this proposal related to functionality offered by EDGX Options to adopt Qualified Contingent Cross Orders (‘‘QCC Orders’’), as described below. Background The purpose of this filing is to adopt rules related to QCC Orders. The proposed rule change is based on the rules of other options exchanges, including an International Securities Exchange (‘‘ISE’’) proposal that was previously approved by the Securities and Exchange Commission (‘‘Commission’’).5 The Exchange is currently a party to the Options Order Protection and Locked/Crossed Market Plan (‘‘Linkage Plan’’), and has implemented Exchange rules in conjunction with that plan, which are set forth in Chapter XXVII of the Exchange’s Rules (the ‘‘Linkage Rules’’). Similar to Regulation NMS under the Act, the Linkage Plan requires, among other things, that the Exchange establish, maintain and enforce written policies and procedures that are reasonably designed to prevent ‘‘Trade-Throughs.’’ 6 A Trade-Through is a transaction in an options series at a price that is inferior to the best price available in the market.7 The Linkage Plan replaced the Plan for the Purpose of Creating and Operating an 5 See Securities Exchange Act Release No. 63955 (February 24, 2011), 76 FR 11533 (March 2, 2011) (SR–ISE–2010–73) (‘‘ISE Approval’’). 6 See Section 5(a) of the Linkage Plan. 7 See Section 2(21) of the Linkage Plan. VerDate Sep<11>2014 17:36 Feb 07, 2017 Jkt 241001 Intermarket Option Linkage (‘‘Old Linkage Plan’’). The Old Linkage Plan provided a limited Trade-Through exemption for ‘‘Block Trades,’’ defined to be trades of 500 or more contracts with a premium value of at least $150,000.8 However, as with Regulation NMS, the Linkage Plan does not provide a Block Trade exemption. Since its original adoption by the ISE in 2011, QCC has been offered by multiple options exchanges as a limited substitute for the Block Trade exemption.9 Proposal Regarding Qualified Contingent Cross Orders The purpose of the proposed change is to provide the Exchange Users 10 with the ability to submit to the Exchange Qualified Contingent Cross Orders, an order type offered by multiple other options exchanges.11 The proposed operation of Qualified Contingent Cross Orders on the Exchange is substantially similar in all material respects to the operation of such orders on such other exchanges. The Exchange proposes to adopt new paragraph (d)(11) to Rule 21.1 to govern the operation of Qualified Contingent Cross Orders. As proposed, a Qualified Contingent Cross Order would be an originating order to buy or sell at least 1,000 standard option contracts that is identified as being part of a qualified contingent trade (as that term is proposed to be defined in paragraph (d)(11)(A) to Rule 21.1), coupled with a contra-side order or orders totaling an equal number of contracts. As proposed, a ‘‘qualified contingent trade’’ is a transaction consisting of two or more component orders, executed as agent or principal, where: (i) At least one component is an NMS stock, as defined in Rule 600 of Regulation NMS under the Act; (ii) all components are effected with a product or price contingency that either has been agreed to by all the respective counterparties or arranged for by a broker-dealer as principal or agent; (iii) the execution of one component is contingent upon the execution of all other components at or near the same time; (iv) the specific relationship between the component orders (e.g., the spread between the prices of the 8 See Old Linkage Plan Sections 2(3) and 8(c)(i)(C). 9 See ISE Rule 715(j), Supplementary Material .01 to ISE Rule 715 and ISE Rule 721(b); see also CBOE Rule 6.53(u); NASDAQ PHLX Rule 1080(o); NYSE Arca Rule 6.62(bb), Commentary .02 to NYSE Arca Rule 6.62 and NYSE Arca Rule 6.90. 10 The term ‘‘User’’ means any Options Member or Sponsored Participant who is authorized to obtain access to the System pursuant to Rule 11.3 (Access). See Exchange Rule 16.1(a)(63). 11 See supra, note 9. PO 00000 Frm 00097 Fmt 4703 Sfmt 4703 9805 component orders) is determined by the time the contingent order is placed; (v) the component orders bear a derivative relationship to one another, represent different classes of shares of the same issuer, or involve the securities of participants in mergers or with intentions to merge that have been announced or cancelled; and (vi) the transaction is fully hedged (without regard to any prior existing position) as a result of other components of the contingent trade. As proposed, Qualified Contingent Cross Orders would be allowed to execute automatically on entry without exposure provided the execution: (i) Is not at the same price as a Priority Customer Order 12 resting in the EDGX Options Book; 13 and (ii) is at or between the national best bid or offer (‘‘NBBO’’). As such, the Exchange also proposes to specify in proposed Rule 21.1(d)(11)(B) that Rule 22.12, related to exposure of orders on EDGX Options, does not apply to Qualified Contingent Cross Orders. The proposed Rule would also specify that Qualified Contingent Cross Orders will be cancelled if they cannot be executed. Also, pursuant to the proposed rule, Qualified Contingent Cross Orders may only be entered in the standard increments applicable to the options class under Rule 21.5. The Exchange will track and monitor QCC Orders to determine which is the originating side of the order and which is the contra-side(s) of the order to ensure that Members are complying with the minimum 1,000 contract size limitation on the originating side of the QCC Order. The Exchange will check to see if Members are aggregating multiple orders to meet the 1,000 contract minimum on the originating side of the trade in violation of the requirements of the rule. The rule requires that the originating side of the trade consist of one party who is submitting a QCC Order for at least 1,000 contracts. The Exchange represents that it will enforce compliance with this portion of the rule by checking to see if a Member breaks up the originating side of the order in a post trade allocation to different clearing firms, allocating less than 1,000 contracts to a party or multiple parties. For example, a Member enters a QCC Order into the system for 1,500 contracts and receives an execution. Subsequent to the execution, the Member allocates the originating side of the order to two different clearing firms 12 See Exchange Rule 16.1(a)(45) (defining ‘‘Priority Customer’’ and ‘‘Priority Customer Order’’). 13 See Exchange Rule 16.1(a)(9) (defining ‘‘EDGX Options Book’’). E:\FR\FM\08FEN1.SGM 08FEN1 9806 Federal Register / Vol. 82, No. 25 / Wednesday, February 8, 2017 / Notices on a post trade allocation basis, thereby allocating 500 contracts to one clearing firm and 1,000 contracts to another clearing firm. This type of transaction would not meet the requirements of a QCC Order under the current and proposed rule. With regard to order entry, a Member will have to mark the originating side as the first order in the system and the contra-side(s) as the second. The Exchange will monitor order entries to ensure that Members are properly entering QCC Orders into the system. 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.14 In particular, the proposal is consistent with Section 6(b)(5) of the Act 15 because it is designed to offer market participants greater flexibility by allowing such market participant to submit QCC Orders to the EDGX Options Book in the same way they are permitted to send QCC Orders to other options exchanges, thereby promoting just and equitable principles of trade, fostering cooperation and coordination with persons engaged in facilitating transactions in securities, removing impediments to, and perfecting the mechanism of, a free and open market and a national market system. The proposed rules are consistent with the protection of investors in that they are designed to prevent TradeThroughs. In addition, the proposed rule change would promote a free and open market by permitting the Exchange to compete with other options exchanges for these types of orders. In this regard, competition would result in benefits to the investing public, whereas a lack of competition would serve to limit the choices that participants have for execution of their options business. As noted above, the proposed operation of Qualified Contingent Cross Orders on the Exchange is substantially similar in all material respects to the operation of such orders on such other exchanges.16 As such, permitting the Exchange to operate on an even playing field relative to other exchanges removes impediments to and to perfects the mechanism for a free and open market and a national market system. U.S.C. 78f(b). U.S.C. 78f(b)(5). 16 See supra, note 9. B. Self-Regulatory Organization’s Statement on Burden on Competition The Exchange does not believe that the proposed rule change to adopt QCC Orders will impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. The Exchange’s proposed functionality is open to all market participants. Further, the proposed rule will allow the Exchange to compete with other options exchanges that currently offer QCC Orders, thus alleviating the burden on competition that would arise if such exchanges were permitted to continue offering such functionality and the Exchange was not. For these reasons, the Exchange does not believe that the proposed rule changes will impose any burden on competition not necessary or appropriate in furtherance of the purposes of the Act, and believes the proposed change will enhance competition. 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. C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others The Exchange has neither solicited nor received written comments on the proposed rule change. The Exchange has not received any written comments from members or other interested parties. Paper Comments • Send paper comments in triplicate to Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549–1090. All submissions should refer to File Number SR–BatsEDGX–2017–11. 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 (http://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 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 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 17 and paragraph (f)(6) of Rule 19b– 4 thereunder,18 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 14 15 15 15 VerDate Sep<11>2014 17:36 Feb 07, 2017 17 15 18 17 Jkt 241001 PO 00000 U.S.C. 78s(b)(3)(A). CFR 240.19b–4. Frm 00098 Fmt 4703 Sfmt 4703 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 (http://www.sec.gov/ rules/sro.shtml); or • Send an email to rule-comments@ sec.gov. Please include File Number SR– BatsEDGX–2017–11 on the subject line. E:\FR\FM\08FEN1.SGM 08FEN1 Federal Register / Vol. 82, No. 25 / Wednesday, February 8, 2017 / Notices Number SR–BatsEDGX–2017–11, and should be submitted on or before March 1, 2017. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.19 Robert W. Errett, Deputy Secretary. [FR Doc. 2017–02545 Filed 2–7–17; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–79930; File No. 4–551] Program for Allocation of Regulatory Responsibilities Pursuant to Rule 17d– 2; Notice of Filing and Order Approving and Declaring Effective an Amendment to the Plan for the Allocation of Regulatory Responsibilities Among NYSE MKT LLC, Bats BZX Exchange, Inc., BOX Options Exchange LLC, C2 Options Exchange, Incorporated, the Chicago Board Options Exchange, Incorporated, the Bats EDGX Exchange, Inc., the International Securities Exchange LLC, ISE Gemini, LLC, ISE Mercury, LLC, Financial Industry Regulatory Authority, Inc., NYSE Arca, Inc., The NASDAQ Stock Market LLC, NASDAQ BX, Inc., the NASDAQ PHLX, Inc., Miami International Securities Exchange, LLC, and MIAX PEARL Concerning Options-Related Market Surveillance asabaliauskas on DSK3SPTVN1PROD with NOTICES February 2, 2017. Notice is hereby given that the Securities and Exchange Commission (‘‘Commission’’) has issued an Order, pursuant to Section 17(d) of the Securities Exchange Act of 1934 (‘‘Act’’),1 approving and declaring effective an amendment to the plan for allocating regulatory responsibility (‘‘Plan’’) filed on January 31, 2017, pursuant to Rule 17d–2 of the Act,2 by NYSE MKT LLC (‘‘MKT’’), Bats BZX Exchange, Inc., (‘‘Bats’’), the BOX Options Exchange LLC (‘‘BOX’’), C2 Options Exchange, Incorporated (‘‘C2’’), the Chicago Board Options Exchange, Incorporated (‘‘CBOE’’), the Bats EDGX Exchange, Inc. (‘‘EDGX’’), the International Securities Exchange LLC (‘‘ISE’’), ISE Gemini, LLC (‘‘Gemini’’), ISE Mercury, LLC (‘‘ISE Mercury’’), Financial Industry Regulatory Authority, Inc. (‘‘FINRA’’), NYSE Arca, Inc. (‘‘Arca’’), The NASDAQ Stock Market LLC (‘‘Nasdaq’’), NASDAQ BX, Inc. (‘‘BX’’), NASDAQ PHLX, Inc. 19 17 CFR 200.30–3(a)(12). U.S.C. 78q(d). 2 17 CFR 240.17d–2. 1 15 VerDate Sep<11>2014 17:36 Feb 07, 2017 Jkt 241001 (‘‘PHLX’’), Miami International Securities Exchange (‘‘MIAX’’), and MIAX PEARL, LLC (‘‘MIAX PEARL’’) (collectively, ‘‘Participating Organizations’’ or ‘‘parties’’). I. Introduction Section 19(g)(1) of the Act,3 among other things, requires every selfregulatory organization (‘‘SRO’’) registered as either a national securities exchange or national securities association to examine for, and enforce compliance by, its members and persons associated with its members with the Act, the rules and regulations thereunder, and the SRO’s own rules, unless the SRO is relieved of this responsibility pursuant to Section 17(d) 4 or Section 19(g)(2) 5 of the Act. Without this relief, the statutory obligation of each individual SRO could result in a pattern of multiple examinations of broker-dealers that maintain memberships in more than one SRO (‘‘common members’’). Such regulatory duplication would add unnecessary expenses for common members and their SROs. Section 17(d)(1) of the Act 6 was intended, in part, to eliminate unnecessary multiple examinations and regulatory duplication.7 With respect to a common member, Section 17(d)(1) authorizes the Commission, by rule or order, to relieve an SRO of the responsibility to receive regulatory reports, to examine for and enforce compliance with applicable statutes, rules, and regulations, or to perform other specified regulatory functions. To implement Section 17(d)(1), the Commission adopted two rules: Rule 17d–1 and Rule 17d–2 under the Act.8 Rule 17d–1 authorizes the Commission to name a single SRO as the designated examining authority (‘‘DEA’’) to examine common members for compliance with the financial responsibility requirements imposed by the Act, or by Commission or SRO rules.9 When an SRO has been named as a common member’s DEA, all other SROs to which the common member belongs are relieved of the responsibility to examine the firm for compliance with the applicable financial responsibility 3 15 U.S.C. 78s(g)(1). U.S.C. 78q(d). 5 15 U.S.C. 78s(g)(2). 6 15 U.S.C. 78q(d)(1). 7 See Securities Act Amendments of 1975, Report of the Senate Committee on Banking, Housing, and Urban Affairs to Accompany S. 249, S. Rep. No. 94– 75, 94th Cong., 1st Session 32 (1975). 8 17 CFR 240.17d–1 and 17 CFR 240.17d–2, respectively. 9 See Securities Exchange Act Release No. 12352 (April 20, 1976), 41 FR 18808 (May 7, 1976). 4 15 PO 00000 Frm 00099 Fmt 4703 Sfmt 4703 9807 rules. On its face, Rule 17d–1 deals only with an SRO’s obligations to enforce member compliance with financial responsibility requirements. Rule 17d–1 does not relieve an SRO from its obligation to examine a common member for compliance with its own rules and provisions of the federal securities laws governing matters other than financial responsibility, including sales practices and trading activities and practices. To address regulatory duplication in these and other areas, the Commission adopted Rule 17d–2 under the Act.10 Rule 17d–2 permits SROs to propose joint plans for the allocation of regulatory responsibilities with respect to their common members. Under paragraph (c) of Rule 17d–2, the Commission may declare such a plan effective if, after providing for notice and comment, it determines that the plan is necessary or appropriate in the public interest and for the protection of investors, to foster cooperation and coordination among the SROs, to remove impediments to, and foster the development of, a national market system and a national clearance and settlement system, and is in conformity with the factors set forth in Section 17(d) of the Act. Commission approval of a plan filed pursuant to Rule 17d–2 relieves an SRO of those regulatory responsibilities allocated by the plan to another SRO. II. The Plan On December 11, 2007, the Commission declared effective the Participating Organizations’ Plan for allocating regulatory responsibilities pursuant to Rule 17d–2.11 On April 11, 2008, the Commission approved an amendment to the Plan to include NASDAQ as a participant.12 On October 9, 2008, the Commission approved an amendment to the Plan to clarify that the term Regulatory Responsibility for options position limits includes the examination responsibilities for the delta hedging exemption.13 On February 25, 2010, the Commission approved an amendment to the Plan to add Bats and C2 as SRO participants and to reflect the name changes of the American Stock Exchange LLC to the NYSE Amex LLC, 10 See Securities Exchange Act Release No. 12935 (October 28, 1976), 41 FR 49091 (November 8, 1976). 11 See Securities Exchange Act Release No. 56941 (December 11, 2007), 72 FR 71723 (December 18, 2007) (File No. 4–551). 12 See Securities Exchange Act Release No. 57649 (April 11, 2008), 73 FR 20976 (April 17, 2008) (File No. 4–551). 13 See Securities Exchange Act Release No. 58765 (October 9, 2008), 73 FR 62344 (October 20, 2008) (File No. 4–551). E:\FR\FM\08FEN1.SGM 08FEN1

Agencies

[Federal Register Volume 82, Number 25 (Wednesday, February 8, 2017)]
[Notices]
[Pages 9804-9807]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-02545]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-79942; File No. SR-BatsEDGX-2017-11]


Self-Regulatory Organizations; Bats EDGX Exchange, Inc.; Notice 
of Filing and Immediate Effectiveness of a Proposed Rule Change Related 
to Functionality Offered by the Exchange's Options Platform To Adopt 
Qualified Contingent Cross Orders

February 2, 2017.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on February 1, 2017, Bats EDGX Exchange, Inc. (the ``Exchange'' or 
``EDGX'') filed with the Securities and Exchange Commission (the 
``Commission'') the proposed rule change as described in Items I, II, 
and III below, which Items have been prepared by the Exchange. The 
Exchange has designated this proposal as a ``non-controversial'' 
proposed rule change pursuant to Section 19(b)(3)(A) of the Act \3\ and 
Rule 19b-4(f)(6)(iii) thereunder,\4\ which renders it effective upon 
filing with the Commission. The Commission is publishing this notice to 
solicit comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 15 U.S.C. 78s(b)(3)(A).
    \4\ 17 CFR 240.19b-4(f)(6)(iii).
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I. Self-Regulatory Organization's Statement of the Terms of the 
Substance of the Proposed Rule Change

    The Exchange filed a proposal related to functionality offered by 
the Exchange's options platform (``EDGX Options'') to adopt Qualified 
Contingent Cross Orders, as described below.

[[Page 9805]]

    The text of the proposed rule change is available at the Exchange's 
Web site at www.bats.com, at the principal office of the Exchange, and 
at the Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The Exchange has prepared summaries, set forth in 
Sections A, B, and C below, of the most significant parts of such 
statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange is filing this proposal related to functionality 
offered by EDGX Options to adopt Qualified Contingent Cross Orders 
(``QCC Orders''), as described below.
Background
    The purpose of this filing is to adopt rules related to QCC Orders. 
The proposed rule change is based on the rules of other options 
exchanges, including an International Securities Exchange (``ISE'') 
proposal that was previously approved by the Securities and Exchange 
Commission (``Commission'').\5\
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    \5\ See Securities Exchange Act Release No. 63955 (February 24, 
2011), 76 FR 11533 (March 2, 2011) (SR-ISE-2010-73) (``ISE 
Approval'').
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    The Exchange is currently a party to the Options Order Protection 
and Locked/Crossed Market Plan (``Linkage Plan''), and has implemented 
Exchange rules in conjunction with that plan, which are set forth in 
Chapter XXVII of the Exchange's Rules (the ``Linkage Rules''). Similar 
to Regulation NMS under the Act, the Linkage Plan requires, among other 
things, that the Exchange establish, maintain and enforce written 
policies and procedures that are reasonably designed to prevent 
``Trade-Throughs.'' \6\ A Trade-Through is a transaction in an options 
series at a price that is inferior to the best price available in the 
market.\7\ The Linkage Plan replaced the Plan for the Purpose of 
Creating and Operating an Intermarket Option Linkage (``Old Linkage 
Plan''). The Old Linkage Plan provided a limited Trade-Through 
exemption for ``Block Trades,'' defined to be trades of 500 or more 
contracts with a premium value of at least $150,000.\8\ However, as 
with Regulation NMS, the Linkage Plan does not provide a Block Trade 
exemption. Since its original adoption by the ISE in 2011, QCC has been 
offered by multiple options exchanges as a limited substitute for the 
Block Trade exemption.\9\
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    \6\ See Section 5(a) of the Linkage Plan.
    \7\ See Section 2(21) of the Linkage Plan.
    \8\ See Old Linkage Plan Sections 2(3) and 8(c)(i)(C).
    \9\ See ISE Rule 715(j), Supplementary Material .01 to ISE Rule 
715 and ISE Rule 721(b); see also CBOE Rule 6.53(u); NASDAQ PHLX 
Rule 1080(o); NYSE Arca Rule 6.62(bb), Commentary .02 to NYSE Arca 
Rule 6.62 and NYSE Arca Rule 6.90.
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Proposal Regarding Qualified Contingent Cross Orders
    The purpose of the proposed change is to provide the Exchange Users 
\10\ with the ability to submit to the Exchange Qualified Contingent 
Cross Orders, an order type offered by multiple other options 
exchanges.\11\ The proposed operation of Qualified Contingent Cross 
Orders on the Exchange is substantially similar in all material 
respects to the operation of such orders on such other exchanges.
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    \10\ The term ``User'' means any Options Member or Sponsored 
Participant who is authorized to obtain access to the System 
pursuant to Rule 11.3 (Access). See Exchange Rule 16.1(a)(63).
    \11\ See supra, note 9.
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    The Exchange proposes to adopt new paragraph (d)(11) to Rule 21.1 
to govern the operation of Qualified Contingent Cross Orders. As 
proposed, a Qualified Contingent Cross Order would be an originating 
order to buy or sell at least 1,000 standard option contracts that is 
identified as being part of a qualified contingent trade (as that term 
is proposed to be defined in paragraph (d)(11)(A) to Rule 21.1), 
coupled with a contra-side order or orders totaling an equal number of 
contracts. As proposed, a ``qualified contingent trade'' is a 
transaction consisting of two or more component orders, executed as 
agent or principal, where: (i) At least one component is an NMS stock, 
as defined in Rule 600 of Regulation NMS under the Act; (ii) all 
components are effected with a product or price contingency that either 
has been agreed to by all the respective counterparties or arranged for 
by a broker-dealer as principal or agent; (iii) the execution of one 
component is contingent upon the execution of all other components at 
or near the same time; (iv) the specific relationship between the 
component orders (e.g., the spread between the prices of the component 
orders) is determined by the time the contingent order is placed; (v) 
the component orders bear a derivative relationship to one another, 
represent different classes of shares of the same issuer, or involve 
the securities of participants in mergers or with intentions to merge 
that have been announced or cancelled; and (vi) the transaction is 
fully hedged (without regard to any prior existing position) as a 
result of other components of the contingent trade.
    As proposed, Qualified Contingent Cross Orders would be allowed to 
execute automatically on entry without exposure provided the execution: 
(i) Is not at the same price as a Priority Customer Order \12\ resting 
in the EDGX Options Book; \13\ and (ii) is at or between the national 
best bid or offer (``NBBO''). As such, the Exchange also proposes to 
specify in proposed Rule 21.1(d)(11)(B) that Rule 22.12, related to 
exposure of orders on EDGX Options, does not apply to Qualified 
Contingent Cross Orders. The proposed Rule would also specify that 
Qualified Contingent Cross Orders will be cancelled if they cannot be 
executed. Also, pursuant to the proposed rule, Qualified Contingent 
Cross Orders may only be entered in the standard increments applicable 
to the options class under Rule 21.5.
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    \12\ See Exchange Rule 16.1(a)(45) (defining ``Priority 
Customer'' and ``Priority Customer Order'').
    \13\ See Exchange Rule 16.1(a)(9) (defining ``EDGX Options 
Book'').
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    The Exchange will track and monitor QCC Orders to determine which 
is the originating side of the order and which is the contra-side(s) of 
the order to ensure that Members are complying with the minimum 1,000 
contract size limitation on the originating side of the QCC Order. The 
Exchange will check to see if Members are aggregating multiple orders 
to meet the 1,000 contract minimum on the originating side of the trade 
in violation of the requirements of the rule. The rule requires that 
the originating side of the trade consist of one party who is 
submitting a QCC Order for at least 1,000 contracts. The Exchange 
represents that it will enforce compliance with this portion of the 
rule by checking to see if a Member breaks up the originating side of 
the order in a post trade allocation to different clearing firms, 
allocating less than 1,000 contracts to a party or multiple parties. 
For example, a Member enters a QCC Order into the system for 1,500 
contracts and receives an execution. Subsequent to the execution, the 
Member allocates the originating side of the order to two different 
clearing firms

[[Page 9806]]

on a post trade allocation basis, thereby allocating 500 contracts to 
one clearing firm and 1,000 contracts to another clearing firm. This 
type of transaction would not meet the requirements of a QCC Order 
under the current and proposed rule.
    With regard to order entry, a Member will have to mark the 
originating side as the first order in the system and the contra-
side(s) as the second. The Exchange will monitor order entries to 
ensure that Members are properly entering QCC Orders into the system.
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.\14\ In particular, 
the proposal is consistent with Section 6(b)(5) of the Act \15\ because 
it is designed to offer market participants greater flexibility by 
allowing such market participant to submit QCC Orders to the EDGX 
Options Book in the same way they are permitted to send QCC Orders to 
other options exchanges, thereby promoting just and equitable 
principles of trade, fostering cooperation and coordination with 
persons engaged in facilitating transactions in securities, removing 
impediments to, and perfecting the mechanism of, a free and open market 
and a national market system.
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    \14\ 15 U.S.C. 78f(b).
    \15\ 15 U.S.C. 78f(b)(5).
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    The proposed rules are consistent with the protection of investors 
in that they are designed to prevent Trade-Throughs. In addition, the 
proposed rule change would promote a free and open market by permitting 
the Exchange to compete with other options exchanges for these types of 
orders. In this regard, competition would result in benefits to the 
investing public, whereas a lack of competition would serve to limit 
the choices that participants have for execution of their options 
business. As noted above, the proposed operation of Qualified 
Contingent Cross Orders on the Exchange is substantially similar in all 
material respects to the operation of such orders on such other 
exchanges.\16\ As such, permitting the Exchange to operate on an even 
playing field relative to other exchanges removes impediments to and to 
perfects the mechanism for a free and open market and a national market 
system.
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    \16\ See supra, note 9.
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change to 
adopt QCC Orders will impose any burden on competition that is not 
necessary or appropriate in furtherance of the purposes of the Act. The 
Exchange's proposed functionality is open to all market participants. 
Further, the proposed rule will allow the Exchange to compete with 
other options exchanges that currently offer QCC Orders, thus 
alleviating the burden on competition that would arise if such 
exchanges were permitted to continue offering such functionality and 
the Exchange was not. For these reasons, the Exchange does not believe 
that the proposed rule changes will impose any burden on competition 
not necessary or appropriate in furtherance of the purposes of the Act, 
and believes the proposed change will enhance competition.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    The Exchange has neither solicited nor received written comments on 
the 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 \17\ and 
paragraph (f)(6) of Rule 19b-4 thereunder,\18\ 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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    \17\ 15 U.S.C. 78s(b)(3)(A).
    \18\ 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 (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-BatsEDGX-2017-11 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.

All submissions should refer to File Number SR-BatsEDGX-2017-11. 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 (http://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 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

[[Page 9807]]

Number SR-BatsEDGX-2017-11, and should be submitted on or before March 
1, 2017.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\19\
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    \19\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2017-02545 Filed 2-7-17; 8:45 am]
 BILLING CODE 8011-01-P