Self-Regulatory Organizations; Nasdaq GEMX, LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Regarding Market Maker Quotations, 34723-34727 [2017-15629]

Download as PDF Federal Register / Vol. 82, No. 142 / Wednesday, July 26, 2017 / Notices mstockstill on DSK30JT082PROD with NOTICES modestly increased combined Consolidated Volume criteria required to qualify for the fee does not discriminate unfairly and is equitably allocated, as eligibility for the fee is tied to the QMM’s performance in comparison to other participants in aggregate. B. Self-Regulatory Organization’s Statement on Burden on Competition The Exchange does not believe that the proposed rule change will impose any burden on competition not necessary or appropriate in furtherance of the purposes of the Act. In terms of inter-market competition, the Exchange notes that it operates in a highly competitive market in which market participants can readily favor competing venues if they deem fee levels at a particular venue to be excessive, or rebate opportunities available at other venues to be more favorable. In such an environment, the Exchange must continually adjust its fees to remain competitive with other exchanges and with alternative trading systems that have been exempted from compliance with the statutory standards applicable to exchanges. Because competitors are free to modify their own fees in response, and because market participants may readily adjust their order routing practices, the Exchange believes that the degree to which fee changes in this market may impose any burden on competition is extremely limited. In this instance, although the change to the QMM program may limit the benefits of the program in non-Nasdaqlisted securities to the extent QMMs that currently qualify for the $0.0029 per share executed charge are unable to meet the more stringent combined Consolidated Volume requirement, the incentive in question will remain in place and is itself reflective of the need for exchanges to offer significant financial incentives to attract order flow in return for meaningful marketimproving behavior. The Exchange believes that the proposed qualification criteria will not negatively impact who will qualify for the $0.0029 per share executed charge but will rather have a positive impact on overall market quality as QMMs increase their participation in the market to qualify for the lower charge. If, however, the Exchange is incorrect and the changes proposed herein are unattractive to QMMs, it is likely that Nasdaq will lose market share as a result. Accordingly, Nasdaq does not believe that the proposed changes will impair the ability of members or competing order execution venues to maintain their VerDate Sep<11>2014 17:49 Jul 25, 2017 Jkt 241001 competitive standing in the financial markets. C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others No written comments were either solicited or received. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action The foregoing rule change has become effective pursuant to Section 19(b)(3)(A)(ii) of the Act.10 At any time within 60 days of the filing of the proposed rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such action is: (i) Necessary or appropriate in the public interest; (ii) for the protection of investors; or (iii) otherwise in furtherance of the purposes of the Act. If the Commission takes such action, the Commission shall institute proceedings to determine whether the proposed rule should be approved or disapproved. IV. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: Electronic Comments • Use the Commission’s Internet comment form (http://www.sec.gov/ rules/sro.shtml); or • Send an email to rule-comments@ sec.gov. Please include File Number SR– NASDAQ–2017–070 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–NASDAQ–2017–070. 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 PO 00000 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– NASDAQ–2017–070, and should be submitted on or before August 16, 2017. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.11 Eduardo A. Aleman, Assistant Secretary. [FR Doc. 2017–15637 Filed 7–25–17; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–81174; File No. SR–GEMX– 2017–32] Self-Regulatory Organizations; Nasdaq GEMX, LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Regarding Market Maker Quotations July 20, 2017. 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 July 6, 2017, Nasdaq GEMX, LLC (‘‘GEMX’’ or ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘Commission’’) the proposed rule change as described in Items I and II, below, which Items have been prepared by the Exchange. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. 11 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 1 15 10 15 U.S.C. 78s(b)(3)(A)(ii). Frm 00101 Fmt 4703 Sfmt 4703 34723 E:\FR\FM\26JYN1.SGM 26JYN1 34724 Federal Register / Vol. 82, No. 142 / Wednesday, July 26, 2017 / Notices I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to amend Rule 804, entitled ‘‘Market Maker Quotations.’’ The text of the proposed rule change is available on the Exchange’s Web site at www.ise.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 aspects of such statements. mstockstill on DSK30JT082PROD with NOTICES A. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose The Exchange proposes to amend GEMX Rule 804, entitled ‘‘Market Maker Quotations’’ to amend the current rule text at GEMX Rule 804(g)(1) and (2) to adopt a revised description of the manner in which GEMX removes market maker quotes when certain risk parameters have been triggered. The Exchange believes that the proposed new rule text will provide more detailed information to participants concerning the manner in which these risk features will remove quotes from the Order Book. Today, GEMX Rule 804(g)(1) provides that a market maker must provide parameters by which the Exchange will automatically remove a market maker’s quotations in all series of an options class. If a market maker does not provide parameters then the Exchange will apply default parameters announced to members. The Exchange will automatically remove a market maker’s quotation when, during a time period established by the market maker, the market maker exceeds: (i) The specified number of total contracts in the class, (ii) the specified percentage of the total size of the market maker’s quotes in the class, (iii) the specified absolute value of the net between contracts bought and contracts sold in the class, or (iv) the specified absolute VerDate Sep<11>2014 17:49 Jul 25, 2017 Jkt 241001 value of the net between (a) calls purchased plus puts sold in the class, and (b) calls sold plus puts purchased in the class. The Exchange proposes to adopt new rule text, which continues to require a market maker to provide parameters by which the Exchange will automatically remove a market maker’s quotations in all series of an options class. If a market maker does not provide parameters then the Exchange will apply default parameters announced to members. This is not being amended, rather it is being expanded. The proposed rule text in 804(g)(1) makes clear that market makers are required to utilize the Percentage, Volume, Delta and Vega Thresholds, each a Threshold, described in subsections (A)–(D) in the new rule text. These are the same risk parameters that are offered today by GEMX. The Exchange is seeking to identify each risk parameter specifically and describe the function of each parameter in Rule 804(g)(1)(A)–(D). For each feature, the Exchange’s system (‘‘System’’) will continue to automatically remove quotes in all series of an options class when a certain threshold for any of the parameters has been exceeded. The Exchange elaborates in the proposed rule that a market maker is required to specify a period of time not to exceed 30 seconds (‘‘Specified Time Period’’) during which the system will automatically remove a Market Maker’s quotes in all series of an options class. The limitation of not to exceed 30 seconds is new for GEMX Members. In order to establish a reasonable limit to the allowable Specified Time Period, an GEMX Member will be limited to the setting their Specified Time period to no more than 30 seconds for these Thresholds. A Specified Time Period will commence for an options class every time an execution occurs in any series in such options class and will continue until the System removes quotes as described in proposed GEMX Rule 804(g)(2) or (3) or the Specified Time Period expires. This is the case today, and is not changing. The Specified Time Periods will be the same value described in subsections (A)–(D). Also, as is the case today, a Specified Time Period operates on a rolling basis among all series in an options class in that there may be Specified Time Periods occurring simultaneously for each Threshold and such Specified Time Periods may overlap. If a Market Maker does not provide parameters, the Exchange will apply default parameters, PO 00000 Frm 00102 Fmt 4703 Sfmt 4703 which default settings have been announced to Members.3 Proposed Rule 804(g)(1)(A) describes in greater detail the operation of the Percentage Threshold. As is the case today, a Market Maker must provide a specified percentage of quote size (‘‘Percentage Threshold’’), of not less than 1%, by which the System will automatically remove a Market Maker’s quotes in all series of an options class. The Exchange is adding more detail about the manner in which the System will calculate percentages and amending the current rule to change its operations. For each series in an options class, the System will determine (i) during a Specified Time Period and for each side in a given series, a percentage calculated by dividing the size of a Market Maker’s quote size executed in a particular series (the numerator) by the Marker Maker’s quote size available at the time of execution plus the total number of the Market Marker’s quote size previously executed during the unexpired Specified Time Period (the denominator) (‘‘Series Percentage’’); and (ii) the sum of the Series Percentages in the options class (‘‘Issue Percentage’’) during a Specified Time Period. The System will track and calculate the net impact of positions in the same options issue; long call percentages are offset by short call percentages, and long put percentages are offset by short put percentages in the Issue Percentage. The Exchange also notes that in calculating the Percentage the System compares the number of contracts executed in that series relative to the size of the quote at the time of the execution plus the number of executed contracts that have occurred in the current time period. The legacy GEMX system calculated the Percentage risk parameter by comparing the number of contracts executed in that series relative to the size of the original quote only at the time of the execution. This difference is captured within the proposed rule text. The Exchange notes that with the migration from the GEMX legacy system to the INET system the manner in which the System offsets is not the same. The legacy GEMX system did not offset, in that long call percentages are not offset by short call percentages, and long put percentages are not offset by short put percentages. The migration to INET did however cause the System to track and calculate the net impact.4 The Exchange notes this difference in the calculation and seeks to memorialize the change in the 3 http://business.nasdaq.com/media/ GEMXSystemSettings_tcm5044-41351.pdf [sic]. 4 The net impact of positions takes into account the offsets noted herein. E:\FR\FM\26JYN1.SGM 26JYN1 mstockstill on DSK30JT082PROD with NOTICES Federal Register / Vol. 82, No. 142 / Wednesday, July 26, 2017 / Notices process. The proposed rule provides participants with greater clarity as to the operation of the Percentage risk feature. The proposed text indicates that if the Issue Percentage exceeds the Percentage Threshold the System will automatically remove a market maker’s quotes in all series of the options class. Proposed Rule 804(g)(1)(B) describes in greater detail the operation of the Volume Threshold. As is the case today, a market maker must provide a Volume Threshold by which the System will automatically remove a market maker’s quotes in all series of an underlying security when the market maker executes a number of contracts which exceeds the designated number of contracts in all options series in an options class. Proposed Rule 804(g)(1)(C) describes in greater detail the operation of the Delta Threshold. As is the case today, a market maker must provide a Delta Threshold by which the System will automatically remove a market maker’s quotes in all series of an underlying security. For each class of options, the System will maintain a Delta counter, which tracks the absolute value of the difference between (i) purchased call contracts plus sold put contracts and (ii) sold call contracts plus purchased put contracts. If the Delta counter exceeds the Delta Threshold established by the Member, the System will automatically remove a market maker’s quotes in all series of the options class. Proposed Rule 804(g)(1)(D) describes in greater detail the operation of the Vega Threshold. As is the case today, a market maker must provide a Vega Threshold by which the System will automatically remove a Market Maker’s quotes in all series of an options class. For each series of an options class, the System will maintain a Vega counter, which tracks the absolute value of purchased contracts minus sold contracts. If the Vega counter exceeds the Vega Threshold established by the Member, the System will automatically remove a Market Maker’s quotes in all series of the options class. Proposed Rule 804(g)(2) provides more detail about the System’s current operation with respect to quote removal. The System will automatically remove quotes in all options in an underlying security when the Percentage Threshold, Volume Threshold, Delta Threshold or Vega Threshold has been exceeded. The System will send a Purge Notification Message to the Market Maker for all affected series when any of the above thresholds have been exceeded. The Percentage Threshold, Volume Threshold, Delta Threshold and Vega Threshold are considered VerDate Sep<11>2014 17:49 Jul 25, 2017 Jkt 241001 independently of each other. Quotes will be automatically executed up to the Market Maker’s size regardless of whether the execution of such quotes would cause the Market Maker to exceed the Percentage Threshold, Volume Threshold, Delta Threshold or Vega Threshold. Proposed Rule 804(g)(3) provides more detail about the manner in which the System resets the counting of the various risk parameters. Notwithstanding the automatic removal of quotes described in the rule, if a market maker requests the System to remove quotes in all options series in an options class, the System will automatically reset all Thresholds. Proposed Rule 804(g)(4) provides more detail about the process to reinitiate quoting. When the System removes quotes because the Percentage Threshold, Volume Threshold, Delta Threshold or Vega Threshold were exceeded, the market maker must send a re-entry indicator to re-enter the System. Proposed Rule 804(g)(5) provides more detail about default parameters as mentioned above. If a market maker does not provide a parameter for each of the automated quotation removal Thresholds described in Rule 804(g)(1)(A–D) above, the Exchange will apply default parameters, which are announced to Members. This language exists today in the current text and is being memorialized herein. Finally, proposed Rule 804(g)(6) describes the interaction between the four Thresholds and the market wide parameter. In addition to the Thresholds described in Rule 804(g)(1)(A)–(D) above, a market maker must provide a market wide parameter by which the Exchange will automatically remove a Market Maker’s quotes in all classes when, during a time period established by the Market Maker, the total number of quote removal events specified in Rule 804(g)(1)(A)–(D) exceeds the market wide parameter provided to the Exchange by the market maker. As is the case today, Market Makers may request the Exchange to set the market wide parameter to apply to just GEMX or across GEMX and Nasdaq ISE. Below are some illustrative examples of the Percentage and Volume risk parameters. Example #1: Describes the Percentage risk parameter. Presume the following Order Book: Series of underlying XYZ Size on bid x offer for MM1 100 Strike Call ...................... 100 Strike Put ....................... PO 00000 Frm 00103 Fmt 4703 Sfmt 4703 300x300 50x50 Series of underlying XYZ 110 Strike Call ...................... 110 Strike Put ....................... 34725 Size on bid x offer for MM1 200x200 150x150 In this example, assume the Specified Time Period designated by the Market Maker #1 is 10 seconds and the Percentage Threshold is set to 100%. Assume at 12:00:00, Market Maker #1 executes 100 contracts of his offer size, 200 contracts, in the 110 Strike Calls. This represents an execution equaling 50% (100 contracts of the 200 contract quote size) of the 100% Percentage Threshold. Assume at 12:00:01, Market Maker #1 executes 50 additional contracts in the same 110 Strike Calls. This execution equates to an additional 25% ((50 contracts/(100 remaining quote size +100 contracts already executed within the Specified Time Period)) for a net 75% Series Percentage count toward the 100% Percentage Threshold. If at 12:00:03, Market Maker #1 executes the full size of his bid (50 contracts) in the 100 Strike Put, the System will automatically remove all of Market Maker #1’s quotes in Underlying XYZ since the execution caused his 100% Percentage Threshold to be exceeded; the execution in the 100 Strike Put added 100% Series Percentage to his previously calculated Series Percentage of 75% totaling 175% Issue Percentage. No further quotes for Market Maker #1 in Underlying XYZ will be available until re-entry. The Specified Time Period will be reset for Market Maker #1 in options class XYZ and Market Maker #1 will need to send a re-entry indicator in order to re-enter quotes in options series for options class XYZ into the System. Example #2 is another example of the Percentage Threshold. Presume the following Order Book: In this example, assume Market Maker #1 has Percentage Threshold set at 100% with a Specified Time Period over 5 seconds. Assume at 12:00:00, Market Maker #1 is quoting the XYZ 20 strike calls at 1.00 (10)–1.20 (10). An incoming Order to buy 5 contracts for 1.20 trades against Market Maker #1’s quote. Based on this trade, the Series Percentage Threshold calculation is 5/ [(10)+(0)] = 5/10 = 50%. Since this is the only execution during the Time Period, 50% also represents the Issue Percentage, therefore Market Maker #1’s quote is now 1.00 (10)–1.20 (5). Next, assume at 12:00:01 an Incoming Order to buy 2 contracts for 1.20 trades against Market Maker #1’s quote. Based on this trade, the Series Percentage Threshold calculation is 2/[(5)+(5)] = 2/ 10 = 20%. The Issue Percentage E:\FR\FM\26JYN1.SGM 26JYN1 34726 Federal Register / Vol. 82, No. 142 / Wednesday, July 26, 2017 / Notices mstockstill on DSK30JT082PROD with NOTICES calculation is the sum of Series Percentages during the time period, or 50% + 20% = 70%. Finally, presume Market Maker #1’s quote is now 1.00 (10)–1.20 (3). At 12:00:02, Market Maker #1 updates his quote in the XYZ 20 strike calls to increase his offer size back to 10 contracts, 1.00 (10)–1.20 (10). An incoming Order to buy 6 contracts for 1.20 trades against Market Maker #1’s quote. Based on this trade, the Series Percentage Threshold calculation: 6/ [(10)+(7)] = 6/17 = 35.29%. The Issue Percentage calculation is the sum of Series Percentages during the time period, or 50% + 20% + 35.29% = 105.29%. In this scenario, Market Maler[sic] #1’s quotes are removed in all series of XYZ since his setting of 100% over 5 seconds has been exceeded. Example #3 describes the Volume Threshold. Presume the following Order Book: System; no further quotes will be executed until re-entry. The Volume Specified Time Period will be reset for Market Maker #1 in options class XYZ and Market Maker #1 will need to send a re-entry indicator in order to re-enter quotes in options series for options class XYZ into the System. 2. Statutory Basis The Exchange believes that its proposal is consistent with Section 6(b) of the Act 6 in general, and furthers the objectives of Section 6(b)(5) of the Act 7 in particular, in that it is designed 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, by memorializing, with greater detail, the risk protections available to market makers. The described Thresholds serve to decrease risk and increase stability. Additionally, because the Exchange Size on bid x Series of underlying XYZ offer for MM1 offers these risk tools to market makers, in order to encourage them to provide 100 Strike Call ...................... 300x300 as much liquidity as possible and 100 Strike Put ....................... 50x50 encourage market making generally, the 110 Strike Call ...................... 200x200 proposal removes impediments to and 110 Strike Put ....................... 150x150 perfects the mechanism of a free and In this example, assume the Specified open market and a national market system and protects investors and the Time Period designated by the Market public interest. The Exchange believes Maker #1 is 10 seconds and the that amending Rule 804(g) to add more designated number of contracts clarifying text, which explains in greater permitted for the Volume-Based detail the manner in which the four Threshold is 250 contracts. Assume at Thresholds operate, will bring more 12:00:00, the Market Maker #1 executes all of his offer size, 200 contracts, in the transparency to the rule which serves to protect investors and the public interest, 110 Strike Calls. The System will because market makers will be more initiate the Specified Time Period and for 10 seconds the System will count all informed about the manner in which the functionality operates. volume executed in series of options In addition, the Exchange’s proposal class XYZ. If at any point during that 10 to amend the current Percentage second period, the Market Maker #1 Threshold to: (i) Calculate offsets; and executes additional contracts in any (ii) calculate the Percentage Threshold series of the options class XYZ, those during a Specified Time Period and for contracts will be added to the initial each side in a given series, a percentage, execution of 200 contracts. To illustrate, by dividing the size of a Market Maker’s assume at 12:00:05 the Market Maker # quote size executed in a particular series 1 executes 60 contracts of his offer in (the numerator) by the Marker Maker’s the 100 Strike Calls. The total volume quote size available at the time of executed is now 260 contracts. Since execution plus the total number of the that volume exceeds the Market Maker Market Marker’s quote size previously #1’s designated number of contracts for executed during the unexpired the Volume Threshold (250 contracts), Specified Time Period, will provide all of his quotes in all series of the Market Makers with greater precision in options class XYZ over the Specialized calculating quoting risks. The Exchange Quote Feed 5 will be removed from the believes that providing Market Makers with tools to calculate risk serves to 5 The Specialized Quote Feed interface that perfect the mechanism of a free and allows market makers to connect and send quotes, sweeps and auction responses into GEMX. Data includes the following: (1) Options Auction Notifications (e.g., opening imbalance, Flash, PIM, Solicitation and Facilitation or other information); (2) Options Symbol Directory Messages; (3) System Event Messages (e.g., start of messages, start of system hours, start of quoting, start of opening); (4) VerDate Sep<11>2014 17:49 Jul 25, 2017 Jkt 241001 Option Trading Action Messages (e.g., halts, resumes); (5) Execution Messages; and (6) Quote Messages (quote/sweep messages, risk protection triggers or purge notifications). 6 15 U.S.C. 78f(b). 7 15 U.S.C. 78f(b)(5). PO 00000 Frm 00104 Fmt 4703 Sfmt 4703 open market and a national market system, and, in general to protect investors and the public interest because Market Makers are better able to manage risks with this risk tool. The Exchange further represents that its proposal will continue to operate consistently with the firm quote obligations of a broker-dealer pursuant to Rule 602 of Regulation NMS and that the functionality is mandatory. Specifically, any interest that is executable against a market maker’s quotes that are received 8 by the Exchange prior to the time any of these functionalities are engaged will be automatically executed at the price up to the market maker’s size, regardless of whether such execution results in executions in excess of the market maker’s pre-set parameters. B. Self-Regulatory Organization’s Statement on Burden on Competition The Exchange does not believe that the proposed rule change will impose any burden on competition not necessary or appropriate in furtherance of the purposes of the Act. Specifically, the proposal will not impose a burden on intra-market or inter-market competition, rather it provides market makers with the continued opportunity to avail themselves of risk tools. The proposal does not impose a burden on inter-market competition, because participants may choose to become market makers on a number of other options exchanges, which may have similar but not identical features.9 The proposed rule change is meant to continue to protect market makers from inadvertent exposure to excessive risk. Accordingly, the proposed rule change will have no impact on competition. The Exchange’s proposal to amend the current Percentage Based risk feature to: (i) Calculate offsets; and (ii) calculate the Percentage Threshold during a Specified Time Period and for each side in a given series, a percentage, by dividing the size of a Market Maker’s quote size executed in a particular series (the numerator) by the Marker Maker’s quote size available at the time of execution plus the total number of the Market Marker’s quote size previously executed during the unexpired Specified Time Period, does not impose an undue burden on competition and is non-controversial because the Exchange offers a Percentage Threshold today. The proposed changes to the Percentage 8 The time of receipt is the time such message is processed by the Order Book. 9 See BATS Rule 21.16, BOX Rules 8100 and 8110, C2 Rule 8.12, CBOE Rule 8.18, MIAX Rule 612, NYSE MKT Rule 928NY and NYSE Arca Rule 6.40. E:\FR\FM\26JYN1.SGM 26JYN1 Federal Register / Vol. 82, No. 142 / Wednesday, July 26, 2017 / Notices risk tool simply add more precision to the existing calculation to permit Marker Makers to better control their risk with respect to quoting. Further, the Exchange is memorializing more detail concerning the function of the Thresholds with this rule proposal and making clear the method in which the Percentage risk tool is calculated. The risk tools will continue to reduce risk for market makers in the event of a systems issue or due to the occurrence of unusual or unexpected market activity. C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others No written comments were either solicited or received. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Because the foregoing proposed rule change does not: (i) Significantly affect the protection of investors or the public interest; (ii) impose any significant burden on competition; and (iii) become operative for 30 days from the date on which it was filed, or such shorter time as the Commission may designate, it has become effective pursuant to Section 19(b)(3)(A)(iii) of the Act 10 and subparagraph (f)(6) of Rule 19b–4 thereunder.11 In its filing, GEMX requests that the Commission waive the 30-day operative delay in order to enable the Exchange to accurately reflect in its rules the operation of its risk parameters since the migration to the INET platform. Although the Exchange proposes certain technical changes to how the risk parameters will operate (e.g., limiting the Specified Time Period to 30 seconds), the proposed changes are largely intended to provide more detail about the operation of the existing risk parameters. Accordingly, the Commission believes that granting a waiver of the operative delay is consistent with the protection of investors and the public interest and therefore designates the proposed rule change to be operative upon filing.12 10 15 U.S.C. 78s(b)(3)(A)(iii). CFR 240.19b–4(f)(6). In addition, Rule 19b– 4(f)(6) requires a self-regulatory organization to give the Commission written notice of its intent to file the proposed rule change at least five business days prior to the date of filing of the proposed rule change, or such shorter time as designated by the Commission. The Exchange has satisfied this requirement. 12 For purposes only of waiving the 30-day operative delay, the Commission has also considered the proposed rule’s impact on efficiency, competition, and capital formation. See 15 U.S.C. 78c(f). mstockstill on DSK30JT082PROD with NOTICES 11 17 VerDate Sep<11>2014 17:49 Jul 25, 2017 Jkt 241001 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 necessary or appropriate in the public interest; for the protection of investors; or otherwise in furtherance of the purposes of the Act. 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– GEMX–2017–32 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–GEMX–2017–32. 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 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–GEMX– PO 00000 Frm 00105 Fmt 4703 Sfmt 4703 34727 2017–32, and should be submitted on or before August 16, 2017. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.13 Eduardo A. Aleman, Assistant Secretary. [FR Doc. 2017–15629 Filed 7–25–17; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–81181; File No. SR–ISE– 2017–52] Self-Regulatory Organizations; Nasdaq ISE, LLC; Notice of Designation of a Longer Period for Commission Action on a Proposed Rule Change To Adopt Rule 912 July 20, 2017. On June 9, 2017, Nasdaq ISE, LLC (‘‘ISE’’ or the ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘Commission’’), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’ or ‘‘Exchange Act’’) 1 and Rule 19b–4 thereunder,2 a proposed rule change to adopt Rule 912 (Consolidated Audit Trail—Fee Dispute Resolution). The proposed rule change was published for comment in the Federal Register on June 23, 2017.3 The Commission received no comment letters on the proposed rule change. Section 19(b)(2) of the Act 4 provides that, within 45 days of the publication of notice of the filing of a proposed rule change, or within such longer period up to 90 days as the Commission may designate if it finds such longer period to be appropriate and publishes its reasons for so finding or as to which the self-regulatory organization consents, the Commission shall either approve the proposed rule change, disapprove the proposed rule change, or institute proceedings to determine whether the proposed rule change should be disapproved. The Commission is extending this 45-day time period. The Commission finds that it is appropriate to designate a longer period within which to take action on the proposed rule change so that it has sufficient time to consider the proposed rule change. The proposed rule change would establish the procedures for resolving potential disputes related to CAT Fees charged to Industry Members. 13 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 3 Securities Exchange Act Release No. 80971 (June 19, 2017), 82 FR 28698 (‘‘Notice’’). 4 15 U.S.C. 78s(b)(2). 1 15 E:\FR\FM\26JYN1.SGM 26JYN1

Agencies

[Federal Register Volume 82, Number 142 (Wednesday, July 26, 2017)]
[Notices]
[Pages 34723-34727]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-15629]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-81174; File No. SR-GEMX-2017-32]


Self-Regulatory Organizations; Nasdaq GEMX, LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change Regarding Market 
Maker Quotations

July 20, 2017.
    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 July 6, 2017, Nasdaq GEMX, LLC (``GEMX'' or ``Exchange'') filed 
with the Securities and Exchange Commission (``Commission'') the 
proposed rule change as described in Items I and II, below, which Items 
have been prepared by the Exchange. The Commission is publishing this 
notice to solicit comments on the proposed rule change from interested 
persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.

---------------------------------------------------------------------------

[[Page 34724]]

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend Rule 804, entitled ``Market Maker 
Quotations.''
    The text of the proposed rule change is available on the Exchange's 
Web site at www.ise.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 aspects 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 proposes to amend GEMX Rule 804, entitled ``Market 
Maker Quotations'' to amend the current rule text at GEMX Rule 
804(g)(1) and (2) to adopt a revised description of the manner in which 
GEMX removes market maker quotes when certain risk parameters have been 
triggered. The Exchange believes that the proposed new rule text will 
provide more detailed information to participants concerning the manner 
in which these risk features will remove quotes from the Order Book.
    Today, GEMX Rule 804(g)(1) provides that a market maker must 
provide parameters by which the Exchange will automatically remove a 
market maker's quotations in all series of an options class. If a 
market maker does not provide parameters then the Exchange will apply 
default parameters announced to members. The Exchange will 
automatically remove a market maker's quotation when, during a time 
period established by the market maker, the market maker exceeds: (i) 
The specified number of total contracts in the class, (ii) the 
specified percentage of the total size of the market maker's quotes in 
the class, (iii) the specified absolute value of the net between 
contracts bought and contracts sold in the class, or (iv) the specified 
absolute value of the net between (a) calls purchased plus puts sold in 
the class, and (b) calls sold plus puts purchased in the class.
    The Exchange proposes to adopt new rule text, which continues to 
require a market maker to provide parameters by which the Exchange will 
automatically remove a market maker's quotations in all series of an 
options class. If a market maker does not provide parameters then the 
Exchange will apply default parameters announced to members. This is 
not being amended, rather it is being expanded.
    The proposed rule text in 804(g)(1) makes clear that market makers 
are required to utilize the Percentage, Volume, Delta and Vega 
Thresholds, each a Threshold, described in subsections (A)-(D) in the 
new rule text. These are the same risk parameters that are offered 
today by GEMX. The Exchange is seeking to identify each risk parameter 
specifically and describe the function of each parameter in Rule 
804(g)(1)(A)-(D). For each feature, the Exchange's system (``System'') 
will continue to automatically remove quotes in all series of an 
options class when a certain threshold for any of the parameters has 
been exceeded.
    The Exchange elaborates in the proposed rule that a market maker is 
required to specify a period of time not to exceed 30 seconds 
(``Specified Time Period'') during which the system will automatically 
remove a Market Maker's quotes in all series of an options class. The 
limitation of not to exceed 30 seconds is new for GEMX Members. In 
order to establish a reasonable limit to the allowable Specified Time 
Period, an GEMX Member will be limited to the setting their Specified 
Time period to no more than 30 seconds for these Thresholds. A 
Specified Time Period will commence for an options class every time an 
execution occurs in any series in such options class and will continue 
until the System removes quotes as described in proposed GEMX Rule 
804(g)(2) or (3) or the Specified Time Period expires. This is the case 
today, and is not changing. The Specified Time Periods will be the same 
value described in subsections (A)-(D). Also, as is the case today, a 
Specified Time Period operates on a rolling basis among all series in 
an options class in that there may be Specified Time Periods occurring 
simultaneously for each Threshold and such Specified Time Periods may 
overlap. If a Market Maker does not provide parameters, the Exchange 
will apply default parameters, which default settings have been 
announced to Members.\3\
---------------------------------------------------------------------------

    \3\ http://business.nasdaq.com/media/GEMXSystemSettings_tcm5044-41351.pdf [sic].
---------------------------------------------------------------------------

    Proposed Rule 804(g)(1)(A) describes in greater detail the 
operation of the Percentage Threshold. As is the case today, a Market 
Maker must provide a specified percentage of quote size (``Percentage 
Threshold''), of not less than 1%, by which the System will 
automatically remove a Market Maker's quotes in all series of an 
options class. The Exchange is adding more detail about the manner in 
which the System will calculate percentages and amending the current 
rule to change its operations. For each series in an options class, the 
System will determine (i) during a Specified Time Period and for each 
side in a given series, a percentage calculated by dividing the size of 
a Market Maker's quote size executed in a particular series (the 
numerator) by the Marker Maker's quote size available at the time of 
execution plus the total number of the Market Marker's quote size 
previously executed during the unexpired Specified Time Period (the 
denominator) (``Series Percentage''); and (ii) the sum of the Series 
Percentages in the options class (``Issue Percentage'') during a 
Specified Time Period. The System will track and calculate the net 
impact of positions in the same options issue; long call percentages 
are offset by short call percentages, and long put percentages are 
offset by short put percentages in the Issue Percentage. The Exchange 
also notes that in calculating the Percentage the System compares the 
number of contracts executed in that series relative to the size of the 
quote at the time of the execution plus the number of executed 
contracts that have occurred in the current time period. The legacy 
GEMX system calculated the Percentage risk parameter by comparing the 
number of contracts executed in that series relative to the size of the 
original quote only at the time of the execution. This difference is 
captured within the proposed rule text. The Exchange notes that with 
the migration from the GEMX legacy system to the INET system the manner 
in which the System offsets is not the same. The legacy GEMX system did 
not offset, in that long call percentages are not offset by short call 
percentages, and long put percentages are not offset by short put 
percentages. The migration to INET did however cause the System to 
track and calculate the net impact.\4\ The Exchange notes this 
difference in the calculation and seeks to memorialize the change in 
the

[[Page 34725]]

process. The proposed rule provides participants with greater clarity 
as to the operation of the Percentage risk feature. The proposed text 
indicates that if the Issue Percentage exceeds the Percentage Threshold 
the System will automatically remove a market maker's quotes in all 
series of the options class.
---------------------------------------------------------------------------

    \4\ The net impact of positions takes into account the offsets 
noted herein.
---------------------------------------------------------------------------

    Proposed Rule 804(g)(1)(B) describes in greater detail the 
operation of the Volume Threshold. As is the case today, a market maker 
must provide a Volume Threshold by which the System will automatically 
remove a market maker's quotes in all series of an underlying security 
when the market maker executes a number of contracts which exceeds the 
designated number of contracts in all options series in an options 
class.
    Proposed Rule 804(g)(1)(C) describes in greater detail the 
operation of the Delta Threshold. As is the case today, a market maker 
must provide a Delta Threshold by which the System will automatically 
remove a market maker's quotes in all series of an underlying security. 
For each class of options, the System will maintain a Delta counter, 
which tracks the absolute value of the difference between (i) purchased 
call contracts plus sold put contracts and (ii) sold call contracts 
plus purchased put contracts. If the Delta counter exceeds the Delta 
Threshold established by the Member, the System will automatically 
remove a market maker's quotes in all series of the options class.
    Proposed Rule 804(g)(1)(D) describes in greater detail the 
operation of the Vega Threshold. As is the case today, a market maker 
must provide a Vega Threshold by which the System will automatically 
remove a Market Maker's quotes in all series of an options class. For 
each series of an options class, the System will maintain a Vega 
counter, which tracks the absolute value of purchased contracts minus 
sold contracts. If the Vega counter exceeds the Vega Threshold 
established by the Member, the System will automatically remove a 
Market Maker's quotes in all series of the options class.
    Proposed Rule 804(g)(2) provides more detail about the System's 
current operation with respect to quote removal. The System will 
automatically remove quotes in all options in an underlying security 
when the Percentage Threshold, Volume Threshold, Delta Threshold or 
Vega Threshold has been exceeded. The System will send a Purge 
Notification Message to the Market Maker for all affected series when 
any of the above thresholds have been exceeded. The Percentage 
Threshold, Volume Threshold, Delta Threshold and Vega Threshold are 
considered independently of each other. Quotes will be automatically 
executed up to the Market Maker's size regardless of whether the 
execution of such quotes would cause the Market Maker to exceed the 
Percentage Threshold, Volume Threshold, Delta Threshold or Vega 
Threshold.
    Proposed Rule 804(g)(3) provides more detail about the manner in 
which the System resets the counting of the various risk parameters. 
Notwithstanding the automatic removal of quotes described in the rule, 
if a market maker requests the System to remove quotes in all options 
series in an options class, the System will automatically reset all 
Thresholds.
    Proposed Rule 804(g)(4) provides more detail about the process to 
re-initiate quoting. When the System removes quotes because the 
Percentage Threshold, Volume Threshold, Delta Threshold or Vega 
Threshold were exceeded, the market maker must send a re-entry 
indicator to re-enter the System.
    Proposed Rule 804(g)(5) provides more detail about default 
parameters as mentioned above. If a market maker does not provide a 
parameter for each of the automated quotation removal Thresholds 
described in Rule 804(g)(1)(A-D) above, the Exchange will apply default 
parameters, which are announced to Members. This language exists today 
in the current text and is being memorialized herein.
    Finally, proposed Rule 804(g)(6) describes the interaction between 
the four Thresholds and the market wide parameter. In addition to the 
Thresholds described in Rule 804(g)(1)(A)-(D) above, a market maker 
must provide a market wide parameter by which the Exchange will 
automatically remove a Market Maker's quotes in all classes when, 
during a time period established by the Market Maker, the total number 
of quote removal events specified in Rule 804(g)(1)(A)-(D) exceeds the 
market wide parameter provided to the Exchange by the market maker. As 
is the case today, Market Makers may request the Exchange to set the 
market wide parameter to apply to just GEMX or across GEMX and Nasdaq 
ISE.
    Below are some illustrative examples of the Percentage and Volume 
risk parameters.
    Example #1: Describes the Percentage risk parameter. Presume the 
following Order Book:

------------------------------------------------------------------------
                                                           Size on bid x
                Series of  underlying XYZ                  offer for MM1
------------------------------------------------------------------------
100 Strike Call.........................................         300x300
100 Strike Put..........................................           50x50
110 Strike Call.........................................         200x200
110 Strike Put..........................................         150x150
------------------------------------------------------------------------

    In this example, assume the Specified Time Period designated by the 
Market Maker #1 is 10 seconds and the Percentage Threshold is set to 
100%. Assume at 12:00:00, Market Maker #1 executes 100 contracts of his 
offer size, 200 contracts, in the 110 Strike Calls. This represents an 
execution equaling 50% (100 contracts of the 200 contract quote size) 
of the 100% Percentage Threshold. Assume at 12:00:01, Market Maker #1 
executes 50 additional contracts in the same 110 Strike Calls. This 
execution equates to an additional 25% ((50 contracts/(100 remaining 
quote size +100 contracts already executed within the Specified Time 
Period)) for a net 75% Series Percentage count toward the 100% 
Percentage Threshold. If at 12:00:03, Market Maker #1 executes the full 
size of his bid (50 contracts) in the 100 Strike Put, the System will 
automatically remove all of Market Maker #1's quotes in Underlying XYZ 
since the execution caused his 100% Percentage Threshold to be 
exceeded; the execution in the 100 Strike Put added 100% Series 
Percentage to his previously calculated Series Percentage of 75% 
totaling 175% Issue Percentage. No further quotes for Market Maker #1 
in Underlying XYZ will be available until re-entry. The Specified Time 
Period will be reset for Market Maker #1 in options class XYZ and 
Market Maker #1 will need to send a re-entry indicator in order to re-
enter quotes in options series for options class XYZ into the System.
    Example #2 is another example of the Percentage Threshold. Presume 
the following Order Book:
    In this example, assume Market Maker #1 has Percentage Threshold 
set at 100% with a Specified Time Period over 5 seconds. Assume at 
12:00:00, Market Maker #1 is quoting the XYZ 20 strike calls at 1.00 
(10)-1.20 (10). An incoming Order to buy 5 contracts for 1.20 trades 
against Market Maker #1's quote. Based on this trade, the Series 
Percentage Threshold calculation is 5/[(10)+(0)] = 5/10 = 50%. Since 
this is the only execution during the Time Period, 50% also represents 
the Issue Percentage, therefore Market Maker #1's quote is now 1.00 
(10)-1.20 (5).
    Next, assume at 12:00:01 an Incoming Order to buy 2 contracts for 
1.20 trades against Market Maker #1's quote. Based on this trade, the 
Series Percentage Threshold calculation is 2/[(5)+(5)] = 2/10 = 20%. 
The Issue Percentage

[[Page 34726]]

calculation is the sum of Series Percentages during the time period, or 
50% + 20% = 70%.
    Finally, presume Market Maker #1's quote is now 1.00 (10)-1.20 (3). 
At 12:00:02, Market Maker #1 updates his quote in the XYZ 20 strike 
calls to increase his offer size back to 10 contracts, 1.00 (10)-1.20 
(10). An incoming Order to buy 6 contracts for 1.20 trades against 
Market Maker #1's quote. Based on this trade, the Series Percentage 
Threshold calculation: 6/[(10)+(7)] = 6/17 = 35.29%. The Issue 
Percentage calculation is the sum of Series Percentages during the time 
period, or 50% + 20% + 35.29% = 105.29%. In this scenario, Market 
Maler[sic] #1's quotes are removed in all series of XYZ since his 
setting of 100% over 5 seconds has been exceeded.
    Example #3 describes the Volume Threshold. Presume the following 
Order Book:

------------------------------------------------------------------------
                                                           Size on bid x
                Series of underlying XYZ                   offer for MM1
------------------------------------------------------------------------
100 Strike Call.........................................         300x300
100 Strike Put..........................................           50x50
110 Strike Call.........................................         200x200
110 Strike Put..........................................         150x150
------------------------------------------------------------------------

    In this example, assume the Specified Time Period designated by the 
Market Maker #1 is 10 seconds and the designated number of contracts 
permitted for the Volume-Based Threshold is 250 contracts. Assume at 
12:00:00, the Market Maker #1 executes all of his offer size, 200 
contracts, in the 110 Strike Calls. The System will initiate the 
Specified Time Period and for 10 seconds the System will count all 
volume executed in series of options class XYZ. If at any point during 
that 10 second period, the Market Maker #1 executes additional 
contracts in any series of the options class XYZ, those contracts will 
be added to the initial execution of 200 contracts. To illustrate, 
assume at 12:00:05 the Market Maker # 1 executes 60 contracts of his 
offer in the 100 Strike Calls. The total volume executed is now 260 
contracts. Since that volume exceeds the Market Maker #1's designated 
number of contracts for the Volume Threshold (250 contracts), all of 
his quotes in all series of the options class XYZ over the Specialized 
Quote Feed \5\ will be removed from the System; no further quotes will 
be executed until re-entry. The Volume Specified Time Period will be 
reset for Market Maker #1 in options class XYZ and Market Maker #1 will 
need to send a re-entry indicator in order to re-enter quotes in 
options series for options class XYZ into the System.
---------------------------------------------------------------------------

    \5\ The Specialized Quote Feed interface that allows market 
makers to connect and send quotes, sweeps and auction responses into 
GEMX. Data includes the following: (1) Options Auction Notifications 
(e.g., opening imbalance, Flash, PIM, Solicitation and Facilitation 
or other information); (2) Options Symbol Directory Messages; (3) 
System Event Messages (e.g., start of messages, start of system 
hours, start of quoting, start of opening); (4) Option Trading 
Action Messages (e.g., halts, resumes); (5) Execution Messages; and 
(6) Quote Messages (quote/sweep messages, risk protection triggers 
or purge notifications).
---------------------------------------------------------------------------

2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act \6\ in general, and furthers the objectives of Section 
6(b)(5) of the Act \7\ in particular, in that it is designed 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, 
by memorializing, with greater detail, the risk protections available 
to market makers. The described Thresholds serve to decrease risk and 
increase stability. Additionally, because the Exchange offers these 
risk tools to market makers, in order to encourage them to provide as 
much liquidity as possible and encourage market making generally, the 
proposal removes impediments to and perfects the mechanism of a free 
and open market and a national market system and protects investors and 
the public interest. The Exchange believes that amending Rule 804(g) to 
add more clarifying text, which explains in greater detail the manner 
in which the four Thresholds operate, will bring more transparency to 
the rule which serves to protect investors and the public interest, 
because market makers will be more informed about the manner in which 
the functionality operates.
---------------------------------------------------------------------------

    \6\ 15 U.S.C. 78f(b).
    \7\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    In addition, the Exchange's proposal to amend the current 
Percentage Threshold to: (i) Calculate offsets; and (ii) calculate the 
Percentage Threshold during a Specified Time Period and for each side 
in a given series, a percentage, by dividing the size of a Market 
Maker's quote size executed in a particular series (the numerator) by 
the Marker Maker's quote size available at the time of execution plus 
the total number of the Market Marker's quote size previously executed 
during the unexpired Specified Time Period, will provide Market Makers 
with greater precision in calculating quoting risks. The Exchange 
believes that providing Market Makers with tools to calculate risk 
serves to perfect the mechanism of a free and open market and a 
national market system, and, in general to protect investors and the 
public interest because Market Makers are better able to manage risks 
with this risk tool.
    The Exchange further represents that its proposal will continue to 
operate consistently with the firm quote obligations of a broker-dealer 
pursuant to Rule 602 of Regulation NMS and that the functionality is 
mandatory. Specifically, any interest that is executable against a 
market maker's quotes that are received \8\ by the Exchange prior to 
the time any of these functionalities are engaged will be automatically 
executed at the price up to the market maker's size, regardless of 
whether such execution results in executions in excess of the market 
maker's pre-set parameters.
---------------------------------------------------------------------------

    \8\ The time of receipt is the time such message is processed by 
the Order Book.
---------------------------------------------------------------------------

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act. Specifically, the proposal will 
not impose a burden on intra-market or inter-market competition, rather 
it provides market makers with the continued opportunity to avail 
themselves of risk tools. The proposal does not impose a burden on 
inter-market competition, because participants may choose to become 
market makers on a number of other options exchanges, which may have 
similar but not identical features.\9\ The proposed rule change is 
meant to continue to protect market makers from inadvertent exposure to 
excessive risk. Accordingly, the proposed rule change will have no 
impact on competition.
---------------------------------------------------------------------------

    \9\ See BATS Rule 21.16, BOX Rules 8100 and 8110, C2 Rule 8.12, 
CBOE Rule 8.18, MIAX Rule 612, NYSE MKT Rule 928NY and NYSE Arca 
Rule 6.40.
---------------------------------------------------------------------------

    The Exchange's proposal to amend the current Percentage Based risk 
feature to: (i) Calculate offsets; and (ii) calculate the Percentage 
Threshold during a Specified Time Period and for each side in a given 
series, a percentage, by dividing the size of a Market Maker's quote 
size executed in a particular series (the numerator) by the Marker 
Maker's quote size available at the time of execution plus the total 
number of the Market Marker's quote size previously executed during the 
unexpired Specified Time Period, does not impose an undue burden on 
competition and is non-controversial because the Exchange offers a 
Percentage Threshold today. The proposed changes to the Percentage

[[Page 34727]]

risk tool simply add more precision to the existing calculation to 
permit Marker Makers to better control their risk with respect to 
quoting.
    Further, the Exchange is memorializing more detail concerning the 
function of the Thresholds with this rule proposal and making clear the 
method in which the Percentage risk tool is calculated. The risk tools 
will continue to reduce risk for market makers in the event of a 
systems issue or due to the occurrence of unusual or unexpected market 
activity.

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

    No written comments were either solicited or received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Because the foregoing proposed rule change does not: (i) 
Significantly affect the protection of investors or the public 
interest; (ii) impose any significant burden on competition; and (iii) 
become operative for 30 days from the date on which it was filed, or 
such shorter time as the Commission may designate, it has become 
effective pursuant to Section 19(b)(3)(A)(iii) of the Act \10\ and 
subparagraph (f)(6) of Rule 19b-4 thereunder.\11\
---------------------------------------------------------------------------

    \10\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \11\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file the proposed rule change at 
least five business days prior to the date of filing of the proposed 
rule change, or such shorter time as designated by the Commission. 
The Exchange has satisfied this requirement.
---------------------------------------------------------------------------

    In its filing, GEMX requests that the Commission waive the 30-day 
operative delay in order to enable the Exchange to accurately reflect 
in its rules the operation of its risk parameters since the migration 
to the INET platform. Although the Exchange proposes certain technical 
changes to how the risk parameters will operate (e.g., limiting the 
Specified Time Period to 30 seconds), the proposed changes are largely 
intended to provide more detail about the operation of the existing 
risk parameters. Accordingly, the Commission believes that granting a 
waiver of the operative delay is consistent with the protection of 
investors and the public interest and therefore designates the proposed 
rule change to be operative upon filing.\12\
---------------------------------------------------------------------------

    \12\ For purposes only of waiving the 30-day operative delay, 
the Commission has also considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
---------------------------------------------------------------------------

    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 necessary or 
appropriate in the public interest; for the protection of investors; or 
otherwise in furtherance of the purposes of the Act.

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-GEMX-2017-32 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-GEMX-2017-32. 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 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-GEMX-2017-32, and should be 
submitted on or before August 16, 2017.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\13\
---------------------------------------------------------------------------

    \13\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-15629 Filed 7-25-17; 8:45 am]
 BILLING CODE 8011-01-P