Self-Regulatory Organizations; Nasdaq GEMX, LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Regarding Market Maker Quotations, 34723-34727 [2017-15629]
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Federal Register / Vol. 82, No. 142 / Wednesday, July 26, 2017 / Notices
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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
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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 (https://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 (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
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).
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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.
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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
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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,
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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 https://business.nasdaq.com/media/
GEMXSystemSettings_tcm5044-41351.pdf [sic].
4 The net impact of positions takes into account
the offsets noted herein.
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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
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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 .......................
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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
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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)
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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).
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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 (https://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 (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for Web site viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE.,
Washington, DC 20549, on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the
filing also will be available for
inspection and copying at the principal
office of the Exchange. All comments
received will be posted without change;
the Commission does not edit personal
identifying information from
submissions. You should submit only
information that you wish to make
available publicly. All submissions
should refer to File Number SR–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]
-----------------------------------------------------------------------
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\ https://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\
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\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.
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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\
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\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).
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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 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 (https://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 (https://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for Web site viewing and
printing in the Commission's Public Reference Room, 100 F Street NE.,
Washington, DC 20549, on official business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the filing also will be available
for inspection and copying at the principal office of the Exchange. All
comments received will be posted without change; the Commission does
not edit personal identifying information from submissions. You should
submit only information that you wish to make available publicly. All
submissions should refer to File Number SR-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\
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\13\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-15629 Filed 7-25-17; 8:45 am]
BILLING CODE 8011-01-P
