Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Adopt Commentary .06 to NYSE Arca Rule 6.91-O To Enhance the Price Protections for Complex Orders Executed on the Exchange, 42861-42865 [2017-19241]

Download as PDF Federal Register / Vol. 82, No. 175 / Tuesday, September 12, 2017 / Notices Date of notice required under 39 U.S.C. 3642(d)(1): September 12, 2017. FOR FURTHER INFORMATION CONTACT: Elizabeth A. Reed, 202–268–3179. SUPPLEMENTARY INFORMATION: The United States Postal Service® hereby gives notice that, pursuant to 39 U.S.C. 3642 and 3632(b)(3), on September 6, 2017, it filed with the Postal Regulatory Commission a Request of the United States Postal Service to Add Priority Mail Contract 349 to Competitive Product List. Documents are available at www.prc.gov, Docket Nos. MC2017–185, CP2017–286. DATES: Regulatory Commission to add a domestic shipping services contract to the list of Negotiated Service Agreements in the Mail Classification Schedule’s Competitive Products List. POSTAL SERVICE Date of notice required under 39 U.S.C. 3642(d)(1): September 12, 2017. ACTION: DATES: FOR FURTHER INFORMATION CONTACT: Elizabeth A. Reed, 202–268–3179. POSTAL SERVICE The United States Postal Service® hereby gives notice that, pursuant to 39 U.S.C. 3642 and 3632(b)(3), on September 6, 2017, it filed with the Postal Regulatory Commission a Request of the United States Postal Service to Add Priority Mail & First-Class Package Service Contract 54 to Competitive Product List. Documents are available at www.prc.gov, Docket Nos. MC2017–192, CP2017–293. Product Change—Priority Mail Express Negotiated Service Agreement Elizabeth A. Reed, Attorney, Corporate and Postal Business Law. Postal ServiceTM. ACTION: Notice. [FR Doc. 2017–19277 Filed 9–11–17; 8:45 am] Elizabeth A. Reed, Attorney, Corporate and Postal Business Law. [FR Doc. 2017–19270 Filed 9–11–17; 8:45 am] BILLING CODE 7710–12–P AGENCY: SUPPLEMENTARY INFORMATION: BILLING CODE 7710–12–P The Postal Service gives notice of filing a request with the Postal Regulatory Commission to add a domestic shipping services contract to the list of Negotiated Service Agreements in the Mail Classification Schedule’s Competitive Products List. DATES: Date of notice required under 39 U.S.C. 3642(d)(1): September 12, 2017. FOR FURTHER INFORMATION CONTACT: Elizabeth A. Reed, 202–268–3179. SUPPLEMENTARY INFORMATION: The United States Postal Service® hereby gives notice that, pursuant to 39 U.S.C. 3642 and 3632(b)(3), on September 6, 2017, it filed with the Postal Regulatory Commission a Request of the United States Postal Service to Add Priority Mail Express Contract 50 to Competitive Product List. Documents are available at www.prc.gov, Docket Nos. MC2017–190, CP2017–291. SUMMARY: Product Change—Priority Mail Negotiated Service Agreement ACTION: The Postal Service gives notice of filing a request with the Postal Regulatory Commission to add a domestic shipping services contract to the list of Negotiated Service Agreements in the Mail Classification Schedule’s Competitive Products List. SUMMARY: Date of notice required under 39 U.S.C. 3642(d)(1): September 12, 2017. DATES: FOR FURTHER INFORMATION CONTACT: Elizabeth A. Reed, 202–268–3179. Elizabeth A. Reed, Attorney, Corporate and Postal Business Law. The Postal Service gives notice of filing a request with the Postal [FR Doc. 2017–19273 Filed 9–11–17; 8:45 am] SUMMARY: VerDate Sep<11>2014 15:19 Sep 11, 2017 Jkt 241001 The Postal Service gives notice of filing a request with the Postal Regulatory Commission to add a domestic shipping services contract to the list of Negotiated Service Agreements in the Mail Classification Schedule’s Competitive Products List. DATES: Date of notice required under 39 U.S.C. 3642(d)(1): September 12, 2017. FOR FURTHER INFORMATION CONTACT: Elizabeth A. Reed, 202–268–3179. SUPPLEMENTARY INFORMATION: The United States Postal Service® hereby gives notice that, pursuant to 39 U.S.C. 3642 and 3632(b)(3), on September 6, 2017, it filed with the Postal Regulatory Commission a Request of the United States Postal Service to Add Priority Mail Contract 348 to Competitive Product List. Documents are available at www.prc.gov, Docket Nos. MC2017–184, CP2017–285. SUMMARY: Elizabeth A. Reed, Attorney, Corporate and Postal Business Law. [FR Doc. 2017–19269 Filed 9–11–17; 8:45 am] Notice. Postal ServiceTM. ACTION: Notice. POSTAL SERVICE Postal ServiceTM. Notice. AGENCY: Postal ServiceTM. AGENCY: BILLING CODE 7710–12–P Product Change—Priority Mail Negotiated Service Agreement BILLING CODE 7710–12–P AGENCY: Product Change—Priority Mail and First-Class Package Service Negotiated Service Agreement [FR Doc. 2017–19275 Filed 9–11–17; 8:45 am] pmangrum on DSK3GDR082PROD with NOTICES1 POSTAL SERVICE The United States Postal Service® hereby gives notice that, pursuant to 39 U.S.C. 3642 and 3632(b)(3), on September 6, 2017, it filed with the Postal Regulatory Commission a Request of the United States Postal Service to Add Priority Mail Contract 352 to Competitive Product List. Documents are available at www.prc.gov, Docket Nos. MC2017–188, CP2017–289. Elizabeth A. Reed, Attorney, Corporate and Postal Business Law. 42861 SUPPLEMENTARY INFORMATION: BILLING CODE 7710–12–P PO 00000 Frm 00081 Fmt 4703 SECURITIES AND EXCHANGE COMMISSION [Release No. 34–81539; File No. SR– NYSEArca–2017–93] Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Adopt Commentary .06 to NYSE Arca Rule 6.91–O To Enhance the Price Protections for Complex Orders Executed on the Exchange September 6, 2017. Pursuant to the provisions of 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 August 25, 2017, NYSE Arca, Inc. (‘‘NYSE Arca’’ or the ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘Commission’’) a 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 1 15 2 17 Sfmt 4703 E:\FR\FM\12SEN1.SGM U.S.C. 78s(b)(1). CFR 240.19b–4. 12SEN1 42862 Federal Register / Vol. 82, No. 175 / Tuesday, September 12, 2017 / Notices solicit comments on the proposed rule change from interested persons. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to adopt Commentary .06 to Rule 6.91–O (Electronic Complex Order Trading) to enhance the price protections for Complex Orders executed on the Exchange. The proposed rule change is available on the Exchange’s Web site at www.nyse.com, at the principal office of the Exchange, and at the Commission’s Public Reference Room. II. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the 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 pmangrum on DSK3GDR082PROD with NOTICES1 1. Purpose The Exchange is proposing to adopt Commentary .06 to Rule 6.91–O to enhance the price protections applicable to Electronic Complex Orders (or ‘‘ECOs’’).3 The Exchange currently provides price protection to ECOs, which is designed to prevent the execution of orders at prices that are priced a certain percentage away from the current market and, therefore, are potentially erroneous.4 The Exchange proposes an additional price protection that would be another check on whether an ECO’s limit price is correctly aligned to the 3 Rule 6.62–O(e) defines a Complex Order as any order involving the simultaneous purchase and/or sale of two or more different option series in the same underlying security, for the same account, in a ratio that is equal to or greater than one-to-three (.333) and less than or equal to three-to-one (3.00) and for the purpose of executing particular investment strategy. Per Rule 6.91–O, an ECO is a Complex Order that has been entered into the NYSE Arca System (‘‘System’’) for possible execution. See Rule 6.91–O(a). 4 See Commentary .05 to Rule 6.91–O (providing for the rejection of ECOs that are priced away from the current market by a ‘‘Specified Amount,’’ which Specified Amount varies depending on the smallest MPV of any leg in the ECO) (the ‘‘Price Protection Filter’’ or ‘‘Filter’’) . VerDate Sep<11>2014 15:19 Sep 11, 2017 Jkt 241001 complex strategy and would reject erroneously priced incoming ECOs (the ‘‘Reasonability Checks’’).5 As discussed herein, the proposed price protections are materially identical to price protections available on other options exchanges, including Nasdaq ISE, LLC (‘‘ISE’’).6 First, the Exchange proposes Commentary .06(a)(1) to Rule 6.91–O, pursuant to which, upon entry into the System, the Exchange would reject any incoming order for a complex strategy where all legs are to sell (buy) if it is entered at a price that is less (more) than the minimum (maximum) price, which is calculated as the sum of the ratio on each leg of the Complex Order multiplied by $0.01 (¥$0.01) per leg (e.g., an order to sell (buy) 2 calls and sell (buy) 1 put would have a minimum (maximum) price of $0.03 (¥$0.03)).7 For example, an order to sell 2 calls and sell 1 put would have a minimum net credit price of $0.03. If such an order were entered at a price of $0.02, it would not be executable, as a price of zero would have to be assigned to one of the legs of the order. As proposed, this order would be rejected. As another example, if a market participant is entering the following ‘‘all sell’’ complex strategy for a debit: • Leg A: 100 × 0.01 ¥ 0.02 × 100 • Leg B: 100 × 0.01 ¥ 0.02 × 100 • Order 1: Sell1 Leg A, Sell 2 Leg B; Net price: ¥ $0.03 Result: As proposed, Order 1 would be rejected because it is priced less than the minimum order price of $0.03. Based on each individual leg trading for 5 See proposed Commentary .06 to Rule 6.91–O, which would provide that the Exchange would reject any incoming ECO that has a strategy described in paragraphs (a)(1)–(3) of proposed Commentary .06 to Rule 6.91–O. Because Reasonability Checks would be performed before the Price Protection Filter, the proposed rule text would provide that ‘‘[a]ny incoming Electronic Complex Order that passes this Reasonability Check would still be subject to the Price Protection Filter, per Commentary .05(b) of this Rule.’’ See id. 6 See e.g., ISE Rule 722, Supplementary Material .07(Price limits for complex orders and quotes). The Exchange notes that, as discussed herein, the proposed Reasonability Checks are similar to those initially adopted by ISE and do not include a later adopted pre-set value ‘‘buffer.’’ See infra nn. 12 and 15 [sic]. Moreover, because the Exchange does not support ECOs entered as market orders, the Exchange has not adopted price checks related to such orders (which orders ISE supports). See e.g., ISE Rule 722, Supplementary Material .07(c)(1), (3). The Exchange also notes that the Chicago Board Options Exchange, Inc. (‘‘CBOE’’) likewise includes complex strategy price checks, which cover more strategies than proposed herein, but are nonetheless designed to accomplish the same goal of avoiding execution of erroneously priced complex orders. See CBOE Rule 6.53C, Interpretations and Policies .08 (Price Check Parameters). 7 See proposed Commentary .06(a)(1) to Rule 6.91–O. PO 00000 Frm 00082 Fmt 4703 Sfmt 4703 at least $0.01, this complex strategy would never trade at a net credit price of less than $0.03. Thus, any sell order for this strategy with a limit price less than $0.03 would be rejected. If, for example, a market participant is entering the following ‘‘all buy’’ complex strategy: • Leg A: 100 × 0.01 ¥ 0.02 × 100 • Leg B: 100 × 0.01 ¥ 0.02 × 100 • Order 1: Buy Leg A, Buy 2 Leg B; Net price: ¥ $0.02 Result: As proposed, Order 1 would be rejected because it is priced greater than the maximum net debit price of ¥$0.03 (and only orders priced at ¥$0.03 or less would be accepted). Because debit orders are entered into the Exchange System as a negative value, the ‘‘maximum’’ price check for buy orders is effectively a check for the minimum order price. Here, Order 1 @ ¥$0.02 would represent an order to buy for a net debit price of $0.02, and therefore would be rejected. The Exchange notes that the price check in proposed Commentary .06(a)(1) to Rule 6.91–O is materially identical to price protections available on at least one other options exchange, ISE.8 Second, the Exchange proposes Commentary .06(a)(2) to Rule 6.91–O, pursuant to which, upon entry into the System, the Exchange would reject any incoming order for a vertical spread strategy (i.e., an order to sell a call (put) option and to buy another call (put) option in the same security with the same expiration but at a higher (lower) strike price) when entered with a net debit price of ¥$0.01 or less.9 For example, if a market participant is entering the following vertical call credit spread for a debit: • Leg A: April SPY 240 Call: 100 × 1.72 ¥ 1.73 × 100 • Leg B: April SPY 241 Call: 100 × 1.36 ¥ 1.37 × 100 • Order 1: Sell 1 Leg A, Buy 1 Leg B; Quantity 50; Net price: $ ¥ 0.35 Result: As proposed, Order 1 would be rejected because it priced less than or equal to ¥$0.01 (i.e., it has a negative limit price). The Exchange notes that the lower strike call will always be more 8 See Securities Exchange Act Release No. 71406 (January 27, 2014), 79 FR 5495, 5496 (January 31, 2014) (SR–ISE–2014–05) (‘‘ISE Price Reasonability Filing’’) (adopting ‘‘minimum net price’’ protection feature, providing that the ISE system would ‘‘reject any complex order strategy where all legs are to buy if it is entered at a price that is less than the minimum price, which is calculated as the sum of the ratio on each leg of the complex order multiplied by $0.01 per leg (e.g., an order to buy 2 calls and buy 1 put would have a minimum price of $0.03)’’). 9 See proposed Commentary .06(a)(2) to Rule 6.91–O. E:\FR\FM\12SEN1.SGM 12SEN1 Federal Register / Vol. 82, No. 175 / Tuesday, September 12, 2017 / Notices pmangrum on DSK3GDR082PROD with NOTICES1 expensive than the higher strike call within the same expiration.10 Thus, entering this sell order with a negative limit price would result in it being rejected. The Exchange notes that the price check in proposed Commentary .06(a)(2) to Rule 6.91–O is materially identical to price protections available on at least one other options exchange, ISE.11 Finally, upon entry into the System, the Exchange proposes to reject any incoming order for a credit calendar spread strategy (i.e., an order to sell a call (put) option with a longer expiration and to buy another call (put) option with a shorter expiration in the same security at the same strike price) when entered with a net price of ¥$0.01 or less.12 For example, if a market participant is entering the following calendar credit spread for a debit: • Leg A: May SPY 240 Call: 100 × 3.41 ¥ 3.43 × 100 • Leg B: April SPY 240 Call: 100 × 1.72 ¥ 1.73 × 100 • Order 1: Sell 1 Leg A, Buy 1 Leg B; Quantity: 50; Net price: ¥$1.68 Result: As proposed, Order 1 would be rejected because it is priced less than or equal to ¥$0.01. The Exchange notes that the further out expiring call being sold will always be more expensive than a nearer expiring call being bought at the same strike price, and should always generate a credit.13 Thus, any order to sell the far expiration and buy the near expiration entered with a price of ¥0.01 or less would result in this order being rejected. The Exchange notes that the price check in proposed Commentary .06(a)(3) to Rule 6.91–O is materially identical to price protections available on at least one other options exchange, ISE.14 Regarding calendar spread orders, the Exchange also proposes to retain discretion to deactivate this price check in the interest of fair and orderly markets.15 For example, the Exchange may deactivate this price check if there is a corporate action in a complex symbol that would result in an otherwise valid strategy being rejected by the proposed check.16 The Exchange believes this discretion to deactivate the Reasonability Check would be consistent with its obligation to assure a fair and orderly market, and that the need for such flexibility is recognized in other Exchange rules, such as those related to position limits, quote-width differentials and price protection filters.17 As proposed, the Exchange would announce by electronic message to ATP Holders that request to receive such messages if the Exchange deactivates (and later reactivates) the Reasonability Check for calendar spread orders. Further, the Exchange does not propose to apply the Reasonability Check on calendar orders entered on the Trading Floor, as such orders are subject 10 The principle behind this check is based on the standard trading principle of ‘‘buy low, sell high.’’ The ability to buy stock at a lower price is more valuable than the ability to buy stock at a higher price, and thus a call with a lower strike price has more value, and thus is more expensive, than a call with a higher strike price. Similarly, the ability to sell stock at a higher price is more valuable than the ability to sell stock at a lower price, and thus a put with a higher strike price has more value, and thus is more expensive, than a put with a lower strike price. 11 See supra note 9 [sic], ISE Price Reasonability Filing (providing that, subject to certain limitations, the ISE system would ‘‘reject a vertical spread order (i.e., an order to buy a call (put) option and to sell another call (put) option in the same security with the same expiration but at a higher (lower) strike price) when entered with a net price of less than zero’’). The Exchange notes that ISE amended Supplementary Material .07(c)(1) to ISE Rule 722 to add a ‘‘pre-set value’’ less than zero to allow a buffer within which certain orders would not be rejected. See, e.g., See Securities Exchange Act Release No. 72254 (May 27, 2014), 79 FR 31372, 31373 (June 2, 2014) (SR–ISE–2014–26) (‘‘ISE Price Reasonability Modification Filing’’). The Exchange has opted to hard code the reject value as $¥0.01, which aligns with the ISE Price Reasonability Filing and, would nonetheless operate in a manner similar to ISE’s current rule, notwithstanding the ‘‘buffer.’’ 12 See proposed Commentary .06(a)(3) to Rule 6.91–O. 13 The principle behind this check is based on the general concept that locking in a price further into the future involves more risk for the buyer and seller and thus is more valuable, making an option (call or put) with a farther expiration more expensive than an option with a nearer expiration. This is similar, for example, to interest rates for mortgages: In general, an interest rate on a 30-year mortgage is higher than the interest rate on a 15year mortgage due to the risk of potential interest rate changes over the longer period of time to both the mortgagor and mortgagee. 14 See, e.g., ISE Rule 722, Supplementary Material .07(c)(3) (providing, in part, that the ISE system will ‘‘reject a calendar spread order (i.e., an order to buy a call (put) option with a longer expiration and to sell another call (put) option with a shorter expiration in the same security at the same strike price) when entered with a net price of less than zero (minus a pre-set value).’’ See also supra note 12 [sic], ISE Price Reasonability Modification Filing (adopting ISE Rule 722, Supplementary Material .07(c)(2)). Rather than utilize a ‘‘pre-set value’’ (or buffer), the Exchange has opted to hard code the reject value as $¥0.01. See id. 15 See proposed Commentary .06(a)(3)(i) to Rule 6.91–O. 16 The Exchange has not similarly retained discretion to deactivate the Reasonability Checks for minimum price and vertical spreads because corporate actions will not create a scenario where a lower strike call would be cheaper than a higher strike call, or a higher strike put will be cheaper than a lower strike put. 17 See, e.g., Rules 6.8–O (regarding position limits); 6.37A–O (regarding maximum quotation spreads); 6.60–O (regarding price protection for orders); 6.61–O (regarding price protection for Market Maker quotes) and Commentary .05 to Rule 6.91–O (regarding the Price Protection Filter for ECOs). VerDate Sep<11>2014 15:19 Sep 11, 2017 Jkt 241001 PO 00000 Frm 00083 Fmt 4703 Sfmt 4703 42863 to manual handling by individuals who will have evaluated the price of an order based on then-market conditions.18 The Exchange notes that other exchanges that offer price protections similar to those proposed for calendar spreads have similarly retained discretion to limit the application of this check.19 The Exchange notes that ECOs that are not rejected by the Reasonability Checks would still be subject to the Price Protection Filter.20 Implementation The Exchange will announce by Trader Update the implementation date of the proposed rule change within 90 days of the effective date of this rule filing. 2. Statutory Basis The Exchange believes that its proposal is consistent with Section 6(b) of the Securities Exchange Act of 1934 (the ‘‘Act’’),21 in general, and furthers the objectives of Section 6(b)(5) of the Act,22 in particular, in that it is designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, to remove impediments to and perfect the mechanism of a free and open market and a national market system, and, in general, to protect investors and the public interest. In particular, the Exchange believes the proposed Reasonability Checks would protect investors and the public interest and maintain fair and orderly markets by mitigating potential risks associated with market participants entering Complex Orders at clearly unintended prices that are inconsistent with their strategies. Specifically, a Complex Order strategy where all legs are to sell (buy) will be rejected if it is entered at a price that is less (more) than the minimum (maximum) price. The Exchange believes it is reasonable to reject such orders upon entry as they are not executable. Allowing such orders to be entered would create investor confusion; as such orders would not receive an execution and would remain pending until canceled. Similarly, the 18 See proposed Commentary .06(a)(3)(i) to Rule 6.91–O. 19 See, e.g., CBOE Rule 6.53C, Interpretations and Policies .08(c)(6) (excluding from debit/credit reasonability checks ‘‘orders routed from a PAR workstation or order management terminal’’ because such orders would be subject to manual handling). The Exchange notes that CBOE’s exclusion of complex orders entered on the floor from its debit/credit reasonability checks is not limited to calendar spreads but applies to all such orders entered from the floor of the CBOE. 20 See proposed Commentary .06(b) to Rule 6.91– O; see also supra note 6 [sic]. 21 15 U.S.C. 78f(b). 22 15 U.S.C. 78f(b)(5). E:\FR\FM\12SEN1.SGM 12SEN1 42864 Federal Register / Vol. 82, No. 175 / Tuesday, September 12, 2017 / Notices pmangrum on DSK3GDR082PROD with NOTICES1 Exchange believes that rejecting orders for vertical spread strategies—as well as calendar spread strategies—that are entered at a negative price also protects investors from executing orders that were likely entered in error. Regarding orders for calendar spreads, the Exchange recognizes that it may not be appropriate to apply the Reasonability Checks to calendar spreads in unusual market conditions, such as corporate actions that result in changes in price to the underlying security.23 The Exchange therefore believes it would remove impediments and perfect the mechanism of a free and open market and a national market system for the Exchange to temporarily deactivate the checks in the event of unusual market conditions, which flexibility is consistent with other exchange rules.24 Further, the Exchange also recognizes that the applicable protections are not appropriate for orders entered manually on the Trading Floor, because such orders would be subject to an additional check of thenmarket conditions by the individual entering the order, which flexibility is consistent with the rules of other exchanges.25 The Exchange’s proposed Reasonability Checks are similar to similar protections offered on other options exchanges, including ISE. To the extent there are differences between the proposed Reasonability Checks, as described above (see supra notes12 and 15) [sic], the Exchange does not believe such differences raise any new or significant policy concerns. Further, despite the differences, the proposed Reasonability Checks would otherwise operate in a similar manner to the checks on ISE. As such, the Exchange merely desires to adopt functionality that is similar to what already exists on ISE.26 Permitting the Exchange to operate on an even playing field relative to other exchanges that have similar functionality removes impediments to and perfects the mechanism for a free and open market and a national market system. B. Self-Regulatory Organization’s Statement on Burden on Competition The Exchange does not believe that the proposed rule change would impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. The proposed Reasonability Checks specify circumstances in which the 23 See supra note 17 [sic]. supra note 18 [sic]. 25 See supra note 20 [sic]. 26 See supra note 7 [sic]. 24 See VerDate Sep<11>2014 15:19 Sep 11, 2017 Jkt 241001 Exchange would reject certain ECOs in the interest of protecting investors against the execution of erroneous orders or the execution of orders at erroneous prices. As such, the proposal does not impose any burden on competition. To the contrary, the Exchange believes that the proposed Reasonability Checks may foster more competition. Specifically, the Exchange notes that it operates in a highly competitive market in which market participants can readily favor competing venues. The Exchange’s proposed rule change would enhance its ability to compete with other exchanges that already offer similar reasonability checks. Thus, the Exchange believes that this type of competition amongst exchanges is beneficial to the market place as a whole as it can result in enhanced processes, functionality, and technologies. The Exchange further believes that because the proposed rule change would be applicable to all OTP Holders and OTP Firms, it would not impose any burden on intra-market competition that is not necessary or appropriate in furtherance of the purposes of the Act. C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others No written comments were solicited or received with respect to the proposed rule change. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Because the proposed rule change does not (i) significantly affect the protection of investors or the public interest; (ii) impose any significant burden on competition; and (iii) become operative for 30 days from the date on which it was filed, or such shorter time as the Commission may designate, it has become effective pursuant to Section 19(b)(3)(A) of the Act 27 and Rule 19b– 4(f)(6) thereunder.28 A proposed rule change filed pursuant to Rule 19b–4(f)(6) under the Act 29 normally does not become operative for 30 days after the date of its filing. However, Rule 19b–4(f)(6)(iii) 30 permits the Commission to designate a 27 15 U.S.C. 78s(b)(3)(A). CFR 240.19b–4(f)(6). As required under Rule 19b–4(f)(6)(iii), the Exchange provided the Commission with written notice of its intent to file the proposed rule change, along with a brief description and the text of the proposed rule change, at least five business days prior to the date of filing of the proposed rule change, or such shorter time as designated by the Commission. 29 17 CFR 240.19b–4(f)(6). 30 17 CFR 240.19b–4(f)(6)(iii). 28 17 PO 00000 Frm 00084 Fmt 4703 Sfmt 4703 shorter time if such action is consistent with the protection of investors and the public interest. NYSE Arca has asked the Commission to waive the 30-day operative delay. NYSE Arcs believes that waiving the operative delay would protect investors by enabling the Exchange to provide greater protections from potentially erroneous executions and potentially reduce the attendant risks of such executions. As noted above, the proposal provides that a Complex Order strategy where all legs are to sell (buy) will be rejected if it is entered at a price that is less (more) than the minimum (maximum) price. NYSE Arca notes that such an order is not executable, and that allowing such an order to be entered would create investor confusion because the order would not receive an execution and would remain pending until canceled. Similarly, the Exchange believes that rejecting orders for vertical and calendar spread strategies that are entered at a negative price will protect investors from executing orders that were likely entered in error.31 The Commission believes that waiver of the operative delay is consistent with the protection of investors and the public interest because the proposed rules are designed to reduce investor confusion and to prevent the entry and execution of erroneously priced ECOs. Therefore, the Commission hereby waives the operative delay and designates the proposed rule change operative upon filing.32 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. If the Commission takes such action, the 31 As discussed above, the proposal also allows the Exchange to deactivate the Reasonability Check for calendar spread strategies. The Exchange will notify OTP Holders and OTP Firms by electronic message of any such deactivation or re-activation. The Exchange believes that this discretion is necessary because a corporate action, for example, could result in the Reasonability Check for calendar spread strategies rejecting an otherwise valid strategy. The proposal also provides that the Reasonability Check for calendar spread strategies will not apply to ECOs that are entered on the Trading Floor. The Exchange notes that such orders are subject to manual handling by individuals who will have evaluated the price of the order based on market conditions. The Exchange further notes that another exchange has adopted a similar rule. See note 19, supra. 32 For purposes only of waiving the 30-day operative delay, the Commission also has considered the proposed rule’s impact on efficiency, competition, and capital formation. See 15 U.S.C. 78c(f). E:\FR\FM\12SEN1.SGM 12SEN1 Federal Register / Vol. 82, No. 175 / Tuesday, September 12, 2017 / Notices Commission shall institute proceedings to determine whether the proposed rule change should be approved or disapproved. IV. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: Electronic Comments • Use the Commission’s Internet comment form (http://www.sec.gov/ rules/sro.shtml); or • Send an email to rule-comments@ sec.gov. Please include File Number SR– NYSEArca–2017–93 on the subject line. pmangrum on DSK3GDR082PROD with NOTICES1 Paper Comments • Send paper comments in triplicate to Brent J. Fields, Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549–1090. All submissions should refer to File Number SR–NYSEArca–2017–93. 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– NYSEArca–2017–93 and should be submitted on or before October 3, 2017. 33 17 For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.33 Eduardo A. Aleman, Assistant Secretary. SECURITIES AND EXCHANGE COMMISSION [FR Doc. 2017–19241 Filed 9–11–17; 8:45 am] SECURITIES AND EXCHANGE COMMISSION Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Withdrawal of a Proposed Rule Change Relating to the Listing and Trading of Shares of the EtherIndex Ether Trust Under NYSE Arca Equities Rule 8.201 Sunshine Act Meeting September 6, 2017. BILLING CODE 8011–01–P Notice is hereby given, pursuant to the provisions of the Government in the Sunshine Act, Pub. L. 94–409, that the Securities and Exchange Commission Advisory Committee on Small and Emerging Companies will hold a public meeting on Wednesday, September 13, 2017, in Multi-Purpose Room LL–006 at the Commission’s headquarters, 100 F Street, NE., Washington, DC. The meeting will begin at 9:30 a.m. (EDT) and will be open to the public. Seating will be on a first-come, firstserved basis. Doors will open at 9:00 a.m. Visitors will be subject to security checks. The meeting will be webcast on the Commission’s Web site at www.sec.gov. On August 14, 2017, the Commission published notice of the Committee meeting (Release No. 33–10399), indicating that the meeting is open to the public and inviting the public to submit written comments to the Committee. This Sunshine Act notice is being issued because a majority of the Commission may attend the meeting. No earlier notice of this Meeting was practicable. The agenda for the meeting includes matters relating to rules and regulations affecting small and emerging companies under the federal securities laws. For further information, please contact Brent J. Fields from the Office of the Secretary at (202) 551–5400. Dated: September 8, 2017. Brent J. Fields, Secretary. [FR Doc. 2017–19445 Filed 9–8–17; 4:15 pm] BILLING CODE 8011–01–P [Release No. 34–81538; File No. SR– NYSEArca–2016–176] On December 30, 2016, NYSE Arca, Inc. (‘‘NYSE Arca’’) filed with the Securities and Exchange Commission (‘‘Commission’’), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Exchange Act’’) 1 and Rule 19b–4 thereunder,2 a proposed rule change to list and trade shares of the EtherIndex Ether Trust. The proposed rule change was published for comment in the Federal Register on January 23, 2017.3 On February 23, 2017, pursuant to Section 19(b)(2) of the Exchange Act,4 the Commission designated a longer period within which to approve the proposed rule change, disapprove the proposed rule change, or institute proceedings to determine whether to approve or disapprove the proposed rule change.5 On April 21, 2017, the Commission instituted proceedings to determine whether to approve or disapprove the proposed rule change.6 On July 17, 2017, the Commission designated a longer period for Commission action on the proposed rule change.7 The Commission received nine comment letters regarding the proposed rule change.8 1 15 U.S.C. 78s(b)(1). CFR 240.19b–4. 3 See Securities Exchange Act Release No. 79792 (Jan. 13, 2017), 82 FR 7891 (Jan. 23, 2017). 4 15 U.S.C. 78s(b)(2). 5 See Securities Exchange Act Release No. 80094 (Feb. 23, 2017), 82 FR 12268 (Mar. 1, 2017). The Commission designated April 23, 2017, as the date by which the Commission shall either approve or disapprove, or institute proceedings to determine whether to approve or disapprove, the proposed rule change. 6 See Securities Exchange Act Release No. 80501 (Apr. 21, 2017), 82 FR 19397 (Apr. 27, 2017). 7 See Securities Exchange Act Release No. 81155 (July 17, 2017), 82 FR 33938 (July 21, 2017). The Commission designated September 20, 2017, as the date by which the Commission shall either approve or disapprove the proposed rule change. 8 See Letters from Andrew Quentson (Apr. 26, 2017); Charles K. Massey, III, Venture Private Equity Investment (Apr. 26, 2017); Anita Desai (Apr. 29, 2017); Luc Jean (May 3, 2017); Tisho P. (May 10, 2017); Kevin McSheehan (May 14, 2017); Bruce Granger (May 16, 2017); Bruce Granger (May 16, 2017); Alen Lee (May 18, 2017). All comments on the proposed rule change are available on the Commission’s Web site at: https://www.sec.gov/ 2 17 CFR 200.30–3(a)(12). VerDate Sep<11>2014 15:19 Sep 11, 2017 42865 Continued Jkt 241001 PO 00000 Frm 00085 Fmt 4703 Sfmt 4703 E:\FR\FM\12SEN1.SGM 12SEN1

Agencies

[Federal Register Volume 82, Number 175 (Tuesday, September 12, 2017)]
[Notices]
[Pages 42861-42865]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-19241]


=======================================================================
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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-81539; File No. SR-NYSEArca-2017-93]


Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Adopt Commentary 
.06 to NYSE Arca Rule 6.91-O To Enhance the Price Protections for 
Complex Orders Executed on the Exchange

September 6, 2017.
    Pursuant to the provisions of 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 August 25, 2017, NYSE Arca, Inc. (``NYSE Arca'' 
or the ``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') a 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

[[Page 42862]]

solicit comments on the proposed rule change from interested persons.
---------------------------------------------------------------------------

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

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

    The Exchange proposes to adopt Commentary .06 to Rule 6.91-O 
(Electronic Complex Order Trading) to enhance the price protections for 
Complex Orders executed on the Exchange. The proposed rule change is 
available on the Exchange's Web site at www.nyse.com, at the principal 
office of the Exchange, and at the Commission's Public Reference Room.

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

    In its filing with the Commission, the 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 is proposing to adopt Commentary .06 to Rule 6.91-O to 
enhance the price protections applicable to Electronic Complex Orders 
(or ``ECOs'').\3\
---------------------------------------------------------------------------

    \3\ Rule 6.62-O(e) defines a Complex Order as any order 
involving the simultaneous purchase and/or sale of two or more 
different option series in the same underlying security, for the 
same account, in a ratio that is equal to or greater than one-to-
three (.333) and less than or equal to three-to-one (3.00) and for 
the purpose of executing particular investment strategy. Per Rule 
6.91-O, an ECO is a Complex Order that has been entered into the 
NYSE Arca System (``System'') for possible execution. See Rule 6.91-
O(a).
---------------------------------------------------------------------------

    The Exchange currently provides price protection to ECOs, which is 
designed to prevent the execution of orders at prices that are priced a 
certain percentage away from the current market and, therefore, are 
potentially erroneous.\4\ The Exchange proposes an additional price 
protection that would be another check on whether an ECO's limit price 
is correctly aligned to the complex strategy and would reject 
erroneously priced incoming ECOs (the ``Reasonability Checks'').\5\ As 
discussed herein, the proposed price protections are materially 
identical to price protections available on other options exchanges, 
including Nasdaq ISE, LLC (``ISE'').\6\
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    \4\ See Commentary .05 to Rule 6.91-O (providing for the 
rejection of ECOs that are priced away from the current market by a 
``Specified Amount,'' which Specified Amount varies depending on the 
smallest MPV of any leg in the ECO) (the ``Price Protection Filter'' 
or ``Filter'') .
    \5\ See proposed Commentary .06 to Rule 6.91-O, which would 
provide that the Exchange would reject any incoming ECO that has a 
strategy described in paragraphs (a)(1)-(3) of proposed Commentary 
.06 to Rule 6.91-O. Because Reasonability Checks would be performed 
before the Price Protection Filter, the proposed rule text would 
provide that ``[a]ny incoming Electronic Complex Order that passes 
this Reasonability Check would still be subject to the Price 
Protection Filter, per Commentary .05(b) of this Rule.'' See id.
    \6\ See e.g., ISE Rule 722, Supplementary Material .07(Price 
limits for complex orders and quotes). The Exchange notes that, as 
discussed herein, the proposed Reasonability Checks are similar to 
those initially adopted by ISE and do not include a later adopted 
pre-set value ``buffer.'' See infra nn. 12 and 15 [sic]. Moreover, 
because the Exchange does not support ECOs entered as market orders, 
the Exchange has not adopted price checks related to such orders 
(which orders ISE supports). See e.g., ISE Rule 722, Supplementary 
Material .07(c)(1), (3). The Exchange also notes that the Chicago 
Board Options Exchange, Inc. (``CBOE'') likewise includes complex 
strategy price checks, which cover more strategies than proposed 
herein, but are nonetheless designed to accomplish the same goal of 
avoiding execution of erroneously priced complex orders. See CBOE 
Rule 6.53C, Interpretations and Policies .08 (Price Check 
Parameters).
---------------------------------------------------------------------------

    First, the Exchange proposes Commentary .06(a)(1) to Rule 6.91-O, 
pursuant to which, upon entry into the System, the Exchange would 
reject any incoming order for a complex strategy where all legs are to 
sell (buy) if it is entered at a price that is less (more) than the 
minimum (maximum) price, which is calculated as the sum of the ratio on 
each leg of the Complex Order multiplied by $0.01 (-$0.01) per leg 
(e.g., an order to sell (buy) 2 calls and sell (buy) 1 put would have a 
minimum (maximum) price of $0.03 (-$0.03)).\7\
---------------------------------------------------------------------------

    \7\ See proposed Commentary .06(a)(1) to Rule 6.91-O.
---------------------------------------------------------------------------

    For example, an order to sell 2 calls and sell 1 put would have a 
minimum net credit price of $0.03. If such an order were entered at a 
price of $0.02, it would not be executable, as a price of zero would 
have to be assigned to one of the legs of the order. As proposed, this 
order would be rejected.
    As another example, if a market participant is entering the 
following ``all sell'' complex strategy for a debit:

 Leg A: 100 x 0.01 - 0.02 x 100
 Leg B: 100 x 0.01 - 0.02 x 100
 Order 1: Sell1 Leg A, Sell 2 Leg B; Net price: - $0.03

    Result: As proposed, Order 1 would be rejected because it is priced 
less than the minimum order price of $0.03. Based on each individual 
leg trading for at least $0.01, this complex strategy would never trade 
at a net credit price of less than $0.03. Thus, any sell order for this 
strategy with a limit price less than $0.03 would be rejected.
    If, for example, a market participant is entering the following 
``all buy'' complex strategy:

 Leg A: 100 x 0.01 - 0.02 x 100
 Leg B: 100 x 0.01 - 0.02 x 100
 Order 1: Buy Leg A, Buy 2 Leg B; Net price: - $0.02

    Result: As proposed, Order 1 would be rejected because it is priced 
greater than the maximum net debit price of -$0.03 (and only orders 
priced at -$0.03 or less would be accepted). Because debit orders are 
entered into the Exchange System as a negative value, the ``maximum'' 
price check for buy orders is effectively a check for the minimum order 
price. Here, Order 1 @-$0.02 would represent an order to buy for a net 
debit price of $0.02, and therefore would be rejected.
    The Exchange notes that the price check in proposed Commentary 
.06(a)(1) to Rule 6.91-O is materially identical to price protections 
available on at least one other options exchange, ISE.\8\
---------------------------------------------------------------------------

    \8\ See Securities Exchange Act Release No. 71406 (January 27, 
2014), 79 FR 5495, 5496 (January 31, 2014) (SR-ISE-2014-05) (``ISE 
Price Reasonability Filing'') (adopting ``minimum net price'' 
protection feature, providing that the ISE system would ``reject any 
complex order strategy where all legs are to buy if it is entered at 
a price that is less than the minimum price, which is calculated as 
the sum of the ratio on each leg of the complex order multiplied by 
$0.01 per leg (e.g., an order to buy 2 calls and buy 1 put would 
have a minimum price of $0.03)'').
---------------------------------------------------------------------------

    Second, the Exchange proposes Commentary .06(a)(2) to Rule 6.91-O, 
pursuant to which, upon entry into the System, the Exchange would 
reject any incoming order for a vertical spread strategy (i.e., an 
order to sell a call (put) option and to buy another call (put) option 
in the same security with the same expiration but at a higher (lower) 
strike price) when entered with a net debit price of -$0.01 or less.\9\
---------------------------------------------------------------------------

    \9\ See proposed Commentary .06(a)(2) to Rule 6.91-O.
---------------------------------------------------------------------------

    For example, if a market participant is entering the following 
vertical call credit spread for a debit:

 Leg A: April SPY 240 Call: 100 x 1.72 - 1.73 x 100
 Leg B: April SPY 241 Call: 100 x 1.36 - 1.37 x 100
 Order 1: Sell 1 Leg A, Buy 1 Leg B; Quantity 50; Net price: $ 
- 0.35

    Result: As proposed, Order 1 would be rejected because it priced 
less than or equal to -$0.01 (i.e., it has a negative limit price). The 
Exchange notes that the lower strike call will always be more

[[Page 42863]]

expensive than the higher strike call within the same expiration.\10\ 
Thus, entering this sell order with a negative limit price would result 
in it being rejected.
---------------------------------------------------------------------------

    \10\ The principle behind this check is based on the standard 
trading principle of ``buy low, sell high.'' The ability to buy 
stock at a lower price is more valuable than the ability to buy 
stock at a higher price, and thus a call with a lower strike price 
has more value, and thus is more expensive, than a call with a 
higher strike price. Similarly, the ability to sell stock at a 
higher price is more valuable than the ability to sell stock at a 
lower price, and thus a put with a higher strike price has more 
value, and thus is more expensive, than a put with a lower strike 
price.
---------------------------------------------------------------------------

    The Exchange notes that the price check in proposed Commentary 
.06(a)(2) to Rule 6.91-O is materially identical to price protections 
available on at least one other options exchange, ISE.\11\
---------------------------------------------------------------------------

    \11\ See supra note 9 [sic], ISE Price Reasonability Filing 
(providing that, subject to certain limitations, the ISE system 
would ``reject a vertical spread order (i.e., an order to buy a call 
(put) option and to sell another call (put) option in the same 
security with the same expiration but at a higher (lower) strike 
price) when entered with a net price of less than zero''). The 
Exchange notes that ISE amended Supplementary Material .07(c)(1) to 
ISE Rule 722 to add a ``pre-set value'' less than zero to allow a 
buffer within which certain orders would not be rejected. See, e.g., 
See Securities Exchange Act Release No. 72254 (May 27, 2014), 79 FR 
31372, 31373 (June 2, 2014) (SR-ISE-2014-26) (``ISE Price 
Reasonability Modification Filing''). The Exchange has opted to hard 
code the reject value as $-0.01, which aligns with the ISE Price 
Reasonability Filing and, would nonetheless operate in a manner 
similar to ISE's current rule, notwithstanding the ``buffer.''
---------------------------------------------------------------------------

    Finally, upon entry into the System, the Exchange proposes to 
reject any incoming order for a credit calendar spread strategy (i.e., 
an order to sell a call (put) option with a longer expiration and to 
buy another call (put) option with a shorter expiration in the same 
security at the same strike price) when entered with a net price of -
$0.01 or less.\12\
---------------------------------------------------------------------------

    \12\ See proposed Commentary .06(a)(3) to Rule 6.91-O.
---------------------------------------------------------------------------

    For example, if a market participant is entering the following 
calendar credit spread for a debit:

 Leg A: May SPY 240 Call: 100 x 3.41 - 3.43 x 100
 Leg B: April SPY 240 Call: 100 x 1.72 - 1.73 x 100
 Order 1: Sell 1 Leg A, Buy 1 Leg B; Quantity: 50; Net price: -
$1.68

    Result: As proposed, Order 1 would be rejected because it is priced 
less than or equal to -$0.01. The Exchange notes that the further out 
expiring call being sold will always be more expensive than a nearer 
expiring call being bought at the same strike price, and should always 
generate a credit.\13\ Thus, any order to sell the far expiration and 
buy the near expiration entered with a price of -0.01 or less would 
result in this order being rejected.
---------------------------------------------------------------------------

    \13\ The principle behind this check is based on the general 
concept that locking in a price further into the future involves 
more risk for the buyer and seller and thus is more valuable, making 
an option (call or put) with a farther expiration more expensive 
than an option with a nearer expiration. This is similar, for 
example, to interest rates for mortgages: In general, an interest 
rate on a 30-year mortgage is higher than the interest rate on a 15-
year mortgage due to the risk of potential interest rate changes 
over the longer period of time to both the mortgagor and mortgagee.
---------------------------------------------------------------------------

    The Exchange notes that the price check in proposed Commentary 
.06(a)(3) to Rule 6.91-O is materially identical to price protections 
available on at least one other options exchange, ISE.\14\
---------------------------------------------------------------------------

    \14\ See, e.g., ISE Rule 722, Supplementary Material .07(c)(3) 
(providing, in part, that the ISE system will ``reject a calendar 
spread order (i.e., an order to buy a call (put) option with a 
longer expiration and to sell another call (put) option with a 
shorter expiration in the same security at the same strike price) 
when entered with a net price of less than zero (minus a pre-set 
value).'' See also supra note 12 [sic], ISE Price Reasonability 
Modification Filing (adopting ISE Rule 722, Supplementary Material 
.07(c)(2)). Rather than utilize a ``pre-set value'' (or buffer), the 
Exchange has opted to hard code the reject value as $-0.01. See id.
---------------------------------------------------------------------------

    Regarding calendar spread orders, the Exchange also proposes to 
retain discretion to deactivate this price check in the interest of 
fair and orderly markets.\15\ For example, the Exchange may deactivate 
this price check if there is a corporate action in a complex symbol 
that would result in an otherwise valid strategy being rejected by the 
proposed check.\16\ The Exchange believes this discretion to deactivate 
the Reasonability Check would be consistent with its obligation to 
assure a fair and orderly market, and that the need for such 
flexibility is recognized in other Exchange rules, such as those 
related to position limits, quote-width differentials and price 
protection filters.\17\ As proposed, the Exchange would announce by 
electronic message to ATP Holders that request to receive such messages 
if the Exchange deactivates (and later reactivates) the Reasonability 
Check for calendar spread orders.
---------------------------------------------------------------------------

    \15\ See proposed Commentary .06(a)(3)(i) to Rule 6.91-O.
    \16\ The Exchange has not similarly retained discretion to 
deactivate the Reasonability Checks for minimum price and vertical 
spreads because corporate actions will not create a scenario where a 
lower strike call would be cheaper than a higher strike call, or a 
higher strike put will be cheaper than a lower strike put.
    \17\ See, e.g., Rules 6.8-O (regarding position limits); 6.37A-O 
(regarding maximum quotation spreads); 6.60-O (regarding price 
protection for orders); 6.61-O (regarding price protection for 
Market Maker quotes) and Commentary .05 to Rule 6.91-O (regarding 
the Price Protection Filter for ECOs).
---------------------------------------------------------------------------

    Further, the Exchange does not propose to apply the Reasonability 
Check on calendar orders entered on the Trading Floor, as such orders 
are subject to manual handling by individuals who will have evaluated 
the price of an order based on then-market conditions.\18\ The Exchange 
notes that other exchanges that offer price protections similar to 
those proposed for calendar spreads have similarly retained discretion 
to limit the application of this check.\19\
---------------------------------------------------------------------------

    \18\ See proposed Commentary .06(a)(3)(i) to Rule 6.91-O.
    \19\ See, e.g., CBOE Rule 6.53C, Interpretations and Policies 
.08(c)(6) (excluding from debit/credit reasonability checks ``orders 
routed from a PAR workstation or order management terminal'' because 
such orders would be subject to manual handling). The Exchange notes 
that CBOE's exclusion of complex orders entered on the floor from 
its debit/credit reasonability checks is not limited to calendar 
spreads but applies to all such orders entered from the floor of the 
CBOE.
---------------------------------------------------------------------------

    The Exchange notes that ECOs that are not rejected by the 
Reasonability Checks would still be subject to the Price Protection 
Filter.\20\
---------------------------------------------------------------------------

    \20\ See proposed Commentary .06(b) to Rule 6.91-O; see also 
supra note 6 [sic].
---------------------------------------------------------------------------

Implementation
    The Exchange will announce by Trader Update the implementation date 
of the proposed rule change within 90 days of the effective date of 
this rule filing.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Securities Exchange Act of 1934 (the ``Act''),\21\ in 
general, and furthers the objectives of Section 6(b)(5) of the Act,\22\ 
in particular, in that it is designed to prevent fraudulent and 
manipulative acts and practices, to promote just and equitable 
principles of trade, to remove impediments to and perfect the mechanism 
of a free and open market and a national market system, and, in 
general, to protect investors and the public interest.
---------------------------------------------------------------------------

    \21\ 15 U.S.C. 78f(b).
    \22\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    In particular, the Exchange believes the proposed Reasonability 
Checks would protect investors and the public interest and maintain 
fair and orderly markets by mitigating potential risks associated with 
market participants entering Complex Orders at clearly unintended 
prices that are inconsistent with their strategies. Specifically, a 
Complex Order strategy where all legs are to sell (buy) will be 
rejected if it is entered at a price that is less (more) than the 
minimum (maximum) price. The Exchange believes it is reasonable to 
reject such orders upon entry as they are not executable. Allowing such 
orders to be entered would create investor confusion; as such orders 
would not receive an execution and would remain pending until canceled. 
Similarly, the

[[Page 42864]]

Exchange believes that rejecting orders for vertical spread 
strategies--as well as calendar spread strategies--that are entered at 
a negative price also protects investors from executing orders that 
were likely entered in error.
    Regarding orders for calendar spreads, the Exchange recognizes that 
it may not be appropriate to apply the Reasonability Checks to calendar 
spreads in unusual market conditions, such as corporate actions that 
result in changes in price to the underlying security.\23\ The Exchange 
therefore believes it would remove impediments and perfect the 
mechanism of a free and open market and a national market system for 
the Exchange to temporarily deactivate the checks in the event of 
unusual market conditions, which flexibility is consistent with other 
exchange rules.\24\ Further, the Exchange also recognizes that the 
applicable protections are not appropriate for orders entered manually 
on the Trading Floor, because such orders would be subject to an 
additional check of then-market conditions by the individual entering 
the order, which flexibility is consistent with the rules of other 
exchanges.\25\
---------------------------------------------------------------------------

    \23\ See supra note 17 [sic].
    \24\ See supra note 18 [sic].
    \25\ See supra note 20 [sic].
---------------------------------------------------------------------------

    The Exchange's proposed Reasonability Checks are similar to similar 
protections offered on other options exchanges, including ISE. To the 
extent there are differences between the proposed Reasonability Checks, 
as described above (see supra notes12 and 15) [sic], the Exchange does 
not believe such differences raise any new or significant policy 
concerns. Further, despite the differences, the proposed Reasonability 
Checks would otherwise operate in a similar manner to the checks on 
ISE. As such, the Exchange merely desires to adopt functionality that 
is similar to what already exists on ISE.\26\ Permitting the Exchange 
to operate on an even playing field relative to other exchanges that 
have similar functionality removes impediments to and perfects the 
mechanism for a free and open market and a national market system.
---------------------------------------------------------------------------

    \26\ See supra note 7 [sic].
---------------------------------------------------------------------------

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

    The Exchange does not believe that the proposed rule change would 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act.
    The proposed Reasonability Checks specify circumstances in which 
the Exchange would reject certain ECOs in the interest of protecting 
investors against the execution of erroneous orders or the execution of 
orders at erroneous prices. As such, the proposal does not impose any 
burden on competition. To the contrary, the Exchange believes that the 
proposed Reasonability Checks may foster more competition. 
Specifically, the Exchange notes that it operates in a highly 
competitive market in which market participants can readily favor 
competing venues. The Exchange's proposed rule change would enhance its 
ability to compete with other exchanges that already offer similar 
reasonability checks. Thus, the Exchange believes that this type of 
competition amongst exchanges is beneficial to the market place as a 
whole as it can result in enhanced processes, functionality, and 
technologies. The Exchange further believes that because the proposed 
rule change would be applicable to all OTP Holders and OTP Firms, it 
would not impose any burden on intra-market competition that is not 
necessary or appropriate in furtherance of the purposes of the Act.

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

    No written comments were solicited or received with respect to the 
proposed rule change.

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

    Because the proposed rule change does not (i) significantly affect 
the protection of investors or the public interest; (ii) impose any 
significant burden on competition; and (iii) become operative for 30 
days from the date on which it was filed, or such shorter time as the 
Commission may designate, it has become effective pursuant to Section 
19(b)(3)(A) of the Act \27\ and Rule 19b-4(f)(6) thereunder.\28\
---------------------------------------------------------------------------

    \27\ 15 U.S.C. 78s(b)(3)(A).
    \28\ 17 CFR 240.19b-4(f)(6). As required under Rule 19b-
4(f)(6)(iii), the Exchange provided the Commission with written 
notice of its intent to file the proposed rule change, along with a 
brief description and the text of the proposed rule change, at least 
five business days prior to the date of filing of the proposed rule 
change, or such shorter time as designated by the Commission.
---------------------------------------------------------------------------

    A proposed rule change filed pursuant to Rule 19b-4(f)(6) under the 
Act \29\ normally does not become operative for 30 days after the date 
of its filing. However, Rule 19b-4(f)(6)(iii) \30\ permits the 
Commission to designate a shorter time if such action is consistent 
with the protection of investors and the public interest. NYSE Arca has 
asked the Commission to waive the 30-day operative delay. NYSE Arcs 
believes that waiving the operative delay would protect investors by 
enabling the Exchange to provide greater protections from potentially 
erroneous executions and potentially reduce the attendant risks of such 
executions. As noted above, the proposal provides that a Complex Order 
strategy where all legs are to sell (buy) will be rejected if it is 
entered at a price that is less (more) than the minimum (maximum) 
price. NYSE Arca notes that such an order is not executable, and that 
allowing such an order to be entered would create investor confusion 
because the order would not receive an execution and would remain 
pending until canceled. Similarly, the Exchange believes that rejecting 
orders for vertical and calendar spread strategies that are entered at 
a negative price will protect investors from executing orders that were 
likely entered in error.\31\ The Commission believes that waiver of the 
operative delay is consistent with the protection of investors and the 
public interest because the proposed rules are designed to reduce 
investor confusion and to prevent the entry and execution of 
erroneously priced ECOs. Therefore, the Commission hereby waives the 
operative delay and designates the proposed rule change operative upon 
filing.\32\
---------------------------------------------------------------------------

    \29\ 17 CFR 240.19b-4(f)(6).
    \30\ 17 CFR 240.19b-4(f)(6)(iii).
    \31\ As discussed above, the proposal also allows the Exchange 
to deactivate the Reasonability Check for calendar spread 
strategies. The Exchange will notify OTP Holders and OTP Firms by 
electronic message of any such deactivation or re-activation. The 
Exchange believes that this discretion is necessary because a 
corporate action, for example, could result in the Reasonability 
Check for calendar spread strategies rejecting an otherwise valid 
strategy. The proposal also provides that the Reasonability Check 
for calendar spread strategies will not apply to ECOs that are 
entered on the Trading Floor. The Exchange notes that such orders 
are subject to manual handling by individuals who will have 
evaluated the price of the order based on market conditions. The 
Exchange further notes that another exchange has adopted a similar 
rule. See note 19, supra.
    \32\ For purposes only of waiving the 30-day operative delay, 
the Commission also has 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. If the Commission 
takes such action, the

[[Page 42865]]

Commission shall institute proceedings to determine whether the 
proposed rule change should be approved or disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-NYSEArca-2017-93 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-NYSEArca-2017-93. 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-NYSEArca-2017-93 and should 
be submitted on or before October 3, 2017.
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    \33\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\33\
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-19241 Filed 9-11-17; 8:45 am]
BILLING CODE 8011-01-P