Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Modify Rule 6.15-O and Conforming Changes to Rule 6.46-O Governing the Give Up of a Clearing Broker, 23613-23617 [2019-10638]
Download as PDF
<![CDATA[
Federal Register / Vol. 84, No. 99 / Wednesday, May 22, 2019 / Notices
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 11 and Rule 19b–
4(f)(6) thereunder.12
A proposed rule change filed
pursuant to Rule 19b–4(f)(6) under the
Act 13 normally does not become
operative for 30 days after the date of its
filing. However, Rule 19b–4(f)(6)(iii) 14
permits the Commission to designate a
shorter time if such action is consistent
with the protection of investors and the
public interest. The Exchange has
requested that the Commission waive
the 30-day operative delay so that the
proposed rule change may become
operative upon filing. The Exchange
asserts that waiving the operative delay
would be consistent with the protection
of investors and the public interest
because the proposed rule change
would respond to investor demand and
allow the Exchange to implement the
modified rule, which aligns with the
rules of other options exchanges,
without delay. The Commission
believes that the proposal raises no new
or substantive issues and that waiver of
the 30-day operative delay is consistent
with the protection of investors and the
public interest. The Commission hereby
waives the operative delay and
designates the proposed rule change
operative upon filing.15
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
Commission will institute proceedings
to determine whether the proposed rule
change should be approved or
disapproved.
11 15
U.S.C. 78s(b)(3)(A).
CFR 240.19b–4(f)(6). In addition, Rule 19b–
4(f)(6)(iii) requires a self-regulatory organization to
give the Commission written notice of its intent to
file the proposed rule change, along with a brief
description and text of the proposed rule change,
at least five business days prior to the date of filing
of the proposed rule change, or such shorter time
as designated by the Commission. The Exchange
has satisfied this requirement.
13 17 CFR 240.19b–4(f)(6).
14 17 CFR 240.19b–4(f)(6)(iii).
15 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).
jbell on DSK3GLQ082PROD with NOTICES
12 17
VerDate Sep<11>2014
17:29 May 21, 2019
Jkt 247001
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:
• 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–
NYSEAmer–2019–18 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–NYSEAmer–2019–18. 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 website (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 website 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.
Persons submitting comments are
cautioned that we do not redact or edit
personal identifying information from
comment submissions. You should
submit only information that you wish
to make available publicly. All
submissions should refer to File
Number SR–NYSEAmer–2019–18 and
should be submitted on or before June
12, 2019.
Frm 00092
Fmt 4703
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.16
Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019–10641 Filed 5–21–19; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
Electronic Comments
PO 00000
23613
Sfmt 4703
[Release No. 34–85740; File No. SR–Phlx–
2019–17]
Self-Regulatory Organizations; Nasdaq
PHLX LLC; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change To Relocate the Floor
Trading Rules to Options 8
April 29, 2019.
Correction
In notice document 2019–09019,
appearing on pages 19136 through
19141, in the issue of Friday, May 3,
2019 make the following correction:
On page 19141, in the first column, on
the eighth line from the bottom of the
page, ‘‘June 3, 2019’’ should read ‘‘May
24, 2019’’.
[FR Doc. C1–2019–09019 Filed 5–21–19; 8:45 am]
BILLING CODE 1301–01–D
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–85871; File No. SR–
NYSEArca–2019–32]
Self-Regulatory Organizations; NYSE
Arca, Inc.; Notice of Filing and
Immediate Effectiveness of a Proposed
Rule Change To Modify Rule 6.15–O
and Conforming Changes to Rule 6.46–
O Governing the Give Up of a Clearing
Broker
May 16, 2019.
Pursuant to Section 19(b)(1) 1 of the
Securities Exchange Act of 1934 (the
‘‘Act’’) 2 and Rule 19b–4 thereunder,3
notice is hereby given that, on May 2,
2019, NYSE Arca, Inc. (‘‘NYSE Arca’’ or
the ‘‘Exchange’’) filed with the
Securities and Exchange Commission
(the ‘‘Commission’’) the proposed rule
change as described in Items I, II, and
III below, which Items have been
prepared by the self-regulatory
organization. The Commission is
publishing this notice to solicit
16 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 15 U.S.C. 78a.
3 17 CFR 240.19b–4.
1 15
E:\FR\FM\22MYN1.SGM
22MYN1
23614
Federal Register / Vol. 84, No. 99 / Wednesday, May 22, 2019 / Notices
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 modify
Rule 6.15–O regarding the Give Up of a
Clearing Member by OTP Holders and
OTP Firms and proposes conforming
changes to Rule 6.46–O. The proposed
rule change is available on the
Exchange’s website at www.nyse.com, at
the principal office of the Exchange, and
at the Commission’s Public Reference
Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
self-regulatory organization included
statements concerning the purpose of,
and basis for, the proposed rule change
and discussed any comments it received
on the proposed rule change. The text
of those statements may be examined at
the places specified in Item IV below.
The Exchange has prepared summaries,
set forth in sections A, B, and C below,
of the most significant parts of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The purpose of this filing is to modify
Rule 6.15–O regarding the Give Up of a
Clearing Member 4 by OTP Holders and
OTP Firms (each an ‘‘OTP,’’
collectively, ‘‘OTPs’’) and to make
conforming changes to Rule 6.46–O.
Rule 6.15–O: Current Process To Give
Up a Clearing Member
jbell on DSK3GLQ082PROD with NOTICES
In 2015 the Exchange adopted its
current ‘‘give up’’ procedure for OTPs
executing transactions on the
Exchange.5 Per Rule 6.15–O, an OTP
may give up a ‘‘Designated Give Up’’ or
its ‘‘Guarantor,’’ as defined in the Rule
and described below.
The Rule defines ‘‘Designated Give
Up’’ as any Clearing Member that an
OTP Holder (other than a Market
Maker 6) identifies to the Exchange, in
4 Rule 6.1–O(2) defines ‘‘Clearing Member’’ as an
Exchange OTP which has been admitted to
membership in the Options Clearing Corporation
pursuant to the provisions of the Rules of the
Options Clearing Corporation.
5 See Securities and Exchange Act Release No.
75641 (August 7, 2015), 80 FR 48577 (August 13,
2015) (SR–NYSEArca–2015–65).
6 For purposes of this rule, references to ‘‘Market
Maker’’ refer to OTPs acting in the capacity of a
VerDate Sep<11>2014
17:29 May 21, 2019
Jkt 247001
writing, as a Clearing Member the OTP
requests the ability to give up. To
designate a ‘‘Designated Give Up,’’ an
OTP must submit written notification to
the Exchange. Specifically, the
Exchange uses a standardized form
(‘‘Notification Form’’). An OTP may
currently designate any Clearing
Member as a Designated Give Up.
Additionally, there is no minimum or
maximum number of Designated Give
Ups that an OTP must identify.
Similarly, should an OTP no longer
want the ability to give up a particular
Designated Give Up, the OTP informs
the Exchange in writing.
Rule 6.15–O also requires that the
Exchange notify a Clearing Member, in
writing and as soon as practicable, of
each OTP that has identified it as a
Designated Give Up. However, the
Exchange will not accept any
instructions from a Clearing Member to
prohibit an OTP from designating the
Clearing Member as a Designated Give
Up. Additionally, there is no subjective
evaluation of an OTP’s list of Designated
Give Ups by the Exchange. The Rule
does, however, provide that a
Designated Give Up may determine to
not accept a trade on which its name
was given up so long as it believes in
good faith that it has a valid reason not
to accept the trade.7
The Rule defines ‘‘Guarantor’’ as a
Clearing Member that has issued a
Letter of Guarantee or Letter of
Authorization for the executing OTP,
pursuant to Rules of the Exchange 8 that
is in effect at the time of the execution
of the applicable trade. An executing
OTP may give up its Guarantor without
such Guarantor being a ‘‘Designated
Give Up.’’ Additionally, Rule 6.36
provides that a Letter of Guarantee is
required to be issued and filed by each
Clearing Member through which a
Market Maker clears transactions.
Accordingly, a Market Maker is enabled
to give up only a Guarantor that had
executed a Letter of Guarantee on its
behalf pursuant to Rule 6.36–O; a
Market Maker does not need to identify
any Designated Give Ups. Like
Designated Give Ups, Guarantors
Market Maker and include all Exchange Market
Maker capacities e.g., Lead Market Makers. As
explained below, Market Makers give up Guarantors
that have executed a Letter of Guarantee on behalf
of the Marker Maker, pursuant to Rule 6.36–O;
Market Makers need not give up Designated Give
Ups.
7 See Rule 6.15–O(f)(1) (setting forth procedures
for rejecting a trade). An example of a valid reason
to reject a trade may be that the Designated Give
Up does not have a customer for that particular
trade.
8 See Rule 6.36–O (Letters of Guarantee); Rule
6.45–O (Letters of Authorization).
PO 00000
Frm 00093
Fmt 4703
Sfmt 4703
likewise have the ability to reject a
trade.9
Beginning in early 2018, certain
Clearing Members (in conjunction with
the Securities Industry and Financial
Markets Association (‘‘SIFMA’’))
expressed concerns related to the
process by which executing brokers on
U.S. options exchanges (the
‘‘Exchanges’’) are allowed to designate
or ‘give up’ a clearing firm for purposes
of clearing particular transactions. The
SIFMA-affiliated Clearing Members
have recently identified the current
give-up process as a significant source
of risk for clearing firms. SIFMAaffiliated Clearing Members
subsequently requested that the
Exchanges alleviate this risk by
amending Exchange rules governing the
give up process.10
Proposed Amendment to Rules 6.15–O
and 6.46–O
Based on the above, the Exchange
proposes to amend its rules regarding
the current give up process in order to
allow a Clearing Member to opt in, at
The Options Clearing Corporation
(‘‘OCC’’) clearing number level, to a
feature that, if enabled by the Clearing
Member, would allow the Clearing
Member to specify which OTPs are
authorized to give up that OCC clearing
number. As proposed, Rule 6.15–O,
Give Up of a Clearing Member, will be
re-titled as ‘‘Authorizing Give Up of a
Clearing Member’’ and would provide
that for each transaction in which a nonMarket Maker OTP participates, the
OTP may indicate any OCC number of
a Clearing Member through which a
transaction will be cleared (‘‘Give Up’’),
provided the Clearing Member has not
elected to ‘‘Opt In,’’ as defined in
paragraph (b) of the proposed Rule, and
restricted the OCC number (‘‘Restricted
OCC Number’’).11 Further, as proposed,
an OTP may Give Up a Restricted OCC
Number provided the OTP has written
9 See Rule 6.15–O(f)(2) (providing that a
Guarantor may ‘‘change the give up to another
Clearing Member that has agreed to be the give up
on the subject trade, provided such Clearing
Member has notified the Exchange and the
executing OTP Holder or OTP Firm in writing of its
intent to accept the trade’’).
10 Nasdaq PHLX LLC (‘‘Phlx’’) recently modified
its give up procedure to allow clearing members to
‘‘opt in’’ such that the clearing member may specify
which Phlx member organizations are authorized to
give up that clearing member. See Phlx Rule 1037.
See also Securities and Exchange Act Release Nos.
84624 (November 19, 2018), 83 FR 60547 (Notice);
85136 (February 14, 2019), 84 FR 5526 (February
21, 2019) (SR–Phlx–2018–72) (Approval Order).
The Exchange’s proposal leads to the same result
of providing its Clearing Members the ability to
control risk and includes Phlx’s ‘‘opt in’’ process,
but it otherwise differs in process from Phlx’s
proposal.
11 See proposed Rule 6.15–O(a).
E:\FR\FM\22MYN1.SGM
22MYN1
Federal Register / Vol. 84, No. 99 / Wednesday, May 22, 2019 / Notices
jbell on DSK3GLQ082PROD with NOTICES
authorization as described in paragraph
(b)(ii) of the Rule (‘‘Authorized OTP’’).12
Proposed Rule 6.15–O(b) provides
that Clearing Members may request that
the Exchange restrict one or more of
their OCC clearing numbers (‘‘Opt In’’)
as described in subparagraph (b)(i) of
the Rule. As proposed, if a Clearing
Member Opts In, the Exchange would
require written authorization from the
Clearing Member permitting an OTP to
Give Up a Clearing Member’s Restricted
OCC Number. An Opt In would remain
in effect until the Clearing Member
terminates the Opt In as described in
subparagraph (iii). If a Clearing Member
does not Opt In, that Clearing Member’s
OCC number may be subject to Give Up
by any OTP (other than a Market
Maker).13
Proposed Rule 6.15–O(b)(i) would set
forth the process by which a Clearing
Member may Opt In. Specifically, a
Clearing Member may Opt In by sending
a completed ‘‘Clearing Member
Restriction Form’’ listing all Restricted
OCC Numbers.14 A copy of the
proposed form is attached in Exhibit 3A.
As proposed, a Clearing Member may
elect to restrict one or more OCC
clearing numbers that are registered in
its name at OCC. The Clearing Member
would be required to submit the
Clearing Member Restriction Form to
the Exchange’s Client Relationship
Services (‘‘CRS’’) department as
described on the form. Once submitted,
the Exchange requires ninety days
before a Restricted OCC Number is
effective. The Exchange believes this 90day time period would provide
adequate time for OTPs that use a
Restricted OCC Number to obtain the
necessary written authorization for that
Restricted OCC Number. During this 90day time period, OTPs lacking the
requisite authorization (and affected by
this proposed provision) would still be
able to Give Up that Restricted OCC
Number (i.e., until the number becomes
restricted within the System).
Proposed 6.15–O(b)(ii) would set forth
the process for OTPs to Give Up a
Clearing Member’s Restricted OCC
12 The Exchange proposes to delete the use of the
modifier ‘‘executing’’ as relates to OTP in the rule,
which is extraneous and unnecessary, particularly
in light of new concept of Authorized OTP. See
proposed Rule 6.15–O(c)(i), (e)(2), (f)(1)–(3), (g)(1)
and (h)(1).
13 See proposed Rule 6.15–O(b).
14 The Exchange’s forms will be available on the
Exchange’s website. The Exchange also intends to
maintain, on its website, a list of the Restricted OCC
Numbers, which will be updated on a regular basis,
and the Clearing Member’s contact information to
assist OTPs (to the extent they are not already
Authorized OTPs) with requesting authorization for
a Restricted OCC Number. The Exchange may
utilize additional means to inform its members of
such updates on a periodic basis.
VerDate Sep<11>2014
17:29 May 21, 2019
Jkt 247001
Number. Specifically, as proposed, an
OTP desiring to Give Up a Restricted
OCC Number must become an
Authorized OTP.15 The Clearing
Member would be required to authorize
an OTP by submitting a completed
‘‘Authorized OTP Form’’ to the
Exchange’s CRS department, unless the
Restricted OCC Number is already
subject to a Letter of Guarantee or a
Letter of Authorization to which the
OTP is a party, as set forth in proposed
paragraph (c) of the Rule. A copy of the
proposed form is attached in Exhibit
3B.16
Pursuant to proposed Rule 6.15–
O(b)(iii), a Clearing Member may amend
its Authorized OTPs or Restricted OCC
Numbers by submitting a new
Authorized OTP Form or a Clearing
Member Restriction Form to the
Exchange’s CRS department indicating
the amendment as described on the
form. As proposed, once a Restricted
OCC Number is effective pursuant to
Rule 6.15–O(b)(i), the Exchange may
permit the Clearing Member to
authorize, or remove authorization for,
an OTP to Give Up the Restricted OCC
Number intra-day only in unusual
circumstances, and on the next business
day in all regular circumstances. The
Exchange will promptly notify the OTPs
if they are no longer authorized to Give
Up a Clearing Member’s Restricted OCC
Number. Finally, as proposed, if a
Clearing Member removes a Restricted
OCC Number, any OTP (other than a
Market Maker) may Give Up that OCC
clearing number once the removal has
become effective on or before the next
business day.17
In light of the proposed changes to the
Give Up process, the Exchange proposes
to delete certain paragraphs of the
current Rule related to the current
Designated Give Up process.
Specifically, the Exchange proposes to
delete current paragraphs (a), (b)(1), (3)–
(4), (6)–(7), (d).
As proposed, paragraph (c) to Rule
6.15–O would be re-title ‘‘Guarantors
and Market Makers.’’ Proposed Rule
6.15–O(c)(i) would maintain the current
definition and role of Guarantor (set
forth in current paragraphs (a)(3) and
(6)) and combine such information with
language from Phlx Rule 1037(d) to
provide, in relevant part that ‘‘[a]
Guarantor for an OTP Holder or OTP
Firm will be enabled to be given up for
that OTP Holder or OTP Firm without
any further action by the OTP such that
15 The Exchange will develop procedures for
notifying OTPs that they are authorized or
unauthorized by Clearing Members.
16 See supra note 14.
17 See proposed Rule 6.15–O(b)(iii).
PO 00000
Frm 00094
Fmt 4703
Sfmt 4703
23615
a clearing arrangement subject to a
Letter of Guarantee or Letter of
Authorization would immediately
permit the Give Up of a Restricted OCC
Number by the OTP Holder or OTP Firm
that is party to the arrangement.’’ 18 In
addition, to streamline the proposed
Rule the Exchange proposes to relocate
text from current Rule 6.15–O(a)(5)
regarding Market Makers to proposed
Rule 6.15–O(c)(ii) without any textual
changes.19 The Exchange also proposes
to clarify how the System would handle
orders in light of the proposed changes
to the Give Up process. As proposed, for
any Restricted OCC Number, the
Exchange’s trading systems would only
accept orders for that number from an
Authorized OTP Holder.20
To further update the Rule to reflect
the shift from an OTP designating a
certain Clearing Member as the give up
to the Clearing Member having the
ability to limit which OTPs may give up
that Clearing Member, the Exchange
proposes to replace certain references to
Designated Give Up with reference to
‘‘Clearing Member for whom they are an
Authorized ATP Holder’’ 21 or affiliated
Clearing Member’’ 22 or simply
‘‘Clearing Member,’’ 23 as appropriate.
The Exchange also proposes to add
paragraph (i) to the Rule to provide that
an ‘‘intentional misuse of this Rule is
impermissible, and may be treated as a
violation of Rule 11.2(b), Prohibited
Acts.’’ 24 This language would make
clear that the Exchange will regulate an
intentional misuse of this Rule and that
such behavior would be a violation of
Exchange rules.
Finally, consistent with this proposed
change, the Exchange also proposes to
amend Rule 6.46–O(g) regarding the
responsibilities of Floor Brokers to
maintain error accounts ‘‘for the
purposes of correcting bona fide errors,
as provided in Rule 6.14–O.’’ As
18 See
proposed Rule 6.15–O(c)(i).
proposed Rule 6.15–O(c)(ii). To conform to
the foregoing changes to the organization of the
Rule, the Exchange proposes to reclassify current
paragraph (c) as proposed Rule 6.15–O(d).
20 See proposed Rule 6.15–O(d).
21 See proposed Rule 6.15–O(g)(1).
22 See proposed Rule 6.15–O(g)(2).
23 See generally proposed Rule 6.15–O(e)–(h). See
also proposed Rule 961(d) and (e)(1) (as relates to
replacing Designated Give Up with Authorized ATP
Holder) and (e)(2), (f)(1)–(3), (g)(1) and (h)(1). The
Exchange also proposes to rename Rule 961(e) (from
Designated Give Up, to Authorized ATP Holder, as
relates to the process for accepting a trade). The
Exchange also proposes to update the cross
reference in paragraph (e)(1) from ‘‘paragraph (i)’’
to proposed ‘‘paragraph (g).’’ See proposed Rule
961(e)(1).
24 Rule 11.2(b) provides that the willful violation
of any provision of the Bylaws and Rules and
procedures of the Exchange shall be considered
conduct or proceedings inconsistent with just and
equitable principles of trade.
19 See
E:\FR\FM\22MYN1.SGM
22MYN1
23616
Federal Register / Vol. 84, No. 99 / Wednesday, May 22, 2019 / Notices
proposed, the Exchange would specify
that ‘‘it will not be a violation of this
provision if a trade is transferred away
from an error account through the
CMTA process at OCC.’’ 25 This
additional language would enable an
executing OTP that has executed an
order to CMTA that order through its
own clearing relationship. For example,
assume a Floor Broker executes a trade
giving up Firm A (a Clearing Member
that is one of its Authorized OTPs) and,
after the execution, the Floor Broker is
informed that a portion of the trade
needs to be changed to give-up Firm B
(a Clearing Member that is not one of
the Floor Broker’s Authorized OTPs).
The proposed language would enable
the Floor Broker to CMTA the trade to
Firm B through its own clearing
arrangement (as long as the
authorizations are in place for that
CMTA to occur) rather than nullifying
or busting the trade.
jbell on DSK3GLQ082PROD with NOTICES
Implementation
The Exchange will announce the
implementation date of the proposed
rule change no later than the end of Q3
2019 via Trader Notice.
2. Statutory Basis
The proposed rule change is
consistent with Section 6(b) 26 of the
Act, in general, and furthers the
objectives of Section 6(b)(5),27 in
particular, in that it is designed to
prevent fraudulent and manipulative
acts and practices, to promote just and
equitable principles of trade, to foster
cooperation and coordination with
persons engaged in facilitating
transactions in securities, and to remove
impediments to and perfect the
mechanisms of a free and open market
and a national market system.
Particularly, as discussed above,
several Clearing Firms affiliated with
SIFMA have recently expressed
concerns relating to the current give up
process that permits OTPs to identify
any Clearing Members as a Designated
Give Up for purposes of clearing
particular transactions, and have
identified the current give-up process
(i.e., a process that lacks authorization)
as a significant source of risk for
clearing firms.
The Exchange believes that the
proposed changes to Rule 6.15–O would
help alleviate this risk by enabling
Clearing Members to ‘Opt In’ to restrict
one or more of its OCC clearing numbers
25 See proposed Rule 6.46–O(g). The Exchange
also proposes to delete as obsolete reference to Rule
4.21–O, which is currently ‘‘Reserved,’’ and
therefore an outdated cross-reference. See id.
26 15 U.S.C. 78f(b).
27 15 U.S.C. 78f(b)(5).
VerDate Sep<11>2014
17:29 May 21, 2019
Jkt 247001
(i.e., Restricted OCC Numbers), and to
specify which Authorized OTPs may
Give Up those Restricted OCC Numbers.
As described above, all other ATP
Holders would be required to receive
written authorization from the Clearing
Member before they can Give Up that
Clearing Member’s Restricted OCC
Number. The Exchange believes that
this authorization provides proper
safeguards and protections for Clearing
Members as it provides controls for
Clearing Members to restrict access to
their OCC clearing numbers, allowing
access only to those Authorized OTPs
upon their request. The Exchange also
believes that its proposed Clearing
Member Restriction Form allows the
Exchange to receive in a uniform
fashion, written and transparent
authorization from Clearing Members,
which ensures seamless administration
of the Rule.
The Exchange believes that the
proposed Opt In process strikes the right
balance between the various views and
interests across the industry. For
example, although the proposed rule
would require OTPs (other than
Authorized OTPs) to seek authorization
from Clearing Members in order to have
the ability to give them up, each OTP
would still have the ability to Give Up
a Restricted OCC Number that is subject
to a Letter of Guarantee or Letter of
Authorization without obtaining any
further authorization if that OTP is party
to that arrangement. The Exchange also
notes that to the extent the executing
OTP has a clearing arrangement with a
Clearing Member (i.e., through a Letter
of Guarantee or Letter of Authorization),
a trade can be assigned to the executing
OTP’s Guarantor. Accordingly, the
Exchange believes that the proposed
rule change is reasonable and continues
to provide certainty that a Clearing
Member would be responsible for a
trade, which protects investors and the
public interest. Finally, the Exchange
believes that adopting paragraph (i) of
Rule 6.15–O and would make clear that
an intentional misuse of this Rule
would be a violation of the Exchange’s
rules.
The Exchange also believes that the
proposed change to Rule 6.46–O would
protect investors because it would
permit an executing OTP to utilize its
error account to CMTA an order through
its own clearing relationship. This
would preserve executions while
accommodating the proposed rule
change that could result in an executing
OTP not being permissioned to for a
particular give-up.
Thus, this proposal would foster
cooperation and coordination with
persons engaged in facilitating
PO 00000
Frm 00095
Fmt 4703
Sfmt 4703
transactions in securities, and remove
impediments to and perfect the
mechanism of 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
this proposed rule change would
impose any burden on competition not
necessary or appropriate in furtherance
of the purposes of the Act. The
Exchange does not believe that the
proposed rule change would impose an
unnecessary burden on intramarket
competition because it would apply
equally to all similarly situated OTPs.
The Exchange also notes that, should
the proposed changes make the
Exchange more attractive for trading,
market participants trading on other
exchanges can always elect to become
OTPs on the Exchange to take advantage
of the trading opportunities.
Furthermore, the proposed rule
change does not address any
competitive issues and ultimately, the
target of the Exchange’s proposal is to
reduce risk for Clearing Members under
the current give up model. Clearing
firms make financial decisions based on
risk and reward, and while it is
generally in their beneficial interest to
clear transactions for market
participants in order to generate profit,
it is the Exchange’s understanding from
SIFMA and clearing firms that the
current process can create significant
risk when the clearing firm can be given
up on any market participant’s
transaction, even where there is no prior
customer relationship or authorization
for that designated transaction. In the
absence of a mechanism that governs a
market participant’s use of a Clearing
Member’s services, the Exchange’s
proposal may indirectly facilitate the
ability of a Clearing Member to manage
their existing customer relationships
while continuing to allow market
participant choice in broker execution
services. While Clearing Members may
compete with executing brokers for
order flow, the Exchange does not
believe this proposal imposes an undue
burden on competition. Rather, the
Exchange believes that the proposed
rule change balances the need for
Clearing Members to manage risks and
allows them to address outlier behavior
from executing brokers while still
allowing freedom of choice to select an
executing broker.
E:\FR\FM\22MYN1.SGM
22MYN1
Federal Register / Vol. 84, No. 99 / Wednesday, May 22, 2019 / Notices
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
No written comments were solicited
or received with respect to the proposed
rule change.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
The Exchange has filed the proposed
rule change pursuant to Section
19(b)(3)(A)(iii) of the Act 28 and Rule
19b–4(f)(6) thereunder.29 Because the
proposed rule change does not: (i)
Significantly affect the protection of
investors or the public interest; (ii)
impose any significant burden on
competition; and (iii) become operative
prior to 30 days from the date on which
it was filed, or such shorter time as the
Commission may designate, if
consistent with the protection of
investors and the public interest, the
proposed rule change has become
effective pursuant to Section 19(b)(3)(A)
of the Act and Rule 19b–4(f)(6)(iii)
thereunder.
At any time within 60 days of the
filing of such proposed rule change, the
Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is necessary or appropriate in the
public interest, for the protection of
investors, or otherwise in furtherance of
the purposes of the Act. If the
Commission takes such action, the
Commission shall institute proceedings
under Section 19(b)(2)(B) 30 of the Act to
determine whether the proposed rule
change should be approved or
disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Commission, 100 F Street NE,
Washington, DC 20549–1090.
jbell on DSK3GLQ082PROD with NOTICES
SECURITIES AND EXCHANGE
COMMISSION
All submissions should refer to File
Number SR–NYSEArca–2019–32. 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 website (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 website 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.
Persons submitting comments are
cautioned that we do not redact or edit
personal identifying information from
comment submissions. You should
submit only information that you wish
to make available publicly. All
submissions should refer to File
Number SR–NYSEArca–2019–32 and
should be submitted on or before June
12, 2019.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.31
Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019–10638 Filed 5–21–19; 8:45 am]
BILLING CODE 8011–01–P
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–
NYSEArca–2019–32 on the subject line.
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
[Release No. 34–85872; File No. SR–
NYSEArca–2019–34]
Self-Regulatory Organizations; NYSE
Arca, Inc.; Notice of Filing and
Immediate Effectiveness of a Proposed
Rule Change To Allow $1 Strike Price
Intervals Above $200 on Options on
the QQQ and IWM Exchange-Traded
Funds
May 16, 2019.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (the
‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on May 10,
2019, NYSE Arca, Inc. (‘‘NYSE Arca’’ or
the ‘‘Exchange’’) filed with the
Securities and Exchange Commission
(the ‘‘Commission’’) the proposed rule
change as described in Items I and II
below, which Items have been prepared
by the Exchange. The Exchange filed the
proposal as a ‘‘non-controversial’’
proposed rule change pursuant to
Section 19(b)(3)(A)(iii) of the Act 3 and
Rule 19b–4(f)(6) thereunder.4 The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to amend
Rule 6.4–O. The proposed rule change
is available on the Exchange’s website at
www.nyse.com, at the principal office of
the Exchange, and at the Commission’s
Public Reference Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
self-regulatory organization included
statements concerning the purpose of,
and basis for, the proposed rule change
and discussed any comments it received
on the proposed rule change. The text
of those statements may be examined at
the places specified in Item IV below.
The Exchange has prepared summaries,
set forth in sections A, B, and C below,
of the most significant parts of such
statements.
1 15
U.S.C. 78s(b)(3)(A)(iii).
29 17 CFR 240.19b–4(f)(6).
30 15 U.S.C. 78s(b)(2)(B).
VerDate Sep<11>2014
17:29 May 21, 2019
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 15 U.S.C. 78s(b)(3)(A)(iii).
4 17 CFR 240.19b–4(f)(6).
2 17
28 15
31 17
Jkt 247001
PO 00000
CFR 200.30–3(a)(12).
Frm 00096
Fmt 4703
Sfmt 4703
23617
E:\FR\FM\22MYN1.SGM
22MYN1
]]>Agencies
[Federal Register Volume 84, Number 99 (Wednesday, May 22, 2019)]
[Notices]
[Pages 23613-23617]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-10638]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-85871; File No. SR-NYSEArca-2019-32]
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing
and Immediate Effectiveness of a Proposed Rule Change To Modify Rule
6.15-O and Conforming Changes to Rule 6.46-O Governing the Give Up of a
Clearing Broker
May 16, 2019.
Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby
given that, on May 2, 2019, NYSE Arca, Inc. (``NYSE Arca'' or the
``Exchange'') filed with the Securities and Exchange Commission (the
``Commission'') the proposed rule change as described in Items I, II,
and III below, which Items have been prepared by the self-regulatory
organization. The Commission is publishing this notice to solicit
[[Page 23614]]
comments on the proposed rule change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 15 U.S.C. 78a.
\3\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to modify Rule 6.15-O regarding the Give Up
of a Clearing Member by OTP Holders and OTP Firms and proposes
conforming changes to Rule 6.46-O. The proposed rule change is
available on the Exchange's website at www.nyse.com, at the principal
office of the Exchange, and at the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the self-regulatory organization
included statements concerning the purpose of, and basis for, the
proposed rule change and discussed any comments it received on the
proposed rule change. The text of those statements may be examined at
the places specified in Item IV below. The Exchange has prepared
summaries, set forth in sections A, B, and C below, of the most
significant parts of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule Change
1. Purpose
The purpose of this filing is to modify Rule 6.15-O regarding the
Give Up of a Clearing Member \4\ by OTP Holders and OTP Firms (each an
``OTP,'' collectively, ``OTPs'') and to make conforming changes to Rule
6.46-O.
---------------------------------------------------------------------------
\4\ Rule 6.1-O(2) defines ``Clearing Member'' as an Exchange OTP
which has been admitted to membership in the Options Clearing
Corporation pursuant to the provisions of the Rules of the Options
Clearing Corporation.
---------------------------------------------------------------------------
Rule 6.15-O: Current Process To Give Up a Clearing Member
In 2015 the Exchange adopted its current ``give up'' procedure for
OTPs executing transactions on the Exchange.\5\ Per Rule 6.15-O, an OTP
may give up a ``Designated Give Up'' or its ``Guarantor,'' as defined
in the Rule and described below.
---------------------------------------------------------------------------
\5\ See Securities and Exchange Act Release No. 75641 (August 7,
2015), 80 FR 48577 (August 13, 2015) (SR-NYSEArca-2015-65).
---------------------------------------------------------------------------
The Rule defines ``Designated Give Up'' as any Clearing Member that
an OTP Holder (other than a Market Maker \6\) identifies to the
Exchange, in writing, as a Clearing Member the OTP requests the ability
to give up. To designate a ``Designated Give Up,'' an OTP must submit
written notification to the Exchange. Specifically, the Exchange uses a
standardized form (``Notification Form''). An OTP may currently
designate any Clearing Member as a Designated Give Up. Additionally,
there is no minimum or maximum number of Designated Give Ups that an
OTP must identify. Similarly, should an OTP no longer want the ability
to give up a particular Designated Give Up, the OTP informs the
Exchange in writing.
---------------------------------------------------------------------------
\6\ For purposes of this rule, references to ``Market Maker''
refer to OTPs acting in the capacity of a Market Maker and include
all Exchange Market Maker capacities e.g., Lead Market Makers. As
explained below, Market Makers give up Guarantors that have executed
a Letter of Guarantee on behalf of the Marker Maker, pursuant to
Rule 6.36-O; Market Makers need not give up Designated Give Ups.
---------------------------------------------------------------------------
Rule 6.15-O also requires that the Exchange notify a Clearing
Member, in writing and as soon as practicable, of each OTP that has
identified it as a Designated Give Up. However, the Exchange will not
accept any instructions from a Clearing Member to prohibit an OTP from
designating the Clearing Member as a Designated Give Up. Additionally,
there is no subjective evaluation of an OTP's list of Designated Give
Ups by the Exchange. The Rule does, however, provide that a Designated
Give Up may determine to not accept a trade on which its name was given
up so long as it believes in good faith that it has a valid reason not
to accept the trade.\7\
---------------------------------------------------------------------------
\7\ See Rule 6.15-O(f)(1) (setting forth procedures for
rejecting a trade). An example of a valid reason to reject a trade
may be that the Designated Give Up does not have a customer for that
particular trade.
---------------------------------------------------------------------------
The Rule defines ``Guarantor'' as a Clearing Member that has issued
a Letter of Guarantee or Letter of Authorization for the executing OTP,
pursuant to Rules of the Exchange \8\ that is in effect at the time of
the execution of the applicable trade. An executing OTP may give up its
Guarantor without such Guarantor being a ``Designated Give Up.''
Additionally, Rule 6.36 provides that a Letter of Guarantee is required
to be issued and filed by each Clearing Member through which a Market
Maker clears transactions. Accordingly, a Market Maker is enabled to
give up only a Guarantor that had executed a Letter of Guarantee on its
behalf pursuant to Rule 6.36-O; a Market Maker does not need to
identify any Designated Give Ups. Like Designated Give Ups, Guarantors
likewise have the ability to reject a trade.\9\
---------------------------------------------------------------------------
\8\ See Rule 6.36-O (Letters of Guarantee); Rule 6.45-O (Letters
of Authorization).
\9\ See Rule 6.15-O(f)(2) (providing that a Guarantor may
``change the give up to another Clearing Member that has agreed to
be the give up on the subject trade, provided such Clearing Member
has notified the Exchange and the executing OTP Holder or OTP Firm
in writing of its intent to accept the trade'').
---------------------------------------------------------------------------
Beginning in early 2018, certain Clearing Members (in conjunction
with the Securities Industry and Financial Markets Association
(``SIFMA'')) expressed concerns related to the process by which
executing brokers on U.S. options exchanges (the ``Exchanges'') are
allowed to designate or `give up' a clearing firm for purposes of
clearing particular transactions. The SIFMA-affiliated Clearing Members
have recently identified the current give-up process as a significant
source of risk for clearing firms. SIFMA-affiliated Clearing Members
subsequently requested that the Exchanges alleviate this risk by
amending Exchange rules governing the give up process.\10\
---------------------------------------------------------------------------
\10\ Nasdaq PHLX LLC (``Phlx'') recently modified its give up
procedure to allow clearing members to ``opt in'' such that the
clearing member may specify which Phlx member organizations are
authorized to give up that clearing member. See Phlx Rule 1037. See
also Securities and Exchange Act Release Nos. 84624 (November 19,
2018), 83 FR 60547 (Notice); 85136 (February 14, 2019), 84 FR 5526
(February 21, 2019) (SR-Phlx-2018-72) (Approval Order). The
Exchange's proposal leads to the same result of providing its
Clearing Members the ability to control risk and includes Phlx's
``opt in'' process, but it otherwise differs in process from Phlx's
proposal.
---------------------------------------------------------------------------
Proposed Amendment to Rules 6.15-O and 6.46-O
Based on the above, the Exchange proposes to amend its rules
regarding the current give up process in order to allow a Clearing
Member to opt in, at The Options Clearing Corporation (``OCC'')
clearing number level, to a feature that, if enabled by the Clearing
Member, would allow the Clearing Member to specify which OTPs are
authorized to give up that OCC clearing number. As proposed, Rule 6.15-
O, Give Up of a Clearing Member, will be re-titled as ``Authorizing
Give Up of a Clearing Member'' and would provide that for each
transaction in which a non-Market Maker OTP participates, the OTP may
indicate any OCC number of a Clearing Member through which a
transaction will be cleared (``Give Up''), provided the Clearing Member
has not elected to ``Opt In,'' as defined in paragraph (b) of the
proposed Rule, and restricted the OCC number (``Restricted OCC
Number'').\11\ Further, as proposed, an OTP may Give Up a Restricted
OCC Number provided the OTP has written
[[Page 23615]]
authorization as described in paragraph (b)(ii) of the Rule
(``Authorized OTP'').\12\
---------------------------------------------------------------------------
\11\ See proposed Rule 6.15-O(a).
\12\ The Exchange proposes to delete the use of the modifier
``executing'' as relates to OTP in the rule, which is extraneous and
unnecessary, particularly in light of new concept of Authorized OTP.
See proposed Rule 6.15-O(c)(i), (e)(2), (f)(1)-(3), (g)(1) and
(h)(1).
---------------------------------------------------------------------------
Proposed Rule 6.15-O(b) provides that Clearing Members may request
that the Exchange restrict one or more of their OCC clearing numbers
(``Opt In'') as described in subparagraph (b)(i) of the Rule. As
proposed, if a Clearing Member Opts In, the Exchange would require
written authorization from the Clearing Member permitting an OTP to
Give Up a Clearing Member's Restricted OCC Number. An Opt In would
remain in effect until the Clearing Member terminates the Opt In as
described in subparagraph (iii). If a Clearing Member does not Opt In,
that Clearing Member's OCC number may be subject to Give Up by any OTP
(other than a Market Maker).\13\
---------------------------------------------------------------------------
\13\ See proposed Rule 6.15-O(b).
---------------------------------------------------------------------------
Proposed Rule 6.15-O(b)(i) would set forth the process by which a
Clearing Member may Opt In. Specifically, a Clearing Member may Opt In
by sending a completed ``Clearing Member Restriction Form'' listing all
Restricted OCC Numbers.\14\ A copy of the proposed form is attached in
Exhibit 3A. As proposed, a Clearing Member may elect to restrict one or
more OCC clearing numbers that are registered in its name at OCC. The
Clearing Member would be required to submit the Clearing Member
Restriction Form to the Exchange's Client Relationship Services
(``CRS'') department as described on the form. Once submitted, the
Exchange requires ninety days before a Restricted OCC Number is
effective. The Exchange believes this 90-day time period would provide
adequate time for OTPs that use a Restricted OCC Number to obtain the
necessary written authorization for that Restricted OCC Number. During
this 90-day time period, OTPs lacking the requisite authorization (and
affected by this proposed provision) would still be able to Give Up
that Restricted OCC Number (i.e., until the number becomes restricted
within the System).
---------------------------------------------------------------------------
\14\ The Exchange's forms will be available on the Exchange's
website. The Exchange also intends to maintain, on its website, a
list of the Restricted OCC Numbers, which will be updated on a
regular basis, and the Clearing Member's contact information to
assist OTPs (to the extent they are not already Authorized OTPs)
with requesting authorization for a Restricted OCC Number. The
Exchange may utilize additional means to inform its members of such
updates on a periodic basis.
---------------------------------------------------------------------------
Proposed 6.15-O(b)(ii) would set forth the process for OTPs to Give
Up a Clearing Member's Restricted OCC Number. Specifically, as
proposed, an OTP desiring to Give Up a Restricted OCC Number must
become an Authorized OTP.\15\ The Clearing Member would be required to
authorize an OTP by submitting a completed ``Authorized OTP Form'' to
the Exchange's CRS department, unless the Restricted OCC Number is
already subject to a Letter of Guarantee or a Letter of Authorization
to which the OTP is a party, as set forth in proposed paragraph (c) of
the Rule. A copy of the proposed form is attached in Exhibit 3B.\16\
---------------------------------------------------------------------------
\15\ The Exchange will develop procedures for notifying OTPs
that they are authorized or unauthorized by Clearing Members.
\16\ See supra note 14.
---------------------------------------------------------------------------
Pursuant to proposed Rule 6.15-O(b)(iii), a Clearing Member may
amend its Authorized OTPs or Restricted OCC Numbers by submitting a new
Authorized OTP Form or a Clearing Member Restriction Form to the
Exchange's CRS department indicating the amendment as described on the
form. As proposed, once a Restricted OCC Number is effective pursuant
to Rule 6.15-O(b)(i), the Exchange may permit the Clearing Member to
authorize, or remove authorization for, an OTP to Give Up the
Restricted OCC Number intra-day only in unusual circumstances, and on
the next business day in all regular circumstances. The Exchange will
promptly notify the OTPs if they are no longer authorized to Give Up a
Clearing Member's Restricted OCC Number. Finally, as proposed, if a
Clearing Member removes a Restricted OCC Number, any OTP (other than a
Market Maker) may Give Up that OCC clearing number once the removal has
become effective on or before the next business day.\17\
---------------------------------------------------------------------------
\17\ See proposed Rule 6.15-O(b)(iii).
---------------------------------------------------------------------------
In light of the proposed changes to the Give Up process, the
Exchange proposes to delete certain paragraphs of the current Rule
related to the current Designated Give Up process. Specifically, the
Exchange proposes to delete current paragraphs (a), (b)(1), (3)-(4),
(6)-(7), (d).
As proposed, paragraph (c) to Rule 6.15-O would be re-title
``Guarantors and Market Makers.'' Proposed Rule 6.15-O(c)(i) would
maintain the current definition and role of Guarantor (set forth in
current paragraphs (a)(3) and (6)) and combine such information with
language from Phlx Rule 1037(d) to provide, in relevant part that ``[a]
Guarantor for an OTP Holder or OTP Firm will be enabled to be given up
for that OTP Holder or OTP Firm without any further action by the OTP
such that a clearing arrangement subject to a Letter of Guarantee or
Letter of Authorization would immediately permit the Give Up of a
Restricted OCC Number by the OTP Holder or OTP Firm that is party to
the arrangement.'' \18\ In addition, to streamline the proposed Rule
the Exchange proposes to relocate text from current Rule 6.15-O(a)(5)
regarding Market Makers to proposed Rule 6.15-O(c)(ii) without any
textual changes.\19\ The Exchange also proposes to clarify how the
System would handle orders in light of the proposed changes to the Give
Up process. As proposed, for any Restricted OCC Number, the Exchange's
trading systems would only accept orders for that number from an
Authorized OTP Holder.\20\
---------------------------------------------------------------------------
\18\ See proposed Rule 6.15-O(c)(i).
\19\ See proposed Rule 6.15-O(c)(ii). To conform to the
foregoing changes to the organization of the Rule, the Exchange
proposes to reclassify current paragraph (c) as proposed Rule 6.15-
O(d).
\20\ See proposed Rule 6.15-O(d).
---------------------------------------------------------------------------
To further update the Rule to reflect the shift from an OTP
designating a certain Clearing Member as the give up to the Clearing
Member having the ability to limit which OTPs may give up that Clearing
Member, the Exchange proposes to replace certain references to
Designated Give Up with reference to ``Clearing Member for whom they
are an Authorized ATP Holder'' \21\ or affiliated Clearing Member''
\22\ or simply ``Clearing Member,'' \23\ as appropriate.
---------------------------------------------------------------------------
\21\ See proposed Rule 6.15-O(g)(1).
\22\ See proposed Rule 6.15-O(g)(2).
\23\ See generally proposed Rule 6.15-O(e)-(h). See also
proposed Rule 961(d) and (e)(1) (as relates to replacing Designated
Give Up with Authorized ATP Holder) and (e)(2), (f)(1)-(3), (g)(1)
and (h)(1). The Exchange also proposes to rename Rule 961(e) (from
Designated Give Up, to Authorized ATP Holder, as relates to the
process for accepting a trade). The Exchange also proposes to update
the cross reference in paragraph (e)(1) from ``paragraph (i)'' to
proposed ``paragraph (g).'' See proposed Rule 961(e)(1).
---------------------------------------------------------------------------
The Exchange also proposes to add paragraph (i) to the Rule to
provide that an ``intentional misuse of this Rule is impermissible, and
may be treated as a violation of Rule 11.2(b), Prohibited Acts.'' \24\
This language would make clear that the Exchange will regulate an
intentional misuse of this Rule and that such behavior would be a
violation of Exchange rules.
---------------------------------------------------------------------------
\24\ Rule 11.2(b) provides that the willful violation of any
provision of the Bylaws and Rules and procedures of the Exchange
shall be considered conduct or proceedings inconsistent with just
and equitable principles of trade.
---------------------------------------------------------------------------
Finally, consistent with this proposed change, the Exchange also
proposes to amend Rule 6.46-O(g) regarding the responsibilities of
Floor Brokers to maintain error accounts ``for the purposes of
correcting bona fide errors, as provided in Rule 6.14-O.'' As
[[Page 23616]]
proposed, the Exchange would specify that ``it will not be a violation
of this provision if a trade is transferred away from an error account
through the CMTA process at OCC.'' \25\ This additional language would
enable an executing OTP that has executed an order to CMTA that order
through its own clearing relationship. For example, assume a Floor
Broker executes a trade giving up Firm A (a Clearing Member that is one
of its Authorized OTPs) and, after the execution, the Floor Broker is
informed that a portion of the trade needs to be changed to give-up
Firm B (a Clearing Member that is not one of the Floor Broker's
Authorized OTPs). The proposed language would enable the Floor Broker
to CMTA the trade to Firm B through its own clearing arrangement (as
long as the authorizations are in place for that CMTA to occur) rather
than nullifying or busting the trade.
---------------------------------------------------------------------------
\25\ See proposed Rule 6.46-O(g). The Exchange also proposes to
delete as obsolete reference to Rule 4.21-O, which is currently
``Reserved,'' and therefore an outdated cross-reference. See id.
---------------------------------------------------------------------------
Implementation
The Exchange will announce the implementation date of the proposed
rule change no later than the end of Q3 2019 via Trader Notice.
2. Statutory Basis
The proposed rule change is consistent with Section 6(b) \26\ of
the Act, in general, and furthers the objectives of Section
6(b)(5),\27\ in particular, in that it is designed to prevent
fraudulent and manipulative acts and practices, to promote just and
equitable principles of trade, to foster cooperation and coordination
with persons engaged in facilitating transactions in securities, and to
remove impediments to and perfect the mechanisms of a free and open
market and a national market system.
---------------------------------------------------------------------------
\26\ 15 U.S.C. 78f(b).
\27\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
Particularly, as discussed above, several Clearing Firms affiliated
with SIFMA have recently expressed concerns relating to the current
give up process that permits OTPs to identify any Clearing Members as a
Designated Give Up for purposes of clearing particular transactions,
and have identified the current give-up process (i.e., a process that
lacks authorization) as a significant source of risk for clearing
firms.
The Exchange believes that the proposed changes to Rule 6.15-O
would help alleviate this risk by enabling Clearing Members to `Opt In'
to restrict one or more of its OCC clearing numbers (i.e., Restricted
OCC Numbers), and to specify which Authorized OTPs may Give Up those
Restricted OCC Numbers. As described above, all other ATP Holders would
be required to receive written authorization from the Clearing Member
before they can Give Up that Clearing Member's Restricted OCC Number.
The Exchange believes that this authorization provides proper
safeguards and protections for Clearing Members as it provides controls
for Clearing Members to restrict access to their OCC clearing numbers,
allowing access only to those Authorized OTPs upon their request. The
Exchange also believes that its proposed Clearing Member Restriction
Form allows the Exchange to receive in a uniform fashion, written and
transparent authorization from Clearing Members, which ensures seamless
administration of the Rule.
The Exchange believes that the proposed Opt In process strikes the
right balance between the various views and interests across the
industry. For example, although the proposed rule would require OTPs
(other than Authorized OTPs) to seek authorization from Clearing
Members in order to have the ability to give them up, each OTP would
still have the ability to Give Up a Restricted OCC Number that is
subject to a Letter of Guarantee or Letter of Authorization without
obtaining any further authorization if that OTP is party to that
arrangement. The Exchange also notes that to the extent the executing
OTP has a clearing arrangement with a Clearing Member (i.e., through a
Letter of Guarantee or Letter of Authorization), a trade can be
assigned to the executing OTP's Guarantor. Accordingly, the Exchange
believes that the proposed rule change is reasonable and continues to
provide certainty that a Clearing Member would be responsible for a
trade, which protects investors and the public interest. Finally, the
Exchange believes that adopting paragraph (i) of Rule 6.15-O and would
make clear that an intentional misuse of this Rule would be a violation
of the Exchange's rules.
The Exchange also believes that the proposed change to Rule 6.46-O
would protect investors because it would permit an executing OTP to
utilize its error account to CMTA an order through its own clearing
relationship. This would preserve executions while accommodating the
proposed rule change that could result in an executing OTP not being
permissioned to for a particular give-up.
Thus, this proposal would foster cooperation and coordination with
persons engaged in facilitating transactions in securities, and remove
impediments to and perfect the mechanism of 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 this proposed rule change would
impose any burden on competition not necessary or appropriate in
furtherance of the purposes of the Act. The Exchange does not believe
that the proposed rule change would impose an unnecessary burden on
intramarket competition because it would apply equally to all similarly
situated OTPs. The Exchange also notes that, should the proposed
changes make the Exchange more attractive for trading, market
participants trading on other exchanges can always elect to become OTPs
on the Exchange to take advantage of the trading opportunities.
Furthermore, the proposed rule change does not address any
competitive issues and ultimately, the target of the Exchange's
proposal is to reduce risk for Clearing Members under the current give
up model. Clearing firms make financial decisions based on risk and
reward, and while it is generally in their beneficial interest to clear
transactions for market participants in order to generate profit, it is
the Exchange's understanding from SIFMA and clearing firms that the
current process can create significant risk when the clearing firm can
be given up on any market participant's transaction, even where there
is no prior customer relationship or authorization for that designated
transaction. In the absence of a mechanism that governs a market
participant's use of a Clearing Member's services, the Exchange's
proposal may indirectly facilitate the ability of a Clearing Member to
manage their existing customer relationships while continuing to allow
market participant choice in broker execution services. While Clearing
Members may compete with executing brokers for order flow, the Exchange
does not believe this proposal imposes an undue burden on competition.
Rather, the Exchange believes that the proposed rule change balances
the need for Clearing Members to manage risks and allows them to
address outlier behavior from executing brokers while still allowing
freedom of choice to select an executing broker.
[[Page 23617]]
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were solicited or received with respect to the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The Exchange has filed the proposed rule change pursuant to Section
19(b)(3)(A)(iii) of the Act \28\ and Rule 19b-4(f)(6) thereunder.\29\
Because the proposed rule change does not: (i) Significantly affect the
protection of investors or the public interest; (ii) impose any
significant burden on competition; and (iii) become operative prior to
30 days from the date on which it was filed, or such shorter time as
the Commission may designate, if consistent with the protection of
investors and the public interest, the proposed rule change has become
effective pursuant to Section 19(b)(3)(A) of the Act and Rule 19b-
4(f)(6)(iii) thereunder.
---------------------------------------------------------------------------
\28\ 15 U.S.C. 78s(b)(3)(A)(iii).
\29\ 17 CFR 240.19b-4(f)(6).
---------------------------------------------------------------------------
At any time within 60 days of the filing of such proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act. If the Commission
takes such action, the Commission shall institute proceedings under
Section 19(b)(2)(B) \30\ of the Act to determine whether the proposed
rule change should be approved or disapproved.
---------------------------------------------------------------------------
\30\ 15 U.S.C. 78s(b)(2)(B).
---------------------------------------------------------------------------
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-NYSEArca-2019-32 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-NYSEArca-2019-32. 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 website (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 website 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. Persons submitting comments are
cautioned that we do not redact or edit personal identifying
information from comment submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-NYSEArca-2019-32 and should be submitted
on or before June 12, 2019.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\31\
---------------------------------------------------------------------------
\31\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019-10638 Filed 5-21-19; 8:45 am]
BILLING CODE 8011-01-P
