Self-Regulatory Organizations; NYSE American LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Modify Rule 961 and Conforming Changes to Rules 933NY and 995NY Governing the Give Up of a Clearing Broker, 23591-23595 [2019-10642]
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Federal Register / Vol. 84, No. 99 / Wednesday, May 22, 2019 / Notices
statutory and regulatory requirements
include 39 U.S.C. 3632, 39 U.S.C. 3633,
39 U.S.C. 3642, 39 CFR part 3015, and
39 CFR part 3020, subpart B. Comment
deadline(s) for each request appear in
section II.
II. Docketed Proceeding(s)
1. Docket No(s).: CP2012–23; Filing
Title: USPS Notice of Amendment to
Parcel Select Contract 2, Filed Under
Seal; Filing Acceptance Date: May 16,
2019; Filing Authority: 39 CFR 3015.5;
Public Representative: Gregory Stanton;
Comments Due: May 24, 2019.
This Notice will be published in the
Federal Register.
Stacy L. Ruble,
Secretary.
[FR Doc. 2019–10711 Filed 5–21–19; 8:45 am]
BILLING CODE 7710–FW–P
POSTAL SERVICE
Product Change—Priority Mail
Negotiated Service Agreement
AGENCY:
ACTION:
Postal ServiceTM.
Notice.
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:
DATES:
Date of required notice: May 22,
2019.
FOR FURTHER INFORMATION CONTACT:
Elizabeth Reed, 202–268–3179.
The
United States Postal Service® hereby
gives notice that, pursuant to 39 U.S.C.
3642 and 3632(b)(3), on May 17, 2019,
it filed with the Postal Regulatory
Commission a USPS Request to Add
Priority Mail Contract 528 to
Competitive Product List. Documents
are available at www.prc.gov, Docket
Nos. MC2019–138, CP2019–152.
SUPPLEMENTARY INFORMATION:
Elizabeth Reed,
Attorney, Corporate and Postal Business Law.
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[FR Doc. 2019–10732 Filed 5–21–19; 8:45 am]
BILLING CODE 7710–12–P
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SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–85879; File No. SR–
CboeEDGX–2019–012]
Self-Regulatory Organizations; Cboe
EDGX Exchange, Inc.; Notice of
Designation of Longer Period for
Commission Action on Proposed Rule
Change To Introduce Retail Priority
May 16, 2019.
On March 18, 2019, Cboe EDGX
Exchange, Inc. (‘‘Exchange’’) filed with
the Securities and Exchange
Commission (‘‘Commission’’), pursuant
to Section 19(b)(1) of the Securities
Exchange Act of 1934 (‘‘Act’’) 1 and Rule
19b–4 thereunder,2 a proposed rule
change to introduce order book priority
for equity orders submitted on behalf of
retail investors. The proposed rule
change was published for comment in
the Federal Register on April 5, 2019.3
The Commission received four comment
letters on the proposed rule change.4
Section 19(b)(2) of the Act 5 provides
that within 45 days of the publication of
notice of the filing of a proposed rule
change, or within such longer period up
to 90 days as the Commission may
designate if it finds such longer period
to be appropriate and publishes its
reasons for so finding or as to which the
self-regulatory organization consents,
the Commission shall either approve the
proposed rule change, disapprove the
proposed rule change, or institute
proceedings to determine whether the
proposed rule change should be
disapproved. The 45th day for this filing
is May 20, 2019.
The Commission is extending the 45day time period for Commission action
on the proposed rule change. The
Commission finds that it is appropriate
to designate a longer period within
which to take action on the proposed
rule change so that it has sufficient time
to consider the Exchange’s proposed
rule change, the comments received,
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 See Securities Exchange Act Release No. 85482
(April 2, 2019), 84 FR 13729 (‘‘Notice’’).
4 See letters to Vanessa Countryman, Acting
Secretary, Commission, from Sean Paylor, Trader,
AJO, L.P., dated April 25, 2019; Joseph Saluzzi and
Sal Arnuk, Partners, Themis Trading LLC, dated
May 8, 2019; T. Sean Bennett, Principal Associate
General Counsel, Nasdaq, dated May 9, 2019; letter
to Eduardo A. Aleman, Deputy Secretary,
Commission from Stephen John Berger, Global
Head of Government & Regulatory Policy, Citadel
Securities, dated April 26, 2019. All comments
received by the Commission on the proposed rule
change are available at: https://www.sec.gov/
comments/sr-cboeedgx-2019-012/
srcboeedgx2019012.htm.
5 15 U.S.C. 78s(b)(2).
2 17
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and the Exchange’s response to
comments.
Accordingly, pursuant to Section
19(b)(2)(A)(ii)(I) of the Act 6 and for the
reasons stated above, the Commission
designates July 4, 2019 as the date by
which the Commission should either
approve or disapprove, or institute
proceedings to determine whether to
disapprove, the proposed rule change
(File No. CboeEDGX–2019–012).
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.7
Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019–10644 Filed 5–21–19; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–85875; File No. SR–
NYSEAMER–2019–17]
Self-Regulatory Organizations; NYSE
American LLC; Notice of Filing and
Immediate Effectiveness of a Proposed
Rule Change To Modify Rule 961 and
Conforming Changes to Rules 933NY
and 995NY 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 American LLC (‘‘NYSE
American’’ 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 selfregulatory organization. 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 modify
Rule 961 regarding the Give Up of a
Clearing Member by ATP Holders and
proposes conforming changes to Rules
933NY and 995NY. 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.
6 15
U.S.C. 78s(b)(2)(A)(ii)(I).
CFR 200.30–3(a)(31).
1 15 U.S.C. 78s(b)(1).
2 15 U.S.C. 78a.
3 17 CFR 240.19b–4.
7 17
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Federal Register / Vol. 84, No. 99 / Wednesday, May 22, 2019 / Notices
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 961 regarding the Give Up of a
Clearing Member 4 by ATP Holders and
to make conforming changes to Rule
933NY.
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Rule 961: Current Process To Give Up
a Clearing Member
In 2015, the Exchange adopted its
current ‘‘give up’’ procedure for ATP
Holders executing transactions on the
Exchange.5 Per Rule 961, an ATP Holder
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
ATP Holder (other than a Market
Maker 6) identifies to the Exchange, in
writing, as a Clearing Member the ATP
Holder requests the ability to give up.
To designate a ‘‘Designated Give Up,’’
an ATP Holder must submit written
notification to the Exchange.
Specifically, the Exchange uses a
standardized form (‘‘Notification
Form’’). An ATP Holder 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 ATP
4 Rule 900.2NY(11) defines ‘‘Clearing Member’’ as
an Exchange ATP Holder 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.
75642 (August 7, 2015), 80 FR 48594 (August 13,
2015) (SR–NYSEMKT–2015–55).
6 For purposes of this rule, references to ‘‘Market
Maker’’ refer to ATP Holders 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 932NY;
Market Makers need not give up Designated Give
Ups.
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Holder must identify. Similarly, should
an ATP Holder no longer want the
ability to give up a particular Designated
Give Up, the ATP Holder informs the
Exchange in writing.
Rule 961 also requires that the
Exchange notify a Clearing Member, in
writing and as soon as practicable, of
each ATP Holder that has identified it
as a Designated Give Up. However, the
Exchange will not accept any
instructions from a Clearing Member to
prohibit an ATP Holder from
designating the Clearing Member as a
Designated Give Up. Additionally, there
is no subjective evaluation of an ATP
Holder’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 ATP
Holder, pursuant to Rules of the
Exchange 8 that is in effect at the time
of the execution of the applicable trade.
An executing ATP Holder may give up
its Guarantor without such Guarantor
being a ‘‘Designated Give Up.’’
Additionally, Rule 924NY 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 924NY; 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
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
7 See Rule 961(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 924NY (Letters of Guarantees); Rule
932NY (Letters of Authorization).
9 See Rule 961(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 ATP
Holder in writing of its intent to accept the trade’’).
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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 961,
933NY and 995NY
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 ATP Holders
are authorized to give up that OCC
clearing number. As proposed, Rule
961, 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 ATP Holder participates,
the ATP Holder 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 ATP Holder may Give
Up a Restricted OCC Number provided
the ATP Holder has written
authorization as described in paragraph
(b)(ii) of the Rule (‘‘Authorized ATP
Holder’’).12
Proposed Rule 961(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 ATP Holder to
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 961(a).
12 The Exchange proposes to delete the use of the
modifier ‘‘executing’’ as relates to ATP Holder in
the rule, which is extraneous and unnecessary,
particularly in light of new concept of Authorized
ATP Holder. See proposed Rule 961(c)(i), (e)(2),
(f)(1)–(3), (g)(1) and (h)(1).
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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 ATP Holder (other than a Market
Maker).13
Proposed Rule 961(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 ATP Holders that use
a Restricted OCC Number to obtain the
necessary written authorization for that
Restricted OCC Number. During this 90day time period, ATP Holders 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 961(b)(ii) would set forth
the process for ATP Holders to Give Up
a Clearing Member’s Restricted OCC
Number. Specifically, as proposed, an
ATP Holder desiring to Give Up a
Restricted OCC Number must become
an Authorized ATP Holder.15 The
Clearing Member would be required to
authorize an ATP Holder by submitting
a completed ‘‘Authorized ATP Holder
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 ATP Holder is a party, as set
forth in proposed paragraph (c) of the
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13 See
proposed Rule 961(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 ATP Holders (to the extent they are not
already Authorized ATP Holders) 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.
15 The Exchange will develop procedures for
notifying ATP Holders that they are authorized or
unauthorized by Clearing Members.
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Rule. A copy of the proposed form is
attached in Exhibit 3B.16
Pursuant to proposed Rule 961(b)(iii),
a Clearing Member may amend its
Authorized ATP Holders or Restricted
OCC Numbers by submitting a new
Authorized ATP Holder 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 961(b)(i), the Exchange
may permit the Clearing Member to
authorize, or remove authorization for,
an ATP Holder 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 ATP Holders 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 ATP Holder (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
961 would be re-title ‘‘Guarantors and
Market Makers.’’ Proposed Rule
961(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 ATP Holder will be
enabled to be given up for that ATP
Holder without any further action by the
ATP Holder 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 ATP
Holder that is party to the
arrangement.’’ 18 In addition, to
streamline the proposed Rule the
Exchange proposes to relocate text from
current Rule 961(a)(5) regarding Market
Makers to proposed Rule 961(c)(ii)
without any textual changes.19 The
16 See
supra note 14.
proposed Rule 961(b)(iii).
18 See proposed Rule 961(c)(i).
19 See proposed Rule 961(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 961(d).
17 See
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23593
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 ATP
Holder.20
To further update the Rule to reflect
the shift from an ATP Holder
designating a certain Clearing Member
as the give up to the Clearing Member
having the ability to limit which ATP
Holders 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 995NY(b), Prohibited
Conduct.’’ And, consistent with this
change, to modify Rule 995NY(b),
which was previously held in Reserve,
to provide that it would be ‘‘considered
conduct inconsistent with just and
equitable principles of trade for an ATP
Holder or associated person of an ATP
Holder to intentionally misuse Rule 961,
Authorizing Give Up of a Clearing
Member.’’ This language will 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 933NY(f) regarding the
responsibilities of Floor Brokers to
maintain error accounts ‘‘for the
purposes of correcting bona fide errors,
as provided in Rule 960.’’ As 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.’’ 24 This additional language
would enable an executing ATP Holder
that has executed an order to CMTA that
order through its own clearing
20 See
proposed Rule 961(d).
proposed Rule 961(g)(1).
22 See proposed Rule 961(g)(2).
23 See generally proposed Rule 961(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 See proposed Rule 933NY(f).
21 See
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relationship. For example, assume a
Floor Broker executes a trade giving up
Firm A (a Clearing Member that is one
of its Authorized ATP Holders) 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 ATP
Holders). 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.
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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) 25 of the
Act, in general, and furthers the
objectives of Section 6(b)(5),26 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 ATP Holders 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 971 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 ATP Holders
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
25 15
26 15
U.S.C. 78f(b).
U.S.C. 78f(b)(5).
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17:29 May 21, 2019
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Members as it provides controls for
Clearing Members to restrict access to
their OCC clearing numbers, allowing
access only to those Authorized ATP
Holders 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 ATP Holders (other than
Authorized ATP Holders) to seek
authorization from Clearing Members in
order to have the ability to give them
up, each ATP Holder 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 ATP Holder is party
to that arrangement. The Exchange also
notes that to the extent the executing
ATP Holder 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 ATP Holder’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 961
and paragraph (b) for Rule 995NY
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 933NY would
protect investors because it would
permit an executing ATP Holder 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 ATP Holder 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
PO 00000
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Fmt 4703
Sfmt 4703
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 ATP
Holders. 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
ATP Holders 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.
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
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jbell on DSK3GLQ082PROD with NOTICES
Federal Register / Vol. 84, No. 99 / Wednesday, May 22, 2019 / Notices
19(b)(3)(A)(iii) of the Act 27 and Rule
19b–4(f)(6) thereunder.28 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) 29 of the Act to
determine whether the proposed rule
change should be approved or
disapproved.
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–2019–17 and
should be submitted on or before June
12, 2019.
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:
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.30
Eduardo A. Aleman,
Deputy Secretary.
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–
NYSEAMER–2019–17 on the subject
line.
SECURITIES AND EXCHANGE
COMMISSION
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–2019–17. 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
U.S.C. 78s(b)(3)(A)(iii).
CFR 240.19b–4(f)(6).
29 15 U.S.C. 78s(b)(2)(B).
[FR Doc. 2019–10642 Filed 5–21–19; 8:45 am]
BILLING CODE 8011–01–P
[Release No. 34–85876; File No. SR–Phlx–
2019–20]
Self-Regulatory Organizations; Nasdaq
PHLX LLC; Notice of Filing of
Proposed Rule Change Relating to the
Allocation and Prioritization of
Automatically Executed Trades
May 16, 2019.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’), 1 and Rule 19b–4 thereunder,2
notice is hereby given that on May 15,
2019, Nasdaq PHLX LLC (‘‘Phlx’’ or
‘‘Exchange’’) filed with the Securities
and Exchange Commission (‘‘SEC’’ or
‘‘Commission’’) the proposed rule
change as described in Items I, II, and
III, below, which Items have been
prepared by the Exchange. The
Commission is publishing this notice to
27 15
30 17
28 17
1 15
VerDate Sep<11>2014
17:29 May 21, 2019
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
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23595
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 reserve
Rule 1014(g)(vii) and (viii), which
describes the allocation of automatically
executed trades, and adopt a new Rule
1089 and title that rule ‘‘Electronic
Execution Priority and Processing in the
System.’’
The text of the proposed rule change
is available on the Exchange’s website at
https://nasdaqphlx.cchwallstreet.com/,
at the principal office of the Exchange,
and at the Commission’s Public
Reference Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange included statements
concerning the purpose of and basis for
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. The
Exchange has prepared summaries, set
forth in sections A, B, and C below, of
the most significant aspects of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The Exchange proposes to remove the
current rule text describing the
allocation of automatically executed
trades from Phlx Rule 1014(g)(vii) and
(viii) 3 and, in its place, adopt new Phlx
Rule 1089 titled ‘‘Electronic Execution
Priority and Processing in the System.’’
This relocated new proposed rule would
describe in greater detail the manner in
which Phlx will process, prioritize and
allocate transactions in the System.4
3 The Exchange proposes to reserve Phlx Rule
1014(g)(vii) and (viii).
4 The term ‘‘System’’ shall mean the automated
system for order execution and trade reporting
owned and operated by the Exchange which
comprises: (A) An order execution service that
enables members to automatically execute
transactions in System Securities; and provides
members with sufficient monitoring and updating
capability to participate in an automated execution
environment; (B) a trade reporting service that
submits ‘‘locked-in’’ trades for clearing to a
registered clearing agency for clearance and
settlement; transmits last-sale reports of
transactions automatically to the Options Price
Reporting Authority (‘‘OPRA’’) for dissemination to
the public and industry; and provides participants
Continued
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[Federal Register Volume 84, Number 99 (Wednesday, May 22, 2019)]
[Notices]
[Pages 23591-23595]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-10642]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-85875; File No. SR-NYSEAMER-2019-17]
Self-Regulatory Organizations; NYSE American LLC; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change To Modify
Rule 961 and Conforming Changes to Rules 933NY and 995NY 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 American LLC (``NYSE American'' 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
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 961 regarding the Give Up of a
Clearing Member by ATP Holders and proposes conforming changes to Rules
933NY and 995NY. 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.
[[Page 23592]]
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 961 regarding the Give
Up of a Clearing Member \4\ by ATP Holders and to make conforming
changes to Rule 933NY.
---------------------------------------------------------------------------
\4\ Rule 900.2NY(11) defines ``Clearing Member'' as an Exchange
ATP Holder which has been admitted to membership in the Options
Clearing Corporation pursuant to the provisions of the Rules of the
Options Clearing Corporation.
---------------------------------------------------------------------------
Rule 961: Current Process To Give Up a Clearing Member
In 2015, the Exchange adopted its current ``give up'' procedure for
ATP Holders executing transactions on the Exchange.\5\ Per Rule 961, an
ATP Holder 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. 75642 (August 7,
2015), 80 FR 48594 (August 13, 2015) (SR-NYSEMKT-2015-55).
---------------------------------------------------------------------------
The Rule defines ``Designated Give Up'' as any Clearing Member that
an ATP Holder (other than a Market Maker \6\) identifies to the
Exchange, in writing, as a Clearing Member the ATP Holder requests the
ability to give up. To designate a ``Designated Give Up,'' an ATP
Holder must submit written notification to the Exchange. Specifically,
the Exchange uses a standardized form (``Notification Form''). An ATP
Holder 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 ATP Holder must identify. Similarly, should an ATP
Holder no longer want the ability to give up a particular Designated
Give Up, the ATP Holder informs the Exchange in writing.
---------------------------------------------------------------------------
\6\ For purposes of this rule, references to ``Market Maker''
refer to ATP Holders 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 932NY; Market Makers need not give up Designated
Give Ups.
---------------------------------------------------------------------------
Rule 961 also requires that the Exchange notify a Clearing Member,
in writing and as soon as practicable, of each ATP Holder that has
identified it as a Designated Give Up. However, the Exchange will not
accept any instructions from a Clearing Member to prohibit an ATP
Holder from designating the Clearing Member as a Designated Give Up.
Additionally, there is no subjective evaluation of an ATP Holder'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 961(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 ATP
Holder, pursuant to Rules of the Exchange \8\ that is in effect at the
time of the execution of the applicable trade. An executing ATP Holder
may give up its Guarantor without such Guarantor being a ``Designated
Give Up.'' Additionally, Rule 924NY 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 924NY; 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\
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\8\ See Rule 924NY (Letters of Guarantees); Rule 932NY (Letters
of Authorization).
\9\ See Rule 961(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 ATP Holder in writing of its
intent to accept the trade'').
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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\
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\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 961, 933NY and 995NY
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 ATP Holders
are authorized to give up that OCC clearing number. As proposed, Rule
961, 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 ATP Holder participates, the
ATP Holder 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 ATP Holder may Give Up a
Restricted OCC Number provided the ATP Holder has written authorization
as described in paragraph (b)(ii) of the Rule (``Authorized ATP
Holder'').\12\
---------------------------------------------------------------------------
\11\ See proposed Rule 961(a).
\12\ The Exchange proposes to delete the use of the modifier
``executing'' as relates to ATP Holder in the rule, which is
extraneous and unnecessary, particularly in light of new concept of
Authorized ATP Holder. See proposed Rule 961(c)(i), (e)(2), (f)(1)-
(3), (g)(1) and (h)(1).
---------------------------------------------------------------------------
Proposed Rule 961(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 ATP Holder
to
[[Page 23593]]
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 ATP
Holder (other than a Market Maker).\13\
---------------------------------------------------------------------------
\13\ See proposed Rule 961(b).
---------------------------------------------------------------------------
Proposed Rule 961(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 ATP Holders that use a Restricted OCC Number to
obtain the necessary written authorization for that Restricted OCC
Number. During this 90-day time period, ATP Holders 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 ATP Holders (to the extent they are not already Authorized
ATP Holders) 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 961(b)(ii) would set forth the process for ATP Holders to
Give Up a Clearing Member's Restricted OCC Number. Specifically, as
proposed, an ATP Holder desiring to Give Up a Restricted OCC Number
must become an Authorized ATP Holder.\15\ The Clearing Member would be
required to authorize an ATP Holder by submitting a completed
``Authorized ATP Holder 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 ATP Holder 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 ATP
Holders that they are authorized or unauthorized by Clearing
Members.
\16\ See supra note 14.
---------------------------------------------------------------------------
Pursuant to proposed Rule 961(b)(iii), a Clearing Member may amend
its Authorized ATP Holders or Restricted OCC Numbers by submitting a
new Authorized ATP Holder 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 961(b)(i), the Exchange may permit the Clearing Member
to authorize, or remove authorization for, an ATP Holder 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 ATP Holders 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 ATP
Holder (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 961(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 961 would be re-title
``Guarantors and Market Makers.'' Proposed Rule 961(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 ATP Holder will be enabled to be given up for that ATP
Holder without any further action by the ATP Holder 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 ATP Holder that is party to the arrangement.'' \18\ In
addition, to streamline the proposed Rule the Exchange proposes to
relocate text from current Rule 961(a)(5) regarding Market Makers to
proposed Rule 961(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 ATP Holder.\20\
---------------------------------------------------------------------------
\18\ See proposed Rule 961(c)(i).
\19\ See proposed Rule 961(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 961(d).
\20\ See proposed Rule 961(d).
---------------------------------------------------------------------------
To further update the Rule to reflect the shift from an ATP Holder
designating a certain Clearing Member as the give up to the Clearing
Member having the ability to limit which ATP Holders 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 961(g)(1).
\22\ See proposed Rule 961(g)(2).
\23\ See generally proposed Rule 961(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 995NY(b), Prohibited Conduct.''
And, consistent with this change, to modify Rule 995NY(b), which was
previously held in Reserve, to provide that it would be ``considered
conduct inconsistent with just and equitable principles of trade for an
ATP Holder or associated person of an ATP Holder to intentionally
misuse Rule 961, Authorizing Give Up of a Clearing Member.'' This
language will 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 933NY(f) regarding the responsibilities of Floor
Brokers to maintain error accounts ``for the purposes of correcting
bona fide errors, as provided in Rule 960.'' As 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.'' \24\ This additional language would enable an
executing ATP Holder that has executed an order to CMTA that order
through its own clearing
[[Page 23594]]
relationship. For example, assume a Floor Broker executes a trade
giving up Firm A (a Clearing Member that is one of its Authorized ATP
Holders) 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 ATP Holders).
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.
---------------------------------------------------------------------------
\24\ See proposed Rule 933NY(f).
---------------------------------------------------------------------------
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) \25\ of
the Act, in general, and furthers the objectives of Section
6(b)(5),\26\ 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.
---------------------------------------------------------------------------
\25\ 15 U.S.C. 78f(b).
\26\ 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 ATP Holders 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 971 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 ATP Holders 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 ATP Holders 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 ATP
Holders (other than Authorized ATP Holders) to seek authorization from
Clearing Members in order to have the ability to give them up, each ATP
Holder 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 ATP Holder is party
to that arrangement. The Exchange also notes that to the extent the
executing ATP Holder 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 ATP Holder'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 961 and paragraph (b) for Rule 995NY 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 933NY
would protect investors because it would permit an executing ATP Holder
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 ATP Holder 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 ATP Holders. 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 ATP
Holders 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.
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
[[Page 23595]]
19(b)(3)(A)(iii) of the Act \27\ and Rule 19b-4(f)(6) thereunder.\28\
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.
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\27\ 15 U.S.C. 78s(b)(3)(A)(iii).
\28\ 17 CFR 240.19b-4(f)(6).
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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) \29\ of the Act to determine whether the proposed
rule change should be approved or disapproved.
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\29\ 15 U.S.C. 78s(b)(2)(B).
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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-NYSEAMER-2019-17 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-2019-17. 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-2019-17 and should be submitted
on or before June 12, 2019.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\30\
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\30\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019-10642 Filed 5-21-19; 8:45 am]
BILLING CODE 8011-01-P
