Self-Regulatory Organizations; NYSE American LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change to Amend Rule 967NY (Price Protection-Orders), 71018-71021 [2019-27734]
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Federal Register / Vol. 84, No. 247 / Thursday, December 26, 2019 / Notices
khammond on DSKJM1Z7X2PROD with NOTICES
opportunities to execute certain orders
(rather than reject or cancel), while still
maintaining a tolerance range. Thus, the
proposal would promote just and
equitable principles of trade and would
protect investors by adding flexibility
and sensitivity to the Sell Check for
orders in lower-priced options and
allow the balance of the Price Checks to
continue to operate as intended.
In addition, with regard to ISOs, the
Exchange believes it is appropriate to
exclude such orders from the Sell Check
to ensure that the order type (as well as
the Sell Check) operates as intended.
Moreover, modifying the rule to specify
that ISOs would be excluded from the
Sell Check would add clarity and
transparency to Exchange rules.
The Exchange is proposing the
modifications to the Sell Check for the
benefit of, and in consultation with,
OTP Holders and OTP Firms and
believes the proposed rule change
would help to maintain a fair and
orderly market, and provide a valuable
service to investors. In particular, the
proposed changes to the Sell Check are
responsive to member input regarding
certain orders being erroneously
rejected or canceled by the Sell Check
(either an ISO or a sell order on an
option series trading at a (relatively) low
price). This proposal would thus
facilitate transactions in securities and
perfect the mechanism of a free and
open market by providing OTP Holders
and OTP Firms with enhanced
functionality that will assist them with
managing their portfolio and risk
profile.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change will impose
any burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Act. The
proposed rule change enhances the
existing Sell Check for option orders of
all OTP Holders submitted to the
Exchange and is designed to ensure that
properly entered orders are not
inadvertently rejected or canceled by
the Exchange—insofar as the Sell Check
would exclude (and not interfere with
the operation of) ISO orders, and, would
apply a modified/more finely calibrated
percentage threshold to sell orders in
option series trading at a relatively low
price.
The Exchange further believes that
because the proposed rule change
would be applicable to all OTP Holders
it would not impose any burden on
intra-market competition that is not
necessary or appropriate in furtherance
of the purposes of the Act.
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C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
No written comments were solicited
or received with respect to the proposed
rule change.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule
change does not: (i) Significantly affect
the protection of investors or the public
interest; (ii) impose any significant
burden on competition; and (iii) become
operative for 30 days from the date on
which it was filed, or such shorter time
as the Commission may designate, it has
become effective pursuant to Section
19(b)(3)(A) of the Act 21 and Rule 19b–
4(f)(6) thereunder.22
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 shall institute proceedings
to determine whether the proposed rule
change should be approved or
disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
All submissions should refer to File
Number SR–NYSEArca–2019–89. 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–2019–89 and
should be submitted on or before
January 16, 2020.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.23
J. Matthew DeLesDernier,
Assistant Secretary.
• 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–2019–89 on the subject line.
[FR Doc. 2019–27724 Filed 12–23–19; 8:45 am]
Paper Comments
[Release No. 34–87794; File No. SR–
NYSEAMER–2019–56]
• Send paper comments in triplicate
to: Secretary, Securities and Exchange
Commission, 100 F Street NE,
Washington, DC 20549–1090.
21 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.
22 17
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BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
Self-Regulatory Organizations; NYSE
American LLC; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change to Amend Rule 967NY
(Price Protection—Orders)
December 18, 2019.
Pursuant to Section 19(b)(1) 1 of the
Securities Exchange Act of 1934
23 17
1 15
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CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
26DEN1
Federal Register / Vol. 84, No. 247 / Thursday, December 26, 2019 / Notices
(‘‘Act’’) 2 and Rule 19b–4 thereunder,3
notice is hereby given that on December
5, 2019, NYSE American LLC
(‘‘Exchange’’) filed with the Securities
and Exchange Commission
(‘‘Commission’’) the proposed rule
change described in Items I and II
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.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to amend
Rule 967NY (Price Protection—Orders)
to modify and enhance certain of its
current price protection mechanisms.
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
khammond on DSKJM1Z7X2PROD with NOTICES
1. Purpose
The Exchange proposes to amend
paragraph (c) of Rule 967NY to modify
and enhance its Price Reasonability
Checks for options orders to sell puts or
calls (the ‘‘Sell Check’’). As proposed,
the Exchange would enhance the Sell
Checks applied when the National Best
Bid (‘‘NBB’’) is below a specified price
and would exclude from the Sell Check
any Intermarket Sweep Orders, both of
which changes would allow for a more
finely calibrated Sell Check.
Price Reasonability Checks
The Exchange has in place various
price check mechanisms that are
designed to prevent incoming orders
from automatically executing at
2 15
3 17
U.S.C. 78a.
CFR 240.19b–4.
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potentially erroneous prices.4 In
particular, the Exchange has Price
Reasonability Checks (‘‘Price Checks’’)
for Limit Orders based on the principle
that an option order is in error and
should be rejected (or canceled) when
the same result can be achieved on the
market for the underlying equity
security at a lesser cost.5 The Price
Checks are based on the consolidated
last sale price of the security underlying
the option, once the security opens for
trading (or reopens following a Trading
Halt).6 The Exchange offers Price
Checks for buy and sell options orders.7
The proposed change relates only to the
Price Checks for sell options orders (i.e.,
the Sell Check).8
Current Rule 967NY(c)(2) sets forth
the current Sell Check, which is
designed to protect sellers of calls and
puts from presumptively erroneous
executions based on the ‘‘Intrinsic
Value’’ of an option. The Intrinsic Value
of an option series is measured as the
difference between the strike price and
the consolidated last sale price. A sell
order in a call series creates an
obligation to sell the underlying security
at the strike price and a sell order in a
put series creates an obligation to buy
the underlying security at the strike
price. Thus, the Intrinsic Value for a call
option is equal to the consolidated last
sale price of the underlying security
minus the strike price; whereas the
Intrinsic Value for a put option is equal
to the strike price minus the
consolidated last sale price of the
underlying security.9 Under the current
Rule, the Exchange rejects or cancels
options Limit Orders to sell a call or to
sell a put if the price of the order is
equal to or lower than its Intrinsic
4 See, e.g., Rules 967NY(a) (trading collars) and
(b) (limit order price filter), Rule 967.1NY(a) (price
protection for Market Maker quotes).
5 A Limit Order is an order to buy or sell a stated
number of option contracts at a specified price, or
better. See Rule 900.3NY(b).
6 See Rule 967NY(c).
7 The Price Checks—or arbitrage checks—for buy
orders operate as follows: Unless otherwise
provided in Commentary .01 of the Rule, the
Exchange rejects or cancels any limit order to buy
a put option if the price of the order is equal to or
greater than the strike price of the option; and, the
Exchange rejects or cancels any limit order to buy
a call option if the price of the order is equal to or
greater than the consolidated last sale price of the
underlying security, plus a dollar amount to be
determined by the Exchange and announced by
Trader Update. See Rule 967NY(c)(1)(A), (B).
8 The proposed rule change would not impact the
securities that are excluded from the Price Checks
per Commentary .01 to the Rule, which currently
are options series for which the underlying security
has a non-standard cash or stock deliverable as part
of a corporate action; options series for which the
underlying security is identified as OTC; option
series on an index; and ByRDs. See Commentary .01
to Rule 967NY.
9 See Rule 967NY(c)(2).
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71019
Value, minus a threshold percentage
(‘‘percentage threshold’’), which is
determined by the Exchange and
announced by Trader Update.10 The
percentage threshold buffer is an
important aspect of the Sell Check
because there may be situations in
which market participants willingly opt
to execute certain trading strategies even
if such trade or trades occur for a price
less than the Intrinsic Value of the
options series.11 Absent this percentage
threshold buffer, application of the Sell
Check could result in the rejection or
cancelation of certain options sell orders
where market participants seek an
execution.
Proposed Low Price Intrinsic Value
Percentage Threshold
The Exchange proposes to modify the
Sell Check to introduce a separate
percentage threshold to better account
for sell orders in options series that are
trading at relatively low prices so as to
avoid such orders potentially being
(incorrectly) rejected or canceled.
Specifically, the Exchange would apply
this modified check to limit orders to
sell when the NBB for the option series
is equal to or below a specified
minimum price, as determined and
announced by the Exchange (the
‘‘Minimum Price’’).12 As proposed, if
the Exchange receives an order to sell a
put or a call in an option series where
the NBB ‘‘is equal to or below the
Minimum Price,’’ such order would be
canceled or rejected ‘‘if the price of the
order is equal to or lower than its
Intrinsic Value, minus a threshold
percentage’’ to be determined by the
Exchange and announced by Trader
Update (the ‘‘Low Price Intrinsic Value
percentage threshold’’).13 The rule text
would also make clear that this Low
Price Intrinsic Value percentage
threshold would be calculated as a
10 See Rule 967NY(c)(2)(A). The percentage
threshold for sell orders is currently set to twentyfive percent (25%). The Exchange refers to this
existing percentage threshold as the ‘‘Regular
Intrinsic Value percentage threshold’’ to
differentiate from the proposed threshold. See
proposed Rule 967NY(c)(2)(A).
11 For example, if the market participant is
looking to close out a position, it may be financially
beneficial to pay a small premium and close out the
position rather than carry such position to
expiration and take delivery. See, e.g., Securities
Exchange Act Release No. 85925 (May 23, 2019), 84
FR 24831, 24832, fn14 (May 30, 2019) (SR–
NYSEAMER–2019–19) (immediately effective filing
implementing Price Checks, including the Sell
Check).
12 See proposed Rule 967NY(c)(2)(A)(i) (providing
that the current Sell Check will apply to orders
‘‘provided the NBB for the option series is greater
than’’ the Minimum Price; otherwise the Low Price
Intrinsic Value percentage threshold would apply).
See also proposed Rule 967NY(c)(2)(A)(i) [sic].
13 See proposed Rule 967NY(c)(2)(A)(i).
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Federal Register / Vol. 84, No. 247 / Thursday, December 26, 2019 / Notices
percentage of the Intrinsic Value.14 The
Exchange believes this proposed
modification would enable the
Exchange to apply a more finely
calibrated Sell Check (i.e., to options
orders trading at or below a certain
price), which is distinct from the
Regular Intrinsic Value percentage
threshold, and should reduce the
possibility of such orders on lowerpriced options being improperly
canceled or rejected.15
As noted above, market participants
may opt to willingly execute trading
strategies regardless of whether the
result is an execution for a price less
than the Intrinsic Value of the options
series. The Low Price Intrinsic Value
percentage threshold is designed to
allow greater flexibility to market
participants submitting sell orders in
option series trading at lower prices.
This would allow participants
additional opportunities to execute
certain orders (rather than reject or
cancel), while still maintaining a
tolerance range. Thus, the proposal
would protect investors by adding
flexibility and sensitivity to the Sell
Check for orders in lower-priced options
and allow the balance of the Price
Checks to continue to operate as
intended.
The following examples illustrate this
proposed functionality.
Assumptions:
• Minimum Price is $1.00.
• (Regular) Intrinsic Value percentage
threshold is 25%.
• Low Price Intrinsic Value
percentage threshold is 100%.
• Series A: XYZ DEC 136 Call.
• XYZ Stock is trading at $136.36.
Example 1: NBBO for Series A: (100)
$2.00 × $3.00 (100).
• The NBB of $2.00 is above the
Minimum Price (i.e., $1.00), thus, the
(Regular) Intrinsic Value percentage
threshold, per Rule 967NY(c)(2)(A),
applies.
• The Intrinsic Value of Series A is
$0.36 ($136.36 ¥ $136.00); and
• The lowest acceptable price for a
sell in Series A is $0.27 (after applying
the 25% percentage threshold ($0.09)).
Example 2: NBBO for Series A: (100)
$0.50 × $3.00 (100).
• The NBB of $0.50 is below the
Minimum Price (i.e., $1.00), thus, the
Low Price Intrinsic Value percentage
threshold, per proposed Rule
967NY(c)(2)(A)(i), applies.
14 See
id.
id. The Exchange anticipates setting the
Minimum Price to $1.00 and the Low Price Intrinsic
Value percentage threshold to one hundred percent
(100%) and whether and when these amounts
change would depend upon the interest and/or
behavior of market participants.
15 See
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• The Intrinsic Value of Series A is
$0.36 ($136.36 ¥ $136.00); and
• The lowest acceptable price for a
sell in Series A is $0.00 (after applying
the 100% percentage threshold ($0.36))
(i.e. there is no intrinsic check in this
case).
ISOs Excluded From Sell Checks
The Exchange also proposes to modify
the Sell Check to exclude any
Intermarket Sweep Order or ISO.16 An
ISO is a Limit Order for an options
series that instructs the Exchange to
execute the order up to the price of its
limit, regardless of the NBBO. An ATP
Holder may submit an ISO to sell only
if it has simultaneously routed one or
more additional ISOs, as necessary, to
execute against the full displayed size of
any better-priced protected quotations
for the options series (i.e., the Protected
Bid), with a price that is superior to the
limit of the ISO.17 Because an ISO is
generally used when trying to sweep a
price level across multiple exchanges in
an effort to post the balance of an order
without locking an away market, the
Exchange believes it is appropriate to
exclude such orders from the Sell Check
so as not to interfere with the intended
functioning of such order type.
Implementation
The Exchange will announce by
Trader Update the implementation date
of the proposed rule change.
2. Statutory Basis
The Exchange believes that its
proposal is consistent with Section 6(b)
of the Act,18 in general, and furthers the
objectives of Section 6(b)(5) of the Act,19
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 regulating, clearing,
settling, processing information with
respect to, and facilitating transactions
in securities, to remove impediments to
and perfect the mechanism of a free and
open market and a national market
system and, in general, to protect
investors and the public interest.
In particular, the Exchange believes
the proposed Sell Check as modified to
account for lower-priced options and to
exclude ISOs would protect investors
and the public interest and maintain fair
and orderly markets by ensuring that
properly entered orders are not
inadvertently rejected or canceled by
16 See
proposed Rule 967NY(c)(2).
Rule 900.3NY(u).
18 15 U.S.C. 78f(b).
19 15 U.S.C. 78f(b)(5).
17 See
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the Exchange. In particular, the Low
Price Intrinsic Value percentage
threshold would allow for better
calibration of the Sell Check (i.e., to
options orders trading at or below a
certain price), which should reduce the
possibility of such orders on lowerpriced options being improperly
canceled or rejected. Under certain
circumstances, market participants may
choose to execute trading strategies
regardless of whether the result is an
execution for a price less than the
Intrinsic Value of the options series. The
Low Price Intrinsic Value percentage
threshold (which is distinct from the
Regular Intrinsic Value percentage
threshold) is designed to allow greater
flexibility to market participants
submitting sell orders in option series
trading at lower prices. This would
allow participants additional
opportunities to execute certain orders
(rather than reject or cancel), while still
maintaining a tolerance range. Thus, the
proposal would promote just and
equitable principles of trade and would
protect investors by adding flexibility
and sensitivity to the Sell Check for
orders in lower-priced options and
allow the balance of the Price Checks to
continue to operate as intended.
In addition, with regard to ISOs, the
Exchange believes it is appropriate to
exclude such orders from the Sell Check
to ensure that the order type (as well as
the Sell Check) operates as intended.
Moreover, modifying the rule to specify
that ISOs would be excluded from the
Sell Check would add clarity and
transparency to Exchange rules.
The Exchange is proposing the
modifications to the Sell Check for the
benefit of, and in consultation with ATP
Holders and believes the proposed rule
change would help to maintain a fair
and orderly market, and provide a
valuable service to investors. In
particular, the proposed changes to the
Sell Check are responsive to member
input regarding certain orders being
erroneously rejected or canceled by the
Sell Check (either an ISO or a sell order
on an option series trading at a
(relatively) low price). This proposal
would thus facilitate transactions in
securities and perfect the mechanism of
a free and open market by providing
ATP Holders with enhanced
functionality that will assist them with
managing their portfolio and risk
profile.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change will impose
any burden on competition that is not
necessary or appropriate in furtherance
E:\FR\FM\26DEN1.SGM
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Federal Register / Vol. 84, No. 247 / Thursday, December 26, 2019 / Notices
of the purposes of the Act. The
proposed rule change enhances the
existing Sell Check for option orders of
all ATP Holders submitted to the
Exchange and is designed to ensure that
properly entered orders are not
inadvertently rejected or canceled by
the Exchange—insofar as the Sell Check
would exclude (and not interfere with
the operation of) ISO orders, and, would
apply a modified/more finely calibrated
percentage threshold to sell orders in
option series trading at a relatively low
price.
The Exchange further believes that
because the proposed rule change
would be applicable to all ATP Holders
it would not impose any burden on
intra-market competition that is not
necessary or appropriate in furtherance
of the purposes of the Act.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
No written comments were solicited
or received with respect to the proposed
rule change.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
khammond on DSKJM1Z7X2PROD with NOTICES
Because the foregoing proposed rule
change does not: (i) Significantly affect
the protection of investors or the public
interest; (ii) impose any significant
burden on competition; and (iii) become
operative for 30 days from the date on
which it was filed, or such shorter time
as the Commission may designate, it has
become effective pursuant to Section
19(b)(3)(A) of the Act 20 and Rule 19b–
4(f)(6) thereunder.21
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 shall institute proceedings
to determine whether the proposed rule
change should be approved or
disapproved.
20 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.
21 17
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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 rule-comments@
sec.gov. Please include File Number SR–
NYSEAMER–2019–56 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–2019–56. 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–2019–56 and
should be submitted on or before
January 16, 2020.22
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2019–27734 Filed 12–23–19; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–87799; File No. SR–CBOE–
2019–124]
Self-Regulatory Organizations; Cboe
Exchange, Inc.; Notice of Filing and
Immediate Effectiveness of a Proposed
Rule Change To Amend Its Fees
Schedule
December 18, 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 December
18, 2019, Cboe Exchange, Inc. (the
‘‘Exchange’’ or ‘‘Cboe Options’’) 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 Exchange.
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
Cboe Exchange, Inc. (the ‘‘Exchange’’
or ‘‘Cboe Options’’) proposes to amend
its Fees Schedule. The text of the
proposed rule change is provided in
Exhibit 5.
The text of the proposed rule change
is also available on the Exchange’s
website (https://www.cboe.com/
AboutCBOE/CBOELegal
RegulatoryHome.aspx), at the
Exchange’s Office of the Secretary, 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
1 15
22 17
PO 00000
CFR 200.30–3(a)(12).
Frm 00094
Fmt 4703
Sfmt 4703
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2 17
E:\FR\FM\26DEN1.SGM
U.S.C. 78s(b)(1).
CFR 240.19b–4.
26DEN1
]]>Agencies
[Federal Register Volume 84, Number 247 (Thursday, December 26, 2019)]
[Notices]
[Pages 71018-71021]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-27734]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-87794; File No. SR-NYSEAMER-2019-56]
Self-Regulatory Organizations; NYSE American LLC; Notice of
Filing and Immediate Effectiveness of Proposed Rule Change to Amend
Rule 967NY (Price Protection--Orders)
December 18, 2019.
Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of
1934
[[Page 71019]]
(``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby given that
on December 5, 2019, NYSE American LLC (``Exchange'') filed with the
Securities and Exchange Commission (``Commission'') the proposed rule
change described in Items I and II 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.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 15 U.S.C. 78a.
\3\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to amend Rule 967NY (Price Protection--
Orders) to modify and enhance certain of its current price protection
mechanisms. 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 Exchange proposes to amend paragraph (c) of Rule 967NY to
modify and enhance its Price Reasonability Checks for options orders to
sell puts or calls (the ``Sell Check''). As proposed, the Exchange
would enhance the Sell Checks applied when the National Best Bid
(``NBB'') is below a specified price and would exclude from the Sell
Check any Intermarket Sweep Orders, both of which changes would allow
for a more finely calibrated Sell Check.
Price Reasonability Checks
The Exchange has in place various price check mechanisms that are
designed to prevent incoming orders from automatically executing at
potentially erroneous prices.\4\ In particular, the Exchange has Price
Reasonability Checks (``Price Checks'') for Limit Orders based on the
principle that an option order is in error and should be rejected (or
canceled) when the same result can be achieved on the market for the
underlying equity security at a lesser cost.\5\ The Price Checks are
based on the consolidated last sale price of the security underlying
the option, once the security opens for trading (or reopens following a
Trading Halt).\6\ The Exchange offers Price Checks for buy and sell
options orders.\7\ The proposed change relates only to the Price Checks
for sell options orders (i.e., the Sell Check).\8\
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\4\ See, e.g., Rules 967NY(a) (trading collars) and (b) (limit
order price filter), Rule 967.1NY(a) (price protection for Market
Maker quotes).
\5\ A Limit Order is an order to buy or sell a stated number of
option contracts at a specified price, or better. See Rule
900.3NY(b).
\6\ See Rule 967NY(c).
\7\ The Price Checks--or arbitrage checks--for buy orders
operate as follows: Unless otherwise provided in Commentary .01 of
the Rule, the Exchange rejects or cancels any limit order to buy a
put option if the price of the order is equal to or greater than the
strike price of the option; and, the Exchange rejects or cancels any
limit order to buy a call option if the price of the order is equal
to or greater than the consolidated last sale price of the
underlying security, plus a dollar amount to be determined by the
Exchange and announced by Trader Update. See Rule 967NY(c)(1)(A),
(B).
\8\ The proposed rule change would not impact the securities
that are excluded from the Price Checks per Commentary .01 to the
Rule, which currently are options series for which the underlying
security has a non-standard cash or stock deliverable as part of a
corporate action; options series for which the underlying security
is identified as OTC; option series on an index; and ByRDs. See
Commentary .01 to Rule 967NY.
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Current Rule 967NY(c)(2) sets forth the current Sell Check, which
is designed to protect sellers of calls and puts from presumptively
erroneous executions based on the ``Intrinsic Value'' of an option. The
Intrinsic Value of an option series is measured as the difference
between the strike price and the consolidated last sale price. A sell
order in a call series creates an obligation to sell the underlying
security at the strike price and a sell order in a put series creates
an obligation to buy the underlying security at the strike price. Thus,
the Intrinsic Value for a call option is equal to the consolidated last
sale price of the underlying security minus the strike price; whereas
the Intrinsic Value for a put option is equal to the strike price minus
the consolidated last sale price of the underlying security.\9\ Under
the current Rule, the Exchange rejects or cancels options Limit Orders
to sell a call or to sell a put if the price of the order is equal to
or lower than its Intrinsic Value, minus a threshold percentage
(``percentage threshold''), which is determined by the Exchange and
announced by Trader Update.\10\ The percentage threshold buffer is an
important aspect of the Sell Check because there may be situations in
which market participants willingly opt to execute certain trading
strategies even if such trade or trades occur for a price less than the
Intrinsic Value of the options series.\11\ Absent this percentage
threshold buffer, application of the Sell Check could result in the
rejection or cancelation of certain options sell orders where market
participants seek an execution.
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\9\ See Rule 967NY(c)(2).
\10\ See Rule 967NY(c)(2)(A). The percentage threshold for sell
orders is currently set to twenty-five percent (25%). The Exchange
refers to this existing percentage threshold as the ``Regular
Intrinsic Value percentage threshold'' to differentiate from the
proposed threshold. See proposed Rule 967NY(c)(2)(A).
\11\ For example, if the market participant is looking to close
out a position, it may be financially beneficial to pay a small
premium and close out the position rather than carry such position
to expiration and take delivery. See, e.g., Securities Exchange Act
Release No. 85925 (May 23, 2019), 84 FR 24831, 24832, fn14 (May 30,
2019) (SR-NYSEAMER-2019-19) (immediately effective filing
implementing Price Checks, including the Sell Check).
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Proposed Low Price Intrinsic Value Percentage Threshold
The Exchange proposes to modify the Sell Check to introduce a
separate percentage threshold to better account for sell orders in
options series that are trading at relatively low prices so as to avoid
such orders potentially being (incorrectly) rejected or canceled.
Specifically, the Exchange would apply this modified check to limit
orders to sell when the NBB for the option series is equal to or below
a specified minimum price, as determined and announced by the Exchange
(the ``Minimum Price'').\12\ As proposed, if the Exchange receives an
order to sell a put or a call in an option series where the NBB ``is
equal to or below the Minimum Price,'' such order would be canceled or
rejected ``if the price of the order is equal to or lower than its
Intrinsic Value, minus a threshold percentage'' to be determined by the
Exchange and announced by Trader Update (the ``Low Price Intrinsic
Value percentage threshold'').\13\ The rule text would also make clear
that this Low Price Intrinsic Value percentage threshold would be
calculated as a
[[Page 71020]]
percentage of the Intrinsic Value.\14\ The Exchange believes this
proposed modification would enable the Exchange to apply a more finely
calibrated Sell Check (i.e., to options orders trading at or below a
certain price), which is distinct from the Regular Intrinsic Value
percentage threshold, and should reduce the possibility of such orders
on lower-priced options being improperly canceled or rejected.\15\
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\12\ See proposed Rule 967NY(c)(2)(A)(i) (providing that the
current Sell Check will apply to orders ``provided the NBB for the
option series is greater than'' the Minimum Price; otherwise the Low
Price Intrinsic Value percentage threshold would apply). See also
proposed Rule 967NY(c)(2)(A)(i) [sic].
\13\ See proposed Rule 967NY(c)(2)(A)(i).
\14\ See id.
\15\ See id. The Exchange anticipates setting the Minimum Price
to $1.00 and the Low Price Intrinsic Value percentage threshold to
one hundred percent (100%) and whether and when these amounts change
would depend upon the interest and/or behavior of market
participants.
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As noted above, market participants may opt to willingly execute
trading strategies regardless of whether the result is an execution for
a price less than the Intrinsic Value of the options series. The Low
Price Intrinsic Value percentage threshold is designed to allow greater
flexibility to market participants submitting sell orders in option
series trading at lower prices. This would allow participants
additional opportunities to execute certain orders (rather than reject
or cancel), while still maintaining a tolerance range. Thus, the
proposal would protect investors by adding flexibility and sensitivity
to the Sell Check for orders in lower-priced options and allow the
balance of the Price Checks to continue to operate as intended.
The following examples illustrate this proposed functionality.
Assumptions:
Minimum Price is $1.00.
(Regular) Intrinsic Value percentage threshold is 25%.
Low Price Intrinsic Value percentage threshold is 100%.
Series A: XYZ DEC 136 Call.
XYZ Stock is trading at $136.36.
Example 1: NBBO for Series A: (100) $2.00 x $3.00 (100).
The NBB of $2.00 is above the Minimum Price (i.e., $1.00),
thus, the (Regular) Intrinsic Value percentage threshold, per Rule
967NY(c)(2)(A), applies.
The Intrinsic Value of Series A is $0.36 ($136.36 -
$136.00); and
The lowest acceptable price for a sell in Series A is
$0.27 (after applying the 25% percentage threshold ($0.09)).
Example 2: NBBO for Series A: (100) $0.50 x $3.00 (100).
The NBB of $0.50 is below the Minimum Price (i.e., $1.00),
thus, the Low Price Intrinsic Value percentage threshold, per proposed
Rule 967NY(c)(2)(A)(i), applies.
The Intrinsic Value of Series A is $0.36 ($136.36 -
$136.00); and
The lowest acceptable price for a sell in Series A is
$0.00 (after applying the 100% percentage threshold ($0.36)) (i.e.
there is no intrinsic check in this case).
ISOs Excluded From Sell Checks
The Exchange also proposes to modify the Sell Check to exclude any
Intermarket Sweep Order or ISO.\16\ An ISO is a Limit Order for an
options series that instructs the Exchange to execute the order up to
the price of its limit, regardless of the NBBO. An ATP Holder may
submit an ISO to sell only if it has simultaneously routed one or more
additional ISOs, as necessary, to execute against the full displayed
size of any better-priced protected quotations for the options series
(i.e., the Protected Bid), with a price that is superior to the limit
of the ISO.\17\ Because an ISO is generally used when trying to sweep a
price level across multiple exchanges in an effort to post the balance
of an order without locking an away market, the Exchange believes it is
appropriate to exclude such orders from the Sell Check so as not to
interfere with the intended functioning of such order type.
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\16\ See proposed Rule 967NY(c)(2).
\17\ See Rule 900.3NY(u).
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Implementation
The Exchange will announce by Trader Update the implementation date
of the proposed rule change.
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\18\ in general, and furthers the objectives of Section
6(b)(5) of the Act,\19\ 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 regulating, clearing, settling,
processing information with respect to, and facilitating transactions
in securities, to remove impediments to and perfect the mechanism of a
free and open market and a national market system and, in general, to
protect investors and the public interest.
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\18\ 15 U.S.C. 78f(b).
\19\ 15 U.S.C. 78f(b)(5).
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In particular, the Exchange believes the proposed Sell Check as
modified to account for lower-priced options and to exclude ISOs would
protect investors and the public interest and maintain fair and orderly
markets by ensuring that properly entered orders are not inadvertently
rejected or canceled by the Exchange. In particular, the Low Price
Intrinsic Value percentage threshold would allow for better calibration
of the Sell Check (i.e., to options orders trading at or below a
certain price), which should reduce the possibility of such orders on
lower-priced options being improperly canceled or rejected. Under
certain circumstances, market participants may choose to execute
trading strategies regardless of whether the result is an execution for
a price less than the Intrinsic Value of the options series. The Low
Price Intrinsic Value percentage threshold (which is distinct from the
Regular Intrinsic Value percentage threshold) is designed to allow
greater flexibility to market participants submitting sell orders in
option series trading at lower prices. This would allow participants
additional opportunities to execute certain orders (rather than reject
or cancel), while still maintaining a tolerance range. Thus, the
proposal would promote just and equitable principles of trade and would
protect investors by adding flexibility and sensitivity to the Sell
Check for orders in lower-priced options and allow the balance of the
Price Checks to continue to operate as intended.
In addition, with regard to ISOs, the Exchange believes it is
appropriate to exclude such orders from the Sell Check to ensure that
the order type (as well as the Sell Check) operates as intended.
Moreover, modifying the rule to specify that ISOs would be excluded
from the Sell Check would add clarity and transparency to Exchange
rules.
The Exchange is proposing the modifications to the Sell Check for
the benefit of, and in consultation with ATP Holders and believes the
proposed rule change would help to maintain a fair and orderly market,
and provide a valuable service to investors. In particular, the
proposed changes to the Sell Check are responsive to member input
regarding certain orders being erroneously rejected or canceled by the
Sell Check (either an ISO or a sell order on an option series trading
at a (relatively) low price). This proposal would thus facilitate
transactions in securities and perfect the mechanism of a free and open
market by providing ATP Holders with enhanced functionality that will
assist them with managing their portfolio and risk profile.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance
[[Page 71021]]
of the purposes of the Act. The proposed rule change enhances the
existing Sell Check for option orders of all ATP Holders submitted to
the Exchange and is designed to ensure that properly entered orders are
not inadvertently rejected or canceled by the Exchange--insofar as the
Sell Check would exclude (and not interfere with the operation of) ISO
orders, and, would apply a modified/more finely calibrated percentage
threshold to sell orders in option series trading at a relatively low
price.
The Exchange further believes that because the proposed rule change
would be applicable to all ATP Holders it would not impose any burden
on intra-market competition that is not necessary or appropriate in
furtherance of the purposes of the Act.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were solicited or received with respect to the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule change does not: (i)
Significantly affect the protection of investors or the public
interest; (ii) impose any significant burden on competition; and (iii)
become operative for 30 days from the date on which it was filed, or
such shorter time as the Commission may designate, it has become
effective pursuant to Section 19(b)(3)(A) of the Act \20\ and Rule 19b-
4(f)(6) thereunder.\21\
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\20\ 15 U.S.C. 78s(b)(3)(A).
\21\ 17 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.
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At any time within 60 days of the filing of the proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act. If the Commission
takes such action, the Commission shall institute proceedings to
determine whether the proposed rule change should be approved or
disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-NYSEAMER-2019-56 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-2019-56. 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-2019-56 and should be submitted
on or before January 16, 2020.\22\
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\22\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2019-27734 Filed 12-23-19; 8:45 am]
BILLING CODE 8011-01-P
