Self-Regulatory Organizations; NYSE American LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Rule 928NY Relating to the Risk Limitation Mechanism, 25482-25485 [2020-09253]

Download as PDF 25482 Federal Register / Vol. 85, No. 85 / Friday, May 1, 2020 / Notices CONTACT PERSON FOR MORE INFORMATION: Michael J. Elston, Secretary of the Board, U.S. Postal Service, 475 L’Enfant Plaza, SW, Washington, DC 20260– 1000. Telephone: (202) 268–4800. Michael J. Elston, Secretary. [FR Doc. 2020–09402 Filed 4–29–20; 11:15 am] BILLING CODE 7710–12–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–88757; File No. SR– NYSEAMER–2020–33] Self-Regulatory Organizations; NYSE American LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Rule 928NY Relating to the Risk Limitation Mechanism April 27, 2020. 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 April 17, 2020, 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 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 928NY (Risk Limitation Mechanism) to reflect modifications to the operation of the trade and trigger counters as well as the applicable time periods for determining if a risk setting is triggered in the event of a trading halt or for transactions at the open in regards to the Risk Limitation Mechanism. The Exchange also proposes to relocate certain text from Rule 928NY to Rule 970NY (Firm Quotes). 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. 1 15 U.S.C. 78s(b)(1). 2 15 U.S.C. 78a. 3 17 CFR 240.19b–4. VerDate Sep<11>2014 08:07 May 01, 2020 Jkt 250001 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 Rule 928NY (Risk Limitation Mechanism) (the ‘‘Rule’’) to reflect modifications to the operation of the trade and trigger counters as well as the applicable time periods for determining if a risk setting is triggered in the event of a trading halt or for transactions at the open in regards to the Risk Limitation Mechanism. The Exchange also proposes to relocate certain text from Rule 928NY to Rule 970NY (Firm Quotes). Risk Limitation Mechanism Rule 928NY sets forth the risklimitation mechanism (the ‘‘Mechanism’’), which is designed to help Market Makers and ATP Holders (collectively ‘‘ATP Holders’’ for the purpose of this filing) better manage risk related to quoting and submitting orders during periods of increased and significant trading activity.4 Specifically, the Mechanism calculates for quotes and orders, respectively: The number of trades executed by the Market Maker or ATP Holder in a particular options class; the volume of contracts traded by the Market Maker or ATP Holder in a particular options class; or the aggregate percentage of the 4 Market Makers are included in the definition of ATP Holders and therefore, unless the Exchange is discussing the quoting activity of Market Makers, the Exchange does not distinguish Market Makers from ATP Holders when discussing the risk limitation mechanisms. See Rule 900.2NY(5) (defining ATP Holder as ‘‘a natural person, sole proprietorship, partnership, corporation, limited liability company or other organization, in good standing, that has been issued an ATP,’’ and requires that ‘‘[a]n ATP Holder must be a registered broker or dealer pursuant to Section 15 of the Securities Exchange Act of 1934’’). See also Rule 900.2NY(38) (providing that a Market Maker is ‘‘an ATP Holder that acts as a Market Maker pursuant to Rule 920NY’’). PO 00000 Frm 00100 Fmt 4703 Sfmt 4703 Market Maker’s quoted size or ATP Holder’s order size(s) executed in a particular options class.5 To determine whether the Mechanism is triggered (i.e., the risk setting breached), the Exchange maintains separate trade counters that are incremented every time a trade is executed; that aggregate the number of contracts traded during each such execution; and that calculate applicable percentages depending on the risk setting at issue.6 A breach of the Mechanism occurs if the number of increments to the trade counter, within a time period specified by the Exchange, exceeds the threshold set by the ATP Holder. Under the current Rule, the applicable time period will not be less than 100 milliseconds.7 Proposed Clarification to Time Period for Triggering of Risk Limitation Mechanism Currently, the timer elapses at the conclusion of the time period specified by the Exchange, unless a breach occurs sooner than the timer expiration. The Exchange proposes to modify this functionality such that the time period is rolling (as opposed to static) and is activated each time a trade counter is incremented such that the Exchange ‘‘looks back’’ at other trades that occurred within the time period specified by the Exchange to see if a breach has occurred (See examples at the end of this section). The Exchange believes this modification will enhance the operation of the timer—and hence the risk protection. The Exchange proposes to modify the Rule to ensure that it is consistent with this proposed functionality change. First, the Exchange proposes to modify the Rule regarding the applicable time period during which the increments of the trade counters are tallied, including, to account for the occurrence of trading halts or transactions occurring at the open of trading in a series. Specifically, the Exchange proposes to modify Commentary .03 to Rule 928NY to provide that the minimum time period determined by the Exchange would be ‘‘inclusive of the duration of any trading halt occurring within that time’’; however, ‘‘[f]or transactions occurring at the open per Rule 952NY, the applicable time period is the lesser of (i) the time between the opening of a series and the initial transaction or (ii) the time period 5 See Rule 928NY(b)–(d) (setting forth the three risk limitation mechanisms available). 6 See Rule 928NY(a). 7 See Commentary .03 to Rule 928NY. E:\FR\FM\01MYN1.SGM 01MYN1 Federal Register / Vol. 85, No. 85 / Friday, May 1, 2020 / Notices specified by the Exchange.’’ 8 The Exchange believes this proposed change adds clarity and transparency to Exchange rules making them easier to comprehend and navigate. The Exchange also proposes to modify Commentary .06 to the Rule, which relates to the operation of trade and trigger counters once the Mechanism is activated. Current Commentary .06 to Rule provides that ‘‘[t]he trade counters will automatically reset and commence a new count for the ATP Holder (1) when a time period specified by the Exchange elapses or, (2) if one of the Risk Limitation Mechanisms is triggered’’, upon the ATP Holder submitting a message to the Exchange to be re-enabled.9 The Exchange proposes to clarify that the trade counters do not reset, per se, when the time period specified by Exchange elapses as the trade counters only commence a new count after a breach of the risk settings upon the ATP Holder’s re-entry to the market. As proposed, modified Commentary .06 to the Rule would provide in relevant part that ‘‘[f]ollowing a breach of any of the Risk Limitation Mechanisms set forth in paragraphs (b), (c) or (d), the trade counters will commence a new count for the ATP Holder’’ upon the ATP Holder submitting a message to the Exchange to be re-enabled.10 Consistent with this change, the Exchange also proposes to modify the rule text regarding the operation of the timer as it relates to the trigger counter.11 As proposed, the Exchange would remove language regarding instances resulting in the automatic reset of the trigger counter and instead state simply that ‘‘[f]ollowing any breach pursuant to Rule 928NY(f), the trigger counter will commence a new count’’ when the ATP Holder submits a request to be reenabled.12 The Exchange believes this proposed clarification adds specificity and transparency to Exchange rules. 8 See proposed Commentary .03 to Rule 928NY. See also Rule 953NY (Trading Halts and Suspensions) and Rule 952NY (Opening Process) 9 See Commentary .06 to Rule 928NY. 10 See proposed Commentary .06 to Rule 928NY. 11 See Commentary .06 to Rule 928NY (providing that ‘‘[a]bsent a breach pursuant to Rule 928NY(f), the trigger counter will automatically reset and commence a new count for the ATP Holder (1) when a time period specified by the Exchange elapses; or (2) following any intraday update to configurable thresholds, as provided in Commentary .03 to this Rule 928NY’’ and that ‘‘[f]ollowing any breach pursuant to Rule 928NY(f), the trigger counter will be reset and commence a new count’’ when the ATP Holder makes nonautomated contact requesting to be re-enabled). 12 See proposed Commentary .06 to Rule 928NY. VerDate Sep<11>2014 08:07 May 01, 2020 Jkt 250001 Examples Illustrating Current and Proposed Functionality Assumptions: The ATP Holder utilizes the transaction-based risk setting for orders with a maximum of three transactions before the setting is breached and the time period announced by the Exchange is 100ms. Current Mechanism: Timer is asynchronous and covers fixed, nonoverlapping periods. Timer starts at 10:10:00.101 (end of fixed period is 10:10:00.201). Event 1: At 10:10:00.150, the ATP Holder trades 10 contracts. —The Exchange determines there was one transaction (Event 1) since start of timer (i.e., 10:10:00.101— 10:10:00.201) = no breach. Event 2: At 10:10:00.190, the ATP Holder trades 15 contracts. —The Exchange determines there were two transactions (Events 1 and 2) since start of timer (i.e., 10:10:00.101–10:10:00.201) = no breach. Timer expires at 10:10:00.201. Timer re-starts at 10:10:00.202 (end of fixed period is 10:10:00.302). Event 3: At 10:10:00.210, the ATP Holder trades 20 contracts. —The Exchange determines there was one transaction (Event 3 since start of timer (i.e., 10:10:00.202— 10:10:00.302) = no breach. Event 4: At 10:10:00.220, the ATP Holder trades 10 contracts. —The Exchange determines there were two transactions (Events 3 and 4) since start of timer (i.e., 10:10:00.202—10:10:00.302) = no breach. Event 5: At 10:10:00.240, the ATP Holder trades 15 contracts. —The Exchange determines there were three transactions (Events 3, 4 and 5) since start of timer (i.e., 10:10:00.202—10:10:00.302) = BREACH. Proposed Mechanism: Timer ‘‘looks back’’ prior 100ms each time a transaction occurs. Event 1: At 10:10:00.150, the ATP Holder trades 10 contracts. —The Exchange determines there was one transaction (Event 1) that occurred in the prior 100ms (i.e., 10:10:00.150–10:10:00.050) = no breach. Event 2: At 10:10:00.190, the ATP Holder trades 15 contracts. —The Exchange determines there were two transactions (Events 1 and 2) that occurred in the prior 100ms (i.e., 10:10:00.190—10:10:00.090) = no breach. Event 3: At 10:10:00.210, the ATP Holder trades 20 contracts. PO 00000 Frm 00101 Fmt 4703 Sfmt 4703 25483 —The Exchange determines there were three transactions (Events 1, 2 and 3) that occurred in the prior 100ms (i.e., 10:10:00.210— 10:10:00.110) = BREACH. Technical Changes Finally, the Exchange also proposes to delete the text located in Commentary .05 to Rule and to hold this Commentary as ‘‘Reserved.’’ 13 Current Commentary .05 to the Rule relates to the Exchange’s dissemination of a best bid and offer when no Market Makers are quoting in a class, which information is irrelevant to the operation of the Mechanism.14 At the time Rule 928NY was implemented, the Exchange noted that it would ‘‘no longer generate two-sided quotes on behalf of a Specialist in the event that there are no Market Makers quoting in an issue’’ but would instead disseminate as the BBO ‘‘the best bids and offers of those orders residing in the Consolidated Book in the issue’’—if such orders existed—or would ‘‘disseminate a bid of zero and an offer of zero in that issue.’’ 15 In retrospect, the Exchange believes that Rule 928NY—which is focused on managing risk not quote dissemination—was not the optimal placement for this information. Instead, the Exchange believes such information would be more appropriately included with information regarding quote dissemination requirements. The Exchange therefore proposes to relocate this text to Rule 970NY (Firm Quotes) as market participants would be more likely to consult this rule (as opposed to Rule 928NY) in regards to quoting information. The Exchange believes the proposed relocation of this text would add clarity and consistency to Exchange rules, making them easier to navigate.16 2. Statutory Basis The Exchange believes that its proposal is consistent with Section 6(b) 13 See proposed Commentary .05 to Rule 928NY. Commentary .05 to Rule 928NY (providing that ‘‘[i]n the event that there are no Market Makers quoting in a class, the best bids and offers of those orders residing in the Consolidated Book in the class will be disseminated as the BBO. If there are no Market Makers quoting in the class and there are no orders in the Consolidated Book in the class, the System shall disseminate a bid of zero and an offer of zero’’). 15 See Securities Exchange Act Release No. 59142 (December 22, 2008), 73 FR 80494, 80498 (December 31, 2008) (SR–NYSEALTR–2008–14) (adopting, among other Section 900NY rules, Rule 928NY). 16 See proposed Rule 970NY(b)(1)(A). The Exchange notes that it proposes the change ‘‘System’’ to ‘‘Exchange’’ regarding the source that disseminates the BBO for consistency with the rest of Rule 970NY. 14 See E:\FR\FM\01MYN1.SGM 01MYN1 25484 Federal Register / Vol. 85, No. 85 / Friday, May 1, 2020 / Notices of the Act,17 in general, and furthers the objectives of Section 6(b)(5) of the Act,18 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. ATP Holders are vulnerable to the risk from a system or other error or a market event that may cause them to send a large number of orders or receive multiple, automatic executions before they can adjust their exposure in the market. Without adequate risk management tools, such as the available risk settings, ATP Holders may opt to reduce the amount of order flow and liquidity that they provide to the market, which could undermine the quality of the markets available to market participants. The Exchange believes that the proposed change would remove impediments to and perfect the mechanism of a free and open market by adding clarity, transparency and specificity regarding the operation of the Mechanism thereby making Exchange rules easier to comprehend and navigate to the benefit of all market participants. The Exchange believes the proposal to modify the time period to a rolling basis (as opposed to static time segments) would remove impediments to and perfect the mechanism of a free and open market and a national market system because it would provide ATP Holders with greater ability to monitor their risk. The proposed change, which allows for a count after each transaction on a rolling ‘‘look back’’ basis, would provide a more finely tuned tracking method for ATP Holders related to each transaction within a specified time period. As such, ATP Holders that use the Mechanism to reduce their risk, particularly in the event of a system issue or due to the occurrence of unusual or unexpected market activity, would have greater certainty of how the Mechanism would function with respect to each transaction. Moreover, the proposed rule change would provide ATP Holders with transparency regarding the manner in which the Exchange counts quotes and orders, which would provide ATP Holders with an increased ability to monitor 17 15 18 15 U.S.C. 78f(b). U.S.C. 78f(b)(5). VerDate Sep<11>2014 08:07 May 01, 2020 Jkt 250001 transactions. Finally, the Exchange believes the proposed change is consistent with risk timers utilized by other options markets that offer similar risk limitation mechanisms.19 The Exchange believes that the nonsubstantive change to Rule 928NY, Commentary.05 (to delete and relocate text) related to quote dissemination requirements from the Rule, which relates to managing risk, to the Firm Quote rule would make Exchange rules easier to navigate, thus adding clarity and transparency to Exchange rules to the benefit of the investing public. 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. Rather, the Exchange believes that the proposed rule change would enhance the Mechanism by providing ATP Holders with greater ability to monitor their risk by providing a more finely tuned tracking method for ATP Holders related to each transaction within a specified time period. In addition, the Exchange does not believe the proposal creates any significant impact on competition as the proposed ‘‘look back’’ time period is consistent with risk timers utilized by other options markets that offer similar risk limitation mechanisms.20 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 19 See, e.g., MIAX Rule 519A, Risk Protection Monitor (providing that, for orders, MIAX utilizes a counter that will ‘‘look back over the specified time period’’ to determine if a market participant has triggered its risk settings) and Rule 612, Aggregate Risk Manager (ARM) (providing that, for quotes, MIAX utilizes a counter that will ‘‘look back over the specified time period’’ to determine if a market maker has triggered its risk settings). 20 See id. (regarding MIAX risk mechanisms for orders and quotes, both of which utilize a counter that ‘‘looks back over the specified time period’’ to determine if risk settings have been triggered). PO 00000 Frm 00102 Fmt 4703 Sfmt 4703 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 A proposed rule change filed pursuant to Rule 19b–4(f)(6) under the Act 23 normally does not become operative for 30 days after the date of its filing. However, Rule 19b–4(f)(6)(iii) 24 permits the Commission to designate a shorter time if such action is consistent with the protection of investors and the public interest. The Exchange has requested that the Commission waive the 30-day operative delay so that the proposed rule change may become operative upon filing. Waiver of the operative delay would allow the Exchange to immediately amend its rules to provide ATP Holders with a more finely tuned tracking method for each transaction within a specified time period, which could provide greater certainty of how the Mechanism would function with respect to each transaction. The Commission believes that waiver of the 30-day operative delay is consistent with the protection of investors and the public interest. Accordingly, the Commission hereby waives the operative delay and designates the proposed rule change operative upon filing.25 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. 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. 23 17 CFR 240.19b–4(f)(6). 24 17 CFR 240.19b–4(f)(6)(iii). 25 For purposes only of waiving the 30-day operative delay, the Commission also has considered the proposed rule’s impact on efficiency, competition, and capital formation. See 15 U.S.C. 78c(f). 22 17 E:\FR\FM\01MYN1.SGM 01MYN1 Federal Register / Vol. 85, No. 85 / Friday, May 1, 2020 / Notices Comments may be submitted by any of the following methods: SECURITIES AND EXCHANGE COMMISSION Electronic Comments [SEC File No. 270–505, OMB Control No. 3235–0562] • 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–2020–33 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–2020–33. 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–2020–33 and should be submitted on or before May 22, 2020. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.26 J. Matthew DeLesDernier, Assistant Secretary. [FR Doc. 2020–09253 Filed 4–30–20; 8:45 am] BILLING CODE 8011–01–P 26 17 CFR 200.30–3(a)(12). VerDate Sep<11>2014 08:07 May 01, 2020 Jkt 250001 Proposed Collection; Comment Request Upon Written Request, Copies Available From: Securities and Exchange Commission, Office of FOIA Services, 100 F Street NE, Washington, DC 20549–2736. Extension: Rule 17d–1. Notice is hereby given that, pursuant to the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et seq.), the Securities and Exchange Commission (‘‘Commission’’) is soliciting comments on the collections of information summarized below. The Commission plans to submit these existing collections of information to the Office of Management and Budget for extension and approval. Section 17(d) (15 U.S.C. 80a–17(d)) of the Investment Company Act of 1940 (15 U.S.C. 80a et seq.) (the ‘‘Act’’) prohibits first- and second-tier affiliates of a fund, the fund’s principal underwriters, and affiliated persons of the fund’s principal underwriters, acting as principal, to effect any transaction in which the fund or a company controlled by the fund is a joint or a joint and several participant in contravention of the Commission’s rules. Rule 17d–1 (17 CFR 270.17d–1) prohibits an affiliated person of or principal underwriter for any fund (a ‘‘first-tier affiliate’’), or any affiliated person of such person or underwriter (a ‘‘second-tier affiliate’’), acting as principal, from participating in or effecting any transaction in connection with a joint enterprise or other joint arrangement in which the fund is a participant, unless prior to entering into the enterprise or arrangement ‘‘an application regarding [the transaction] has been filed with the Commission and has been granted by an order.’’ In reviewing the proposed affiliated transaction, the rule provides that the Commission will consider whether the proposal is (i) consistent with the provisions, policies, and purposes of the Act, and (ii) on a basis different from or less advantageous than that of other participants in determining whether to grant an exemptive application for a proposed joint enterprise, joint arrangement, or profitsharing plan. Rule 17d–1 also contains a number of exceptions to the requirement that a fund must obtain Commission approval prior to entering into joint transactions or arrangements with affiliates. For PO 00000 Frm 00103 Fmt 4703 Sfmt 4703 25485 example, funds do not have to obtain Commission approval for certain employee compensation plans, certain tax-deferred employee benefit plans, certain transactions involving small business investment companies, the receipt of securities or cash by certain affiliates pursuant to a plan of reorganization, certain arrangements regarding liability insurance policies and transactions with ‘‘portfolio affiliates’’ (companies that are affiliated with the fund solely as a result of the fund (or an affiliated fund) controlling them or owning more than five percent of their voting securities) so long as certain other affiliated persons of the fund (e.g., the fund’s adviser, persons controlling the fund, and persons under common control with the fund) are not parties to the transaction and do not have a ‘‘financial interest’’ in a party to the transaction. The rule excludes from the definition of ‘‘financial interest’’ any interest that the fund’s board of directors (including a majority of the directors who are not interested persons of the fund) finds to be not material, as long as the board records the basis for its finding in their meeting minutes. Thus, the rule contains two filing and recordkeeping requirements that constitute collections of information. First, rule 17d–1 requires funds that wish to engage in a joint transaction or arrangement with affiliates to meet the procedural requirements for obtaining exemptive relief from the rule’s prohibition on joint transactions or arrangements involving first- or secondtier affiliates. Second, rule 17d–1 permits a portfolio affiliate to enter into a joint transaction or arrangement with the fund if a prohibited participant has a financial interest that the fund’s board determines is not material and records the basis for this finding in their meeting minutes. These requirements of rule 17d–1 are designed to prevent fund insiders from managing funds for their own benefit, rather than for the benefit of the funds’ shareholders. Based on an analysis of past filings, Commission staff estimates that 23 funds file applications under section 17(d) and rule 17d–1 per year. The staff understands that funds that file an application generally obtain assistance from outside counsel to prepare the application. The cost burden of using outside counsel is discussed below. The Commission staff estimates that each applicant will spend an average of 154 hours to comply with the Commission’s applications process. The Commission staff therefore estimates the annual burden hours per year for all funds under rule 17d–1’s application process to be 3,542 hours at a cost of E:\FR\FM\01MYN1.SGM 01MYN1

Agencies

SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 85, Number 85 (Friday, May 1, 2020)]
[Notices]
[Pages 25482-25485]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-09253]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-88757; File No. SR-NYSEAMER-2020-33]


Self-Regulatory Organizations; NYSE American LLC; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change To Amend 
Rule 928NY Relating to the Risk Limitation Mechanism

April 27, 2020.
    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 April 17, 2020, 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 
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 928NY (Risk Limitation 
Mechanism) to reflect modifications to the operation of the trade and 
trigger counters as well as the applicable time periods for determining 
if a risk setting is triggered in the event of a trading halt or for 
transactions at the open in regards to the Risk Limitation Mechanism. 
The Exchange also proposes to relocate certain text from Rule 928NY to 
Rule 970NY (Firm Quotes). 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 Rule 928NY (Risk Limitation 
Mechanism) (the ``Rule'') to reflect modifications to the operation of 
the trade and trigger counters as well as the applicable time periods 
for determining if a risk setting is triggered in the event of a 
trading halt or for transactions at the open in regards to the Risk 
Limitation Mechanism. The Exchange also proposes to relocate certain 
text from Rule 928NY to Rule 970NY (Firm Quotes).
Risk Limitation Mechanism
    Rule 928NY sets forth the risk-limitation mechanism (the 
``Mechanism''), which is designed to help Market Makers and ATP Holders 
(collectively ``ATP Holders'' for the purpose of this filing) better 
manage risk related to quoting and submitting orders during periods of 
increased and significant trading activity.\4\ Specifically, the 
Mechanism calculates for quotes and orders, respectively: The number of 
trades executed by the Market Maker or ATP Holder in a particular 
options class; the volume of contracts traded by the Market Maker or 
ATP Holder in a particular options class; or the aggregate percentage 
of the Market Maker's quoted size or ATP Holder's order size(s) 
executed in a particular options class.\5\ To determine whether the 
Mechanism is triggered (i.e., the risk setting breached), the Exchange 
maintains separate trade counters that are incremented every time a 
trade is executed; that aggregate the number of contracts traded during 
each such execution; and that calculate applicable percentages 
depending on the risk setting at issue.\6\ A breach of the Mechanism 
occurs if the number of increments to the trade counter, within a time 
period specified by the Exchange, exceeds the threshold set by the ATP 
Holder. Under the current Rule, the applicable time period will not be 
less than 100 milliseconds.\7\
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    \4\ Market Makers are included in the definition of ATP Holders 
and therefore, unless the Exchange is discussing the quoting 
activity of Market Makers, the Exchange does not distinguish Market 
Makers from ATP Holders when discussing the risk limitation 
mechanisms. See Rule 900.2NY(5) (defining ATP Holder as ``a natural 
person, sole proprietorship, partnership, corporation, limited 
liability company or other organization, in good standing, that has 
been issued an ATP,'' and requires that ``[a]n ATP Holder must be a 
registered broker or dealer pursuant to Section 15 of the Securities 
Exchange Act of 1934''). See also Rule 900.2NY(38) (providing that a 
Market Maker is ``an ATP Holder that acts as a Market Maker pursuant 
to Rule 920NY'').
    \5\ See Rule 928NY(b)-(d) (setting forth the three risk 
limitation mechanisms available).
    \6\ See Rule 928NY(a).
    \7\ See Commentary .03 to Rule 928NY.
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Proposed Clarification to Time Period for Triggering of Risk Limitation 
Mechanism
    Currently, the timer elapses at the conclusion of the time period 
specified by the Exchange, unless a breach occurs sooner than the timer 
expiration. The Exchange proposes to modify this functionality such 
that the time period is rolling (as opposed to static) and is activated 
each time a trade counter is incremented such that the Exchange ``looks 
back'' at other trades that occurred within the time period specified 
by the Exchange to see if a breach has occurred (See examples at the 
end of this section). The Exchange believes this modification will 
enhance the operation of the timer--and hence the risk protection. The 
Exchange proposes to modify the Rule to ensure that it is consistent 
with this proposed functionality change.
    First, the Exchange proposes to modify the Rule regarding the 
applicable time period during which the increments of the trade 
counters are tallied, including, to account for the occurrence of 
trading halts or transactions occurring at the open of trading in a 
series. Specifically, the Exchange proposes to modify Commentary .03 to 
Rule 928NY to provide that the minimum time period determined by the 
Exchange would be ``inclusive of the duration of any trading halt 
occurring within that time''; however, ``[f]or transactions occurring 
at the open per Rule 952NY, the applicable time period is the lesser of 
(i) the time between the opening of a series and the initial 
transaction or (ii) the time period

[[Page 25483]]

specified by the Exchange.'' \8\ The Exchange believes this proposed 
change adds clarity and transparency to Exchange rules making them 
easier to comprehend and navigate.
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    \8\ See proposed Commentary .03 to Rule 928NY. See also Rule 
953NY (Trading Halts and Suspensions) and Rule 952NY (Opening 
Process)
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    The Exchange also proposes to modify Commentary .06 to the Rule, 
which relates to the operation of trade and trigger counters once the 
Mechanism is activated. Current Commentary .06 to Rule provides that 
``[t]he trade counters will automatically reset and commence a new 
count for the ATP Holder (1) when a time period specified by the 
Exchange elapses or, (2) if one of the Risk Limitation Mechanisms is 
triggered'', upon the ATP Holder submitting a message to the Exchange 
to be re-enabled.\9\ The Exchange proposes to clarify that the trade 
counters do not reset, per se, when the time period specified by 
Exchange elapses as the trade counters only commence a new count after 
a breach of the risk settings upon the ATP Holder's re-entry to the 
market. As proposed, modified Commentary .06 to the Rule would provide 
in relevant part that ``[f]ollowing a breach of any of the Risk 
Limitation Mechanisms set forth in paragraphs (b), (c) or (d), the 
trade counters will commence a new count for the ATP Holder'' upon the 
ATP Holder submitting a message to the Exchange to be re-enabled.\10\ 
Consistent with this change, the Exchange also proposes to modify the 
rule text regarding the operation of the timer as it relates to the 
trigger counter.\11\ As proposed, the Exchange would remove language 
regarding instances resulting in the automatic reset of the trigger 
counter and instead state simply that ``[f]ollowing any breach pursuant 
to Rule 928NY(f), the trigger counter will commence a new count'' when 
the ATP Holder submits a request to be re-enabled.\12\ The Exchange 
believes this proposed clarification adds specificity and transparency 
to Exchange rules.
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    \9\ See Commentary .06 to Rule 928NY.
    \10\ See proposed Commentary .06 to Rule 928NY.
    \11\ See Commentary .06 to Rule 928NY (providing that ``[a]bsent 
a breach pursuant to Rule 928NY(f), the trigger counter will 
automatically reset and commence a new count for the ATP Holder (1) 
when a time period specified by the Exchange elapses; or (2) 
following any intraday update to configurable thresholds, as 
provided in Commentary .03 to this Rule 928NY'' and that 
``[f]ollowing any breach pursuant to Rule 928NY(f), the trigger 
counter will be reset and commence a new count'' when the ATP Holder 
makes non-automated contact requesting to be re-enabled).
    \12\ See proposed Commentary .06 to Rule 928NY.
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Examples Illustrating Current and Proposed Functionality
    Assumptions: The ATP Holder utilizes the transaction-based risk 
setting for orders with a maximum of three transactions before the 
setting is breached and the time period announced by the Exchange is 
100ms.
    Current Mechanism: Timer is asynchronous and covers fixed, non-
overlapping periods.
    Timer starts at 10:10:00.101 (end of fixed period is 10:10:00.201).

Event 1: At 10:10:00.150, the ATP Holder trades 10 contracts.
    --The Exchange determines there was one transaction (Event 1) since 
start of timer (i.e., 10:10:00.101--10:10:00.201) = no breach.
Event 2: At 10:10:00.190, the ATP Holder trades 15 contracts.
    --The Exchange determines there were two transactions (Events 1 and 
2) since start of timer (i.e., 10:10:00.101-10:10:00.201) = no breach.

Timer expires at 10:10:00.201.
Timer re-starts at 10:10:00.202 (end of fixed period is 10:10:00.302).

Event 3: At 10:10:00.210, the ATP Holder trades 20 contracts.
    --The Exchange determines there was one transaction (Event 3 since 
start of timer (i.e., 10:10:00.202--10:10:00.302) = no breach.
    Event 4: At 10:10:00.220, the ATP Holder trades 10 contracts.
    --The Exchange determines there were two transactions (Events 3 and 
4) since start of timer (i.e., 10:10:00.202--10:10:00.302) = no breach.
Event 5: At 10:10:00.240, the ATP Holder trades 15 contracts.
    --The Exchange determines there were three transactions (Events 3, 
4 and 5) since start of timer (i.e., 10:10:00.202--10:10:00.302) = 
BREACH.

    Proposed Mechanism: Timer ``looks back'' prior 100ms each time a 
transaction occurs.

Event 1: At 10:10:00.150, the ATP Holder trades 10 contracts.
    --The Exchange determines there was one transaction (Event 1) that 
occurred in the prior 100ms (i.e., 10:10:00.150-10:10:00.050) = no 
breach.
Event 2: At 10:10:00.190, the ATP Holder trades 15 contracts.
    --The Exchange determines there were two transactions (Events 1 and 
2) that occurred in the prior 100ms (i.e., 10:10:00.190--10:10:00.090) 
= no breach.
Event 3: At 10:10:00.210, the ATP Holder trades 20 contracts.
    --The Exchange determines there were three transactions (Events 1, 
2 and 3) that occurred in the prior 100ms (i.e., 10:10:00.210--
10:10:00.110) = BREACH.

Technical Changes
    Finally, the Exchange also proposes to delete the text located in 
Commentary .05 to Rule and to hold this Commentary as ``Reserved.'' 
\13\ Current Commentary .05 to the Rule relates to the Exchange's 
dissemination of a best bid and offer when no Market Makers are quoting 
in a class, which information is irrelevant to the operation of the 
Mechanism.\14\ At the time Rule 928NY was implemented, the Exchange 
noted that it would ``no longer generate two-sided quotes on behalf of 
a Specialist in the event that there are no Market Makers quoting in an 
issue'' but would instead disseminate as the BBO ``the best bids and 
offers of those orders residing in the Consolidated Book in the 
issue''--if such orders existed--or would ``disseminate a bid of zero 
and an offer of zero in that issue.'' \15\ In retrospect, the Exchange 
believes that Rule 928NY--which is focused on managing risk not quote 
dissemination--was not the optimal placement for this information. 
Instead, the Exchange believes such information would be more 
appropriately included with information regarding quote dissemination 
requirements. The Exchange therefore proposes to relocate this text to 
Rule 970NY (Firm Quotes) as market participants would be more likely to 
consult this rule (as opposed to Rule 928NY) in regards to quoting 
information. The Exchange believes the proposed relocation of this text 
would add clarity and consistency to Exchange rules, making them easier 
to navigate.\16\
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    \13\ See proposed Commentary .05 to Rule 928NY.
    \14\ See Commentary .05 to Rule 928NY (providing that ``[i]n the 
event that there are no Market Makers quoting in a class, the best 
bids and offers of those orders residing in the Consolidated Book in 
the class will be disseminated as the BBO. If there are no Market 
Makers quoting in the class and there are no orders in the 
Consolidated Book in the class, the System shall disseminate a bid 
of zero and an offer of zero'').
    \15\ See Securities Exchange Act Release No. 59142 (December 22, 
2008), 73 FR 80494, 80498 (December 31, 2008) (SR-NYSEALTR-2008-14) 
(adopting, among other Section 900NY rules, Rule 928NY).
    \16\ See proposed Rule 970NY(b)(1)(A). The Exchange notes that 
it proposes the change ``System'' to ``Exchange'' regarding the 
source that disseminates the BBO for consistency with the rest of 
Rule 970NY.
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2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b)

[[Page 25484]]

of the Act,\17\ in general, and furthers the objectives of Section 
6(b)(5) of the Act,\18\ 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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    \17\ 15 U.S.C. 78f(b).
    \18\ 15 U.S.C. 78f(b)(5).
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    ATP Holders are vulnerable to the risk from a system or other error 
or a market event that may cause them to send a large number of orders 
or receive multiple, automatic executions before they can adjust their 
exposure in the market. Without adequate risk management tools, such as 
the available risk settings, ATP Holders may opt to reduce the amount 
of order flow and liquidity that they provide to the market, which 
could undermine the quality of the markets available to market 
participants. The Exchange believes that the proposed change would 
remove impediments to and perfect the mechanism of a free and open 
market by adding clarity, transparency and specificity regarding the 
operation of the Mechanism thereby making Exchange rules easier to 
comprehend and navigate to the benefit of all market participants.
    The Exchange believes the proposal to modify the time period to a 
rolling basis (as opposed to static time segments) would remove 
impediments to and perfect the mechanism of a free and open market and 
a national market system because it would provide ATP Holders with 
greater ability to monitor their risk. The proposed change, which 
allows for a count after each transaction on a rolling ``look back'' 
basis, would provide a more finely tuned tracking method for ATP 
Holders related to each transaction within a specified time period. As 
such, ATP Holders that use the Mechanism to reduce their risk, 
particularly in the event of a system issue or due to the occurrence of 
unusual or unexpected market activity, would have greater certainty of 
how the Mechanism would function with respect to each transaction. 
Moreover, the proposed rule change would provide ATP Holders with 
transparency regarding the manner in which the Exchange counts quotes 
and orders, which would provide ATP Holders with an increased ability 
to monitor transactions. Finally, the Exchange believes the proposed 
change is consistent with risk timers utilized by other options markets 
that offer similar risk limitation mechanisms.\19\
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    \19\ See, e.g., MIAX Rule 519A, Risk Protection Monitor 
(providing that, for orders, MIAX utilizes a counter that will 
``look back over the specified time period'' to determine if a 
market participant has triggered its risk settings) and Rule 612, 
Aggregate Risk Manager (ARM) (providing that, for quotes, MIAX 
utilizes a counter that will ``look back over the specified time 
period'' to determine if a market maker has triggered its risk 
settings).
---------------------------------------------------------------------------

    The Exchange believes that the non-substantive change to Rule 
928NY, Commentary.05 (to delete and relocate text) related to quote 
dissemination requirements from the Rule, which relates to managing 
risk, to the Firm Quote rule would make Exchange rules easier to 
navigate, thus adding clarity and transparency to Exchange rules to the 
benefit of the investing public.

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. Rather, the Exchange 
believes that the proposed rule change would enhance the Mechanism by 
providing ATP Holders with greater ability to monitor their risk by 
providing a more finely tuned tracking method for ATP Holders related 
to each transaction within a specified time period. In addition, the 
Exchange does not believe the proposal creates any significant impact 
on competition as the proposed ``look back'' time period is consistent 
with risk timers utilized by other options markets that offer similar 
risk limitation mechanisms.\20\
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    \20\ See id. (regarding MIAX risk mechanisms for orders and 
quotes, both of which utilize a counter that ``looks back over the 
specified time period'' to determine if risk settings have been 
triggered).
---------------------------------------------------------------------------

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\
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    \21\ 15 U.S.C. 78s(b)(3)(A).
    \22\ 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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    A proposed rule change filed pursuant to Rule 19b-4(f)(6) under the 
Act \23\ normally does not become operative for 30 days after the date 
of its filing. However, Rule 19b-4(f)(6)(iii) \24\ permits the 
Commission to designate a shorter time if such action is consistent 
with the protection of investors and the public interest. The Exchange 
has requested that the Commission waive the 30-day operative delay so 
that the proposed rule change may become operative upon filing. Waiver 
of the operative delay would allow the Exchange to immediately amend 
its rules to provide ATP Holders with a more finely tuned tracking 
method for each transaction within a specified time period, which could 
provide greater certainty of how the Mechanism would function with 
respect to each transaction. The Commission believes that waiver of the 
30-day operative delay is consistent with the protection of investors 
and the public interest. Accordingly, the Commission hereby waives the 
operative delay and designates the proposed rule change operative upon 
filing.\25\
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    \23\ 17 CFR 240.19b-4(f)(6).
    \24\ 17 CFR 240.19b-4(f)(6)(iii).
    \25\ For purposes only of waiving the 30-day operative delay, 
the Commission also has considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act. If the Commission 
takes such action, the 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.

[[Page 25485]]

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-2020-33 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-2020-33. 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-2020-33 and should be submitted 
on or before May 22, 2020.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\26\
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    \26\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-09253 Filed 4-30-20; 8:45 am]
BILLING CODE 8011-01-P

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