Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing of Proposed Rule Change to Amend Rule 6.87-O, 60926-60930 [2021-24018]
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Federal Register / Vol. 86, No. 211 / Thursday, November 4, 2021 / Notices
submissions should refer to File
Number SR–MIAX–2021–52 and should
be submitted on or before November 26,
2021.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.18
J. Matthew DeLesDernier,
Assistant Secretary.
Vanessa A. Countryman from the Office
of the Secretary at (202) 551–5400.
Authority: 5 U.S.C. 552b.
Dated: November 2, 2021.
Vanessa A. Countryman,
Secretary.
[FR Doc. 2021–24222 Filed 11–2–21; 4:15 pm]
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[FR Doc. 2021–24012 Filed 11–3–21; 8:45 am]
BILLING CODE 8011–01–P
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TIME AND DATE:
Self-Regulatory Organizations; NYSE
Arca, Inc.; Notice of Filing of Proposed
Rule Change to Amend Rule 6.87–O
October 29, 2021.
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 October
20, 2021, NYSE Arca, Inc. (‘‘NYSE
Arca’’ or the ‘‘Exchange’’) filed with the
Securities and Exchange Commission
(the ‘‘Commission’’) the proposed rule
change as described in Items I, II, and
III below, which Items have been
prepared by the self-regulatory
organization. The Commission is
publishing this notice to solicit
comments on the proposed rule change
from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to amend
Rule 6.87–O to improve the operation of
the Rule. The proposed 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.
15 U.S.C. 78s(b)(1).
15 U.S.C. 78a.
3 17 CFR 240.19b 4.
1
2
18 17
CFR 200.30–3(a)(12).
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A. Self-Regulatory Organization’s
Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The purpose of this rule change is to
amend Rule 6.87–O ‘‘Nullification and
Adjustment of Options Transactions
including Obvious Errors’’ to improve
the operation of the Rule. Following
discussions with other exchanges and a
cross-section of industry participants
and in coordination with the Listed
Options Market Structure Working
Group (‘‘LOMSWG’’) (collectively, the
‘‘Industry Working Group’’), the
Exchange proposes: (1) To amend
section (b)(3) of the Rule to permit the
Exchange to determine the Theoretical
Price of a Customer option transaction
in a wide market so long as a narrow
market exists at any point during the 10second period after an opening or reopening; and (2) to amend section
(c)(4)(B) of the Rule to adjust, rather
than nullify, Customer transactions in
Obvious Error situations, provided the
adjustment does not violate the limit
price. The Exchange understands that
upon approval of this proposal, other
options exchanges will also submit
substantively identical proposals to the
Commission.
Proposed Change to Section (b)(3)
Rule 6.87–O has been part of various
harmonization efforts by the Industry
Working Group.4 These efforts have
often centered around the Theoretical
Price for which an options transaction
should be compared to determine
whether an Obvious Error has occurred.
For instance, all options exchanges have
adopted language comparable to
Commentary .06,5 which explains how
an exchange is to determine Theoretical
Price at the open, when there are no
valid quotes, and when there is a wide
quote. This includes at times the use of
a singular third-party vendor, known as
a TP Provider (currently CBOE Livevol,
LLC).
Similarly, section (b)(3) of Rule 6.87–
O was previously harmonized across all
options exchanges to handle situations
where executions occur in markets that
are wide (as set forth in the rule).6
Under that section, the Exchange
4 See, e.g., Securities Exchange Act Release Nos.
74921 (May 8, 2015), 80 FR 27747 (May 14, 2015)
(SR–NYSEArca-2015–41); 80496 (April 20, 2017),
82 FR 19282 (April 26, 2017) (SR–NYSEArca-2017–
42).
5 See, e.g., Securities Exchange Act Release No.
81580 (September 12, 2017), 82 FR 43578
(September 18, 2017) (SR–NYSEArca-2017–101).
6 See, e.g., Securities Exchange Act Release No.
74921 (May 8, 2015), 80 FR 27747 (May 14, 2015)
(SR–NYSEArca–2015–41).
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determines the Theoretical Price if the
NBBO for the subject series is wide
immediately before execution and a
narrow market (as set forth in the rule)
existed ‘‘during the 10 seconds prior to
the transaction.’’ The rule goes on to
clarify that, should there be no narrow
quotes ‘‘during the 10 seconds prior to
the transaction,’’ the Theoretical Price
for the affected series is the NBBO that
existed at the time of execution
(regardless of its width).
In recent discussions, the Industry
Working Group has identified proposed
changes to section (b)(3) of Rule 6.87–
O that would improve the Rule’s
functioning. Currently, section (b)(3)
does not permit the Exchange to
determine the Theoretical Price unless
there is a narrow quote 10 seconds prior
to the transaction. However, in the first
seconds of trading, there is no 10second period ‘‘prior to the
transaction.’’ Further, the Industry
Working Group has observed that prices
in certain series can be disjointed at the
start of trading. Accordingly, the
Exchange proposes to provide
additional protections to trading in
certain circumstances immediately after
the opening before liquidity has had a
chance to enter the market. The
Exchange proposes to amend section
(b)(3) to allow the Exchange to
determine the Theoretical Price in a
wide market so long as a narrow market
exists at any point during the 10-second
period after an opening or re-opening.
Specifically, the Exchange proposes
that the existing text of section (b)(3)
would become sub-section ‘‘A.’’ The
Exchange proposes to add the following
heading and text as sub-section ‘‘B.’’:
B. Customer Transactions Occurring
Within 10 Seconds or less After an Opening
or Re-Opening:
(i) The Exchange will determine the
Theoretical Price if the bid/ask differential of
the NBB and NBO for the affected series just
prior to the Customer’s erroneous transaction
was equal to or greater than the Minimum
Amount set forth in paragraph A above and
there was a bid/ask differential less than the
Minimum Amount during the 10 seconds
prior to the transaction.
(ii) If there was no bid/ask differential less
than the Minimum Amount during the 10
seconds prior to the transaction, then the
Exchange will determine the Theoretical
Price if the bid/ask differential of the NBB
and NBO for the affected series just prior to
the Customer’s erroneous transaction was
equal to or greater than the Minimum
Amount set forth in paragraph A above and
there was a bid/ask differential less than the
Minimum Amount anytime during the 10
seconds after an opening or re-opening.
(iii) If there was no bid/ask differential less
than the Minimum Amount during the 10
seconds following an Opening or ReOpening, then the Theoretical Price of an
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option series is the last NBB or NBO just
prior to the Customer transaction in question,
as set forth in paragraph (b) above.
(iv) Customer transactions occurring more
than 10 seconds after an opening or reopening are subject to paragraph A above.
The following examples illustrate the
functioning of the proposed rule change.
Consider that the NBBO of a series
opens as $0.01 at $4.00. A marketable
limit order to buy one contract arrives
one second later and is executed at
$4.00. In the third second of trading, the
NBBO narrows from $0.01 at $4.00 to
$2.00 at $2.10. While the execution
occurred in a market with wide widths,
there was no tight market within the 10
seconds prior to execution. Accordingly,
under the current rule, the trade would
not qualify for obvious error review, in
part due to the fact that there was only
a single second of trading before the
execution. Under the proposal, since a
tight market existed at some point in the
first 10 seconds of trading (i.e., in the
third second), the Exchange would be
able to determine the Theoretical Price
as provided in Commentary .06.
As another example, the NBBO for a
series opens as $0.01 at $4.00. In the
seventh second of trading, a marketable
limit order is received to buy one
contract and is executed at $4.00. Five
seconds later (i.e., in the twelfth second
of trading), the NBBO narrows from
$0.01 at $4.00 to $2.00 at $2.10. While
the execution occurred in a market with
wide widths, there was no tight market
within 10 seconds prior to execution.
Accordingly, under the current rule, the
trade would not qualify for obvious
error review. Under the proposal, since
no tight market existed at any point
during the first 10 seconds of trading
(i.e., the narrow market occurred in the
twelfth second), the trade would not
qualify for obvious error review.
The proposed rule change would also
better harmonize section (b)(3) with
section (b)(1) of the Rule. Under section
(b)(1), the Exchange is permitted to
determine the Theoretical Price for
transactions occurring as part of the
opening auction process (as defined in
Rule 6.64–O) if there is no NBB or NBO
for the affected series just prior to the
erroneous transaction. However, under
the current version of section (b)(3), a
core trading transaction could occur in
the same wide market but the Exchange
would not be permitted to determine the
Theoretical Price. Consider an example
where one second after the Exchange
opens a selected series, the NBBO is
$1.00 at $5.00. At 9:30:03, a customer
submits a marketable buy order to the
Exchange and pays $5.00. At 9:30:03, a
different exchange runs an opening
auction that results in a customer
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60927
paying $5.00 for the same selected
series. At 9:30:06, the NBBO changes
from $1.00 at $5.00 to $1.35 at $1.45.
Under the current version of section
(b)(3), the Exchange would not be able
to determine the Theoretical Price for
the trade occurring during core trading.
However, the trade on the other
exchange could be submitted for review
under (b)(1) and that exchange would be
able to determine the Theoretical Price.
If the proposed change to section (b)(3)
were approved, both of the trades
occurring at 9:30:03 (on the Exchange
during core trading and on another
exchange via auction) would also be
entitled to the same review regarding
the same Theoretical Price based upon
the same time.
The proposal would not change any
obvious error review beyond the first 10
seconds of an opening or re-opening.
Proposed Change to Section (c)(4)(B)
The Exchange proposes to amend
section (c)(4)(B)—the ‘‘Adjust or Bust’’
rule for Customer transactions in
Obvious Error situations—to adjust
rather than nullify such orders,
provided the adjustment does not
violate the Customer’s limit price.
Currently, the Rule provides that in
Obvious Error situations, transactions
involving non-Customers should be
adjusted, while transactions involving
Customers are nullified, unless a certain
condition applies.7 The Industry
Working Group has concluded that the
treatment of these transactions should
be harmonized under the Rule, such
that transactions involving Customers
may benefit from adjustment, just as
non-Customer transactions currently do,
except where such adjustment would
violate the Customer’s limit price; in
that instance, the trade would be
nullified.
Specifically, the Exchange proposes to
amend the text of section (c)(4)(B) to
add that where at least one party to the
Obvious Error is a Customer, ‘‘the
execution price of the transaction will
be adjusted by the Official pursuant to
the table immediately above. Any
Customer Obvious Error exceeding 50
contracts will be subject to the Size
Adjustment Modifier defined in subparagraph (a)(4) above. However, if such
adjustment(s) would result in an
execution price higher (for buy
7 Specifically, the current Rule provides at
section (c)(4)(C) that if an OTP Holder has 200 or
more Customer transactions under review
concurrently and the orders resulting in such
transactions were submitted during the course of 2
minutes or less, where at least one party to the
Obvious Error is a non-Customer, then the
Exchange will apply the non-Customer adjustment
criteria found in section (c)(4)(A).
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Federal Register / Vol. 86, No. 211 / Thursday, November 4, 2021 / Notices
transactions) or lower (for sell
transactions) than the Customer’s limit
price,’’ the trade will be nullified. The
‘‘table immediately above’’ referenced in
the proposed text refers to the table at
current Section (c)(4)(A), which
provides for the adjustment of prices a
specified amount away from the
Theoretical Price, rather than adjusting
the Theoretical Price.
The Exchange proposes no other
changes at this time.
lotter on DSK11XQN23PROD with NOTICES1
Implementation Date
The Exchange will announce the
effective date of the proposed changes
in a Trader Update distributed to all
OTP Holders and OTP Firms. The
effective date will be no sooner than six
months from the approval of this
proposal.
2. Statutory Basis
The Exchange believes that its
proposal is consistent with Section 6(b)
of the Act,8 in general, and furthers the
objectives of Section 6(b)(5) of the Act,9
in particular, because 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 and
because it is not designed to permit
unfair discrimination between
customers, issuers, brokers, or dealers.
The Exchange believes that the
proposed change to section (b)(3) of the
Rule would remove impediments to and
perfect the mechanism of a free and
open market and a national market
system, and, in general, protect
investors and the public interest
because it provides a method for
addressing Obvious Error Customer
transactions that occur in a wide market
at the opening of trading. Generally, a
wide market is an indication of a lack
of liquidity in the market such that the
market is unreliable. Current section
(b)(3) recognizes that a persistently wide
quote (i.e., more than 10 seconds)
should be considered the reliable
market regardless of its width, but does
not address transactions that occur in a
wide market in the first seconds of
trading, where there is no preceding 10second period to reference. Accordingly,
in the first 10 seconds of trading, there
8 15
9 15
U.S.C. 78f(b).
U.S.C. 78f(b)(5).
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is no opportunity for a wide quote to
have persisted for a sufficiently lengthy
period such that the market should
consider it a reliable market for the
purposes of determining an Obvious
Error transaction.
The proposed change would rectify
this disparity and permit the Exchange
to consider whether a narrow quote is
present at any time during the 10second period after an opening or reopening. The presence of such a narrow
quote would indicate that the market
has gained sufficient liquidity and that
the previous wide market was
unreliable, such that it would be
appropriate for the Exchange to
determine the Theoretical Price of an
Obvious Error transaction. In this way,
the proposed rule harmonizes the
treatment of Customer transactions that
execute in an unreliable market at any
point of the trading day, by making
them uniformly subject to Exchange
determination of the Theoretical Price.
The Exchange believes that the
proposed change to section (c)(4)(B) of
the Rule would remove impediments to
and perfect the mechanism of a free and
open market and a national market
system and enhance the protection of
investors by harmonizing the treatment
of non-Customer transactions and
Customer transactions under the Rule.
Under the current Rule, Obvious Error
situations involving non-Customer
transactions are adjusted, while those
involving Customer transactions are
generally nullified, unless they meet the
additional requirements of section
(c)(4)(C) (i.e., where an OTP Holder has
200 or more Customer transactions
under review concurrently and the
orders resulting in such transactions
were submitted during the course of 2
minutes or less). The proposal would
harmonize the treatment of nonCustomer and Customer transactions by
providing for the adjustment of all such
transactions, except where such
adjustment would violate the
Customer’s limit price.
When it proposed the current rule in
2015, the Exchange believed there were
sound reasons for treating non-Customer
transactions and Customer transactions
differently. At the time, the Exchange
stated its belief that ‘‘Customers are not
necessarily immersed in the day-to-day
trading of the markets, are less likely to
be watching trading activity in a
particular option throughout the day,
and may have limited funds in their
trading accounts,’’ and that nullifying
Obvious Error transactions involving
Customers would give Customers
‘‘greater protections’’ than adjusting
such transactions by eliminating the
possibility that a Customer’s order will
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be adjusted to a significantly different
price. The Exchange also noted its belief
that ‘‘Customers are . . . less likely to
have engaged in significant hedging or
other trading activity based on earlier
transactions, and thus, are less in need
of maintaining a position at an adjusted
price than non-Customers.’’ 10
Those assumptions about Customer
trading and hedging activity no longer
hold. The Exchange and the Industry
Working Group believe that over the
course of the last five years, Customers
that use options have become more
sophisticated, as retail broker-dealers
have enhanced the trading tools
available. Pursuant to OCC data,
volumes clearing in the Customer range
have expanded from 12,022,163 ADV in
2015 to 35,081,130 ADV in 2021. This
increase in trading activity underscores
the greater understanding of options by
Customers as a trading tool and its use
in the markets. Customers who trade
options today largely are more educated,
have better trading tools, and have
better access to financial news than any
time prior.11 The proposed rule would
extend the hedging protections
currently enjoyed by non-Customers to
Customers, by allowing them to
maintain an option position at an
adjusted price, which would in turn
prevent a cascading effect by
maintaining the hedge relationship
between the option transaction and any
other transactions in a related security.
The Exchange believes that extending
such hedging protections to Customer
transactions would remove
impediments to and perfect the
mechanism of a free and open market
and a national market system and
enhance the protection of investors by
providing greater certainty of execution
for all participants to options
transactions. Under the current Rule, a
Customer that believes its transaction
was executed pursuant to an Obvious
Error may be disincentivized from
submitting the transaction for review,
since during the review process, the
Customer would be uncertain whether
the trade would be nullified, and if so,
whether market conditions would still
permit the opportunity to execute a
related order at a better price after the
nullification ruling is finalized. In
contrast, under the proposed rule, the
Customer would know that the only
likely outcomes of submitting a trade to
Obvious Error review would be that the
10 Securities Exchange Act Release No. 74921
(May 9, 2015), 80 FR 27747, 27761 (May 14, 2015)
(SR–NYSEArca–2015–41).
11 See ‘‘Retail Traders Adopt Options En Masse’’
by Dan Raju, available at https://www.nasdaq.com/
articles/retail-traders-adopt-options-en-masse-202012-08.
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Federal Register / Vol. 86, No. 211 / Thursday, November 4, 2021 / Notices
trade would stand or be re-executed at
a better price; the trade would only be
nullified if the adjustment would violate
the order’s limit. Similarly, under the
current Rule, during the review period,
a market maker who traded contra to the
Customer would be uncertain if it
should retain any position executed to
hedge the original trade, or attempt to
unwind it, possibly at a significant loss.
Under the proposed rule change, this
uncertainty is largely eliminated, and
the question would be whether the
already-executed and hedged trade
would be adjusted to a better price for
the Customer, or if it would stand as
originally executed. In this way, the
proposed rule enhances the protection
of investors and removes impediments
to and perfects the mechanism of a free
and open market and a national market
system.
The proposed rule also addresses the
concern the Exchange cited in its 2015
filing that adjusting, rather than
nullifying, Customer transactions could
lead to a Customer’s order being
adjusted to a significantly different
price. To address that concern, the
proposed rule would prevent Customer
transactions from being adjusted to a
price that violates the order’s limit; if
the adjustment would violate a
Customer’s limit, the trade would
instead be nullified. The Exchange
believes it is in the best interest of
investors to expand the availability of
adjustments to Customer transactions in
all Obvious Error situations except
where the adjustment would violate the
Customer’s limit price.
Further, the Exchange believes that,
with respect to such proposed
adjustments to Customer transactions, it
is appropriate to use the same form of
adjustment as is currently in place with
respect to non-Customer transactions as
laid out in the table in section (c)(4)(A).
That is, the Exchange believes that it is
appropriate to adjust to prices a
specified amount away from the
Theoretical Price rather than to adjust
the Theoretical Price, even though the
Exchange has determined a given trade
to be erroneous in nature, because the
parties in question should have had
some expectation of execution at the
price or prices submitted. Also, it is
common that by the time it is
determined that an Obvious Error has
occurred, additional hedging and
trading activity has already occurred
based on the executions that previously
happened. The Exchange believes that
providing an adjustment to the
Theoretical Price in all cases would not
appropriately incentivize market
participants to maintain appropriate
controls to avoid potential errors, while
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60929
adjusting to prices a specified amount
away from the Theoretical Price would
incentivize such behavior.
The Exchange believes that the
proposal is not designed to permit
unfair discrimination between
customers, issuers, brokers, or dealers.
The proposed change to section (b)(3)
would apply to all instances of a wide
market occurring within the first 10
seconds of trading followed by a narrow
market at any point in the subsequent
10-second period, regardless of the
types of market participants involved in
such transactions. The proposed change
to section (c)(4)(B) would harmonize the
treatment of Obvious Error transactions
involving Customers and nonCustomers, no matter what type of
market participants those parties may
be.
For these reasons, the Exchange
believes that the proposal is consistent
with the Act.
IV. Solicitation of Comments
B. Self-Regulatory Organization’s
Statement on Burden on Competition
All submissions should refer to File
Number SR–NYSEArca–2021–91. 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–2021–91 and
should be submitted on or before
November 26, 2021.
The Exchange believes that the
proposal will not impose any burden on
competition that is not necessary or
appropriate in furtherance of the
purposes of Section 6(b)(8) of the Act.12
The Exchange anticipates that the other
options exchanges will adopt
substantively similar proposals, such
that there would be no burden on
intermarket competition from the
Exchange’s proposal. Accordingly, the
proposed change is not meant to affect
competition among the options
exchanges. For these reasons, the
Exchange believes that the proposed
rule change reflects this competitive
environment and does not impose any
undue burden on intermarket
competition.
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
Within 45 days of the date of
publication of this notice in the Federal
Register or up to 90 days.
(A) By order approve or disapprove
the proposed rule change, or
(B) institute proceedings to determine
whether the proposed rule change
should be disapproved.
12 15
PO 00000
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–
NYSEArca–2021–91 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.
U.S.C. 78f(b)(8).
Frm 00139
Fmt 4703
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E:\FR\FM\04NON1.SGM
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60930
Federal Register / Vol. 86, No. 211 / Thursday, November 4, 2021 / Notices
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.13
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021–24018 Filed 11–3–21; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–93467; File No. SR–
NASDAQ–2021–083]
Self-Regulatory Organizations; The
Nasdaq Stock Market LLC; Notice of
Filing and Immediate Effectiveness of
Proposed Rule Change To Exempt
Certain Categories of Investment
Companies Registered Under the
Investment Company Act of 1940 From
the Requirements To Obtain
Shareholder Approval Prior to the
Issuance of Securities in Connection
With Acquisitions of the Stock or
Assets of an Affiliated Registered
Investment Company Under Certain
Conditions
October 29, 2021.
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 October
21, 2021, The Nasdaq Stock Market LLC
(‘‘Nasdaq’’ or ‘‘Exchange’’) filed with the
Securities and Exchange Commission
(the ‘‘Commission’’) the proposed rule
change as described in Items I and II
below, which Items have been prepared
by the Exchange. The Commission is
publishing this notice to solicit
comments on the proposed rule change
from interested persons.
lotter on DSK11XQN23PROD with NOTICES1
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to exempt
certain categories of investment
companies registered under the
Investment Company Act of 1940 (the
‘‘1940 Act’’) from the requirement to
obtain shareholder approval prior to the
issuance of securities in connection
with certain acquisitions of the stock or
assets of another company.
The text of the proposed rule change
is available on the Exchange’s website at
https://listingcenter.nasdaq.com/
rulebook/nasdaq/rules, at the principal
office of the Exchange, and at the
Commission’s Public Reference Room.
13 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b 4.
1 15
VerDate Sep<11>2014
17:57 Nov 03, 2021
Jkt 256001
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange included statements
concerning the purpose of and basis for
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. The
Exchange has prepared summaries, set
forth in sections A, B, and C below, of
the most significant aspects of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The Exchange proposes to amend
Nasdaq Rule 5615 to exempt certain
categories of investment companies
registered under the 1940 Act from the
requirement to obtain shareholder
approval prior to the issuance of
securities in connection with certain
acquisitions of the stock or assets of
another company. The proposal is
substantially similar to a recent rule
change made by NYSE Arca, Inc.
(‘‘Arca’’).3
Nasdaq proposes a minor
restructuring of the subparagraphs in
Nasdaq Rule 5615(a)(1) relating to the
current exemptions to the corporate
governance requirements for assetbacked issuers and other passive
issuers. Specifically, renumbering the
corporate governance requirements set
forth in Nasdaq Rule 5615(a)(1) to
Nasdaq Rule 5615(a)(1)(A), renumbering
the current exemption for asset-backed
issuers from Nasdaq Rule 5615(a)(1)(A)
to Nasdaq Rule 5615(a)(1)(A)(i), and
renumbering the current exemption for
other passive issuers from Nasdaq Rule
5615(a)(1)(B) to Nasdaq Rule
5615(a)(1)(A)(ii). Nasdaq also proposes
to amend Nasdaq Rule 5615(a) by
adding new subsection (1)(C), as well as
inserting a new second paragraph under
Nasdaq Rule 5615(a)(5) between the
existing two paragraphs. Nasdaq Rule
5615(a)(5) will provide the proposed
3 See Securities Exchange Act No. 91901 (May 14,
2021) 86 FR 27487 (May 20, 2021) (SR–NYSEArca–
2020–54) (Order approving of a proposed rule
change, as modified by amendment no. 2, to amend
NYSE Arca Rule 5.3E to exempt registered
investment companies that list certain categories of
securities defined as derivative and special purpose
securities under NYSE Arca Rules from having to
obtain shareholder approval prior to the issuance of
securities in connection with certain acquisitions of
the stock or assets of an affiliated registered
investment company (the ‘‘Arca Approval Order’’)).
PO 00000
Frm 00140
Fmt 4703
Sfmt 4703
exemptions for certain management
investment companies,4 while Nasdaq
Rule 5615(a)(1)(C) will provide for the
proposed exemption of Nasdaq Rule
5615(a)(1) applicable to issuers of
Portfolio Depository Receipts, as
provided under Nasdaq Rule 5705(a).
By way of background, Nasdaq Rule
5635(a) requires issuers to obtain
shareholder approval in connection
with the acquisition of the stock or
assets of another company, in the
following circumstances:
(1) Where, due to the present or potential
issuance of common stock, including shares
issued pursuant to an earn-out provision or
similar type of provision, or securities
convertible into or exercisable for common
stock, other than a public offering for cash:
(A) the common stock has or will have
upon issuance voting power equal to or in
excess of 20% of the voting power
outstanding before the issuance of stock or
securities convertible into or exercisable for
common stock; or
(B) the number of shares of common stock
to be issued is or will be equal to or in excess
of 20% of the number of shares of common
stock outstanding before the issuance of the
stock or securities; or
(2) any director, officer or Substantial
Shareholder (as defined by Nasdaq Rule
5635(e)(3)) of the Company has a 5% or
greater interest (or such persons collectively
have a 10% or greater interest), directly or
indirectly, in the Company or assets to be
acquired or in the consideration to be paid
in the transaction or series of related
transactions and the present or potential
issuance of common stock, or securities
convertible into or exercisable for common
stock, could result in an increase in
outstanding common shares or voting power
of 5% or more.
Nasdaq Rule 5615 exempts certain
categories of issuers from certain
corporate governance requirements.
Now, the Exchange proposes to
amend Nasdaq Rule 5615(a) to exempt
certain categories of investment
companies registered under the 1940
Act from the requirement to comply
with Nasdaq Rule 5635(a) in connection
with the acquisition of the stock or
assets of an affiliated registered
investment company in a transaction
that complies with Rule 17a–8 5
(Mergers of affiliated companies) (‘‘Rule
17a–8’’) under the 1940 Act and does
not otherwise require shareholder
approval under the 1940 Act and the
rules thereunder or any other Exchange
rule.6 Specifically, the Exchange
4 See
infra footnote 6.
CFR 270.17a–8.
6 The Exchange proposes to exempt both Portfolio
Depository Receipts (Nasdaq Rule 5705(a) and
certain management investment companies that are
Index Fund Shares (Nasdaq Rule 5705(b), Managed
Fund Shares (Nasdaq Rule 5735), Managed Portfolio
Shares (Nasdaq Rule 5760), Exchange Traded Fund
5 17
E:\FR\FM\04NON1.SGM
04NON1
]]>Agencies
[Federal Register Volume 86, Number 211 (Thursday, November 4, 2021)]
[Notices]
[Pages 60926-60930]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-24018]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-93472; File No. SR-NYSEArca-2021-91]
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing
of Proposed Rule Change to Amend Rule 6.87-O
October 29, 2021.
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 October 20, 2021, NYSE Arca, Inc. (``NYSE Arca'' or the
``Exchange'') filed with the Securities and Exchange Commission (the
``Commission'') the proposed rule change as described in Items I, II,
and III below, which Items have been prepared by the self-regulatory
organization. The Commission is publishing this notice to solicit
comments on the proposed rule change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 15 U.S.C. 78a.
\3\ 17 CFR 240.19b 4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to amend Rule 6.87-O to improve the operation
of the Rule. The proposed change is available on the Exchange's website
at www.nyse.com, at the principal office of the Exchange, and at the
Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the self-regulatory organization
included statements concerning the purpose of, and basis for, the
proposed rule change and discussed any comments it received on the
proposed rule change. The text of those statements may be examined at
the places specified in Item IV below. The Exchange has prepared
summaries, set forth in sections A, B, and C below, of the most
significant parts of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule Change
1. Purpose
The purpose of this rule change is to amend Rule 6.87-O
``Nullification and Adjustment of Options Transactions including
Obvious Errors'' to improve the operation of the Rule. Following
discussions with other exchanges and a cross-section of industry
participants and in coordination with the Listed Options Market
Structure Working Group (``LOMSWG'') (collectively, the ``Industry
Working Group''), the Exchange proposes: (1) To amend section (b)(3) of
the Rule to permit the Exchange to determine the Theoretical Price of a
Customer option transaction in a wide market so long as a narrow market
exists at any point during the 10-second period after an opening or re-
opening; and (2) to amend section (c)(4)(B) of the Rule to adjust,
rather than nullify, Customer transactions in Obvious Error situations,
provided the adjustment does not violate the limit price. The Exchange
understands that upon approval of this proposal, other options
exchanges will also submit substantively identical proposals to the
Commission.
Proposed Change to Section (b)(3)
Rule 6.87-O has been part of various harmonization efforts by the
Industry Working Group.\4\ These efforts have often centered around the
Theoretical Price for which an options transaction should be compared
to determine whether an Obvious Error has occurred. For instance, all
options exchanges have adopted language comparable to Commentary
.06,\5\ which explains how an exchange is to determine Theoretical
Price at the open, when there are no valid quotes, and when there is a
wide quote. This includes at times the use of a singular third-party
vendor, known as a TP Provider (currently CBOE Livevol, LLC).
---------------------------------------------------------------------------
\4\ See, e.g., Securities Exchange Act Release Nos. 74921 (May
8, 2015), 80 FR 27747 (May 14, 2015) (SR-NYSEArca-2015-41); 80496
(April 20, 2017), 82 FR 19282 (April 26, 2017) (SR-NYSEArca-2017-
42).
\5\ See, e.g., Securities Exchange Act Release No. 81580
(September 12, 2017), 82 FR 43578 (September 18, 2017) (SR-NYSEArca-
2017-101).
---------------------------------------------------------------------------
Similarly, section (b)(3) of Rule 6.87-O was previously harmonized
across all options exchanges to handle situations where executions
occur in markets that are wide (as set forth in the rule).\6\ Under
that section, the Exchange
[[Page 60927]]
determines the Theoretical Price if the NBBO for the subject series is
wide immediately before execution and a narrow market (as set forth in
the rule) existed ``during the 10 seconds prior to the transaction.''
The rule goes on to clarify that, should there be no narrow quotes
``during the 10 seconds prior to the transaction,'' the Theoretical
Price for the affected series is the NBBO that existed at the time of
execution (regardless of its width).
---------------------------------------------------------------------------
\6\ See, e.g., Securities Exchange Act Release No. 74921 (May 8,
2015), 80 FR 27747 (May 14, 2015) (SR-NYSEArca-2015-41).
---------------------------------------------------------------------------
In recent discussions, the Industry Working Group has identified
proposed changes to section (b)(3) of Rule 6.87-O that would improve
the Rule's functioning. Currently, section (b)(3) does not permit the
Exchange to determine the Theoretical Price unless there is a narrow
quote 10 seconds prior to the transaction. However, in the first
seconds of trading, there is no 10-second period ``prior to the
transaction.'' Further, the Industry Working Group has observed that
prices in certain series can be disjointed at the start of trading.
Accordingly, the Exchange proposes to provide additional protections to
trading in certain circumstances immediately after the opening before
liquidity has had a chance to enter the market. The Exchange proposes
to amend section (b)(3) to allow the Exchange to determine the
Theoretical Price in a wide market so long as a narrow market exists at
any point during the 10-second period after an opening or re-opening.
Specifically, the Exchange proposes that the existing text of
section (b)(3) would become sub-section ``A.'' The Exchange proposes to
add the following heading and text as sub-section ``B.'':
B. Customer Transactions Occurring Within 10 Seconds or less
After an Opening or Re-Opening:
(i) The Exchange will determine the Theoretical Price if the
bid/ask differential of the NBB and NBO for the affected series just
prior to the Customer's erroneous transaction was equal to or
greater than the Minimum Amount set forth in paragraph A above and
there was a bid/ask differential less than the Minimum Amount during
the 10 seconds prior to the transaction.
(ii) If there was no bid/ask differential less than the Minimum
Amount during the 10 seconds prior to the transaction, then the
Exchange will determine the Theoretical Price if the bid/ask
differential of the NBB and NBO for the affected series just prior
to the Customer's erroneous transaction was equal to or greater than
the Minimum Amount set forth in paragraph A above and there was a
bid/ask differential less than the Minimum Amount anytime during the
10 seconds after an opening or re-opening.
(iii) If there was no bid/ask differential less than the Minimum
Amount during the 10 seconds following an Opening or Re-Opening,
then the Theoretical Price of an option series is the last NBB or
NBO just prior to the Customer transaction in question, as set forth
in paragraph (b) above.
(iv) Customer transactions occurring more than 10 seconds after
an opening or re-opening are subject to paragraph A above.
The following examples illustrate the functioning of the proposed
rule change. Consider that the NBBO of a series opens as $0.01 at
$4.00. A marketable limit order to buy one contract arrives one second
later and is executed at $4.00. In the third second of trading, the
NBBO narrows from $0.01 at $4.00 to $2.00 at $2.10. While the execution
occurred in a market with wide widths, there was no tight market within
the 10 seconds prior to execution. Accordingly, under the current rule,
the trade would not qualify for obvious error review, in part due to
the fact that there was only a single second of trading before the
execution. Under the proposal, since a tight market existed at some
point in the first 10 seconds of trading (i.e., in the third second),
the Exchange would be able to determine the Theoretical Price as
provided in Commentary .06.
As another example, the NBBO for a series opens as $0.01 at $4.00.
In the seventh second of trading, a marketable limit order is received
to buy one contract and is executed at $4.00. Five seconds later (i.e.,
in the twelfth second of trading), the NBBO narrows from $0.01 at $4.00
to $2.00 at $2.10. While the execution occurred in a market with wide
widths, there was no tight market within 10 seconds prior to execution.
Accordingly, under the current rule, the trade would not qualify for
obvious error review. Under the proposal, since no tight market existed
at any point during the first 10 seconds of trading (i.e., the narrow
market occurred in the twelfth second), the trade would not qualify for
obvious error review.
The proposed rule change would also better harmonize section (b)(3)
with section (b)(1) of the Rule. Under section (b)(1), the Exchange is
permitted to determine the Theoretical Price for transactions occurring
as part of the opening auction process (as defined in Rule 6.64-O) if
there is no NBB or NBO for the affected series just prior to the
erroneous transaction. However, under the current version of section
(b)(3), a core trading transaction could occur in the same wide market
but the Exchange would not be permitted to determine the Theoretical
Price. Consider an example where one second after the Exchange opens a
selected series, the NBBO is $1.00 at $5.00. At 9:30:03, a customer
submits a marketable buy order to the Exchange and pays $5.00. At
9:30:03, a different exchange runs an opening auction that results in a
customer paying $5.00 for the same selected series. At 9:30:06, the
NBBO changes from $1.00 at $5.00 to $1.35 at $1.45. Under the current
version of section (b)(3), the Exchange would not be able to determine
the Theoretical Price for the trade occurring during core trading.
However, the trade on the other exchange could be submitted for review
under (b)(1) and that exchange would be able to determine the
Theoretical Price. If the proposed change to section (b)(3) were
approved, both of the trades occurring at 9:30:03 (on the Exchange
during core trading and on another exchange via auction) would also be
entitled to the same review regarding the same Theoretical Price based
upon the same time.
The proposal would not change any obvious error review beyond the
first 10 seconds of an opening or re-opening.
Proposed Change to Section (c)(4)(B)
The Exchange proposes to amend section (c)(4)(B)--the ``Adjust or
Bust'' rule for Customer transactions in Obvious Error situations--to
adjust rather than nullify such orders, provided the adjustment does
not violate the Customer's limit price.
Currently, the Rule provides that in Obvious Error situations,
transactions involving non-Customers should be adjusted, while
transactions involving Customers are nullified, unless a certain
condition applies.\7\ The Industry Working Group has concluded that the
treatment of these transactions should be harmonized under the Rule,
such that transactions involving Customers may benefit from adjustment,
just as non-Customer transactions currently do, except where such
adjustment would violate the Customer's limit price; in that instance,
the trade would be nullified.
---------------------------------------------------------------------------
\7\ Specifically, the current Rule provides at section (c)(4)(C)
that if an OTP Holder has 200 or more Customer transactions under
review concurrently and the orders resulting in such transactions
were submitted during the course of 2 minutes or less, where at
least one party to the Obvious Error is a non-Customer, then the
Exchange will apply the non-Customer adjustment criteria found in
section (c)(4)(A).
---------------------------------------------------------------------------
Specifically, the Exchange proposes to amend the text of section
(c)(4)(B) to add that where at least one party to the Obvious Error is
a Customer, ``the execution price of the transaction will be adjusted
by the Official pursuant to the table immediately above. Any Customer
Obvious Error exceeding 50 contracts will be subject to the Size
Adjustment Modifier defined in sub-paragraph (a)(4) above. However, if
such adjustment(s) would result in an execution price higher (for buy
[[Page 60928]]
transactions) or lower (for sell transactions) than the Customer's
limit price,'' the trade will be nullified. The ``table immediately
above'' referenced in the proposed text refers to the table at current
Section (c)(4)(A), which provides for the adjustment of prices a
specified amount away from the Theoretical Price, rather than adjusting
the Theoretical Price.
The Exchange proposes no other changes at this time.
Implementation Date
The Exchange will announce the effective date of the proposed
changes in a Trader Update distributed to all OTP Holders and OTP
Firms. The effective date will be no sooner than six months from the
approval of this proposal.
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\8\ in general, and furthers the objectives of Section
6(b)(5) of the Act,\9\ in particular, because 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 and because it is not
designed to permit unfair discrimination between customers, issuers,
brokers, or dealers.
---------------------------------------------------------------------------
\8\ 15 U.S.C. 78f(b).
\9\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
The Exchange believes that the proposed change to section (b)(3) of
the Rule would remove impediments to and perfect the mechanism of a
free and open market and a national market system, and, in general,
protect investors and the public interest because it provides a method
for addressing Obvious Error Customer transactions that occur in a wide
market at the opening of trading. Generally, a wide market is an
indication of a lack of liquidity in the market such that the market is
unreliable. Current section (b)(3) recognizes that a persistently wide
quote (i.e., more than 10 seconds) should be considered the reliable
market regardless of its width, but does not address transactions that
occur in a wide market in the first seconds of trading, where there is
no preceding 10-second period to reference. Accordingly, in the first
10 seconds of trading, there is no opportunity for a wide quote to have
persisted for a sufficiently lengthy period such that the market should
consider it a reliable market for the purposes of determining an
Obvious Error transaction.
The proposed change would rectify this disparity and permit the
Exchange to consider whether a narrow quote is present at any time
during the 10-second period after an opening or re-opening. The
presence of such a narrow quote would indicate that the market has
gained sufficient liquidity and that the previous wide market was
unreliable, such that it would be appropriate for the Exchange to
determine the Theoretical Price of an Obvious Error transaction. In
this way, the proposed rule harmonizes the treatment of Customer
transactions that execute in an unreliable market at any point of the
trading day, by making them uniformly subject to Exchange determination
of the Theoretical Price.
The Exchange believes that the proposed change to section (c)(4)(B)
of the Rule would remove impediments to and perfect the mechanism of a
free and open market and a national market system and enhance the
protection of investors by harmonizing the treatment of non-Customer
transactions and Customer transactions under the Rule. Under the
current Rule, Obvious Error situations involving non-Customer
transactions are adjusted, while those involving Customer transactions
are generally nullified, unless they meet the additional requirements
of section (c)(4)(C) (i.e., where an OTP Holder has 200 or more
Customer transactions under review concurrently and the orders
resulting in such transactions were submitted during the course of 2
minutes or less). The proposal would harmonize the treatment of non-
Customer and Customer transactions by providing for the adjustment of
all such transactions, except where such adjustment would violate the
Customer's limit price.
When it proposed the current rule in 2015, the Exchange believed
there were sound reasons for treating non-Customer transactions and
Customer transactions differently. At the time, the Exchange stated its
belief that ``Customers are not necessarily immersed in the day-to-day
trading of the markets, are less likely to be watching trading activity
in a particular option throughout the day, and may have limited funds
in their trading accounts,'' and that nullifying Obvious Error
transactions involving Customers would give Customers ``greater
protections'' than adjusting such transactions by eliminating the
possibility that a Customer's order will be adjusted to a significantly
different price. The Exchange also noted its belief that ``Customers
are . . . less likely to have engaged in significant hedging or other
trading activity based on earlier transactions, and thus, are less in
need of maintaining a position at an adjusted price than non-
Customers.'' \10\
---------------------------------------------------------------------------
\10\ Securities Exchange Act Release No. 74921 (May 9, 2015), 80
FR 27747, 27761 (May 14, 2015) (SR-NYSEArca-2015-41).
---------------------------------------------------------------------------
Those assumptions about Customer trading and hedging activity no
longer hold. The Exchange and the Industry Working Group believe that
over the course of the last five years, Customers that use options have
become more sophisticated, as retail broker-dealers have enhanced the
trading tools available. Pursuant to OCC data, volumes clearing in the
Customer range have expanded from 12,022,163 ADV in 2015 to 35,081,130
ADV in 2021. This increase in trading activity underscores the greater
understanding of options by Customers as a trading tool and its use in
the markets. Customers who trade options today largely are more
educated, have better trading tools, and have better access to
financial news than any time prior.\11\ The proposed rule would extend
the hedging protections currently enjoyed by non-Customers to
Customers, by allowing them to maintain an option position at an
adjusted price, which would in turn prevent a cascading effect by
maintaining the hedge relationship between the option transaction and
any other transactions in a related security.
---------------------------------------------------------------------------
\11\ See ``Retail Traders Adopt Options En Masse'' by Dan Raju,
available at https://www.nasdaq.com/articles/retail-traders-adopt-options-en-masse-2020-12-08.
---------------------------------------------------------------------------
The Exchange believes that extending such hedging protections to
Customer transactions would remove impediments to and perfect the
mechanism of a free and open market and a national market system and
enhance the protection of investors by providing greater certainty of
execution for all participants to options transactions. Under the
current Rule, a Customer that believes its transaction was executed
pursuant to an Obvious Error may be disincentivized from submitting the
transaction for review, since during the review process, the Customer
would be uncertain whether the trade would be nullified, and if so,
whether market conditions would still permit the opportunity to execute
a related order at a better price after the nullification ruling is
finalized. In contrast, under the proposed rule, the Customer would
know that the only likely outcomes of submitting a trade to Obvious
Error review would be that the
[[Page 60929]]
trade would stand or be re-executed at a better price; the trade would
only be nullified if the adjustment would violate the order's limit.
Similarly, under the current Rule, during the review period, a market
maker who traded contra to the Customer would be uncertain if it should
retain any position executed to hedge the original trade, or attempt to
unwind it, possibly at a significant loss. Under the proposed rule
change, this uncertainty is largely eliminated, and the question would
be whether the already-executed and hedged trade would be adjusted to a
better price for the Customer, or if it would stand as originally
executed. In this way, the proposed rule enhances the protection of
investors and removes impediments to and perfects the mechanism of a
free and open market and a national market system.
The proposed rule also addresses the concern the Exchange cited in
its 2015 filing that adjusting, rather than nullifying, Customer
transactions could lead to a Customer's order being adjusted to a
significantly different price. To address that concern, the proposed
rule would prevent Customer transactions from being adjusted to a price
that violates the order's limit; if the adjustment would violate a
Customer's limit, the trade would instead be nullified. The Exchange
believes it is in the best interest of investors to expand the
availability of adjustments to Customer transactions in all Obvious
Error situations except where the adjustment would violate the
Customer's limit price.
Further, the Exchange believes that, with respect to such proposed
adjustments to Customer transactions, it is appropriate to use the same
form of adjustment as is currently in place with respect to non-
Customer transactions as laid out in the table in section (c)(4)(A).
That is, the Exchange believes that it is appropriate to adjust to
prices a specified amount away from the Theoretical Price rather than
to adjust the Theoretical Price, even though the Exchange has
determined a given trade to be erroneous in nature, because the parties
in question should have had some expectation of execution at the price
or prices submitted. Also, it is common that by the time it is
determined that an Obvious Error has occurred, additional hedging and
trading activity has already occurred based on the executions that
previously happened. The Exchange believes that providing an adjustment
to the Theoretical Price in all cases would not appropriately
incentivize market participants to maintain appropriate controls to
avoid potential errors, while adjusting to prices a specified amount
away from the Theoretical Price would incentivize such behavior.
The Exchange believes that the proposal is not designed to permit
unfair discrimination between customers, issuers, brokers, or dealers.
The proposed change to section (b)(3) would apply to all instances of a
wide market occurring within the first 10 seconds of trading followed
by a narrow market at any point in the subsequent 10-second period,
regardless of the types of market participants involved in such
transactions. The proposed change to section (c)(4)(B) would harmonize
the treatment of Obvious Error transactions involving Customers and
non-Customers, no matter what type of market participants those parties
may be.
For these reasons, the Exchange believes that the proposal is
consistent with the Act.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange believes that the proposal will not impose any burden
on competition that is not necessary or appropriate in furtherance of
the purposes of Section 6(b)(8) of the Act.\12\ The Exchange
anticipates that the other options exchanges will adopt substantively
similar proposals, such that there would be no burden on intermarket
competition from the Exchange's proposal. Accordingly, the proposed
change is not meant to affect competition among the options exchanges.
For these reasons, the Exchange believes that the proposed rule change
reflects this competitive environment and does not impose any undue
burden on intermarket competition.
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\12\ 15 U.S.C. 78f(b)(8).
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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
Within 45 days of the date of publication of this notice in the
Federal Register or up to 90 days.
(A) By order approve or disapprove the proposed rule change, or
(B) institute proceedings to determine whether the proposed rule
change should be 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-NYSEArca-2021-91 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to File Number SR-NYSEArca-2021-91. 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-2021-91 and should be submitted
on or before November 26, 2021.
[[Page 60930]]
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\13\
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\13\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-24018 Filed 11-3-21; 8:45 am]
BILLING CODE 8011-01-P
