80 FR 13046 - Self-Regulatory Organizations; ICE Clear Credit LLC; Order Approving Proposed Rule Change To Revise ICC End-of-Day Price Discovery Policies and Procedures
SECURITIES AND EXCHANGE COMMISSION Federal Register Volume 80, Issue 48 (March 12, 2015)
Federal Register Volume 80, Issue 48 (March 12, 2015)
| Page Range | 13046-13047 | |
| FR Document | 2015-05602 |
[Federal Register Volume 80, Number 48 (Thursday, March 12, 2015)] [Notices] [Pages 13046-13047] From the Federal Register Online [www.thefederalregister.org] [FR Doc No: 2015-05602] ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION [Release No. 34-74449; File No. SR-ICC-2015-001] Self-Regulatory Organizations; ICE Clear Credit LLC; Order Approving Proposed Rule Change To Revise ICC End-of-Day Price Discovery Policies and Procedures March 6, 2015. I. Introduction On January 5, 2015 ICE Clear Credit LLC (``ICC'') filed with the Securities and Exchange Commission (``Commission'') the proposed rule change SR-ICC-2015-001 pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder.\2\ The proposed rule change was published for comment in the Federal Register on January 21, 2015.\3\ The Commission did not receive any comments. For the reasons discussed below, the Commission is approving the proposed rule change. --------------------------------------------------------------------------- \1\ 15 U.S.C. 78s(b)(1). \2\ 17 CFR 240.19b-4. \3\ Securities Exchange Act Release No. 34-74053 (Jan. 14, 2015), 80 FR 2985 (January 21, 2015) (File No. SR-ICC-2015-001). --------------------------------------------------------------------------- II. Description of the Proposed Rule Change ICC proposed revising its End-of-Day Price Discovery Policies and Procedures to incorporate enhancements to its price discovery process. ICC currently utilizes a ``cross and lock'' algorithm as part of its price discovery process. Under this algorithm, standardized bids and offers derived from Clearing Participant (``CP'') submissions are matched by sorting them from highest to lowest and lowest to highest levels, respectively. This sorting process pairs the CP submitting the highest bid price with the CP submitting the lowest offer price, the CP submitting the second highest bid price with the CP submitting the second-lowest offer price, and so on. The algorithm then identifies crossed and/or locked markets. Crossed markets are the CP pairs generated by the sorting and ranking process for which the bid price of one CP is above the offer price of the matched CP. The algorithm identifies locked markets, where the bid and the offer are equal, in a similar fashion. Whenever there are crossed and/or locked matched markets, the algorithm applies a set of rules designed to identify standardized submissions that are ``obvious errors.'' The algorithm sets a high bid threshold equal to the preliminary end-of-day (``EOD'') level plus one EOD bid offer width (``BOW''), and a low offer threshold equal to the preliminary EOD level minus one EOD BOW. The algorithm considers a CP's standardized submission to be an ``obvious error'' if the bid is higher than the high bid threshold, or the offer is lower than the low offer threshold. CP pairs identified by the algorithm as crossed or locked markets are required from time to time, under the End-of-Day Price Discovery Policies and Procedures, to enter into cleared trades with each other as part of the ICC EOD price discovery process (``Firm Trade''). Currently, ICC excludes standardized submissions it identifies as obvious errors from Firm Trades and does not use these submissions in its determination of published EOD levels. ICC has proposed to include all standardized submissions, including those classified as obvious errors, in the process of determining Firm Trades. Further, ICC asserts that it will effectively execute its current EOD algorithm twice, initially in the same way it does today, by eliminating obvious errors, to generate the final EOD levels, and again, without excluding obvious errors, to generate Firm Trades and reversing transactions. To limit the potential exposure created through Firm Trades that include a bid or offer from an obvious error submission, ICC proposes to adjust trade prices, where appropriate, to fall within a predefined band on either side of the EOD price such that the potential profit or loss (``P/L'') realized by unwinding the trade at the EOD level is capped. To prevent CPs from receiving Firm Trades with large P/L impact in Index instruments that are less actively traded, and therefore more difficult and/or more expensive to manage the associated risk, ICC proposes to have the ability to automatically generate reversing transactions at the EOD level for specific Index instruments (i.e., for specific index risk sub-factors as defined by specific combinations of index/sub-index and series) based on liquidity. Currently, reversing transactions are only available for Single Name instruments. ICC represents that there are no changes to ICC's Clearing Rules as a result of these changes. [[Page 13047]] III. Discussion and Commission Findings Section 19(b)(2)(C) of the Act \4\ directs the Commission to approve a proposed rule change of a self-regulatory organization if the Commission finds that such proposed rule change is consistent with the requirements of the Act and the rules and regulations thereunder applicable to such self-regulatory organization. Section 17A(b)(3)(F) of the Act \5\ requires, among other things, that the rules of a clearing agency are designed to promote the prompt and accurate clearance and settlement of securities transactions and, to the extent applicable, derivative agreements, contracts, and transactions, to assure the safeguarding of securities and funds which are in the custody or control of the clearing agency or for which it is responsible and, in general, to protect investors and the public interest. --------------------------------------------------------------------------- \4\ 15 U.S.C. 78s(b)(2)(C). \5\ 15 U.S.C. 78q-1(b)(3)(F). --------------------------------------------------------------------------- The Commission finds that ICC's proposed revisions to its End-of- Day Price Discovery Policies and Procedures is consistent with the requirements of Section 17A of the Act \6\ and regulations thereunder applicable to it, including the standards under Rule 17Ad-22.\7\ The proposed rule change is designed to enhance ICC's price discovery process by including all price submissions (including those classified as obvious errors) in the process of determining Firm Trades, thereby reducing price submissions that may be classified as obvious errors. In addition, the proposed rule change would adjust the trading prices of Firm Trades that include a bid or offer classified as an obvious error to fall within a predefined range on either side of the EOD price, thereby limiting CPs' potential P/L exposure to obvious errors from the risk management perspective, while holding them accountable for their price submissions. Finally, the proposed rule change would assist CPs in unwinding Firm Trades in certain index products by generating reversing trades at the EOD level based on liquidity. The Commission believes that the proposal is therefore designed to promote the prompt and accurate clearance and settlement of securities transactions and derivative agreements, contracts and transactions cleared by ICC, consistent with Section 17A(b)(3)(F) of the Act.\8\ --------------------------------------------------------------------------- \6\ 15 U.S.C. 78q-1. \7\ 17 CFR 240.17Ad-22. \8\ 15 U.S.C. 78q-1(b)(3)(F). --------------------------------------------------------------------------- IV. Conclusion On the basis of the foregoing, the Commission finds that the proposal is consistent with the requirements of the Act and in particular with the requirements of Section 17A of the Act \9\ and the rules and regulations thereunder. --------------------------------------------------------------------------- \9\ 15 U.S.C. 78q-1. --------------------------------------------------------------------------- It is therefore ordered, pursuant to Section 19(b)(2) of the Act,\10\ that the proposed rule change (SR-ICC-2015-001) be, and hereby is, approved.\11\ --------------------------------------------------------------------------- \10\ 15 U.S.C. 78s(b)(2). \11\ In approving the proposed rule change, the Commission considered the proposal's impact on efficiency, competition and capital formation. 15 U.S.C. 78c(f). For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.\12\ --------------------------------------------------------------------------- \12\ 17 CFR 200.30-3(a)(12). --------------------------------------------------------------------------- Jill M. Peterson, Assistant Secretary. [FR Doc. 2015-05602 Filed 3-11-15; 8:45 am] BILLING CODE 8011-01-P
![13046 Federal Register / Vol. 80, No. 48 / Thursday, March 12, 2015 / Notices
Commission shall institute proceedings For the Commission, by the Division of and the offer are equal, in a similar
to determine whether the proposed rule Trading and Markets, pursuant to delegated fashion.
should be approved or disapproved. authority.16 Whenever there are crossed and/or
Jill M. Peterson, locked matched markets, the algorithm
IV. Solicitation of Comments Assistant Secretary. applies a set of rules designed to
Interested persons are invited to [FR Doc. 2015–05603 Filed 3–11–15; 8:45 am] identify standardized submissions that
submit written data, views and BILLING CODE 8011–01–P are ‘‘obvious errors.’’ The algorithm sets
arguments concerning the foregoing, a high bid threshold equal to the
including whether the proposed rule preliminary end-of-day (‘‘EOD’’) level
change is consistent with the Act. SECURITIES AND EXCHANGE plus one EOD bid offer width (‘‘BOW’’),
Comments may be submitted by any of COMMISSION and a low offer threshold equal to the
the following methods: [Release No. 34–74449; File No. SR–ICC– preliminary EOD level minus one EOD
2015–001] BOW. The algorithm considers a CP’s
Electronic Comments standardized submission to be an
• Use the Commission’s Internet Self-Regulatory Organizations; ICE ‘‘obvious error’’ if the bid is higher than
comment form (http://www.sec.gov/ Clear Credit LLC; Order Approving the high bid threshold, or the offer is
rules/sro.shtml); or Proposed Rule Change To Revise ICC lower than the low offer threshold.
End-of-Day Price Discovery Policies CP pairs identified by the algorithm as
• Send an email to rule-comments@ and Procedures crossed or locked markets are required
sec.gov. Please include File Number SR–
March 6, 2015.
from time to time, under the End-of-Day
BATS–2015–17 on the subject line.
Price Discovery Policies and
Paper Comments I. Introduction Procedures, to enter into cleared trades
On January 5, 2015 ICE Clear Credit with each other as part of the ICC EOD
• Send paper comments in triplicate price discovery process (‘‘Firm Trade’’).
to Secretary, Securities and Exchange LLC (‘‘ICC’’) filed with the Securities
and Exchange Commission Currently, ICC excludes standardized
Commission, 100 F Street NE., submissions it identifies as obvious
Washington, DC 20549–1090. (‘‘Commission’’) the proposed rule
change SR–ICC–2015–001 pursuant to errors from Firm Trades and does not
All submissions should refer to File Section 19(b)(1) of the Securities use these submissions in its
Number SR–BATS–2015–17. This file Exchange Act of 1934 (‘‘Act’’) 1 and Rule determination of published EOD levels.
number should be included on the 19b–4 thereunder.2 The proposed rule ICC has proposed to include all
subject line if email is used. To help the change was published for comment in standardized submissions, including
Commission process and review your the Federal Register on January 21, those classified as obvious errors, in the
comments more efficiently, please use 2015.3 The Commission did not receive process of determining Firm Trades.
only one method. The Commission will any comments. For the reasons Further, ICC asserts that it will
post all comments on the Commission’s discussed below, the Commission is effectively execute its current EOD
Internet Web site (http://www.sec.gov/ approving the proposed rule change. algorithm twice, initially in the same
rules/sro.shtml). Copies of the way it does today, by eliminating
II. Description of the Proposed Rule obvious errors, to generate the final EOD
submission, all subsequent
Change levels, and again, without excluding
amendments, all written statements
with respect to the proposed rule ICC proposed revising its End-of-Day obvious errors, to generate Firm Trades
change that are filed with the Price Discovery Policies and Procedures and reversing transactions.
Commission, and all written to incorporate enhancements to its price To limit the potential exposure
communications relating to the discovery process. ICC currently utilizes created through Firm Trades that
proposed rule change between the a ‘‘cross and lock’’ algorithm as part of include a bid or offer from an obvious
Commission and any person, other than its price discovery process. Under this error submission, ICC proposes to adjust
those that may be withheld from the algorithm, standardized bids and offers trade prices, where appropriate, to fall
public in accordance with the derived from Clearing Participant within a predefined band on either side
provisions of 5 U.S.C. 552, will be (‘‘CP’’) submissions are matched by of the EOD price such that the potential
available for Web site viewing and sorting them from highest to lowest and profit or loss (‘‘P/L’’) realized by
printing in the Commission’s Public lowest to highest levels, respectively. unwinding the trade at the EOD level is
Reference Room, 100 F Street NE., This sorting process pairs the CP capped.
Washington, DC 20549, on official submitting the highest bid price with To prevent CPs from receiving Firm
business days between the hours of the CP submitting the lowest offer price, Trades with large P/L impact in Index
10:00 a.m. and 3:00 p.m. Copies of such the CP submitting the second highest instruments that are less actively traded,
filing also will be available for bid price with the CP submitting the and therefore more difficult and/or more
inspection and copying at the principal second-lowest offer price, and so on. expensive to manage the associated risk,
office of the Exchange. All comments The algorithm then identifies crossed ICC proposes to have the ability to
received will be posted without change; and/or locked markets. Crossed markets automatically generate reversing
the Commission does not edit personal are the CP pairs generated by the sorting transactions at the EOD level for specific
identifying information from and ranking process for which the bid Index instruments (i.e., for specific
asabaliauskas on DSK5VPTVN1PROD with NOTICES
submissions. You should submit only price of one CP is above the offer price index risk sub-factors as defined by
information that you wish to make of the matched CP. The algorithm specific combinations of index/sub-
available publicly. All submissions identifies locked markets, where the bid index and series) based on liquidity.
should refer to File Number SR–BATS– Currently, reversing transactions are
1 15 U.S.C. 78s(b)(1).
2015–17 and should be submitted on or only available for Single Name
2 17 CFR 240.19b–4.
before April 2, 2015. 3 Securities Exchange Act Release No. 34–74053
instruments. ICC represents that there
(Jan. 14, 2015), 80 FR 2985 (January 21, 2015) (File
are no changes to ICC’s Clearing Rules
16 17 CFR 200.30–3(a)(12). No. SR–ICC–2015–001). as a result of these changes.
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![Federal Register / Vol. 80, No. 48 / Thursday, March 12, 2015 / Notices 13047
III. Discussion and Commission IV. Conclusion currently scheduled to expire on March
Findings On the basis of the foregoing, the 31, 2015, until September 30, 2015. The
Commission finds that the proposal is text of the proposed rule change is
Section 19(b)(2)(C) of the Act 4 directs available on the Exchange’s Web site at
the Commission to approve a proposed consistent with the requirements of the
Act and in particular with the www.nyse.com, at the principal office of
rule change of a self-regulatory the Exchange, and at the Commission’s
requirements of Section 17A of the Act 9
organization if the Commission finds Public Reference Room.
and the rules and regulations
that such proposed rule change is
thereunder. II. Self-Regulatory Organization’s
consistent with the requirements of the It is therefore ordered, pursuant to
Act and the rules and regulations Statement of the Purpose of, and
Section 19(b)(2) of the Act,10 that the Statutory Basis for, the Proposed Rule
thereunder applicable to such self- proposed rule change (SR–ICC–2015– Change
regulatory organization. Section 001) be, and hereby is, approved.11
17A(b)(3)(F) of the Act 5 requires, among In its filing with the Commission, the
For the Commission, by the Division of self-regulatory organization included
other things, that the rules of a clearing
Trading and Markets, pursuant to delegated statements concerning the purpose of,
agency are designed to promote the authority.12
prompt and accurate clearance and and basis for, the proposed rule change
Jill M. Peterson, and discussed any comments it received
settlement of securities transactions
Assistant Secretary. on the proposed rule change. The text
and, to the extent applicable, derivative
[FR Doc. 2015–05602 Filed 3–11–15; 8:45 am] of those statements may be examined at
agreements, contracts, and transactions,
to assure the safeguarding of securities BILLING CODE 8011–01–P the places specified in Item IV below.
and funds which are in the custody or The Exchange has prepared summaries,
control of the clearing agency or for set forth in sections A, B, and C below,
SECURITIES AND EXCHANGE of the most significant parts of such
which it is responsible and, in general, COMMISSION
to protect investors and the public statements.
interest. [Release No. 34–74455; File No. SR– A. Self-Regulatory Organization’s
NYSEMKT–2015–14] Statement of the Purpose of, and the
The Commission finds that ICC’s
proposed revisions to its End-of-Day Self-Regulatory Organizations; NYSE Statutory Basis for, the Proposed Rule
Price Discovery Policies and Procedures MKT LLC; Notice of Filing and Change
is consistent with the requirements of Immediate Effectiveness of Proposed 1. Purpose
Section 17A of the Act 6 and regulations Rule Change To Extend the Pilot
The purpose of this filing is to extend
thereunder applicable to it, including Period for the Exchange’s Retail
the pilot period of the Retail Liquidity
the standards under Rule 17Ad–22.7 Liquidity Program, Which Is Currently
Program,3 currently scheduled to expire
The proposed rule change is designed to Scheduled To Expire on March 31,
on March 31, 2015, until September 30,
enhance ICC’s price discovery process 2015, Until September 30, 2015
2015.
by including all price submissions March 6, 2015.
(including those classified as obvious Background
Pursuant to Section 19(b)(1) of the
errors) in the process of determining In July 2012, the Commission
Securities Exchange Act of 1934
Firm Trades, thereby reducing price (‘‘Act’’),1 and Rule 19b–4 thereunder,2 approved the Retail Liquidity Program
submissions that may be classified as notice is hereby given that on February on a pilot basis.4 The Program is
obvious errors. In addition, the 27, 2015, NYSE MKT LLC (the designed to attract retail order flow to
proposed rule change would adjust the ‘‘Exchange’’ or ‘‘NYSE MKT’’) filed with the Exchange, and allows such order
trading prices of Firm Trades that the Securities and Exchange flow to receive potential price
include a bid or offer classified as an Commission (‘‘SEC’’ or ‘‘Commission’’) improvement. The Program is currently
obvious error to fall within a predefined the proposed rule change as described limited to trades occurring at prices
range on either side of the EOD price, in Items I, II, and III below, which Items equal to or greater than $1.00 per share.
thereby limiting CPs’ potential P/L have been prepared by the Exchange. Under the Program, Retail Liquidity
exposure to obvious errors from the risk The Commission is publishing this Providers (‘‘RLPs’’) are able to provide
management perspective, while holding notice to solicit comments on the potential price improvement in the form
them accountable for their price proposed rule change from interested of a non-displayed order that is priced
submissions. Finally, the proposed rule persons. better than the Exchange’s best
change would assist CPs in unwinding protected bid or offer (‘‘PBBO’’), called
Firm Trades in certain index products I. Self-Regulatory Organization’s a Retail Price Improvement Order
by generating reversing trades at the Statement of the Terms of Substance of (‘‘RPI’’). When there is an RPI in a
EOD level based on liquidity. The the Proposed Rule Change particular security, the Exchange
Commission believes that the proposal The Exchange proposes to extend the disseminates an indicator, known as the
is therefore designed to promote the pilot period for the Exchange’s Retail Retail Liquidity Identifier, indicating
prompt and accurate clearance and Liquidity Program (the ‘‘Retail Liquidity that such interest exists. Retail Member
settlement of securities transactions and Program’’ or the ‘‘Program’’), which is Organizations (‘‘RMOs’’) can submit a
Retail Order to the Exchange, which
asabaliauskas on DSK5VPTVN1PROD with NOTICES
derivative agreements, contracts and
transactions cleared by ICC, consistent 9 15 U.S.C. 78q–1. would interact, to the extent possible,
with Section 17A(b)(3)(F) of the Act.8
10 15 U.S.C. 78s(b)(2). with available contra-side RPIs.
11 In approving the proposed rule change, the
Commission considered the proposal’s impact on 3 See Securities Exchange Act Release No. 72625
4 15 U.S.C. 78s(b)(2)(C). efficiency, competition and capital formation. 15 (July 16, 2014), 79 FR 42566 (July 22, 2014) (SR–
5 15 U.S.C. 78q–1(b)(3)(F). U.S.C. 78c(f). NYSEMKT–2014–60).
6 15 U.S.C. 78q–1. 12 17 CFR 200.30–3(a)(12). 4 See Securities Exchange Act Release No. 67347
7 17 CFR 240.17Ad–22. 1 15 U.S.C. 78s(b)(1).
(July 3, 2012), 77 FR 40673 (July 10, 2012) (‘‘RLP
8 15 U.S.C. 78q–1(b)(3)(F). 2 17 CFR 240.19b–4. Approval Order’’) (SR–NYSEAmex–2011–84).
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Document Created: 2018-02-21 09:36:14
Document Modified: 2018-02-21 09:36:14
| Category | Regulatory Information | |
| Collection | Federal Register | |
| sudoc Class | AE 2.7: GS 4.107: AE 2.106: | |
| Publisher | Office of the Federal Register, National Archives and Records Administration | |
| Section | Notices | |
| FR Citation | 80 FR 13046 |
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