80 FR 38483 - Self-Regulatory Organizations; NYSE Arca, Inc.; Order Approving Proposed Rule Change Amending Rule 6.35 to Modify the Appointment Process Utilized by the Exchange
SECURITIES AND EXCHANGE COMMISSION Federal Register Volume 80, Issue 128 (July 6, 2015)
Federal Register Volume 80, Issue 128 (July 6, 2015)
| Page Range | 38483-38485 | |
| FR Document | 2015-16413 |
[Federal Register Volume 80, Number 128 (Monday, July 6, 2015)] [Notices] [Pages 38483-38485] From the Federal Register Online [www.thefederalregister.org] [FR Doc No: 2015-16413] ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION [Release No. 34-75323; File No. SR-NYSEArca-2015-17] Self-Regulatory Organizations; NYSE Arca, Inc.; Order Approving Proposed Rule Change Amending Rule 6.35 to Modify the Appointment Process Utilized by the Exchange June 29, 2015. I. Introduction On March 20, 2015, NYSE Arca, Inc. (the ``Exchange'' or ``NYSE Arca'') filed with the Securities and Exchange Commission (``Commission''), pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a proposed rule change to modify the Market Maker appointment and withdrawal process used by the Exchange. The proposed rule change was published for comment in the Federal Register on April 8, 2015.\3\ On May 21, 2015, pursuant to section 19(b)(2) of the Act,\4\ the Commission designated a longer period within which to approve the proposed rule change, disapprove the proposed rule change, or institute proceedings to determine whether to approve or disapprove the proposed rule change.\5\ The Commission received no comment letters on the proposed rule change. This order approves the proposed rule change. --------------------------------------------------------------------------- \1\ 15 U.S.C. 78s(b)(1). \2\ 17 CFR 240.19b-4. \3\ See Securities Exchange Act Release No. 74635 (April 2, 2015), 80 FR 18909 (``Notice''). \4\ 15 U.S.C. 78s(b)(2). \5\ See Securities Exchange Act Release No. 75032, 80 FR 30511 (May 28, 2015). --------------------------------------------------------------------------- II. Description of the Proposed Rule Change The Exchange proposes to amend Rule 6.35 to modify the options Market Maker appointment and withdrawal process used by the Exchange. Under the proposal, once an option trading permit (``OTP'') holder has been approved as a Market Maker under Exchange Rule 6.33,\6\ the Market Maker would, subject to certain conditions, be permitted to register rather than apply for an appointment in one or more option classes, and would be permitted to select or withdraw option issues included in its appointment using an Exchange-approved electronic interface. The Exchange also proposes to include a Market Maker's available financial resources and operational capability as considerations in its periodic evaluation of Market Maker performance, which factors currently are considered when a Market Maker applies for an appointment. --------------------------------------------------------------------------- \6\ See Rule 6.33 (``Registration of Market Makers''). See also Rule 6.32(a) (defining ``Market Maker''). The Exchange is not proposing any changes to Rule 6.33. --------------------------------------------------------------------------- A. Background Currently, a registered Market Maker may seek an appointment in one or more option classes pursuant to Rule 6.35. Specifically, Rule 6.35(a) provides that ``[o]n a form or forms prescribed by the Exchange, a Market Maker must apply for an appointment in one or more classes of option contracts.'' \7\ In addition to having the authority to appoint one Lead Market Maker (``LMM'') per option class,\8\ Rule 6.35(b) provides that ``[t]he Exchange may appoint an unlimited number of Market Makers in each class unless the number of Market Makers appointed to a particular option class should be limited'' based on the Exchange's judgment.\9\ Further, current Rule 6.35(c) provides that ``Market Makers may select from among any option issues traded on the Exchange for inclusion in their appointment, subject to the approval of the Exchange.'' \10\ In considering the approval of the appointment of a Market Maker in each security, ``the Exchange will consider the Market Maker's preference; the financial resources available to the Market Maker; the Market Maker's experience, expertise and past performance in making markets, including the Market Maker's performance in other securities; the Market Maker's operational capability; and the maintenance and enhancement of competition among Market Makers in each security in which they are appointed.'' \11\ Current Rule 6.35 also sets forth the number of OTPs that the Market Maker must have in order to have a specified number of option issues included in the Market Maker's appointment.\12\ --------------------------------------------------------------------------- \7\ See Notice, supra note 3, at 18909. \8\ See Rule 6.82(a)(1) (defining ``LMM''). Any OTP Holder or OTP Firm registered as a Market Maker with the Exchange is eligible to be qualified as an LMM. Id. The Exchange is not proposing to change Rule 6.82. \9\ See Notice, supra note 3, at 18909. \10\ See id. \11\ See id. \12\ See id. For example, 1 OTP affords a Market Maker up to 100 option issues included in their appointment, whereas 4 OTPS would enable a Market Maker to have all option issues traded on the Exchange included in their appointment. See id. --------------------------------------------------------------------------- Under current Rule 6.35, ``Market Makers may change the option issues in their appointment, subject to the approval of the Exchange,'' provided such requests are ``made in a form and [[Page 38484]] manner prescribed by the Exchange.''\13\ In addition, ``Market Makers may withdraw from trading an option issue that is within their appointment by providing the Exchange with three business days' written notice of such withdrawal.'' \14\ If a Market Maker fails to provide the required notice, the Market Maker ``may be subject to formal disciplinary action pursuant to Rule 10.'' \15\ Moreover, the Exchange ``may suspend or terminate any appointment of a Market Maker in one or more option issues under this Rule whenever, in the Exchanges' judgment, the interests of a fair and orderly market are best served by such action.'' \16\ A Market Maker may seek review of any action taken by the Exchange.\17\ --------------------------------------------------------------------------- \13\ See id. In considering the change request, the Exchange will consider the factors set forth in Rule 6.35(c). See id. at 18909, n.11. \14\ See Notice, supra note 3, at 18909. \15\ See Notice, supra note 3, at 18909-10. \16\ See id. at 18910. \17\ See id. Per Rule 6.35(i), Market Makers are also subject to a trading requirement, such that ``[a]t least 75% of the trading activity of a Market Maker (measured in terms of contract volume per quarter) must be in classes within the Market Maker's appointment. A failure to comply with the 75% contract volume requirement may result in a fine pursuant to Rule 10.12; however, if aggravating circumstances are present, formal disciplinary action may be taken pursuant to Rule 10.4.'' The Exchange is not proposing any changes to Rule 6.35(i). --------------------------------------------------------------------------- The Exchange periodically evaluates whether Market Makers have fulfilled performance standards, relating to, among other things, quality of markets, competition of Market Makers, observance of ethical standards and administrative factors.\18\ If the Exchange finds that a Market Maker has not met the performance standards, the Exchange may take action, including suspending, terminating or restricting a Market Maker's appointment or registration, after providing the Market Maker an opportunity to be heard.\19\ --------------------------------------------------------------------------- \18\ See Notice, supra note 3, at 18911, n.34. \19\ See Notice, supra note 3, at 18910, n.17 (describing current Rule 6.35(j)). If a Market Maker's appointment in an option issue or issues has been terminated pursuant to Rule 6.35(j), the Market Maker may not be re-appointed as a Market Maker in that option issue or issues for a period not to exceed 6 months. See id. at 18910, n.17. --------------------------------------------------------------------------- B. Proposed Modifications The Exchange proposes to modify the current appointment and withdrawal process. Specifically, the Exchange proposes to modify Rule 6.35 to provide that, rather than apply for an appointment, ``a Market Maker may register for an appointment in one or more classes of option contracts,'' in a form and manner prescribed the Exchange.\20\ The Exchange would continue to have authority to appoint one LMM per option class.\21\ Similarly, an unlimited number of Market Makers could continue to be appointed to an options class, unless the Exchange restricts such appointments following Commission review and approval.\22\ The Exchange would retain the ability to suspend or terminate any appointment of a Market Maker if necessary to maintain a fair and orderly market.\23\ --------------------------------------------------------------------------- \20\ See proposed Rule 6.35(a). As discussed above, a Market Maker must have the designated number of OTPs set forth in Rule 6.35(d) in order to have a trading appointment on the Exchange. See proposed Rule 6.35(d). \21\ See proposed Rule 6.35(b). \22\ The Exchange is proposing a conforming change to the text in Rule 6.35(b) to reflect the proposed changes in Rule 6.35(a), to provide that ``[a]n unlimited number of Market Makers may register in each class,'' subject to any limits imposed by the Exchange. See proposed Rule 6.35(b). \23\ See Rule 6.35(g). --------------------------------------------------------------------------- In addition, the Exchange proposes to modify Rule 6.35(c) to provide that ``[a] Market Maker may select or withdraw option issues included in their appointment by submitting a request via an Exchange- approved electronic interface with the Exchange on a day when the Exchange is open for business.'' \24\ The modified rule would provide that a Market Maker's requested appointment would become effective by no later than the following business day, whereas a Market Maker's request to withdraw option issues from its appointment would not become effective until the following business day.\25\ Thus, a Market Maker could be appointed to an option issue on the same day it submits a request to the Exchange, depending on the availability of Exchange resources to process the request that day, but such request, if properly made and received, would be effective no later than the following business day. A Market Maker, however, would not be able to withdraw an option issue from its appointment on the same day that it submits the request; instead, the Exchange would only process such requests on an overnight basis for effectiveness on the following business day. Also, before any changes to a Market Maker's appointment would become effective, the Exchange would be required to confirm that the Market Maker's appointment would not exceed that permitted under paragraph (d) of the rule, pertaining to the number of OTPs a Market Maker would be required to have,\26\ and also confirm receipt of the Market Maker's request.\27\ According to the Exchange, the confirmation requirement, applicable to requests for additions, changes, and withdrawals, is designed to ensure that the request was properly made and also successfully transmitted to the Exchange.\28\ Market Makers would be able to select issues in their appointment or make changes thereto pursuant to proposed Rule 6.35(c) by submitting an email to the Exchange, which is currently ``the Exchange-approved electronic interface.'' \29\ --------------------------------------------------------------------------- \24\ See proposed Rule 6.35(c). \25\ Id. \26\ Id. \27\ See id. \28\ See Notice, supra note 3, at 18910. \29\ The Exchange will announce by Trader Update the email address that Market Makers should utilize to make selections in, or changes to, their appointment pursuant to this Rule. See Notice, supra note 3, at 18910, n.24. --------------------------------------------------------------------------- As noted above, paragraph (d) of current Rule 6.35 sets forth the number of OTPs a Market Maker must have in order to have a specified number of option issues included in the Market Maker's appointment. The Exchange recently amended its fee schedule to include this information on its Fee Schedule and therefore is proposing to delete the detailed information set forth in Rule 6.35(d) and instead state that ``[a] Market Maker must have the number of OTPs required under the Fee Schedule for its appointment as a Market Maker in option issues.'' \30\ --------------------------------------------------------------------------- \30\ See proposed Rule 6.35(d). --------------------------------------------------------------------------- Proposed Rule 6.35(h) would provide that a Market Maker may seek review of any action taken by the Exchange under Rule 6.35.\31\ --------------------------------------------------------------------------- \31\ See Notice, supra note 3, at 18911. --------------------------------------------------------------------------- Pursuant to current Rule 6.35(j), the Exchange conducts periodic evaluations of Market Makers to determine whether they have fulfilled performance standards. The Exchange proposes to modify Rule 6.35(j)(1) to specify two additional factors it may consider in evaluating whether a Market Maker has fulfilled performance standards pursuant to Rule 6.35(j): (1) The financial resources available to the Market Maker and (2) the Market Maker's operational capability.\32\ These factors are currently among the factors the Exchange considers when determining whether to approve a Market Maker's appointment.\33\ In connection with the other proposed changes to the Market Maker appointment process, the Exchange proposes that these factors instead be considered as part of the Exchange's periodic evaluation of a Market Maker. --------------------------------------------------------------------------- \32\ See proposed Rule 6.35(j). \33\ See Notice, supra note 3, at 18911. --------------------------------------------------------------------------- Further, the Exchange proposes to modify Rule 6.35(j)(2) to reflect the proposed changes to the Market Maker appointment process. Specifically, the Exchange proposes to change the reference to a Market Maker being ``re- [[Page 38485]] appointed'' by the Exchange if an option issue or issues has been terminated pursuant to this subsection (j), and to instead provide that ``the Exchange may restrict the Market Maker's registration as a Market Maker in that option issue or issues for a period not to exceed 6 months.'' \34\ The Exchange would retain the discretion to suspend that Market Maker's appointment in the affected option issue(s) for a full six months, or to allow that Market Maker to resume that appointment earlier than the prescribed six-month period, based on the Exchange's evaluation of the facts and circumstances.\35\ --------------------------------------------------------------------------- \34\ See proposed Rule 6.35(j)(2) (``If a Market Maker's appointment in an option issue or issues has been terminated pursuant to this subsection (j), the Exchange may restrict the Market Maker's registration as a Market Maker in that option issue or issues for a period not to exceed 6 months.''). \35\ See Notice, supra note 3, at 18911. --------------------------------------------------------------------------- Finally, the Exchange proposes certain clarifying technical changes to Rule 6.35 as well as certain conforming changes so that there is consistency throughout the rule text. III. Discussion and Commission Findings After careful review, the Commission finds that the proposed rule change is consistent with the requirements of the Act \36\ and the rules and regulations thereunder applicable to a national securities exchange.\37\ In particular, the Commission finds that the proposed rule change is consistent with section 6(b)(5) of the Act,\38\ which requires, among other things, that the Exchange's rules be designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, to foster cooperation and coordination with persons engaged in facilitating transactions in securities, 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. --------------------------------------------------------------------------- \36\ 15 U.S.C. 78f. \37\ In approving this proposed rule change, the Commission has considered the proposed rule's impact on efficiency, competition, and capital formation. See 15 U.S.C. 78c(f). \38\ 15 U.S.C. 78f(b)(5). --------------------------------------------------------------------------- The Commission believes that the proposal to permit an OTP holder approved as a registered Market Maker pursuant to Exchange Rule 6.33 to register for and withdraw from options appointments, subject to the proposed conditions and in accordance with the other provisions of Rule 6.35, is reasonably designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, to foster cooperation and coordination with persons engaged in facilitating transactions in securities, 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. The Exchange states that the proposed changes regarding how Market Makers select and modify their appointments would provide Market Makers with more efficient access to the securities in which they want to make markets, enabling them to quickly begin disseminating competitive quotations in those securities which would provide additional liquidity and enhanced competition in those securities on the Exchange.\39\ The Exchange notes that the proposed rule change would enable Market Makers to manage their appointments with more flexibility and in a timelier manner, but that Market Makers still will be required to comply with certain obligations to maintain their status as a Market Maker, including that they provide continuous, two-sided quotations in their appointed securities.\40\ The Exchange also believes that preventing Market Makers from being able to withdraw an option issue from its appointment on the same day that it submits the request (as such requests, if properly made and received, are processed on an overnight basis for effectiveness the following business day) will serve to promote just and equitable principles of trade and benefit investors and the public interest.\41\ Further, before any changes to a Market Maker's appointment become effective, the Exchange will be required to confirm that the Market Maker's appointment will not exceed the number of OTPs a Market Maker is required to have and also will be required to confirm receipt of the Market Maker's request.\42\ --------------------------------------------------------------------------- \39\ See Notice, supra note 3, at 18910. In addition, the Exchange notes that other options exchanges permit market makers to select their appointments in a similar manner via exchange-approved electronic interfaces. See Notice, supra note 3, at 18911, n.28 (citing BATS Exchange, Inc. Rule 22.3(b) (``An Options Market Maker may become registered in a series by entering a registration request via an Exchange approved electronic interface with the Exchange's systems by 9:00 a.m. Eastern time. Registration shall become effective on the day the registration request is entered''); and NASDAQ Options Market, Chapter VII, Section 3(b) (``An Options Market Maker may become registered in an option by entering a registration request via a Nasdaq approved electronic interface with Nasdaq's systems. Registration shall become effective on the day the registration request is entered.''). \40\ See Notice, supra note 3, at 18910. \41\ See id. at 18912. \42\ See text accompanying notes 26-27 supra. --------------------------------------------------------------------------- The Commission notes that the Exchange has proposed to add a Market Maker's available financial resources and operational capability as factors the Exchange may consider during its periodic evaluation of a Market Maker's performance, stating that these factors are important considerations in evaluating a Market Maker's performance, and that continued consideration of these factors would remove impediments to and perfect the mechanism of a free and open market and would benefit investors and the public interest.\43\ The Commission further notes that the Exchange will continue to have authority to suspend or terminate any appointment of a Market Maker in one or more options issues whenever, in the Exchange's judgment, the interests of a fair and orderly market are best served by such action.\44\ The Exchange will also retain the ability to restrict a Market Maker's registration in option issues for up to six months if a Market Maker's appointment in that option issue or issues has been terminated under the rule, and Rule 6.35 will continue to give the Exchange discretion to allow the Market Maker to resume that appointment earlier than the prescribed six-month period or to maintain the suspension for the entire period. Finally, the Exchange is not proposing changes to the disciplinary and appeals process for Market Makers that do not meet minimum performance standards.\45\ --------------------------------------------------------------------------- \43\ See Notice, supra note 3, at 18912. \44\ See Rule 6.35(g). See also Notice, supra note 3, at 18912, n.40 and Rule 6.33 (regarding the Exchange's ability to suspend or terminate a Market Maker's registration based on ``a determination of any substantial or continued failure by such Market Maker to engage in dealings in accordance with Rules 6.37, 6.37A or 6.37B,'' which outline the obligations of Market Makers). \45\ See Notice, supra note 3, at 18912. --------------------------------------------------------------------------- Based on the foregoing, the Commission finds the proposed rule change is consistent with the Act. IV. Conclusion It is therefore ordered, pursuant to section 19(b)(2) of the Act,\46\ that the proposed rule change (SR-NYSEArca-2015-17) be, and hereby is, approved. --------------------------------------------------------------------------- \46\ 15 U.S.C. 78s(b)(2). For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.\47\ --------------------------------------------------------------------------- \47\ 17 CFR 200.30-3(a)(12). --------------------------------------------------------------------------- Robert W. Errett, Deputy Secretary. [FR Doc. 2015-16413 Filed 7-2-15; 8:45 am] BILLING CODE 8011-01-P
![Federal Register / Vol. 80, No. 128 / Monday, July 6, 2015 / Notices 38483
Electronic Comments SECURITIES AND EXCHANGE resources and operational capability as
COMMISSION considerations in its periodic evaluation
• Use the Commission’s Internet of Market Maker performance, which
comment form (http://www.sec.gov/ [Release No. 34–75323; File No. SR– factors currently are considered when a
rules/sro.shtml); or NYSEArca–2015–17] Market Maker applies for an
• Send an email to rule-comments@ Self-Regulatory Organizations; NYSE
appointment.
sec.gov. Please include File Number SR– Arca, Inc.; Order Approving Proposed A. Background
BX–2015–037 on the subject line. Rule Change Amending Rule 6.35 to Currently, a registered Market Maker
Paper Comments Modify the Appointment Process may seek an appointment in one or
Utilized by the Exchange more option classes pursuant to Rule
• Send paper comments in triplicate 6.35. Specifically, Rule 6.35(a) provides
June 29, 2015.
to Secretary, Securities and Exchange that ‘‘[o]n a form or forms prescribed by
Commission, 100 F Street NE., I. Introduction the Exchange, a Market Maker must
Washington, DC 20549–1090. On March 20, 2015, NYSE Arca, Inc. apply for an appointment in one or
(the ‘‘Exchange’’ or ‘‘NYSE Arca’’) filed more classes of option contracts.’’ 7 In
All submissions should refer to File
with the Securities and Exchange addition to having the authority to
Number SR–BX–2015–037. This file
Commission (‘‘Commission’’), pursuant appoint one Lead Market Maker
number should be included on the (‘‘LMM’’) per option class,8 Rule 6.35(b)
subject line if email is used. To help the to section 19(b)(1) of the Securities
Exchange Act of 1934 (‘‘Act’’) 1 and Rule provides that ‘‘[t]he Exchange may
Commission process and review your appoint an unlimited number of Market
comments more efficiently, please use 19b–4 thereunder,2 a proposed rule
change to modify the Market Maker Makers in each class unless the number
only one method. The Commission will of Market Makers appointed to a
appointment and withdrawal process
post all comments on the Commission’s particular option class should be
used by the Exchange. The proposed
Internet Web site (http://www.sec.gov/ rule change was published for comment limited’’ based on the Exchange’s
rules/sro.shtml). Copies of the in the Federal Register on April 8, judgment.9 Further, current Rule 6.35(c)
submission, all subsequent 2015.3 On May 21, 2015, pursuant to provides that ‘‘Market Makers may
amendments, all written statements section 19(b)(2) of the Act,4 the select from among any option issues
with respect to the proposed rule Commission designated a longer period traded on the Exchange for inclusion in
change that are filed with the within which to approve the proposed their appointment, subject to the
Commission, and all written rule change, disapprove the proposed approval of the Exchange.’’ 10 In
communications relating to the rule change, or institute proceedings to considering the approval of the
proposed rule change between the determine whether to approve or appointment of a Market Maker in each
Commission and any person, other than disapprove the proposed rule change.5 security, ‘‘the Exchange will consider
those that may be withheld from the The Commission received no comment the Market Maker’s preference; the
public in accordance with the letters on the proposed rule change. financial resources available to the
This order approves the proposed rule Market Maker; the Market Maker’s
provisions of 5 U.S.C. 552, will be
change. experience, expertise and past
available for Web site viewing and
performance in making markets,
printing in the Commission’s Public II. Description of the Proposed Rule including the Market Maker’s
Reference Room, 100 F Street NE., Change performance in other securities; the
Washington, DC 20549–1090 on official Market Maker’s operational capability;
business days between the hours of The Exchange proposes to amend
Rule 6.35 to modify the options Market and the maintenance and enhancement
10:00 a.m. and 3:00 p.m. Copies of the of competition among Market Makers in
filing will also be available for Maker appointment and withdrawal
process used by the Exchange. Under each security in which they are
inspection and copying at the principal appointed.’’ 11 Current Rule 6.35 also
the proposal, once an option trading
office of the Exchange. All comments sets forth the number of OTPs that the
permit (‘‘OTP’’) holder has been
received will be posted without change; approved as a Market Maker under Market Maker must have in order to
the Commission does not edit personal Exchange Rule 6.33,6 the Market Maker have a specified number of option
identifying information from would, subject to certain conditions, be issues included in the Market Maker’s
submissions. You should submit only permitted to register rather than apply appointment.12
information that you wish to make for an appointment in one or more Under current Rule 6.35, ‘‘Market
available publicly. All submissions option classes, and would be permitted Makers may change the option issues in
should refer to File Number SR–BX– to select or withdraw option issues their appointment, subject to the
2015–037 and should be submitted on included in its appointment using an approval of the Exchange,’’ provided
or before July 27, 2015. Exchange-approved electronic interface. such requests are ‘‘made in a form and
The Exchange also proposes to include 7 See Notice, supra note 3, at 18909.
a Market Maker’s available financial 8 See Rule 6.82(a)(1) (defining ‘‘LMM’’). Any OTP
For the Commission, by the Division of
Trading and Markets, pursuant to delegated Holder or OTP Firm registered as a Market Maker
1 15
U.S.C. 78s(b)(1). with the Exchange is eligible to be qualified as an
authority.16 2 17
CFR 240.19b–4. LMM. Id. The Exchange is not proposing to change
Robert W. Errett, 3 See Securities Exchange Act Release No. 74635 Rule 6.82.
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(April 2, 2015), 80 FR 18909 (‘‘Notice’’). 9 See Notice, supra note 3, at 18909.
Deputy Secretary. 4 15 U.S.C. 78s(b)(2). 10 See id.
[FR Doc. 2015–16416 Filed 7–2–15; 8:45 am] 5 See Securities Exchange Act Release No. 75032, 11 See id.
BILLING CODE 8011–01–P 80 FR 30511 (May 28, 2015). 12 See id. For example, 1 OTP affords a Market
6 See Rule 6.33 (‘‘Registration of Market Makers’’). Maker up to 100 option issues included in their
See also Rule 6.32(a) (defining ‘‘Market Maker’’). appointment, whereas 4 OTPS would enable a
The Exchange is not proposing any changes to Rule Market Maker to have all option issues traded on
16 17 CFR 200.30–3(a)(12). 6.33. the Exchange included in their appointment. See id.
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![38484 Federal Register / Vol. 80, No. 128 / Monday, July 6, 2015 / Notices
manner prescribed by the Exchange.’’13 continue to have authority to appoint additions, changes, and withdrawals, is
In addition, ‘‘Market Makers may one LMM per option class.21 Similarly, designed to ensure that the request was
withdraw from trading an option issue an unlimited number of Market Makers properly made and also successfully
that is within their appointment by could continue to be appointed to an transmitted to the Exchange.28 Market
providing the Exchange with three options class, unless the Exchange Makers would be able to select issues in
business days’ written notice of such restricts such appointments following their appointment or make changes
withdrawal.’’ 14 If a Market Maker fails Commission review and approval.22 The thereto pursuant to proposed Rule
to provide the required notice, the Exchange would retain the ability to 6.35(c) by submitting an email to the
Market Maker ‘‘may be subject to formal suspend or terminate any appointment Exchange, which is currently ‘‘the
disciplinary action pursuant to Rule of a Market Maker if necessary to Exchange-approved electronic
10.’’ 15 Moreover, the Exchange ‘‘may maintain a fair and orderly market.23 interface.’’ 29
suspend or terminate any appointment In addition, the Exchange proposes to As noted above, paragraph (d) of
of a Market Maker in one or more option modify Rule 6.35(c) to provide that ‘‘[a] current Rule 6.35 sets forth the number
issues under this Rule whenever, in the Market Maker may select or withdraw of OTPs a Market Maker must have in
Exchanges’ judgment, the interests of a option issues included in their order to have a specified number of
fair and orderly market are best served appointment by submitting a request via option issues included in the Market
by such action.’’ 16 A Market Maker may an Exchange-approved electronic Maker’s appointment. The Exchange
seek review of any action taken by the interface with the Exchange on a day recently amended its fee schedule to
Exchange.17 when the Exchange is open for include this information on its Fee
The Exchange periodically evaluates business.’’ 24 The modified rule would Schedule and therefore is proposing to
whether Market Makers have fulfilled provide that a Market Maker’s requested delete the detailed information set forth
performance standards, relating to, appointment would become effective by in Rule 6.35(d) and instead state that
among other things, quality of markets, no later than the following business day, ‘‘[a] Market Maker must have the
competition of Market Makers, whereas a Market Maker’s request to number of OTPs required under the Fee
observance of ethical standards and withdraw option issues from its Schedule for its appointment as a
administrative factors.18 If the Exchange appointment would not become Market Maker in option issues.’’ 30
finds that a Market Maker has not met effective until the following business Proposed Rule 6.35(h) would provide
the performance standards, the day.25 Thus, a Market Maker could be that a Market Maker may seek review of
Exchange may take action, including appointed to an option issue on the any action taken by the Exchange under
suspending, terminating or restricting a same day it submits a request to the Rule 6.35.31
Market Maker’s appointment or Exchange, depending on the availability Pursuant to current Rule 6.35(j), the
registration, after providing the Market of Exchange resources to process the Exchange conducts periodic evaluations
Maker an opportunity to be heard.19 request that day, but such request, if of Market Makers to determine whether
properly made and received, would be they have fulfilled performance
B. Proposed Modifications
effective no later than the following standards. The Exchange proposes to
The Exchange proposes to modify the business day. A Market Maker, however, modify Rule 6.35(j)(1) to specify two
current appointment and withdrawal would not be able to withdraw an additional factors it may consider in
process. Specifically, the Exchange option issue from its appointment on evaluating whether a Market Maker has
proposes to modify Rule 6.35 to provide the same day that it submits the request; fulfilled performance standards
that, rather than apply for an instead, the Exchange would only pursuant to Rule 6.35(j): (1) The
appointment, ‘‘a Market Maker may process such requests on an overnight financial resources available to the
register for an appointment in one or basis for effectiveness on the following Market Maker and (2) the Market
more classes of option contracts,’’ in a business day. Also, before any changes Maker’s operational capability.32 These
form and manner prescribed the to a Market Maker’s appointment would factors are currently among the factors
Exchange.20 The Exchange would become effective, the Exchange would the Exchange considers when
be required to confirm that the Market determining whether to approve a
13 See id. In considering the change request, the
Maker’s appointment would not exceed Market Maker’s appointment.33 In
Exchange will consider the factors set forth in Rule
6.35(c). See id. at 18909, n.11. that permitted under paragraph (d) of connection with the other proposed
14 See Notice, supra note 3, at 18909. the rule, pertaining to the number of changes to the Market Maker
15 See Notice, supra note 3, at 18909–10. OTPs a Market Maker would be required appointment process, the Exchange
16 See id. at 18910.
to have,26 and also confirm receipt of proposes that these factors instead be
17 See id. Per Rule 6.35(i), Market Makers are also
the Market Maker’s request.27 According considered as part of the Exchange’s
subject to a trading requirement, such that ‘‘[a]t
least 75% of the trading activity of a Market Maker to the Exchange, the confirmation periodic evaluation of a Market Maker.
(measured in terms of contract volume per quarter) requirement, applicable to requests for Further, the Exchange proposes to
must be in classes within the Market Maker’s modify Rule 6.35(j)(2) to reflect the
appointment. A failure to comply with the 75% of OTPs set forth in Rule 6.35(d) in order to have proposed changes to the Market Maker
contract volume requirement may result in a fine a trading appointment on the Exchange. See
pursuant to Rule 10.12; however, if aggravating appointment process. Specifically, the
proposed Rule 6.35(d).
circumstances are present, formal disciplinary 21 See proposed Rule 6.35(b).
Exchange proposes to change the
action may be taken pursuant to Rule 10.4.’’ The 22 The Exchange is proposing a conforming reference to a Market Maker being ‘‘re-
Exchange is not proposing any changes to Rule
6.35(i). change to the text in Rule 6.35(b) to reflect the
18 See Notice, supra note 3, at 18911, n.34. proposed changes in Rule 6.35(a), to provide that 28 See Notice, supra note 3, at 18910.
19 See Notice, supra note 3, at 18910, n.17
‘‘[a]n unlimited number of Market Makers may 29 The Exchange will announce by Trader Update
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register in each class,’’ subject to any limits the email address that Market Makers should utilize
(describing current Rule 6.35(j)). If a Market Maker’s imposed by the Exchange. See proposed Rule to make selections in, or changes to, their
appointment in an option issue or issues has been 6.35(b). appointment pursuant to this Rule. See Notice,
terminated pursuant to Rule 6.35(j), the Market 23 See Rule 6.35(g).
Maker may not be re-appointed as a Market Maker supra note 3, at 18910, n.24.
24 See proposed Rule 6.35(c). 30 See proposed Rule 6.35(d).
in that option issue or issues for a period not to
25 Id. 31 See Notice, supra note 3, at 18911.
exceed 6 months. See id. at 18910, n.17.
20 See proposed Rule 6.35(a). As discussed above, 26 Id. 32 See proposed Rule 6.35(j).
a Market Maker must have the designated number 27 See id. 33 See Notice, supra note 3, at 18911.
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![Federal Register / Vol. 80, No. 128 / Monday, July 6, 2015 / Notices 38485
appointed’’ by the Exchange if an option and coordination with persons engaged and operational capability as factors the
issue or issues has been terminated in facilitating transactions in securities, Exchange may consider during its
pursuant to this subsection (j), and to to remove impediments to and perfect periodic evaluation of a Market Maker’s
instead provide that ‘‘the Exchange may the mechanism of a free and open performance, stating that these factors
restrict the Market Maker’s registration market and a national market system, are important considerations in
as a Market Maker in that option issue and, in general, to protect investors and evaluating a Market Maker’s
or issues for a period not to exceed 6 the public interest. The Exchange states performance, and that continued
months.’’ 34 The Exchange would retain that the proposed changes regarding consideration of these factors would
the discretion to suspend that Market how Market Makers select and modify remove impediments to and perfect the
Maker’s appointment in the affected their appointments would provide
mechanism of a free and open market
option issue(s) for a full six months, or Market Makers with more efficient
and would benefit investors and the
to allow that Market Maker to resume access to the securities in which they
that appointment earlier than the want to make markets, enabling them to public interest.43 The Commission
prescribed six-month period, based on quickly begin disseminating competitive further notes that the Exchange will
the Exchange’s evaluation of the facts quotations in those securities which continue to have authority to suspend or
and circumstances.35 would provide additional liquidity and terminate any appointment of a Market
Finally, the Exchange proposes enhanced competition in those Maker in one or more options issues
certain clarifying technical changes to securities on the Exchange.39 The whenever, in the Exchange’s judgment,
Rule 6.35 as well as certain conforming Exchange notes that the proposed rule the interests of a fair and orderly market
changes so that there is consistency change would enable Market Makers to are best served by such action.44 The
throughout the rule text. manage their appointments with more Exchange will also retain the ability to
III. Discussion and Commission flexibility and in a timelier manner, but restrict a Market Maker’s registration in
Findings that Market Makers still will be required option issues for up to six months if a
to comply with certain obligations to Market Maker’s appointment in that
After careful review, the Commission maintain their status as a Market Maker, option issue or issues has been
finds that the proposed rule change is including that they provide continuous, terminated under the rule, and Rule
consistent with the requirements of the two-sided quotations in their appointed 6.35 will continue to give the Exchange
Act 36 and the rules and regulations securities.40 The Exchange also believes
thereunder applicable to a national discretion to allow the Market Maker to
that preventing Market Makers from resume that appointment earlier than
securities exchange.37 In particular, the being able to withdraw an option issue
Commission finds that the proposed the prescribed six-month period or to
from its appointment on the same day
rule change is consistent with section maintain the suspension for the entire
that it submits the request (as such
6(b)(5) of the Act,38 which requires, period. Finally, the Exchange is not
requests, if properly made and received,
among other things, that the Exchange’s are processed on an overnight basis for proposing changes to the disciplinary
rules be designed to prevent fraudulent effectiveness the following business and appeals process for Market Makers
and manipulative acts and practices, to day) will serve to promote just and that do not meet minimum performance
promote just and equitable principles of equitable principles of trade and benefit standards.45
trade, to foster cooperation and investors and the public interest.41 Based on the foregoing, the
coordination with persons engaged in Further, before any changes to a Market Commission finds the proposed rule
facilitating transactions in securities, to Maker’s appointment become effective, change is consistent with the Act.
remove impediments to and perfect the the Exchange will be required to
mechanism of a free and open market confirm that the Market Maker’s IV. Conclusion
and a national market system, and, in appointment will not exceed the
general, to protect investors and the It is therefore ordered, pursuant to
number of OTPs a Market Maker is
public interest. section 19(b)(2) of the Act,46 that the
required to have and also will be
The Commission believes that the required to confirm receipt of the proposed rule change (SR–NYSEArca–
proposal to permit an OTP holder Market Maker’s request.42 2015–17) be, and hereby is, approved.
approved as a registered Market Maker The Commission notes that the For the Commission, by the Division of
pursuant to Exchange Rule 6.33 to Exchange has proposed to add a Market Trading and Markets, pursuant to delegated
register for and withdraw from options Maker’s available financial resources authority.47
appointments, subject to the proposed
Robert W. Errett,
conditions and in accordance with the 39 See Notice, supra note 3, at 18910. In addition,
other provisions of Rule 6.35, is the Exchange notes that other options exchanges Deputy Secretary.
reasonably designed to prevent permit market makers to select their appointments [FR Doc. 2015–16413 Filed 7–2–15; 8:45 am]
in a similar manner via exchange-approved
fraudulent and manipulative acts and electronic interfaces. See Notice, supra note 3, at BILLING CODE 8011–01–P
practices, to promote just and equitable 18911, n.28 (citing BATS Exchange, Inc. Rule
principles of trade, to foster cooperation 22.3(b) (‘‘An Options Market Maker may become
registered in a series by entering a registration
request via an Exchange approved electronic 43 See
34 See proposed Rule 6.35(j)(2) (‘‘If a Market
interface with the Exchange’s systems by 9:00 a.m. Notice, supra note 3, at 18912.
Maker’s appointment in an option issue or issues Eastern time. Registration shall become effective on 44 See Rule 6.35(g). See also Notice, supra note 3,
has been terminated pursuant to this subsection (j), the day the registration request is entered’’); and at 18912, n.40 and Rule 6.33 (regarding the
the Exchange may restrict the Market Maker’s NASDAQ Options Market, Chapter VII, Section 3(b) Exchange’s ability to suspend or terminate a Market
registration as a Market Maker in that option issue (‘‘An Options Market Maker may become registered Maker’s registration based on ‘‘a determination of
Lhorne on DSK7TPTVN1PROD with NOTICES
or issues for a period not to exceed 6 months.’’). in an option by entering a registration request via
35 See Notice, supra note 3, at 18911.
any substantial or continued failure by such Market
a Nasdaq approved electronic interface with Maker to engage in dealings in accordance with
36 15 U.S.C. 78f. Nasdaq’s systems. Registration shall become
Rules 6.37, 6.37A or 6.37B,’’ which outline the
37 In approving this proposed rule change, the effective on the day the registration request is
entered.’’). obligations of Market Makers).
Commission has considered the proposed rule’s
40 See Notice, supra note 3, at 18910. 45 See Notice, supra note 3, at 18912.
impact on efficiency, competition, and capital
46 15 U.S.C. 78s(b)(2).
formation. See 15 U.S.C. 78c(f). 41 See id. at 18912.
38 15 U.S.C. 78f(b)(5). 42 See text accompanying notes 26–27 supra. 47 17 CFR 200.30–3(a)(12).
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Document Created: 2015-12-15 13:17:52
Document Modified: 2015-12-15 13:17:52
| 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 38483 |
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