80 FR 68338 - Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change to Risk Monitor Mechanism
SECURITIES AND EXCHANGE COMMISSION Federal Register Volume 80, Issue 213 (November 4, 2015)
Federal Register Volume 80, Issue 213 (November 4, 2015)
| Page Range | 68338-68342 | |
| FR Document | 2015-28020 |
[Federal Register Volume 80, Number 213 (Wednesday, November 4, 2015)] [Notices] [Pages 68338-68342] From the Federal Register Online [www.thefederalregister.org] [FR Doc No: 2015-28020] ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION [Release No. 34-76295; File No. SR-Phlx-2015-83] Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change to Risk Monitor Mechanism October 29, 2015. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that on October 15, 2015, NASDAQ OMX PHLX LLC (``Phlx'' or ``Exchange'') filed with the Securities and Exchange Commission (``SEC'' or ``Commission'') the proposed rule change as described in Items I, II, and III, below, which Items have been prepared by the Exchange. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. --------------------------------------------------------------------------- \1\ 15 U.S.C. 78s(b)(1). \2\ 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 1093 entitled ``Phlx XL Risk Monitor Mechanism'' by reserving this rule and relocating the rule governing the Risk Monitor Mechanism into Phlx Rule 1095, entitled ``Automated Removal of Quotes'' which contains similar market maker \3\ risk monitor tools. The Exchange is also modifying [[Page 68339]] the language currently contained in Rule 1093. --------------------------------------------------------------------------- \3\ A ``Market Maker'' includes Registered Options Traders (``ROTs'') (Rule 1014(b)(i) and (ii)), which includes Streaming Quote Traders (``SQTs'') (see Rule 1014(b)(ii)(A)) and Remote Streaming Quote Traders (``RSQTs'') (see Rule 1014(b)(ii)(B)). An SQT is defined in Exchange Rule 1014(b)(ii)(A) as an ROT who has received permission from the Exchange to generate and submit option quotations electronically in options to which such SQT is assigned. An RSQT is defined in Exchange Rule 1014(b)(ii)(B) as an ROT that is a member or member organization with no physical trading floor presence who has received permission from the Exchange to generate and submit option quotations electronically in options to which such RSQT has been assigned. An RSQT may only submit such quotations electronically from off the floor of the Exchange. A Market Maker also includes a specialist, an Exchange member who is registered as an options specialist pursuant to Rule 1020(a). --------------------------------------------------------------------------- The text of the proposed rule change is available on the Exchange's Web site at http://nasdaqomxphlx.cchwallstreet.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 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 purpose of the filing is to relocate and amend the current rule text of the Risk Monitor Mechanism Rule in 1093.\4\ The Exchange is proposing to relocate the rule text into Rule 1095, which currently describes two other risk mechanisms offered to Market Makers today.\5\ Quoting across many series in an option creates the possibility of ``rapid fire'' executions that can create large, unintended principal positions that expose Market Makers, who are required to continuously quote in assigned options, to potentially significant market risk. The Risk Monitor Mechanism (hereinafter ``Percentage-Based Threshold'') permits Market Makers to monitor risk arising from multiple executions across multiple options series of a single underlying security. --------------------------------------------------------------------------- \4\ The proposed amendments will conform the rule text to the manner in which the Exchange's Phlx XL system (``System'') operates today. \5\ The two risk protections, Volume-Based Threshold and the Multi-Trigger Threshold, are Market Maker protections, similar to the Risk Monitor Mechanism to assist Market Makers to control their trading risks. --------------------------------------------------------------------------- The Exchange will require Market Makers to utilize either the Percentage-Based Threshold or the Volume-Based Threshold.\6\ The Multi- Trigger Threshold will be optional.\7\ Today, Market Makers are required to utilize the Percentage-Based Threshold. --------------------------------------------------------------------------- \6\ The Volume-Based Threshold is offered only to Market Makers. \7\ The Multi-Trigger Threshold is offered only to Market Makers. --------------------------------------------------------------------------- Current Rule Text in Rule 1093 Phlx Rule 1093 specifically describes the counting program that is maintained by the trading system (hereinafter ``System'') for each Phlx XL participant (hereinafter ``Market Maker''), in a particular option. Specifically, the counting program counts the number of contracts traded in an option by each Market Maker within a specified time period, not to exceed 15 seconds, established by each Market Maker, known in this rule as the ``specified time period.'' The specified time period commences for an option when a transaction occurs in any series in such option. The Exchange counts Specialized Quote Feed (``SQF'') \8\ quotes only in determining the number of contracts traded and removed by the System. When a Market Maker trades the Specified Engagement Size during the specified time period, the Percentage-Based Threshold is triggered \9\ and the System automatically removes such Market Maker's quotations from the Exchange's orders in all series of the particular option. The Percentage-Based Threshold is engaged when the counting program determines that the Issue Percentage equals or exceeds a percentage established by the Market Maker, not less than 100%. --------------------------------------------------------------------------- \8\ SQF permits the receipt of quotes. SQF Auction Responses and market sweeps are also not included. \9\ A trigger is defined as the event which causes the System to automatically remove all quotes in all options series in an underlying issue. --------------------------------------------------------------------------- The Specified Engagement Size is automatically offset by a number of contracts that are executed on the opposite side of the market in the same option issue during the specified time period known as the ``Net Offset Specified Engagement Size.'' Long call positions are only offset by short call positions, and long put positions are only offset by short put positions. The Percentage-Based Threshold is engaged once the Net Offset Specified Engagement Size represents a net number of contracts executed among all series in an option issue, during the specified time period, where the issue percentage is equal to or greater than the Specified Percentage.\10\ --------------------------------------------------------------------------- \10\ Any marketable orders or quotes that are executable against a Market Maker's disseminated quotation that are received prior to the time the Percentage-Based Threshold is engaged are automatically executed at the disseminated price up to the Market Maker's disseminated size, regardless of whether such an execution results in executions in excess of the Market Maker's Specified Engagement Size. In the event that the specialist's quote is removed by the Percentage-Based Threshold and there are no other Market Makers quoting in the particular option, the System will automatically provide two-sided quotes that comply with the Exchange's Rules concerning quote spread parameters on behalf of the specialist until such time as the specialist revises the quotation. All quotations generated by the Exchange on behalf of a specialist shall be considered ``firm quotations'' and shall be the obligation of the specialist. --------------------------------------------------------------------------- The System automatically resets the counting program and commences a new specified time period when: (i) A previous counting period has expired and a transaction occurs in any series in such option; or (ii) the Market Maker refreshes his/her quotation, in a series for which an order has been executed (thus commencing the specified time period) prior to the expiration of the specified time period. Proposed Rule The Exchange's amendments to the current rule text are described below in greater detail. The Exchange proposes to amend the current rule to first define a specialist, Streaming Quote Trader or Remote Streaming Quote Trader as a Market Maker and replace the term ``Phlx XL Participant'' with the term ``Market Maker.'' \11\ The proposed term ``Market Maker'' will be utilized throughout proposed Rule 1095(i). --------------------------------------------------------------------------- \11\ The Exchange automatically removes a Market Maker's quotes in all series of an underlying security submitted through designated Phlx protocols, as specified by the Exchange, during a specified time period established by the Market Maker not to exceed 15 seconds, this time period is not being amended. --------------------------------------------------------------------------- Counting Program Proposed Rule 1095(i) provides, as in the current rule, the Percentage-Based Threshold determines: (i) The percentage that the number of contracts executed in that series represents relative to the Market Maker's disseminated\12\ size of each side in that series (``Series Percentage''); and (ii) the sum of the Series Percentage in the option issue (``Issue Percentage''). An offset occurs during the Percentage-Based Specified Time Period.\13\ The Exchange proposes to amend the rule text in proposed Rule 1095(i) to state that the Percentage-Based Specified Time Period operates on a rolling basis among all series in an option in that there may be multiple Percentage- Based Specified Time Periods occurring simultaneously and such Percentage-Based Specified Time periods may overlap. The Exchange proposes to amend the rule text of proposed Rule 1095(i) to state that the Percentage- [[Page 68340]] Based Specified Time Period commences for an option every time an execution occurs in any series in such option and continues until the System removes quotes as described in current Rule 1095(iv), which is being amended to include the Percentage-Based Specified Time Period, or the Percentage-Based Specified Time Period expires. --------------------------------------------------------------------------- \12\ The disseminated size is the original size quoted by the Participant. \13\ A specified time period is established by the Market Maker and may not to exceed 15 seconds. See proposed Rule 1095(i). --------------------------------------------------------------------------- Rounding The Exchange proposes to add amended rule text to proposed Rule 1095(i) to state that if the Issue Percentage, rounded to the nearest integer, equals or exceeds a percentage established by a Market Maker, not less than 100% (``Specified Percentage''), the System automatically remove a Market Maker's quotes in all series of the underlying security submitted through designated Phlx protocols, as specified by the Exchange, during the Percentage-Based Specified Time Period.\14\ The current text of Rule 1093 states that the Percentage-Based Threshold is engaged when the counting program determines that the Issue Percentage equals or exceeds a percentage established by the Market Maker, not less than 100%. The Exchange's proposal adds amended rule text to proposed Rule 1095(i) to state, that if the Issue Percentage, rounded to the nearest integer, equals or exceeds a percentage established by the Market Maker, not less than 100% (``Specified Percentage''), the System automatically removes a Market Maker's quotes in all series of an underlying security submitted through designated Phlx protocols, as specified by the Exchange, during the Percentage-Based Specified Time Period. --------------------------------------------------------------------------- \14\ The System's count of the number of contracts executed is based on trading interest resting on the Exchange book. The Volume- Based Specified Time Period, in current Rule 1095(ii), designated by the Market Maker must be the same time period as designated for purposes of the Percentage-Based Threshold. The Exchange references protocols more specifically in this rule. The Exchange counts SQF quotes only in determining the number of contracts traded and removed by the System. See note 8. --------------------------------------------------------------------------- Today, the System tracks and calculates the net impact of positions in the same option issue during the Percentage-Based Specified Time Period. The System tracks transactions, i.e., the sum of buy-side put percentages, the sum of sell-side put percentages, the sum of buy-side call percentages, and the sum of sell-side call percentages, and then calculates the absolute value of the difference between the buy-side puts and the sell-side puts plus the absolute value of the difference between the buy-side calls and the sell-side calls. With this proposal, when these values are rounded, if that number is greater than the Specified Percentage, the Percentage-Based Threshold would be triggered. Reset The Exchange proposes to amend the manner in which the System resets. The System will automatically removes [sic] quotes in all option series of an underlying security when the Percentage-Based Threshold is reached and then the Percentage-Based Specified Time Period is reset. The System will send a Purge Notification Message \15\ to the Market Maker for all affected options when the threshold has been reached. Pursuant to this proposal, when the System removes quotes as a result of the Percentage-Based Threshold, the Market Maker will be required to send a re-entry indicator to re-enter the System.\16\ If a Market Maker requests the System to remove quotes in all options series in an underlying issue, the System will automatically reset the Percentage-Based Specified Time Period(s) and new Percentage-Based Specified Time Period(s) will commence for the Percentage-Based Threshold. With this proposal, when the System removes quotes as a result of the Percentage-Based Threshold, the Market Maker will be required to send a re-entry indicator to re-enter the System. The proposed rule text adds specificity to the manner in which the Market Maker re-enters the market after a trigger. --------------------------------------------------------------------------- \15\ A message entitled ``Purge Notification Message'' is systemically sent to the Market Maker upon the removal of quotes due to the Percentage-Based Threshold. See proposed Rule 1095(iii). \16\ The re-entry indicator must be marked as such to cause the System to reset. --------------------------------------------------------------------------- Firm Quote The Exchange represents that its proposal operates consistently with the firm quote obligations of a broker-dealer pursuant to Rule 602 of Regulation NMS. 2. Statutory Basis The Exchange believes that its proposal is consistent with Section 6(b) of the Act \17\ in general, and furthers the objectives of Section 6(b)(5) of the Act \18\ in particular, in that it is designed to promote just and equitable principles of trade, 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, by enhancing the risk protections available to Exchange members. Each of the proposed amendments does not raise a novel regulatory issue, rather these proposed amendments provide for operational transparency. --------------------------------------------------------------------------- \17\ 15 U.S.C. 78f(b). \18\ 15 U.S.C. 78f(b)(5). --------------------------------------------------------------------------- The proposed rule text continues to offer Market Makers a risk protection tool, in addition to other available risk tools,\19\ to decrease risk and increase stability. The Exchange offers this risk tool to Market Makers, in order to encourage them to provide as much liquidity as possible and encourage market making generally, the proposal removes impediments to and perfects the mechanism of a free and open market and a national market system and protect investors and the public interest. Further, it is important to note that any interest that is executable against a Market Maker's quotes that are received \20\ by the Exchange prior to the trigger of the Percentage-Based Threshold, which is processed by the System, automatically executes at the price up to the Market Maker's size. Further, the Purge Notification Message is accepted by the System in the order of receipt in the queue and is processed in that order so that interest that is already accepted into the System is processed prior to the message. --------------------------------------------------------------------------- \19\ See note 5. \20\ The time of receipt for an order or quote is the time such message is processed by the Exchange book. --------------------------------------------------------------------------- Counting Program The Exchange's amendment to the operation of the counting program to describe that it operates on rolling basis, with a time window after each transaction, not singular and sequential time segments is consistent with the Act because the purpose of the risk tool is to provide Market Makers with the ability to monitor its transactions. The proposed counting program provides a tracking method for Market Makers related to the specified time period. The System captures information to determine whether a removal of quotes is necessary. The proposed function of this counting program will enable the Exchange to provide the Market Maker with information relative to that Market Maker's interest currently at risk in the market. Rounding The Exchange's amendment which states that if the Issue Percentage, rounded to the nearest integer, equals or exceeds the Specified Percentage, the System automatically removes a Market Maker's quotes in all series of an underlying security is consistent with the Act because investors will be protected by providing Market Makers with a risk tool which allows Market Makers to properly set their risk [[Page 68341]] protections at a level that they are able to meet their obligations and also manage their risk. This specificity provides more detail so that Market Makers may properly set their risk controls. Understanding the manner in which the System will round is important in determining when the System will trigger a risk control. Also, today, Phlx discusses rounding in its Rulebook.\21\ Rounding to the nearest integer is not novel. --------------------------------------------------------------------------- \21\ See Phlx Rule at 1014 regarding Market Maker allocations. --------------------------------------------------------------------------- Reset The Exchange's proposal to amend the rule text related to resets provides guidance to Market Makers as to the manner in which they may re-enter the System after a removal of quotes. This amendment is consistent with the Act because the Exchange desires to provide Market Makers with access to the market at all times. Market Makers perform an important function in the marketplace and the Exchange desires to provide its market participants with access to the market. If the Market Maker is removed from the market due to a trigger of the Percentage-Based risk tool, the Exchange will permit re-entry to the market provided the Market Maker sends a re-entry indicator to re-enter the System. This is important because it informs the Exchange that the Market Maker is ready to re-enter the market. Also, the Exchange currently has risk mechanisms in place which provides guidance as to the manner in which a Market Maker may re-enter the System after a removal of quotes.\22\ --------------------------------------------------------------------------- \22\ See Phlx Rule 1095(vi). --------------------------------------------------------------------------- Quoting Obligations--Market Makers The Exchange further represents that the System operates consistently with the firm quote obligations of a broker-dealer pursuant to Rule 602 of Regulation NMS. Specifically, with respect to Market Makers, their obligation to provide continuous two-sided quotes on a daily basis is not diminished by the removal of such quotes by the Percentage-Based Threshold. Market Makers are required to provide continuous two-sided quotes on a daily basis.\23\ Market Makers that utilize the Percentage-Based Threshold will not be relieved of the obligation to provide continuous two-sided quotes on a daily basis, nor will it prohibit the Exchange from taking disciplinary action against a Market Maker for failing to meet the continuous quoting obligation each trading day. --------------------------------------------------------------------------- \23\ See Rule 1014 titled ``Obligations and Restrictions Applicable to Specialists and Registered Options Traders.'' --------------------------------------------------------------------------- Finally, the Exchange believes that its proposal to provide Market Makers the optionality to either select the Percentage-Based Threshold or Volume-Based Threshold as one of their risk tools will also protect investors and is consistent with the Act. Today, Market Makers are required to utilize the Percentage-Based Threshold. With this proposal, Market Makers will have the ability to select their mandatory risk as between the Percentage-Based Threshold or Volume-Based Threshold. B. Self-Regulatory Organization's Statement on Burden on Competition The Exchange does not believe that the proposed rule change will impose any burden on competition not necessary or appropriate in furtherance of the purposes of the Act. The Percentage-Based Threshold is meant to protect Market Makers from inadvertent exposure to excessive risk. Accordingly, this proposal will have no impact on competition. Specifically, the proposal does not impose a burden on intra-market or inter-market competition, rather, it provides Market Makers with the opportunity to avail themselves of similar risk tools which are currently available on other exchanges.\24\ Market Makers quote across many series in an option creates the possibility of ``rapid fire'' executions that can create large, unintended principal positions that expose Market Makers. The Percentage-Based Threshold permits Market Makers to monitor risk arising from multiple executions across multiple options series of a single underlying security. --------------------------------------------------------------------------- \24\ See Section 8 of the 19b-4. --------------------------------------------------------------------------- The Exchange is proposing this rule change to continue to permit Market Makers to reduce their risk in the event the Market Maker is suffering from a system issue or due to the occurrence of unusual or unexpected market activity. Reducing such risk will enable Market Makers to enter quotations without any fear of inadvertent exposure to excessive risk, which in turn will benefit investors through increased liquidity for the execution of their orders. Such increased liquidity benefits investors because they receive better prices and because it lowers volatility in the options market. Reducing risk by utilizing the proposed risk protections enables Market Makers, specifically, to enter quotations with larger size, which in turn will benefit investors through increased liquidity for the execution of their orders. Such increased liquidity benefits investors because they receive better prices and because it lowers volatility in the options market. Counting Program The Exchange's amendment to the operation of the counting program to describe that it operates on rolling basis, with a time window after each transaction, not singular and sequential time segments does not create an undue burden on competition, rather, it provides the Market Maker with clarity as to the manner in which the System counts quotes and thereby provides Market Makers with an increased ability to monitor transactions. Rounding The Exchange's amendment to add that if the Issue Percentage, rounded to the nearest integer, equals or exceeds the Specified Percentage, the System automatically removes a Market Maker's quotes in all series of an underlying security does not create an undue burden on competition because this amendment also provides the Market Maker with clarity as to the manner in which the System will remove quotes and thereby provides Market Makers with an increased ability to monitor transactions and set risk limits. Reset The amendment to the rule text concerning resetting does not create an undue burden on competition. The Exchange proposes to amend the manner in which a Market Maker may re-enter the System after a removal of quotes. This amendment provides information to Market Makers as to the procedure to re-enter the System after a trigger. This information is intended to provide Market Makers with access to the market. C. Self-Regulatory Organization's Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others No written comments were either solicited or received. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Because the foregoing proposed rule change does not: (i) Significantly affect the protection of investors or the public interest; (ii) impose any significant burden on competition; and (iii) become operative for 30 days from the date on which it was filed, or such shorter time as the Commission may designate, it has become effective pursuant to Section 19(b)(3)(A)(iii) of the Act \25\ and [[Page 68342]] subparagraph (f)(6) of Rule 19b-4 thereunder.\26\ --------------------------------------------------------------------------- \25\ 15 U.S.C. 78s(b)(3)(a)(iii). \26\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6) requires a self-regulatory organization to give the Commission written notice of its intent to file the proposed rule change at least five business days prior to the date of filing of the proposed rule change, or such shorter time as designated by the Commission. The Exchange has satisfied this requirement. --------------------------------------------------------------------------- At any time within 60 days of the filing of the proposed rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such action is: (i) Necessary or appropriate in the public interest; (ii) for the protection of investors; or (iii) otherwise in furtherance of the purposes of the Act. If the Commission takes such action, the Commission shall institute proceedings to determine whether the proposed rule should be approved or disapproved. IV. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: Electronic CommentsUse the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or Send an email to [email protected]. Please include File Number SR-Phlx-2015-83 on the subject line. Paper Comments Send paper comments in triplicate to Brent J. Fields, Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090. All submissions should refer to File Number SR-Phlx-2015-83. 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 Web site (http://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 Web site 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; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR-Phlx-2015-83 and should be submitted on or before November 25, 2015. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.\27\ --------------------------------------------------------------------------- \27\ 17 CFR 200.30-3(a)(12). --------------------------------------------------------------------------- Robert W. Errett, Deputy Secretary. [FR Doc. 2015-28020 Filed 11-3-15; 8:45 am] BILLING CODE 8011-01-P
![68338 Federal Register / Vol. 80, No. 213 / Wednesday, November 4, 2015 / Notices
members of FINRA, the amended Plan III. Discussion For the Commission, by the Division of
provides that the member’s DEA would Trading and Markets, pursuant to delegated
serve as the DREA, provided that the The Commission finds that the authority.14
DEA exchange operates a national proposed Plan is consistent with the Jill M. Peterson,
securities exchange or facility that factors set forth in Section 17(d) of the Assistant Secretary.
trades NMS stocks and the common Act 11 and Rule 17d–2(c) thereunder 12 [FR Doc. 2015–28068 Filed 11–3–15; 8:45 am]
member is a member of such exchange in that the proposed Plan is necessary BILLING CODE 8011–01–P
or facility. Section 1(c) of the amended or appropriate in the public interest and
Plan contains a list of proposed for the protection of investors, fosters
principles that would be applicable to cooperation and coordination among SECURITIES AND EXCHANGE
the allocation of common members in SROs, and removes impediments to and COMMISSION
cases not specifically addressed in the fosters the development of the national
Plan. An exchange that does not trade market system. In particular, the [Release No. 34–76295; File No. SR–Phlx–
NMS stocks would have no regulatory Commission believes that the proposed 2015–83]
authority for covered Regulation NMS Plan should reduce unnecessary Self-Regulatory Organizations;
rules pertaining to NMS stocks. For regulatory duplication by allocating to NASDAQ OMX PHLX LLC; Notice of
covered rules that pertain to NMS the applicable DREA certain Filing and Immediate Effectiveness of
securities, and thus include options examination and enforcement Proposed Rule Change to Risk Monitor
(i.e., Rule 606), the proposed amended responsibilities for Common Members Mechanism
Plan provides that the DREA will be the that would otherwise be performed by
same as the DREA for the rules multiple Parties. Accordingly, the October 29, 2015.
pertaining to NMS stocks. For common proposed Plan promotes efficiency by Pursuant to Section 19(b)(1) of the
members that are not members of an reducing costs to Common Members. Securities Exchange Act of 1934
exchange that trades NMS stocks, the Furthermore, because the Parties will (‘‘Act’’),1 and Rule 19b–4 thereunder,2
common member would be allocated coordinate their regulatory functions in notice is hereby given that on October
according to the principles set forth in accordance with the proposed Plan, the 15, 2015, NASDAQ OMX PHLX LLC
Section 1(c) of the Plan. Plan should promote investor (‘‘Phlx’’ or ‘‘Exchange’’) filed with the
The text of the Plan delineates the protection. Securities and Exchange Commission
proposed regulatory responsibilities (‘‘SEC’’ or ‘‘Commission’’) the proposed
The Commission is hereby declaring rule change as described in Items I, II,
with respect to the Parties. Included in
effective a plan that allocates regulatory and III, below, which Items have been
the proposed Plan is an exhibit (the
responsibility for certain provisions of prepared by the Exchange. The
‘‘Covered Regulation NMS Rules’’) that
the federal securities laws, rules, and Commission is publishing this notice to
lists the federal securities laws, rules,
and regulations, for which the regulations as set forth in Exhibit A to solicit comments on the proposed rule
applicable DREA would bear the Plan. The Commission notes that change from interested persons.
examination and enforcement any amendment to the Plan must be
I. Self-Regulatory Organization’s
responsibility under the proposed approved by the relevant Parties as set
Statement of the Terms of Substance of
amended Plan for Common Members of forth in Paragraph 22 of the Plan and the Proposed Rule Change
the Participating Organization and their must be filed with and approved by the
Commission before it may become The Exchange proposes to amend
associated persons.
effective.13 Rule 1093 entitled ‘‘Phlx XL Risk
Specifically, under the 17d–2 Plan, Monitor Mechanism’’ by reserving this
the applicable DREA would assume IV. Conclusion rule and relocating the rule governing
examination and enforcement the Risk Monitor Mechanism into Phlx
responsibility relating to compliance by This Order gives effect to the Plan Rule 1095, entitled ‘‘Automated
Common Members with the Covered filed with the Commission in File No. Removal of Quotes’’ which contains
Regulation NMS Rules. Covered 4–618. The Parties shall notify all similar market maker 3 risk monitor
Regulation NMS Rules would not members affected by the Plan of their tools. The Exchange is also modifying
include the application of any rule of a rights and obligations under the Plan.
Participating Organization, or any rule It is therefore ordered, pursuant to 14 17 CFR 200.30–3(a)(34).
or regulation under the Act, to the Section 17(d) of the Act, that the Plan 1 15 U.S.C. 78s(b)(1).
extent that it pertains to violations of in File No. 4–618 is hereby approved 2 17 CFR 240.19b–4.
insider trading activities, because such and declared effective.
3 A ‘‘Market Maker’’ includes Registered Options
matters are covered by a separate Traders (‘‘ROTs’’) (Rule 1014(b)(i) and (ii)), which
multiparty agreement under Rule It is further ordered that the Parties includes Streaming Quote Traders (‘‘SQTs’’) (see
Rule 1014(b)(ii)(A)) and Remote Streaming Quote
17d–2.9 Under the Plan, Participating who are not the DREA as to a particular Traders (‘‘RSQTs’’) (see Rule 1014(b)(ii)(B)). An
Organizations would retain full Common Member are relieved of those SQT is defined in Exchange Rule 1014(b)(ii)(A) as
responsibility for surveillance and regulatory responsibilities allocated to an ROT who has received permission from the
the Common Member’s DREA under the Exchange to generate and submit option quotations
enforcement with respect to trading electronically in options to which such SQT is
activities or practices involving their Plan to the extent of such allocation.
asabaliauskas on DSK5VPTVN1PROD with NOTICES
assigned. An RSQT is defined in Exchange Rule
own marketplace.10 1014(b)(ii)(B) as an ROT that is a member or
11 15 U.S.C. 78q(d). member organization with no physical trading floor
12 17 presence who has received permission from the
9 See Securities Exchange Act Release No. 58350 CFR 240.17d–2(c).
13 See Paragraph 22 of the Plan. The Commission
Exchange to generate and submit option quotations
(August 13, 2008), 73 FR 48247 (August 18, 2008) electronically in options to which such RSQT has
(File No. 4–566) (notice of filing of proposed plan). notes, however, that changes to Exhibit B to the been assigned. An RSQT may only submit such
See also Securities Exchange Act Release No. 58536 Plan (the allocation of Common Members to quotations electronically from off the floor of the
(September 12, 2008) (File No. 4–566) (order DREAs) are not required to be filed with, and Exchange. A Market Maker also includes a
approving and declaring effective the plan). approved by, the Commission before they become specialist, an Exchange member who is registered
10 See paragraph 1 of the proposed 17d–2 Plan. effective. as an options specialist pursuant to Rule 1020(a).
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![68340 Federal Register / Vol. 80, No. 213 / Wednesday, November 4, 2015 / Notices
Based Specified Time Period is greater than the Specified Percentage, proposed amendments provide for
commences for an option every time an the Percentage-Based Threshold would operational transparency.
execution occurs in any series in such be triggered. The proposed rule text continues to
option and continues until the System offer Market Makers a risk protection
Reset
removes quotes as described in current tool, in addition to other available risk
Rule 1095(iv), which is being amended The Exchange proposes to amend the tools,19 to decrease risk and increase
to include the Percentage-Based manner in which the System resets. The stability. The Exchange offers this risk
Specified Time Period, or the System will automatically removes [sic] tool to Market Makers, in order to
Percentage-Based Specified Time Period quotes in all option series of an encourage them to provide as much
expires. underlying security when the liquidity as possible and encourage
Percentage-Based Threshold is reached market making generally, the proposal
Rounding and then the Percentage-Based Specified removes impediments to and perfects
The Exchange proposes to add Time Period is reset. The System will the mechanism of a free and open
amended rule text to proposed Rule send a Purge Notification Message 15 to market and a national market system
1095(i) to state that if the Issue the Market Maker for all affected and protect investors and the public
Percentage, rounded to the nearest options when the threshold has been interest. Further, it is important to note
integer, equals or exceeds a percentage reached. Pursuant to this proposal, that any interest that is executable
established by a Market Maker, not less when the System removes quotes as a against a Market Maker’s quotes that are
than 100% (‘‘Specified Percentage’’), the result of the Percentage-Based received 20 by the Exchange prior to the
System automatically remove a Market Threshold, the Market Maker will be trigger of the Percentage-Based
Maker’s quotes in all series of the required to send a re-entry indicator to Threshold, which is processed by the
underlying security submitted through re-enter the System.16 If a Market Maker System, automatically executes at the
designated Phlx protocols, as specified requests the System to remove quotes in price up to the Market Maker’s size.
by the Exchange, during the Percentage- all options series in an underlying issue, Further, the Purge Notification Message
Based Specified Time Period.14 The the System will automatically reset the is accepted by the System in the order
current text of Rule 1093 states that the Percentage–Based Specified Time of receipt in the queue and is processed
Percentage-Based Threshold is engaged Period(s) and new Percentage-Based in that order so that interest that is
when the counting program determines Specified Time Period(s) will already accepted into the System is
that the Issue Percentage equals or commence for the Percentage-Based processed prior to the message.
exceeds a percentage established by the Threshold. With this proposal, when the
Market Maker, not less than 100%. The System removes quotes as a result of the Counting Program
Exchange’s proposal adds amended rule Percentage-Based Threshold, the Market The Exchange’s amendment to the
text to proposed Rule 1095(i) to state, Maker will be required to send a re- operation of the counting program to
that if the Issue Percentage, rounded to entry indicator to re-enter the System. describe that it operates on rolling basis,
the nearest integer, equals or exceeds a The proposed rule text adds specificity with a time window after each
percentage established by the Market to the manner in which the Market transaction, not singular and sequential
Maker, not less than 100% (‘‘Specified Maker re-enters the market after a time segments is consistent with the Act
Percentage’’), the System automatically trigger. because the purpose of the risk tool is
removes a Market Maker’s quotes in all Firm Quote to provide Market Makers with the
series of an underlying security The Exchange represents that its ability to monitor its transactions. The
submitted through designated Phlx proposal operates consistently with the proposed counting program provides a
protocols, as specified by the Exchange, firm quote obligations of a broker-dealer tracking method for Market Makers
during the Percentage-Based Specified pursuant to Rule 602 of Regulation related to the specified time period. The
Time Period. NMS.
Today, the System tracks and System captures information to
calculates the net impact of positions in 2. Statutory Basis determine whether a removal of quotes
the same option issue during the The Exchange believes that its is necessary. The proposed function of
Percentage-Based Specified Time proposal is consistent with Section 6(b) this counting program will enable the
Period. The System tracks transactions, of the Act 17 in general, and furthers the Exchange to provide the Market Maker
i.e., the sum of buy-side put with information relative to that Market
objectives of Section 6(b)(5) of the Act 18
percentages, the sum of sell-side put Maker’s interest currently at risk in the
in particular, in that it is designed to
percentages, the sum of buy-side call market.
promote just and equitable principles of
percentages, and the sum of sell-side trade, to remove impediments to and Rounding
call percentages, and then calculates the perfect the mechanism of a free and
absolute value of the difference between The Exchange’s amendment which
open market and a national market states that if the Issue Percentage,
the buy-side puts and the sell-side puts system, and, in general to protect
plus the absolute value of the difference rounded to the nearest integer, equals or
investors and the public interest, by exceeds the Specified Percentage, the
between the buy-side calls and the sell- enhancing the risk protections available
side calls. With this proposal, when System automatically removes a Market
to Exchange members. Each of the Maker’s quotes in all series of an
these values are rounded, if that number proposed amendments does not raise a underlying security is consistent with
asabaliauskas on DSK5VPTVN1PROD with NOTICES
novel regulatory issue, rather these the Act because investors will be
14 The System’s count of the number of contracts
executed is based on trading interest resting on the 15 A message entitled ‘‘Purge Notification
protected by providing Market Makers
Exchange book. The Volume-Based Specified Time
Message’’ is systemically sent to the Market Maker with a risk tool which allows Market
Period, in current Rule 1095(ii), designated by the Makers to properly set their risk
Market Maker must be the same time period as upon the removal of quotes due to the Percentage-
designated for purposes of the Percentage-Based Based Threshold. See proposed Rule 1095(iii).
16 The re-entry indicator must be marked as such 19 See
Threshold. The Exchange references protocols more note 5.
specifically in this rule. The Exchange counts SQF to cause the System to reset. 20 Thetime of receipt for an order or quote is the
17 15 U.S.C. 78f(b).
quotes only in determining the number of contracts time such message is processed by the Exchange
traded and removed by the System. See note 8. 18 15 U.S.C. 78f(b)(5). book.
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![68342 Federal Register / Vol. 80, No. 213 / Wednesday, November 4, 2015 / Notices
subparagraph (f)(6) of Rule 19b–4 Reference Room, 100 F Street NE., in terminology to Nasdaq Rule 4120,
thereunder.26 Washington, DC 20549, on official Nasdaq Rule 5615, and IM–5615–4.
At any time within 60 days of the business days between the hours of The text of the proposed rule change
filing of the proposed rule change, the 10:00 a.m. and 3:00 p.m. Copies of the is available at http://
Commission summarily may filing also will be available for nasdaq.cchwallstreet.com/, at Nasdaq’s
temporarily suspend such rule change if inspection and copying at the principal principal office, and at the
it appears to the Commission that such office of the Exchange. All comments Commission’s Public Reference Room.
action is: (i) Necessary or appropriate in received will be posted without change;
the public interest; (ii) for the protection the Commission does not edit personal II. Self-Regulatory Organization’s
of investors; or (iii) otherwise in identifying information from Statement of the Purpose of, and
furtherance of the purposes of the Act. submissions. You should submit only Statutory Basis for, the Proposed Rule
If the Commission takes such action, the information that you wish to make Change
Commission shall institute proceedings available publicly. In its filing with the Commission, the
to determine whether the proposed rule All submissions should refer to File Exchange included statements
should be approved or disapproved. Number SR–Phlx–2015–83 and should concerning the purpose of and basis for
be submitted on or before November 25, the proposed rule change and discussed
IV. Solicitation of Comments 2015. any comments it received on the
Interested persons are invited to For the Commission, by the Division of proposed rule change. The text of these
submit written data, views, and Trading and Markets, pursuant to delegated statements may be examined at the
arguments concerning the foregoing, authority.27 places specified in Item IV below. The
including whether the proposed rule Robert W. Errett, Exchange has prepared summaries, set
change is consistent with the Act. Deputy Secretary. forth in sections A, B, and C below, of
Comments may be submitted by any of [FR Doc. 2015–28020 Filed 11–3–15; 8:45 am] the most significant aspects of such
the following methods: BILLING CODE 8011–01–P statements.
Electronic Comments A. Self-Regulatory Organization’s
• Use the Commission’s Internet SECURITIES AND EXCHANGE Statement of the Purpose of, and
comment form (http://www.sec.gov/ COMMISSION Statutory Basis for, the Proposed Rule
rules/sro.shtml); or Change
• Send an email to rule-comments@ [Release No. 34–76297; File No. SR–
NASDAQ–2015–121] 1. Purpose
sec.gov. Please include File Number SR-
Phlx-2015–83 on the subject line. The Exchange proposes to amend
Self-Regulatory Organizations; The
Nasdaq Rule 5745 to replace references
Paper Comments NASDAQ Stock Market LLC; Notice of
to ‘‘ETMF Shares’’ with ‘‘NextShares,’’
Filing and Immediate Effectiveness of
• Send paper comments in triplicate and to make conforming changes in
Proposed Rule Change To Amend
to Brent J. Fields, Secretary, Securities terminology.3 As the marketplace for
Terminology in Nasdaq Rules 4120,
and Exchange Commission, 100 F Street exchange-traded managed funds has
5615 and 5745 and IM–5615–4
NE., Washington, DC 20549–1090. developed since the adoption of Nasdaq
All submissions should refer to File October 29, 2015. Rule 5745, market participants have
Number SR–Phlx–2015–83. This file Pursuant to Section 19(b)(1) of the been utilizing the term NextShares
number should be included on the Securities Exchange Act of 1934 instead of ETMF Shares. The Exchange
subject line if email is used. To help the (‘‘Act’’),1 and Rule 19b–4 thereunder,2 seeks to align the terminology of its
Commission process and review your notice is hereby given that on October rules with marketplace practices to help
comments more efficiently, please use 21, 2015, The NASDAQ Stock Market avoid potential confusion in
only one method. The Commission will LLC (‘‘Nasdaq’’ or the ‘‘Exchange’’) filed terminology for investors and market
post all comments on the Commission’s with the Securities and Exchange participants with respect to this new
Internet Web site (http://www.sec.gov/ Commission (‘‘Commission’’) the product.
rules/sro.shtml). proposed rule change as described in in Specifically, the Exchange would
Copies of the submission, all Items I, II, and III below, which Items replace references in Nasdaq Rule 5745
subsequent amendments, all written have been prepared by Nasdaq. The to ‘‘ETMF Shares’’ with ‘‘NextShares’’
statements with respect to the proposed Commission is publishing this notice to and to ‘‘ETMF’’ with ‘‘NextShares
rule change that are filed with the solicit comments on the proposed rule Fund.’’ The Exchange would make
Commission, and all written change from interested persons. corresponding changes in terminology
communications relating to the to other affected Nasdaq rules. The
I. Self-Regulatory Organization’s
proposed rule change between the Exchange believes that these proposed
Statement of the Terms of the Substance
Commission and any person, other than changes are non-controversial and
of the Proposed Rule Change
those that may be withheld from the technical in nature, and are consistent
public in accordance with the The Exchange proposes to amend with the Act.
provisions of 5 U.S.C. 552, will be Nasdaq Rule 5745 to replace the term
available for Web site viewing and ‘‘ETMF Shares’’ with ‘‘NextShares’’ and 2. Statutory Basis
asabaliauskas on DSK5VPTVN1PROD with NOTICES
printing in the Commission’s Public to make appropriate conforming Nasdaq Exchange believes the
changes in terminology. Consistent with proposed rule change is consistent with
26 17 CFR 240.19b–4(f)(6). In addition, Rule 19b– the proposed change in terminology in the Act and the rules and regulations
4(f)(6) requires a self-regulatory organization to give Nasdaq Rule 5745, the Exchange also thereunder, including the requirements
the Commission written notice of its intent to file proposes to make conforming changes
the proposed rule change at least five business days
prior to the date of filing of the proposed rule 3 The Commission approved Nasdaq Rule 5745 in
27 17 CFR 200.30–3(a)(12).
change, or such shorter time as designated by the Securities Exchange Act Release No. 34–73562
1 15 U.S.C. 78s(b)(1).
Commission. The Exchange has satisfied this (Nov. 7, 2014), 79 FR 68309 (Nov. 14, 2014) (SR–
requirement. 2 17 CFR 240.19b–4. NASDAQ–2014–020).
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Document Created: 2018-03-01 11:27:48
Document Modified: 2018-03-01 11:27:48
| 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 68338 |
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