80 FR 68595 - Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Relating to Risk Monitor Mechanism

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 80, Issue 214 (November 5, 2015)

Page Range		68595-68599
FR Document		2015-28143

Federal Register, Volume 80 Issue 214 (Thursday, November 5, 2015)

[Federal Register Volume 80, Number 214 (Thursday, November 5, 2015)]
[Notices]
[Pages 68595-68599]
From the Federal Register Online [www.thefederalregister.org]
[FR Doc No: 2015-28143]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-76316; File No. SR-NASDAQ-2015-122]

Self-Regulatory Organizations; The NASDAQ Stock Market LLC;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change
Relating to Risk Monitor Mechanism

October 30, 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 16, 2015, The NASDAQ Stock Market LLC (``NASDAQ'' 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 NASDAQ.
The Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change

NASDAQ proposes to amend Chapter VI, Section 19 entitled ``Risk
Monitor Mechanism'' by reserving this rule and relocating the rule
governing the Risk Monitor Mechanism into NOM Rule at Chapter VII,
Section 6(f)(i), entitled ``Market Maker Quotations'' which contains
similar market maker \3\ risk monitor tools. The Exchange is also
modifying the language currently contained in Chapter VI, Section 19.
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\3\ Pursuant to NOM Rules at Chapter VII, Section 5, entitled
``Obligations of Market Makers'', in registering as a market maker,
an Options Participant commits himself to various obligations.
Transactions of a NOM Market Maker must constitute a course of
dealings reasonably calculated to contribute to the maintenance of a
fair and orderly market, and Market Makers should not make bids or
offers or enter into transactions that are inconsistent with such
course of dealings. Further, all Market Makers are designated as
specialists on NOM for all purposes under the Act or rules
thereunder. See Chapter VII, Section 5.
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The text of the proposed rule change is available on the Exchange's
Web site at http://www.nasdaq.cchwallstreet.com, at the principal
office of the Exchange, and at the Commission's Public Reference Room.

[[Page 68596]]

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 at Chapter VI, Section 19.\4\ The
Exchange is proposing to relocate the rule text into Chapter VII,
Section 6, which currently describes two other risk mechanisms offered
to NOM 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 NOM 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 NOM Market Makers
to monitor risk arising from multiple executions across multiple
options series of a single underlying security.
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\4\ The proposed amendments will conform the rule text to the
manner in which the System operates today.
\5\ The two risk protections, Volume-Based Threshold and the
Multi-Trigger Threshold, are NOM Market Maker protections, similar
to the Risk Monitor Mechanism to assist NOM Market Makers to control
their trading risks.
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The Exchange will require NOM Market Makers to utilize either the
Percentage-Based Threshold or the Volume-Based Threshold.\6\ The Multi-
Trigger Threshold will be optional.\7\ Today, NOM Market Makers are
required to utilize the Percentage-Based Threshold.
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\6\ The Volume-Based Threshold is offered only to NOM Market
Makers.
\7\ The Multi-Trigger Threshold is offered only to NOM Market
Makers.
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Current Rule Text in Chapter VI, Section 19
NOM Rules at Chapter VI, Section 19 specifically describes the
counting program that is maintained by the System for each Participant
in a particular option. Specifically, the counting program counts the
number of contracts traded in an option by each Participant within a
specified time period, not to exceed 15 seconds, established by each
Participant 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 and OTTO \9\ orders only in
determining the number of contracts traded and removed by the System.
When a Participant trades the Specified Engagement Size during the
specified time period, the Percentage-Based Threshold is triggered \10\
and the System automatically removes such Participant'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 Participant, not less than 100%.
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\8\ SQF permits the receipt of quotes. SQF Auction Responses and
market sweeps are also not included.
\9\ OTTO immediate or cancel orders will not be included. OTTO
provides a method for subscribers to send orders and receive status
updates on those orders. OTTO accepts limit orders from System
subscribers, and if there is a matching order, the orders will
execute. Non-matching orders are added to the limit order book, a
database of available limit orders, where they are matched. All NOM
Participants have the ability to utilize OTTO; although non-NOM
Market Makers are automatically set at a default value. OTTO does
not permit non-NOM Market Makers to adjust the default setting. NOM
Market Makers are able to adjust the setting.
\10\ A trigger is defined as the event which causes the System
to automatically remove all quotes and orders in all options series
in an underlying issue.
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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.\11\
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\11\ Any marketable orders or quotes that are executable against
a Participant'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 Participant's
disseminated size, regardless of whether such an execution results
in executions in excess of the Participant's Specified Engagement
Size. In the event that the specialist's quote is removed by the
Percentage-Based Threshold and there are no other Participants
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.
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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 Participant 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 offer the Percentage-Based Threshold to NOM Market Makers
only. Today, the Percentage-Based Threshold is offered to all
Participants. No other market participants, other than NOM Market
Makers, currently utilize the Percentage-Based Threshold today.\12\ The
proposed term ``NOM Market Maker'' will be utilized throughout proposed
Chapter VII, Section 6(f)(i).
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\12\ The System counts SQF quotes and OTTO orders. See notes 8
and 9.
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Counting Program
Proposed Rule Chapter VII, Section 6(f)(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 \13\ 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.\14\
The Exchange proposes to amend the rule text in proposed Rule Chapter
VII, Section 6(f)(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

[[Page 68597]]

Time periods may overlap. The Exchange proposes to amend the rule text
of proposed Rule Chapter VII, Section 6(f)(i) to state that the
Percentage-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 and orders as described in current
Chapter VII, Section 6(f)(iv), which is being amended to include the
Percentage-Based Specified Time Period, or the Percentage-Based
Specified Time Period expires.
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\13\ The disseminated size is the original size quoted by the
Participant.
\14\ A specified time period is established by the NOM Market
Maker and may not to exceed 15 seconds. See proposed Chapter VII,
Section 6(f)(i).
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Rounding
The Exchange proposes to add amended rule text to proposed Rule
Chapter VII, Section 6(f)(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 removes a Market Maker's quotes
in all series of the underlying security submitted through designated
NOM protocols, as specified by the Exchange, during the Percentage-
Based Specified Time Period.\15\ The current text of Chapter IV,
Section 6 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
Chapter VII, Section 6(f)(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
and orders in all series of an underlying security submitted through
designated NASDAQ protocols, as specified by the Exchange, during the
Percentage-Based Specified Time Period.
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\15\ 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 Chapter VII, Section
6(f)(ii), designated by the NOM 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 and OTTO orders only in determining
the number of contracts traded and removed by the System. See notes
8 and 9.
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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 remove quotes and orders 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 \16\
to the Market Maker for all affected options when the threshold has
been reached. Pursuant to this proposal, when the System removes quotes
and orders 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.\17\ If a Market Maker requests the System to remove quotes and
orders 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 and orders 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.
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\16\ A message entitled ``Purge Notification Message'' is
systemically sent to the NOM Market Maker upon the removal of quotes
and orders due to the Percentage-Based Threshold. See proposed
Chapter VI, Section 6(f)(iii).
\17\ The re-entry indicator must be marked as such to cause the
System to reset.
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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 \18\ in general, and furthers the objectives of Section
6(b)(5) of the Act \19\ 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 do not raise a novel
regulatory issue, rather these proposed amendments provide for
operational transparency.
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\18\ 15 U.S.C. 78f(b).
\19\ 15 U.S.C. 78f(b)(5).
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The proposed rule text continues to offer NOM Market Makers a risk
protection tool, in addition to other available risk tools,\20\ to
decrease risk and increase stability. The Exchange offers this risk
tool to NOM 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 NOM Market Maker's quotes and orders that
are received \21\ 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.
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\20\ See note 5.
\21\ The time of receipt for an order or quote is the time such
message is processed by the Exchange book.
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Offering the Risk Tool to Market Makers
The Exchange believes that offering the risk tool to NOM Market
Makers as compared to all Participants is just and equitable because
quoting across many series in an option creates the possibility of
``rapid fire'' executions that can create large, unintended principal
positions that expose NOM Market Makers, who are required to
continuously quote in assigned options, to potentially significant
market risk. The Percentage-Based Threshold permits NOM Market Makers
to monitor risk arising from multiple executions across multiple
options series of a single underlying security. Other NOM Participants
do not bear the burden of the risk and do not have the obligations that
NOM Market Makers are obligated by rule to comply with on a continuous
basis.\22\ Also, NOM Market Makers are

[[Page 68598]]

the only participants that utilize the risk tool today and therefore no
other market participant is being denied access to this risk tool.
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\22\ See note 3.
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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 NOM Market Makers with the ability to monitor its transactions.
The proposed counting program provides a tracking method for NOM Market
Makers related to the specified time period. The System captures
information to determine whether a removal of quotes and orders is
necessary. The proposed function of this counting program will enable
the Exchange to provide the NOM Market Maker with information relative
to that NOM 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
and orders in all series of an underlying security is consistent with
the Act because investors will be protected by providing NOM Market
Makers with a risk tool which allows NOM Market Makers to properly set
their risk protections at a level that they are able to meet their
obligations and also manage their risk. This specificity provides more
detail so that NOM 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,
NOM discusses rounding in its Rulebook.\23\ Rounding to the nearest
integer is not novel.
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\23\ See NOM Rules at Chapter VII, Section 5 regarding Market
Maker allocations.
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Reset
The Exchange's proposal to amend the rule text related to resets
provides guidance to NOM Market Makers as to the manner in which they
may re-enter the System after a removal of quotes and orders. This
amendment is consistent with the Act because the Exchange desires to
provide NOM Market Makers with access to the market at all times. NOM
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 provide guidance
as to the manner in which a Market Maker may re-enter the System after
a removal of quotes and orders.\24\
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\24\ See NOM Chapter VI, Section 6(f)(vi).
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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
NOM 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. NOM Market Makers are required to
provide continuous two-sided quotes on a daily basis.\25\ NOM 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.
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\25\ See note 3.
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Finally, the Exchange believes that its proposal to provide NOM
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, NOM
Market Makers are required to utilize the Percentage-Based Threshold.
With this proposal, NOM 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 NOM 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 NOM
Market Makers with the opportunity to avail themselves of similar risk
tools which are currently available on other exchanges.\26\ NOM 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 NOM Market Makers. The Percentage-Based Threshold
permits NOM Market Makers to monitor risk arising from multiple
executions across multiple options series of a single underlying
security.
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\26\ See Section 8 of the 19b4.
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The Exchange is proposing this rule change to continue to permit
NOM 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 NOM 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 NOM 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.
Offering the Risk Tool to Market Makers
The Exchange believes that offering the risk tool to NOM Market
Makers as compared to all Participants does not create an undue burden
on competition because other NOM Participants do not bear the burden of
the risk and do not have the obligations that NOM Market Makers are
obligated by rule to comply with on a continuous basis.\27\ Also, NOM
Market Makers are the only participants that utilize the risk tool
today and therefore no other market participant is being denied access
to this risk tool.
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\27\ See note 3.
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[[Page 68599]]

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 orders and thereby provides NOM 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
and orders 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 orders and thereby provides NOM 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 and orders. This amendment provides information to NOM Market
Makers as to the procedure to re-enter the System after a trigger. This
information is intended to provide NOM 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 \28\ and
subparagraph (f)(6) of Rule 19b-4 thereunder.\29\
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\28\ 15 U.S.C. 78s(b)(3)(a)(iii).
\29\ 17 CFR 240.19b-4(f)(6).
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At any time within 60 days of the filing of the proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is: (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. The Exchange has
provided the Commission written notice of its intent to file the
proposed rule change, along with a brief description and text of the
proposed rule change, at least five business days prior to the date of
filing of the proposed rule change.

IV. Solicitation of Comments

Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:

Electronic Comments

Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
Send an email to rule-comments@sec.gov. Please include
File Number SR-NASDAQ-2015-122 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-NASDAQ-2015-122. 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-NASDAQ-2015-122 and should
be submitted on or before November 27, 2015.

For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\30\
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\30\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2015-28143 Filed 11-4-15; 8:45 am]
BILLING CODE 8011-01-P

Federal Register / Vol. 80, No. 214 / Thursday, November 5, 2015 / Notices 68597

Time periods may overlap. The call percentages, and then calculates the promote just and equitable principles of
Exchange proposes to amend the rule absolute value of the difference between trade, to remove impediments to and
text of proposed Rule Chapter VII, the buy-side puts and the sell-side puts perfect the mechanism of a free and
Section 6(f)(i) to state that the plus the absolute value of the difference open market and a national market
Percentage-Based Specified Time Period between the buy-side calls and the sell- system, and, in general to protect
commences for an option every time an side calls. With this proposal, when investors and the public interest, by
execution occurs in any series in such these values are rounded, if that number enhancing the risk protections available
option and continues until the System is greater than the Specified Percentage, to Exchange members. Each of the
removes quotes and orders as described the Percentage-Based Threshold would proposed amendments do not raise a
in current Chapter VII, Section 6(f)(iv), be triggered. novel regulatory issue, rather these
which is being amended to include the proposed amendments provide for
Percentage-Based Specified Time Reset
operational transparency.
Period, or the Percentage-Based The Exchange proposes to amend the The proposed rule text continues to
Specified Time Period expires. manner in which the System resets. The offer NOM Market Makers a risk
System will automatically remove protection tool, in addition to other
Rounding
quotes and orders in all option series of available risk tools,20 to decrease risk
The Exchange proposes to add an underlying security when the and increase stability. The Exchange
amended rule text to proposed Rule Percentage-Based Threshold is reached offers this risk tool to NOM Market
Chapter VII, Section 6(f)(i) to state that and then the Percentage-Based Specified Makers, in order to encourage them to
if the Issue Percentage, rounded to the Time Period is reset. The System will provide as much liquidity as possible
nearest integer, equals or exceeds a send a Purge Notification Message 16 to and encourage market making generally,
percentage established by a Market the Market Maker for all affected the proposal removes impediments to
Maker, not less than 100% (‘‘Specified options when the threshold has been and perfects the mechanism of a free
Percentage’’), the System automatically reached. Pursuant to this proposal, and open market and a national market
removes a Market Maker’s quotes in all when the System removes quotes and system and protect investors and the
series of the underlying security orders as a result of the Percentage- public interest. Further, it is important
submitted through designated NOM Based Threshold, the Market Maker will to note that any interest that is
protocols, as specified by the Exchange, be required to send a re-entry indicator executable against a NOM Market
during the Percentage-Based Specified to re-enter the System.17 If a Market Maker’s quotes and orders that are
Time Period.15 The current text of Maker requests the System to remove received 21 by the Exchange prior to the
Chapter IV, Section 6 states that the quotes and orders in all options series trigger of the Percentage-Based
Percentage-Based Threshold is engaged in an underlying issue, the System will Threshold, which is processed by the
when the counting program determines automatically reset the Percentage- System, automatically executes at the
that the Issue Percentage equals or Based Specified Time Period(s) and new price up to the Market Maker’s size.
exceeds a percentage established by the Percentage-Based Specified Time Further, the Purge Notification Message
Market Maker, not less than 100%. The Period(s) will commence for the is accepted by the System in the order
Exchange’s proposal adds amended rule Percentage-Based Threshold. With this of receipt in the queue and is processed
text to proposed Rule Chapter VII, proposal, when the System removes in that order so that interest that is
Section 6(f)(i) to state, that if the Issue quotes and orders as a result of the
Percentage, rounded to the nearest already accepted into the System is
Percentage-Based Threshold, the Market processed prior to the message.
integer, equals or exceeds a percentage Maker will be required to send a re-
established by the Market Maker, not entry indicator to re-enter the System. Offering the Risk Tool to Market Makers
less than 100% (‘‘Specified The proposed rule text adds specificity The Exchange believes that offering
Percentage’’), the System automatically to the manner in which the Market the risk tool to NOM Market Makers as
removes a Market Maker’s quotes and
Maker re-enters the market after a compared to all Participants is just and
orders in all series of an underlying
trigger. equitable because quoting across many
security submitted through designated
Firm Quote series in an option creates the
NASDAQ protocols, as specified by the
possibility of ‘‘rapid fire’’ executions
Exchange, during the Percentage-Based The Exchange represents that its
Specified Time Period. that can create large, unintended
proposal operates consistently with the principal positions that expose NOM
Today, the System tracks and firm quote obligations of a broker-dealer
calculates the net impact of positions in Market Makers, who are required to
pursuant to Rule 602 of Regulation continuously quote in assigned options,
the same option issue during the NMS.
Percentage-Based Specified Time to potentially significant market risk.
Period. The System tracks transactions, 2. Statutory Basis The Percentage-Based Threshold
i.e., the sum of buy-side put permits NOM Market Makers to monitor
The Exchange believes that its risk arising from multiple executions
percentages, the sum of sell-side put proposal is consistent with Section 6(b)
percentages, the sum of buy-side call across multiple options series of a single
of the Act 18 in general, and furthers the underlying security. Other NOM
percentages, and the sum of sell-side objectives of Section 6(b)(5) of the Act 19 Participants do not bear the burden of
in particular, in that it is designed to the risk and do not have the obligations
15 The System’s count of the number of contracts

executed is based on trading interest resting on the that NOM Market Makers are obligated
jstallworth on DSK7TPTVN1PROD with NOTICES

16 A message entitled ‘‘Purge Notification
Exchange book. The Volume-Based Specified Time
Message’’ is systemically sent to the NOM Market
by rule to comply with on a continuous
Period, in current Chapter VII, Section 6(f)(ii), basis.22 Also, NOM Market Makers are
designated by the NOM Market Maker must be the Maker upon the removal of quotes and orders due
same time period as designated for purposes of the to the Percentage-Based Threshold. See proposed
Percentage-Based Threshold. The Exchange Chapter VI, Section 6(f)(iii). 20 See note 5.
17 The re-entry indicator must be marked as such 21 The
references protocols more specifically in this rule. time of receipt for an order or quote is the
The Exchange counts SQF quotes and OTTO orders to cause the System to reset. time such message is processed by the Exchange
18 15 U.S.C. 78f(b). book.
only in determining the number of contracts traded
and removed by the System. See notes 8 and 9. 19 15 U.S.C. 78f(b)(5). 22 See note 3.

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68598 Federal Register / Vol. 80, No. 214 / Thursday, November 5, 2015 / Notices

the only participants that utilize the risk market participants with access to the proposal does not impose a burden on
tool today and therefore no other market market. If the Market Maker is removed intra-market or inter-market
participant is being denied access to this from the market due to a trigger of the competition, rather, it provides NOM
risk tool. Percentage-Based risk tool, the Market Makers with the opportunity to
Exchange will permit re-entry to the avail themselves of similar risk tools
Counting Program
market provided the Market Maker which are currently available on other
The Exchange’s amendment to the sends a re-entry indicator to re-enter the exchanges.26 NOM Market Makers quote
operation of the counting program to System. This is important because it across many series in an option creates
describe that it operates on rolling basis, informs the Exchange that the Market the possibility of ‘‘rapid fire’’ executions
with a time window after each Maker is ready to re-enter the market. that can create large, unintended
transaction, not singular and sequential Also, the Exchange currently has risk principal positions that expose NOM
time segments is consistent with the Act mechanisms in place which provide Market Makers. The Percentage-Based
because the purpose of the risk tool is guidance as to the manner in which a Threshold permits NOM Market Makers
to provide NOM Market Makers with Market Maker may re-enter the System to monitor risk arising from multiple
the ability to monitor its transactions. after a removal of quotes and orders.24 executions across multiple options
The proposed counting program series of a single underlying security.
Quoting Obligations—Market Makers The Exchange is proposing this rule
provides a tracking method for NOM
Market Makers related to the specified The Exchange further represents that change to continue to permit NOM
time period. The System captures the System operates consistently with Market Makers to reduce their risk in
information to determine whether a the firm quote obligations of a broker- the event the Market Maker is suffering
removal of quotes and orders is dealer pursuant to Rule 602 of from a system issue or due to the
necessary. The proposed function of this Regulation NMS. Specifically, with occurrence of unusual or unexpected
counting program will enable the respect to NOM Market Makers, their market activity. Reducing such risk will
Exchange to provide the NOM Market obligation to provide continuous two- enable NOM Market Makers to enter
Maker with information relative to that sided quotes on a daily basis is not quotations without any fear of
NOM Market Maker’s interest currently diminished by the removal of such inadvertent exposure to excessive risk,
at risk in the market. quotes by the Percentage-Based which in turn will benefit investors
Threshold. NOM Market Makers are through increased liquidity for the
Rounding required to provide continuous two- execution of their orders. Such
The Exchange’s amendment which sided quotes on a daily basis.25 NOM increased liquidity benefits investors
states that if the Issue Percentage, Market Makers that utilize the because they receive better prices and
rounded to the nearest integer, equals or Percentage-Based Threshold will not be because it lowers volatility in the
exceeds the Specified Percentage, the relieved of the obligation to provide options market. Reducing risk by
System automatically removes a Market continuous two-sided quotes on a daily utilizing the proposed risk protections
Maker’s quotes and orders in all series basis, nor will it prohibit the Exchange enables NOM Market Makers,
of an underlying security is consistent from taking disciplinary action against a specifically, to enter quotations with
with the Act because investors will be Market Maker for failing to meet the larger size, which in turn will benefit
protected by providing NOM Market continuous quoting obligation each investors through increased liquidity for
Makers with a risk tool which allows trading day. the execution of their orders. Such
NOM Market Makers to properly set Finally, the Exchange believes that its increased liquidity benefits investors
their risk protections at a level that they proposal to provide NOM Market because they receive better prices and
are able to meet their obligations and Makers the optionality to either select because it lowers volatility in the
also manage their risk. This specificity the Percentage-Based Threshold or options market.
provides more detail so that NOM Volume-Based Threshold as one of their
Market Makers may properly set their risk tools will also protect investors and Offering the Risk Tool to Market Makers
risk controls. Understanding the manner is consistent with the Act. Today, NOM The Exchange believes that offering
in which the System will round is Market Makers are required to utilize the risk tool to NOM Market Makers as
important in determining when the the Percentage-Based Threshold. With compared to all Participants does not
System will trigger a risk control. Also, this proposal, NOM Market Makers will create an undue burden on competition
today, NOM discusses rounding in its have the ability to select their because other NOM Participants do not
Rulebook.23 Rounding to the nearest mandatory risk as between the bear the burden of the risk and do not
integer is not novel. Percentage-Based Threshold or Volume- have the obligations that NOM Market
Based Threshold. Makers are obligated by rule to comply
Reset with on a continuous basis.27 Also,
The Exchange’s proposal to amend B. Self-Regulatory Organization’s
NOM Market Makers are the only
the rule text related to resets provides Statement on Burden on Competition
participants that utilize the risk tool
guidance to NOM Market Makers as to The Exchange does not believe that today and therefore no other market
the manner in which they may re-enter the proposed rule change will impose participant is being denied access to this
the System after a removal of quotes and any burden on competition not risk tool.
orders. This amendment is consistent necessary or appropriate in furtherance
with the Act because the Exchange of the purposes of the Act. The Counting Program
jstallworth on DSK7TPTVN1PROD with NOTICES

desires to provide NOM Market Makers Percentage-Based Threshold is meant to The Exchange’s amendment to the
with access to the market at all times. protect NOM Market Makers from operation of the counting program to
NOM Market Makers perform an inadvertent exposure to excessive risk. describe that it operates on rolling basis,
important function in the marketplace Accordingly, this proposal will have no with a time window after each
and the Exchange desires to provide its impact on competition. Specifically, the transaction, not singular and sequential

23 See NOM Rules at Chapter VII, Section 5 24 See NOM Chapter VI, Section 6(f)(vi). 26 See Section 8 of the 19b4.
regarding Market Maker allocations. 25 See note 3. 27 See note 3.

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Federal Register / Vol. 80, No. 214 / Thursday, November 5, 2015 / Notices 68599

time segments does not create an undue temporarily suspend such rule change if office of the Exchange. All comments
burden on competition, rather, it it appears to the Commission that such received will be posted without change;
provides the Market Maker with clarity action is: (i) Necessary or appropriate in the Commission does not edit personal
as to the manner in which the System the public interest; (ii) for the protection identifying information from
counts quotes and orders and thereby of investors; or (iii) otherwise in submissions. You should submit only
provides NOM Market Makers with an furtherance of the purposes of the Act. information that you wish to make
increased ability to monitor If the Commission takes such action, the available publicly. All submissions
transactions. Commission shall institute proceedings should refer to File Number SR–
to determine whether the proposed rule NASDAQ–2015–122 and should be
Rounding should be approved or disapproved. The submitted on or before November 27,
The Exchange’s amendment to add Exchange has provided the Commission 2015.
that if the Issue Percentage, rounded to written notice of its intent to file the For the Commission, by the Division of
the nearest integer, equals or exceeds proposed rule change, along with a brief Trading and Markets, pursuant to delegated
the Specified Percentage, the System description and text of the proposed authority.30
automatically removes a Market Maker’s rule change, at least five business days Jill M. Peterson,
quotes and orders in all series of an prior to the date of filing of the Assistant Secretary.
underlying security does not create an proposed rule change.
[FR Doc. 2015–28143 Filed 11–4–15; 8:45 am]
undue burden on competition because
IV. Solicitation of Comments BILLING CODE 8011–01–P
this amendment also provides the
Market Maker with clarity as to the Interested persons are invited to
manner in which the System will submit written data, views, and
remove quotes and orders and thereby arguments concerning the foregoing, DEPARTMENT OF TRANSPORTATION
provides NOM Market Makers with an including whether the proposed rule
change is consistent with the Act. Federal Aviation Administration
increased ability to monitor transactions
and set risk limits. Comments may be submitted by any of
Aviation Rulemaking Advisory
the following methods:
Reset Committee—New Task
Electronic Comments
The amendment to the rule text AGENCY: Federal Aviation
concerning resetting does not create an • Use the Commission’s Internet Administration (FAA), DOT.
undue burden on competition. The comment form (http://www.sec.gov/ ACTION: Notice of a new task assignment
Exchange proposes to amend the rules/sro.shtml); or for the Aviation Rulemaking Advisory
manner in which a Market Maker may • Send an email to rule-comments@ Committee.
re-enter the System after a removal of sec.gov. Please include File Number SR–
quotes and orders. This amendment NASDAQ–2015–122 on the subject line. SUMMARY: The FAA assigned the
provides information to NOM Market Paper Comments Aviation Rulemaking Advisory
Makers as to the procedure to re-enter Committee (ARAC) a new task to
• Send paper comments in triplicate provide recommendations regarding
the System after a trigger. This to Brent J. Fields, Secretary, Securities
information is intended to provide NOM occupant protection rulemaking in
and Exchange Commission, 100 F Street normal and transport category rotorcraft
Market Makers with access to the NE., Washington, DC 20549–1090.
market. for older certification basis type designs
All submissions should refer to File that are still in production. The FAA
C. Self-Regulatory Organization’s Number SR–NASDAQ–2015–122. This amended regulations to incorporate
Statement on Comments on the file number should be included on the occupant protection rules, including
Proposed Rule Change Received From subject line if email is used. To help the those for emergency landing conditions
Members, Participants, or Others Commission process and review your and fuel system crash resistance, for
No written comments were either comments more efficiently, please use new type designs in the 1980s and
solicited or received. only one method. The Commission will 1990s. These rule changes do not apply
post all comments on the Commission’s to newly manufactured rotorcraft with
III. Date of Effectiveness of the Internet Web site (http://www.sec.gov/ older type designs or to derivative type
Proposed Rule Change and Timing for rules/sro.shtml). Copies of the designs that keep the certification basis
Commission Action submission, all subsequent of the original type design. This
Because the foregoing proposed rule amendments, all written statements approach has resulted in a very low
change does not: (i) Significantly affect with respect to the proposed rule incorporation rate of occupant
the protection of investors or the public change that are filed with the protection features into the rotorcraft
interest; (ii) impose any significant Commission, and all written fleet, and fatal accidents remain
burden on competition; and (iii) become communications relating to the unacceptably high. At the end of 2014,
operative for 30 days from the date on proposed rule change between the only 16% of U.S. fleet had complied
which it was filed, or such shorter time Commission and any person, other than with the crash resistant fuel system
as the Commission may designate, it has those that may be withheld from the requirements effective 20 years earlier,
become effective pursuant to Section public in accordance with the and only 10% had complied with the
19(b)(3)(A)(iii) of the Act 28 and provisions of 5 U.S.C. 552, will be emergency landing requirements
available for Web site viewing and
jstallworth on DSK7TPTVN1PROD with NOTICES

subparagraph (f)(6) of Rule 19b–4 effective 25 years earlier. A recent fatal
thereunder.29 printing in the Commission’s Public accident study has shown these
At any time within 60 days of the Reference Room, 100 F Street NE., measures would have been effective in
filing of the proposed rule change, the Washington, DC 20549, on official saving lives.
Commission summarily may business days between the hours of This notice informs the public of the
10:00 a.m. and 3:00 p.m. Copies of the new ARAC activity and solicits
28 15 U.S.C. 78s(b)(3)(a)(iii). filing also will be available for
29 17 CFR 240.19b–4(f)(6). inspection and copying at the principal 30 17 CFR 200.30–3(a)(12).

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Document Created: 2015-12-14 15:02:36
Document Modified: 2015-12-14 15:02:36

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 68595