81 FR 4728 - Self-Regulatory Organizations; Chicago Board Options Exchange, Incorporated; Notice of Filing of Amendment No. 2 and Order Granting Accelerated Approval of Proposed Rule Change, as Modified by Amendment Nos. 1 and 2 Thereto, Relating to Price Protection Mechanisms for Quotes and Orders
SECURITIES AND EXCHANGE COMMISSION Federal Register Volume 81, Issue 17 (January 27, 2016)
Federal Register Volume 81, Issue 17 (January 27, 2016)
| Page Range | 4728-4731 | |
| FR Document | 2016-01540 |
[Federal Register Volume 81, Number 17 (Wednesday, January 27, 2016)] [Notices] [Pages 4728-4731] From the Federal Register Online [www.thefederalregister.org] [FR Doc No: 2016-01540] ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION [Release No. 34-76960; File No. SR-CBOE-2015-107] Self-Regulatory Organizations; Chicago Board Options Exchange, Incorporated; Notice of Filing of Amendment No. 2 and Order Granting Accelerated Approval of Proposed Rule Change, as Modified by Amendment Nos. 1 and 2 Thereto, Relating to Price Protection Mechanisms for Quotes and Orders January 21, 2016. I. Introduction Chicago Board Options Exchange, Incorporated (the ``Exchange'' or ``CBOE'') filed on November 24, 2015, with the Securities and Exchange Commission (the ``Commission''), pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a proposal to enhance its current price protection mechanisms and adopt certain new price protection functionality for orders and quotes. On December 4, 2015, the Exchange filed Amendment No. 1 to the proposed rule change. The proposed rule change, as modified by Amendment No. 1, was published for comment in the Federal Register on December 11, 2015.\3\ On December 29, 2015, the Exchange filed Amendment No. 2 to the proposed rule change.\4\ The Commission received no [[Page 4729]] substantive comment letters on the proposal. This order approves the proposed rule change, as modified by Amendment Nos. 1 and 2, on an accelerated basis. --------------------------------------------------------------------------- \1\ 15 U.S.C. 78s(b)(1). \2\ 17 CFR 240.19b-4. \3\ See Securities Exchange Act Release No. 76585 (December 8, 2015), 80 FR 77038 (December 11, 2015) (``Notice''). \4\ In Amendment No. 2, the Exchange amended the proposed rule language to (i) clarify that it will notify Trading Permit Holders by electronic message if the Exchange determines that the put strike price or call underlying value check should not apply in the interest of maintaining a fair and orderly market under proposed Exchange Rule 6.14(a)(ii) and (ii) limit the potential range of the percentage amount used to calculate the maximum value acceptable price range check in proposed Exchange Rule 6.53C, Interpretation and Policy .08(g)(1)(iii). In Amendment No. 2, CBOE also represented that it will document, retain, and periodically review any Exchange decision to not apply the put check or call check under proposed Exchange Rule 6.14(a)(ii), including the reason for the decision. See Amendment No. 2 to File No. SR-CBOE-2015-107, dated December 29, 2015 (``Amendment No. 2''). To promote transparency of its proposed amendment, when CBOE filed Amendment No. 2 with the Commission, it also submitted Amendment No. 2 as a comment letter to the file, which the Commission posted on its Web site and placed in the public comment file for SR-CBOE-2015-107. The Exchange also posted a copy of its Amendment No. 2 on its Web site (http://www.cboe.com/aboutcboe/legal/submittedsecfilings.aspx) when it filed the amendment with the Commission. --------------------------------------------------------------------------- II. Description of the Proposed Rule Change, as Modified by Amendment Nos. 1 and 2 The Exchange proposes to adopt new Exchange Rule 6.14 and amend Exchange Rule 6.53C, Interpretation and Policy .08, to enhance its current price protection mechanisms for orders and quotes in order to help prevent potentially erroneous executions.\5\ --------------------------------------------------------------------------- \5\ For a more detailed description of each proposed price protection mechanism, see Notice, supra note 3. --------------------------------------------------------------------------- A. Put Strike Price and Call Underlying Value Checks Proposed Exchange Rule 6.14(a) will provide a new price protection functionality pursuant to which the Exchange's Hybrid Trading System (``System'') will reject back to the Trading Permit Holder a quote or buy limit order for (i) a put if the price of the quote bid or order is equal to or greater than the strike price of the option or (ii) a call if the price of the quote bid or order is equal to or greater than the consolidated last sale price of the underlying security, with respect to equity and exchange-traded fund options, or the last disseminated underlying index value, with respect to index options.\6\ The Exchange may determine not to apply this proposed price protection mechanism if a senior official at the Exchange's Help Desk determines the applicable check should not apply in the interest of maintaining a fair and orderly market.\7\ --------------------------------------------------------------------------- \6\ If the System rejects a Market Maker's quote pursuant to either proposed price check, the Exchange will cancel any resting quote of the Market Maker in the same series. See proposed Exchange Rule 6.14(a); see also Notice, supra note 3, at 77038. These proposed checks also will apply to buy auction responses in the same manner as it does to orders and quotes, as well as pairs of orders submitted to the Exchange's Automated Improvement Mechanism (``AIM''), Solicitation Auction Mechanism (``SAM''), or as a qualified cross-contingent order (``QCC order''). See id. \7\ See proposed Exchange Rule 6.14(a)(ii); see also Notice, supra note 3, at 77039. The Exchange represented that it will document, retain, and periodically review any decision to not apply the put check or call check, including the reason for the decision. See Amendment No. 2, supra note 4. --------------------------------------------------------------------------- B. Quote Inverting NBBO Check Proposed Exchange Rule 6.14(b) will apply new a price reasonability check to Market Maker quotes based on the national best bid or offer (``NBBO'') or the Exchange's best bid or offer if the NBBO is unavailable.\8\ Specifically, if CBOE is at the NBBO, the System will reject a quote back to a Market Maker if the quote bid or offer crosses the opposite side of the NBBO by more than a number of ticks specified by the Exchange.\9\ If CBOE is not at the NBBO, the System will reject a quote back to a Market-Maker if the quote bid or offer locks or crosses the opposite side of the NBBO.\10\ The Exchange may determine not to apply this check to quotes entered during the pre-opening, a trading rotation, or a trading halt, and would announce to Trading Permit Holders any such determination thorough a Regulatory Circular.\11\ --------------------------------------------------------------------------- \8\ See proposed Exchange Rule 6.14(b); see also Notice, supra note 3, at 77039-41. \9\ The Exchange states that the number of ticks will be no less than three minimum increment ticks and announced to Trading Permit Holders by Regulatory Circular. See proposed Exchange Rule 6.14(b); see also Notice, supra note 3, at 77040. In addition, proposed Exchange Rule 6.14(b)(iii) addresses situations where CBOE accepts a quote that locks or crosses the NBBO. \10\ See proposed Exchange Rule 6.14(b)(i); see also Notice, supra note 3, at 77040. As an additional risk control feature, if a Market Maker submits a quote in a series in which the Market Maker already has a resting quote and the Exchange rejects that quote pursuant to this proposed check, the Exchange will cancel the Market Maker's resting quote in the series. See Notice, supra note 3, at 77040. \11\ See proposed Exchange Rule 6.14(b)(ii); see also Notice, supra note 3, at 77040. Additionally, this proposed check will not apply if a senior official at the Exchange's Help Desk determines it should not apply in the interest of maintaining a fair and orderly market. See id. --------------------------------------------------------------------------- C. Debit/Credit Price Reasonability Checks The Exchange proposes to amend its price check parameters applicable to complex orders that are contained in current Exchange Rule 6.53C, Interpretation and Policy .08(c), to prevent the automatic execution of complex orders that appear to be erroneously priced based on general options volatility and pricing principles.\12\ Under current Exchange Rule 6.53C, Interpretation and Policy .08(c), the System will not automatically execute (i) a limit order for a debit strategy with a net credit price that should have been entered at a net debit price, (ii) a limit order for a credit strategy with a net debit price that should have been entered at a net credit price, and (iii) a market order for a credit strategy that would be executed at a net debit price when it should execute at a net credit price.\13\ The amended rule expands this check to certain complex orders which the System can determine are credits or debits.\14\ --------------------------------------------------------------------------- \12\ See proposed Exchange Rule 6.53C, Interpretation and Policy .08(c); see also Notice, supra note 3, at 77041-43. \13\ See Notice, supra note 3, at 77041. \14\ See id. at 77041. The proposed rule contains new definitions of vertical spread, butterfly spread and box spread, and states how the System will define a complex order as a debit or credit. See id at 77041-43; see also proposed Exchange Rule 6.53C, Interpretation and Policy .08(c). These checks will also apply to buy auction responses and pairs of orders submitted to AIM, SAM, or as a QCC order. See proposed Exchange Rule 6.53C, Interpretation and Policy .08(c)(4)-(5); see also Notice, supra note 3, at 77043. --------------------------------------------------------------------------- D. Maximum Value Acceptable Price Range Check Finally, the Exchange proposes to amend Exchange Rule 6.53C, Interpretation and Policy .08, to add an additional price check for complex orders. The new price check would apply to vertical, true butterfly, and box spreads, and would block executions of such strategies at prices that exceed their quantifiable maximum possible values by more than a reasonable amount.\15\ Under the proposed rule, the Exchange will determine the acceptable price range for these strategies and will reject back to the Trading Permit Holder any limit order and cancel any market order that does not satisfy this proposed check.\16\ --------------------------------------------------------------------------- \15\ See proposed Exchange Rule 6.53C, Interpretation and Policy .08(g); see also Notice, supra note 3, at 77044-45. \16\ See Notice, supra note 3, at 77044-45. The proposed check will also apply to auction responses and pairs of orders submitted to AIM, SAM, or as a QCC order. See id. --------------------------------------------------------------------------- III. Discussion and Commission Findings After careful review, the Commission finds that the proposed rule change is consistent with the requirements of the Act and the rules and regulations thereunder applicable to a national securities exchange and, in particular, with section 6(b) of the Act.\17\ In particular, the Commission finds that the proposed rule change is consistent with sections 6(b)(5) of the Act,\18\ which requires, among other things, that the rules of a national securities exchange be designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, to foster cooperation and coordination with persons engaged in regulating, clearing, settling, processing information with respect to, and [[Page 4730]] facilitating transactions in securities, to remove impediments to and perfect the mechanism of a free and open market and a national market system, and, in general, to protect investors and the public interest. --------------------------------------------------------------------------- \17\ 15 U.S.C. 78f(b). In approving this proposed rule change, the Commission has considered the proposed rule's impact on efficiency, competition, and capital formation. See 15 U.S.C. 78c(f). \18\ 15 U.S.C. 78f(b)(5). --------------------------------------------------------------------------- The Commission believes that the proposed new price protection mechanisms are reasonably designed to promote just and equitable principles of trade to the extent they are able to mitigate potential risks associated with market participants entering orders at what CBOE believes are clearly unintended prices and executing trades at prices that are both extreme and potentially erroneous.\19\ Specifically, the Commission believes that the proposed price protection for simple orders to buy put and call options based on the strike price or underlying value, respectively, is designed to promote fair and orderly markets and protect investors by rejecting quotes and orders that exceed the strike price for puts and the value of the underlying for calls, which may likely have occurred due to human or operational error. The Commission also believes that the proposed quote inverting NBBO check is reasonably designed to promote just and equitable principles of trade by preventing potential price dislocation that could result from erroneous Market Maker quotes sweeping through multiple price points.\20\ --------------------------------------------------------------------------- \19\ See Notice, supra note 3, at 77045. \20\ See Notice, supra note 3, at 77045. --------------------------------------------------------------------------- In addition, the proposed enhanced price checks that would apply to complex orders, including the debit and credit price reasonability checks and the maximum value acceptable price range checks, are designed to mitigate the potential risks associated with complex orders trading at prices that likely are inconsistent with their strategies and could potentially result in erroneous executions.\21\ Furthermore, the Commission believes that the proposed maximum value acceptable price range adds a second layer of price protection to complex strategies that is reasonably designed to mitigate the potential risks associated with orders that have complex strategies with quantifiable maximum values trading at prices that are potentially erroneous.\22\ --------------------------------------------------------------------------- \21\ See Notice, supra note 3, at 77046. \22\ See Notice, supra note 3, at 77046. --------------------------------------------------------------------------- Accordingly, for the reasons discussed above, the Commission believes that the proposed rule change, as modified by Amendment Nos. 1 and 2, is consistent with the Act. IV. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether Amendment No. 2 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-CBOE-2015-107 on the subject line. Paper Comments Send paper comments in triplicate to Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090. All submissions should refer to File Number SR-CBOE-2015-107. 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-CBOE-2015-107 and should be submitted on or before February 17, 2016. V. Accelerated Approval of Proposed Rule Change, as Modified by Amendment Nos. 1 and 2 The Commission finds good cause, pursuant to section 19(b)(2) of the Act, to approve the proposed rule change, as modified by Amendment Nos. 1 and 2, prior to the 30th day after the date of publication of Amendment No. 2 in the Federal Register. As discussed above, Amendment No. 2 clarified that the Exchange will notify Trading Permit Holders by electronic message if the Exchange determines that the put strike price or call underlying value check should not apply in the interest of maintaining a fair and orderly market under proposed Exchange Rule 6.14(a)(ii).\23\ CBOE also represented in Amendment No. 2 that the Exchange will document, retain, and periodically review any Exchange decision to not apply the put check or call check under proposed Exchange Rule 6.14(a)(ii), including the reason for the decision.\24\ Lastly, in Amendment No. 2, CBOE clarified that the potential range of the percentage amount it will use to calculate the maximum value acceptable price range check in proposed Exchange Rule 6.53C, Interpretation and Policy .08(g)(1)(iii), is between 1% and 5%.\25\ The Commission believes that these changes provide greater clarity and remove any possible uncertainty regarding the potential exercise of Exchange discretion with regard to the proposed price protection mechanisms. In particular, the representation about documenting, retaining, and periodically reviewing decisions to suspend a price check will enable CBOE to monitor the actions of its senior Help Desk personnel and assure that the suspension of any price check is appropriate and consistent with CBOE's responsibilities as a self- regulatory organization and the principles articulated in the Act that are applicable to exchanges. Further, clarifying the possible range of the maximum value acceptable price range provides valuable information to Trading Permit Holders to help them better understand and evaluate this price protection functionality. Accordingly, the Commission finds good cause for approving the proposed rule change, as modified by Amendment Nos. 1 and 2, on an accelerated basis, pursuant to section 19(b)(2) of the Act. --------------------------------------------------------------------------- \23\ See Amendment No. 2, supra note 4. \24\ Id. \25\ Id. --------------------------------------------------------------------------- VI. Conclusion It is therefore ordered, pursuant to section 19(b)(2) of the Act \26\ that the proposed rule change (SR-CBOE-2015-107), as modified by Amendment Nos. 1 and 2, be, and hereby is, approved on an accelerated basis. --------------------------------------------------------------------------- \26\ 15 U.S.C. 78f(b)(2). \27\ 17 CFR 200.30-3(a)(12). [[Page 4731]] --------------------------------------------------------------------------- For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.\27\ Brent J. Fields, Secretary. [FR Doc. 2016-01540 Filed 1-26-16; 8:45 am] BILLING CODE 8011-01-P
![4728 Federal Register / Vol. 81, No. 17 / Wednesday, January 27, 2016 / Notices
printing in the Commission’s Public both the pilot Program and exemption For the Commission, by the Division of
Reference Room, 100 F Street NE., are scheduled to expire on January 31, Trading and Markets, pursuant to delegated
Washington, DC 20549 on official 2016. authority. 7
business days between the hours of Brent J. Fields,
The Exchange now seeks to extend
10:00 a.m. and 3:00 p.m. Copies of the Secretary.
the exemption until July 31, 2016. 4 The
filing also will be available for [FR Doc. 2016–01534 Filed 1–26–16; 8:45 am]
Exchange’s request was made in
inspection and copying at the principal BILLING CODE 8011–01–P
office of the Exchange. All comments conjunction with an immediately
received will be posted without change; effective filing that extends the
the Commission does not edit personal operation of the Program until July 31, SECURITIES AND EXCHANGE
identifying information from 2015. 5 In its request to extend the COMMISSION
submissions. You should submit only exemption, the Exchange notes that the
Program was implemented gradually [Release No. 34–76960; File No. SR–CBOE–
information that you wish to make 2015–107]
available publicly. All submissions over time. Accordingly, the Exchange
should refer to File Number SR– has asked for additional time to allow Self-Regulatory Organizations;
NYSEArca–2016–13, and should be itself and the Commission to analyze Chicago Board Options Exchange,
submitted on or before February 17, data concerning the Program, which the Incorporated; Notice of Filing of
2016. Exchange committed to provide to the Amendment No. 2 and Order Granting
For the Commission, by the Division of Commission. 6 For this reason and the Accelerated Approval of Proposed
Trading and Markets, pursuant to delegated reasons stated in the Order originally Rule Change, as Modified by
authority.10 granting the limited exemption, the Amendment Nos. 1 and 2 Thereto,
Brent J. Fields, Commission finds that extending the Relating to Price Protection
Secretary. exemption, pursuant to its authority Mechanisms for Quotes and Orders
[FR Doc. 2016–01668 Filed 1–26–16; 8:45 am] under Rule 612(c) of Regulation NMS, is
January 21, 2016.
BILLING CODE 8011–01–P appropriate in the public interest and
consistent with the protection of I. Introduction
investors. Chicago Board Options Exchange,
SECURITIES AND EXCHANGE Incorporated (the ‘‘Exchange’’ or
Therefore, it is hereby ordered, that,
COMMISSION ‘‘CBOE’’) filed on November 24, 2015,
pursuant to Rule 612(c) of Regulation
[Release No. 34–76953; File No. SR–BYX– NMS, the Exchange is granted a limited with the Securities and Exchange
2012–019] exemption from Rule 612(c) of Commission (the ‘‘Commission’’),
Regulation NMS that allows it to accept pursuant to section 19(b)(1) of the
Self-Regulatory Organization; BATS Y- Securities Exchange Act of 1934
Exchange, Inc.; Order Granting an and rank orders priced equal to or
greater than $1.00 per share in (‘‘Act’’) 1 and Rule 19b–4 thereunder,2 a
Extension to Limited Exemption From proposal to enhance its current price
Rule 612(c) of Regulation NMS in increments of $0.001, in connection
with the operation of its RPI Program. protection mechanisms and adopt
Connection With the Exchange’s Retail certain new price protection
Price Improvement Program The limited and temporary exemption functionality for orders and quotes. On
extended by this Order is subject to December 4, 2015, the Exchange filed
January 21, 2016.
modification or revocation if at any time Amendment No. 1 to the proposed rule
On November 27, 2012, the Securities
and Exchange Commission the Commission determines that such change. The proposed rule change, as
(‘‘Commission’’) issued an order action is necessary or appropriate in modified by Amendment No. 1, was
pursuant to its authority under Rule furtherance of the purposes of the published for comment in the Federal
612(c) of Regulation NMS (‘‘Sub-Penny Securities Exchange Act of 1934. Register on December 11, 2015.3 On
Rule) 1 that granted the BATS Y- Responsibility for compliance with any December 29, 2015, the Exchange filed
Exchange, Inc. (‘‘BYX’’ or the applicable provisions of the federal Amendment No. 2 to the proposed rule
‘‘Exchange’’) a limited exemption from securities laws must rest with the change.4 The Commission received no
the Sub-Penny Rule in connection with persons relying on the exemptions that
7 17 CFR 200.30–3(a)(83).
the operation of the Exchange’s Retail are the subject of this Order. 1 15 U.S.C. 78s(b)(1).
Price Improvement (‘‘RPI’’) Program (the 2 17 CFR 240.19b–4.
‘‘Program’’). The limited exemption was 3 See Securities Exchange Act Release No. 76585
granted concurrently with the (December 8, 2015), 80 FR 77038 (December 11,
Commission’s approval of the 2015) (‘‘Notice’’).
4 In Amendment No. 2, the Exchange amended
Exchange’s proposal to adopt the Exemption From Rule 612(c) of Regulation NMS in
Connection With the Exchange’s Retail Price the proposed rule language to (i) clarify that it will
Program for a one-year pilot term. 2 The notify Trading Permit Holders by electronic
Improvement Program); 74111 (January 22, 2015),
exemption was granted coterminous message if the Exchange determines that the put
80 FR 4598 (January 28, 2015) (SR–BYX–2015–05)
with the effectiveness of the pilot (extending the pilot period); and 74115 (January 22,
strike price or call underlying value check should
Program and has been extended twice; 3 not apply in the interest of maintaining a fair and
2015), 80 FR 4324 (January 27, 2015) (Order orderly market under proposed Exchange Rule
Granting an Extension to Limited Exemption From
asabaliauskas on DSK5VPTVN1PROD with NOTICES
10 17
6.14(a)(ii) and (ii) limit the potential range of the
CFR 200.30–3(a)(12). Rule 612(c) of Regulation NMS in Connection With percentage amount used to calculate the maximum
1 17 CFR 242.612(c). the Exchange’s Retail Price Improvement Program). value acceptable price range check in proposed
2 See Securities Exchange Act Release No. 68303 4 See letter from Anders Franzon, Senior Vice Exchange Rule 6.53C, Interpretation and Policy
(November 27, 2012), 77 FR 71652 (December 3, President and Associate General Counsel, BYX, to .08(g)(1)(iii). In Amendment No. 2, CBOE also
2012) (‘‘RPI Approval Order’’) (SR–BXY–2012–019). represented that it will document, retain, and
3 See Securities Exchange Act Release Nos. 71249
Elizabeth M. Murphy, Secretary, Commission, dated
periodically review any Exchange decision to not
January 12, 2016.
(January 7, 2014), 79 FR 2229 (January 13, 2012) apply the put check or call check under proposed
5 See SR–BYX–2016–01.
(SR–BYX–2014–001) (extending the pilot period); Exchange Rule 6.14(a)(ii), including the reason for
6 See RPI Approval Order, supra note 2, at 77 FR
71250 (January 7, 2014), 79 FR 2234 (January 13, the decision. See Amendment No. 2 to File No. SR–
2012) (Order Granting an Extension to Limited at 71657. CBOE–2015–107, dated December 29, 2015
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![Federal Register / Vol. 81, No. 17 / Wednesday, January 27, 2016 / Notices 4731
For the Commission, by the Division of from January 11, 2016 through January Firm,7 Broker-Dealer 8 or Non-NOM
Trading and Markets, pursuant to delegated 29, 2016. Market Maker liquidity and the
authority.27 Participant is (i) both the buyer and
Brent J. Fields,
The text of the proposed rule change
is available on the Exchange’s Web site seller or (ii) the Participant removes
Secretary. liquidity from another Participant under
at http://nasdaq.cchwallstreet.com, at
[FR Doc. 2016–01540 Filed 1–26–16; 8:45 am] Common Ownership.9
the principal office of the Exchange, and
BILLING CODE 8011–01–P
at the Commission’s Public Reference This incentive offer will not apply to
Room. volume transacted prior to January 11,
2016 or after January 29, 2016.
SECURITIES AND EXCHANGE II. Self-Regulatory Organization’s
COMMISSION 2. Statutory Basis
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule The Exchange believes that the
[Release No. 34–76967; File No. SR– Change proposed rule change is consistent with
NASDAQ–2016–004] Section 6 of the Act,10 in general, and
In its filing with the Commission, the with Section 6(b)(4) and 6(b)(5) of the
Self-Regulatory Organizations; The Exchange included statements Act,11 in particular, in that it provides
NASDAQ Stock Market LLC; Notice of concerning the purpose of and basis for for the equitable allocation of reasonable
Filing and Immediate Effectiveness of the proposed rule change and discussed dues, fees, and other charges among
Proposed Rule Change To Amend any comments it received on the members and issuers and other persons
NOM Rules at Chapter XV, Section 2 proposed rule change. The text of these using any facility or system which the
January 22, 2016. statements may be examined at the Exchange operates or controls, and is
Pursuant to Section 19(b)(1) of the places specified in Item IV below. The not designed to permit unfair
Securities Exchange Act of 1934 Exchange has prepared summaries, set discrimination between customers,
(‘‘Act’’),1 and Rule 19b–4 thereunder,2 forth in sections A, B, and C below, of issuers, brokers, or dealers. Attracting
notice is hereby given that, on January the most significant aspects of such order flow to the Exchange benefits all
11, 2016, The NASDAQ Stock Market statements. Participants who have the opportunity
LLC (‘‘Nasdaq’’ or ‘‘Exchange’’) filed to interact with this order flow.
A. Self-Regulatory Organization’s The Commission and the courts have
with the Securities and Exchange Statement of the Purpose of, and
Commission (‘‘SEC’’ or ‘‘Commission’’) repeatedly expressed their preference
Statutory Basis for, the Proposed Rule for competition over regulatory
the proposed rule change as described
Change intervention in determining prices,
in Items I, II, and III below, which Items
have been prepared by the Exchange. 1. Purpose products, and services in the securities
The Commission is publishing this markets. Further, ‘‘[n]o one disputes
notice to solicit comments on the The Exchange proposes certain that competition for order flow is
proposed rule change from interested amendments to the NOM transaction ‘fierce.’ . . . As the SEC explained, ‘[i]n
persons. fees set forth at Chapter XV, Section 2 the U.S. national market system, buyers
for executing and routing standardized and sellers of securities, and the broker-
I. Self-Regulatory Organization’s dealers that act as their order-routing
equity and index options under the
Statement of the Terms of Substance of agents, have a wide range of choices of
Penny Pilot Options program. The
the Proposed Rule Change where to route orders for execution’;
Exchange desires to incentivize NOM
The Exchange proposes to amend Participants to add an even greater [and] ‘no exchange can afford to take its
Chapter XV, entitled ‘‘Options Pricing,’’ amount of liquidity to NOM from market share percentages for granted’
at Section 2, which governs pricing for January 11, 2016 through January 29, because ‘no exchange possesses a
Exchange members using the NASDAQ 2016. Specifically, the Exchange monopoly, regulatory or otherwise, in
Options Market (‘‘NOM’’), the the execution of order flow from broker
proposes to incentivize Participants by
Exchange’s facility for executing and dealers’. . . .’’ 12 Although the court
offering the opportunity to reduce the
routing standardized equity and index and the SEC were discussing the cash
NOM Market Maker and Non-NOM equities markets, the Exchange believes
options. Market Maker Penny Pilot Options Fees
The Exchange purposes [sic] to amend that these views apply with equal force
for Removing Liquidity from $0.50 to to the options markets and this proposal
its NOM Market Maker 3 and Non-NOM
$0.48 per contract, for the time period
Market Maker 4 Fees for Removing
from January 11, 2016 through January
Liquidity in Penny Pilot Options to offer 7 The term ‘‘Firm’’ or (‘‘F’’) applies to any
Participants an incentive to direct a 29, 2016, provided the Participant adds transaction that is identified by a Participant for
greater amount of order flow to NOM 1.30% of Customer,5 Professional,6 clearing in the Firm range at The Options Clearing
Corporation.
8 The term ‘‘Broker-Dealer’’ or (‘‘B’’) applies to
1 15 U.S.C. 78s(b)(1). 5 The term ‘‘Customer’’ or (‘‘C’’) applies to any any transaction which is not subject to any of the
2 17 CFR 240.19b–4. transaction that is identified by a Participant for other transaction fees applicable within a particular
3 The term ‘‘NOM Market Maker’’ is a Participant clearing in the Customer range at The Options category.
9 The term ‘‘Common Ownership’’ shall mean
that has registered as a Market Maker on NOM Clearing Corporation which is not for the account
pursuant to Chapter VII, Section 2, and must also Participants under 75% common ownership or
asabaliauskas on DSK5VPTVN1PROD with NOTICES
of broker or dealer or for the account of a
remain in good standing pursuant to Chapter VII, control. Common Ownership shall apply to all
‘‘Professional’’ (as that term is defined in Chapter
Section 4. In order to receive NOM Market Maker pricing in Chapter XV, Section 2 for which a
I, Section 1(a)(48)).
pricing in all securities, the Participant must be volume threshold or volume percentage is required
6 The term ‘‘Professional’’ or (‘‘P’’) means any
registered as a NOM Market Maker in at least one to obtain the pricing.
security. person or entity that (i) is not a broker or dealer in 10 15 U.S.C. 78f.
4 A ‘‘Non-NOM Market Maker’’ is a registered securities, and (ii) places more than 390 orders in 11 15 U.S.C. 78f(b)(4) and (5).
market maker on another options exchange that is listed options per day on average during a calendar 12 Id. [sic] at 539 (quoting Securities Exchange
not a NOM Market Maker. A Non-NOM Market month for its own beneficial account(s) pursuant to Release No. 59039 (December 2, 2008), 73 FR 74770
Maker must append the proper Non-NOM Market Chapter I, Section 1(a)(48). All Professional orders (December 9, 2008) (SR–NYSEArca–2006–21) at 73
Maker designation to orders routed to NOM. shall be appropriately marked by Participants. FR at 74782–74783).
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Document Created: 2018-02-02 12:39:55
Document Modified: 2018-02-02 12:39:55
| 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 | 81 FR 4728 |
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