82 FR 13163 - Self-Regulatory Organizations; The Options Clearing Corporation; Order Approving Proposed Rule Change Concerning The Options Clearing Corporation's Margin Coverage During Times of Increased Volatility
SECURITIES AND EXCHANGE COMMISSION Federal Register Volume 82, Issue 45 (March 9, 2017)
Federal Register Volume 82, Issue 45 (March 9, 2017)
| Page Range | 13163-13166 | |
| FR Document | 2017-04599 |
[Federal Register Volume 82, Number 45 (Thursday, March 9, 2017)] [Notices] [Pages 13163-13166] From the Federal Register Online [www.thefederalregister.org] [FR Doc No: 2017-04599] ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION [Release No. 34-80147; File No. SR-OCC-2017-001] Self-Regulatory Organizations; The Options Clearing Corporation; Order Approving Proposed Rule Change Concerning The Options Clearing Corporation's Margin Coverage During Times of Increased Volatility March 3, 2017. On January 4, 2017, The Options Clearing Corporation (``OCC'') filed with the Securities and Exchange Commission (``Commission'') the proposed rule change SR-OCC-2017-001 pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (``Act''),\1\ and Rule 19b-4 thereunder.\2\ The proposed rule change was published for comment in the Federal Register on January 25, 2017.\3\ The [[Page 13164]] Commission received one comment letter on the Notice.\4\ This order approves the proposed rule change. --------------------------------------------------------------------------- \1\ 15 U.S.C. 78s(b)(1). \2\ 17 CFR 240.19b-4. \3\ Securities Exchange Act Release No. 79818 (January 18, 2017) 82 FR 8455 (January 25, 2017 (SR-OCC-2017-001) (``Notice''). \4\ See comment from Tressifa S. Moore (January 19, 2017). The comment appears to be an excerpt from the EDGAR Filer Manual, available at www.sec.gov/info/edgar/edmanuals.htm, and does not have any substantive relevance to the proposed rule change. --------------------------------------------------------------------------- I. Description of the Proposed Rule Change A. Background OCC protects itself against potential losses that could result from the default of a clearing member by requiring margin to be posted in connection with each member's positions. The amount of margin calculated and collected from OCC's clearing members, along with mutualized clearing-fund resources, is intended to make available to OCC sufficient financial resources for the orderly transfer or liquidation of a defaulting clearing member's positions. OCC's proprietary risk management system, the System for Theoretical Analysis and Numerical Simulations (``STANS''), calculates each clearing member's margin requirement by utilizing Monte Carlo simulations to forecast price movements related to the positions in each clearing member's portfolio. The STANS margin requirement is intended to be sufficient to collateralize the member's losses across its portfolio over a two-day period, under normal market conditions. To determine margin requirements, STANS utilizes time-series data, including pricing data on assets underlying the options contracts that OCC clears, and performs calculations related to, among other things, the volatilities of these underliers. The margin amount collected from each clearing member also accounts for expected changes in the value of collateral posted in connection with that member's portfolio. According to OCC, one of the primary risk drivers in the STANS methodology relates to the volatilities of individual equity securities, which are derived from pricing data imported monthly into STANS. Between data feeds, the STANS margin methodology relies on a process that adjusts the individual volatility measures of equity-based option underliers (e.g., GE or IBM) by a multiplier derived from the volatility of the Standard &Poor's[supreg] 500 index (``SPX''). OCC refers to that multiplier as the uniform scale factor. To account for intra-month changes in volatility, the uniform scale factor adjusts individual volatilities of applicable underliers by a factor tied to the relationship between the short-term and long term volatility of the SPX. Specifically, the uniform scale factor is used as a proxy to ``scale up'' volatilities of equity-based option underliers \5\ when near-term volatility estimates fall below a certain ratio relative to long-term average volatility, in each case based on the SPX. OCC asserts that, by applying a scale factor in this way, margin requirements better account for intra-month volatility risks for individual equity-based option underliers and thereby better ensure that clearing members maintain sufficient margin assets in connection with option positions based upon those underliers. --------------------------------------------------------------------------- \5\ The uniform scale factor applies to the volatility measures for single-name and index underliers. It does not apply to exchange- traded funds, futures, or volatility-based underliers. For the latter types of options, STANS uses a constant volatility measure calculated from monthly data feeds. --------------------------------------------------------------------------- B. The Proposed Rule Change In its filing, OCC proposed a number of enhancements to its STANS margin methodology that it believes would result in more accurate clearing member margin requirements. Specifically, OCC proposed the following: (1) To change the length of time-series data used to calculate the uniform scale factor; (2) to introduce new equity index- based scale factors; (3) to anchor individual risk factor volatilities to longer-term averages; and (4) to implement daily data updates of risk factors in OCC's statistical models used to value U.S. Treasury securities for collateral and margin purposes. First, OCC proposed to change the time-series data period and thereby the data set used to calculate the uniform scale factor. One aspect of the uniform scale factor calculation relies on pricing information, or time-series data, relating to the individual components of the SPX index dating back to 1946, which pre-dates the 1957 introduction of the SPX. Because the time-series data pre-dates the SPX's publication, OCC's current practice is to supplement the published SPX data with additional pricing information that relies upon assumptions about what theoretically could have been the index's composition prior to 1957. OCC proposed to discontinue that practice going forward, and instead rely on post-1957 information only. OCC stated that this change would improve the quality of data used in the uniform scale factor calculation. Second, OCC proposed to introduce four new scale factors for equity-based options. OCC stated that the uniform scale factor is derived from SPX pricing information and currently serves as OCC's sole volatility proxy used to scale equity-based option underliers. According to OCC, the new scale factors would be based upon indices whose volatility characteristics more closely correlate with the volatility characteristics of the underliers to which they will be applied. Accordingly, OCC believes the new scale factors would serve as more appropriate volatility proxies than the uniform scale factor currently in use. Specifically, OCC proposed to introduce new scale factors based upon the following indices: (1) The Russell 2000[supreg] Index (12/29/1978); (2) the Dow Jones Industrial Average Index (9/23/ 1997); (3) the NASDAQ-100 Index (2/4/1985); and (4) the S&P 100 Index (1/2/1976).\6\ OCC stated that although the SPX-based uniform scale factor would continue to serve as the default scale factor for most equity-based products, the new scale factors would apply to a number of index options, options on exchange-traded funds, and options on exchange-traded notes that more closely correlate to the indices used in the proposed scale factor calculations. --------------------------------------------------------------------------- \6\ The dates in parentheticals are the dates from which OCC has historical data on the specified index. --------------------------------------------------------------------------- Third, OCC proposed to anchor risk factor volatilities to longer- term trends by applying either the uniform scale factor or the applicable proposed new scale factor to the greater of two volatility estimates: (i) An observed, historical average; or (ii) a forecasted volatility measure. The proposed change would modify OCC's current practice of applying the uniform scale factor solely to the forecasted volatility measure for applicable underliers. OCC stated that its revised methodology would better ensure that short-term or temporary decreases in forecasted volatility do not result in significant margin reductions, thereby improving risk management in those cases where observed, historical average volatilities exceed forecasted volatility measures. Finally, OCC proposed to implement daily updates to risk factors used to construct the U.S. Treasury yield curve and value U.S. Treasury securities for collateral and margin purposes. According to OCC, daily updates to the U.S. Treasury yield curve would better ensure that the STANS margin calculations accurately reflect the current state of the U.S. Treasury market, particularly during periods of heightened volatility, which would lead to more accurate margin calculations. [[Page 13165]] II. Discussion and Findings Section 19(b)(2)(C) \7\ of the Act directs the Commission to approve a proposed rule change of a self-regulatory organization if it finds that the rule change, as proposed, is consistent with the requirements of the Act and the rules and regulations thereunder applicable to such organization. --------------------------------------------------------------------------- \7\ 15 U.S.C. 78s(b)(2)(C). --------------------------------------------------------------------------- The Commission finds that the proposed rule change is consistent with Section 17A(b)(3)(F) of the Act, which requires, among other things, that the rules of a clearing agency assure the safeguarding of securities and funds that are in the custody or control of the clearing agency or for which it is responsible.\8\ As described above, the proposed rule changes are designed to improve the accuracy, and ensure the sufficiency, of margin collateral posted by clearing members. First, OCC's proposed change to rely only on published SPX index data to calculate the uniform scale factor is an appropriate improvement to the process for performing intra-month volatility adjustments in STANS; in turn, having more accurate margin calculations should better ensure that OCC has sufficient financial resources to protect itself in the event of a clearing member default, thereby supporting the safeguarding of securities and funds in OCC's custody and control. --------------------------------------------------------------------------- \8\ 15 U.S.C. 78q-1(b)(3)(F). --------------------------------------------------------------------------- Second, OCC's proposed change to introduce new scale factors for equity-based products whose underliers correlate more closely with the indices used in the proposed scale factor calculations appropriately improves the accuracy of STANS calculations relating to volatility risks. More accurately accounting for volatility risks in margin calculations, as above, should better ensure that OCC has sufficient financial resources in the event of a clearing-member default, in turn supporting the safeguarding of securities and funds in OCC's custody and control. Third, the proposed change to apply the relevant scale factor to the greater of the historical and forecasted volatility measures will support OCC in safeguarding securities and funds in its control by better ensuring that reductions in forecasted volatility do not result in commensurate reductions in margin requirements. By mitigating procyclical reductions in margin requirements, the proposed change is designed to ensure that OCC maintains sufficient margin to protect itself against losses in the event of a clearing member default. This, in turn, better safeguards the securities and funds in OCC's custody and control. Fourth, the proposed change to incorporate daily updates into the time-series data used to construct the U.S. Treasury yield curve serves to better ensure that the STANS margin calculations for U.S. Treasury securities accurately reflect their value as collateral, especially during periods of heightened volatility. By ensuring that U.S. Treasury securities are accurately valued for collateral and margin purposes, the proposed change is designed to ensure that clearing member accounts do not become under-margined and to protect OCC's non-defaulting members against the potential loss of securities and funds in OCC's custody and control. The proposed rule changes are designed to ensure that OCC is better able to accurately compute and collect sufficient margin from its clearing members, thereby better ensuring that OCC appropriately estimates and manages its credit exposures. For these reasons, the Commission finds that the proposed change is consistent with Section 17A(b)(3)(F) of the Act. Additionally, the Commission finds that the proposed rule change is consistent with the Clearing Agency Standards, specifically rules 17Ad- 22(b)(1) and (b)(2) under the Act.\9\ Rule 17Ad-22(b)(1) requires OCC to establish, implement, maintain, and enforce written policies and procedures reasonably designed to, among other things, limit its exposures to potential losses from defaults by its participants under normal market conditions so that the operations of the clearing agency would not be disrupted and non-defaulting participants would not be exposed to losses that they cannot anticipate or control.\10\ Rule 17Ad-22(b)(2) requires OCC to establish, implement, maintain, and enforce written policies and procedures reasonably designed to, among other things, use margin requirements to limit its credit exposures to participants under normal market conditions and use risk-based models and parameters to set such margin requirements.\11\ --------------------------------------------------------------------------- \9\ 17 CFR 240.17Ad-22(b)(1) and (b)(2). \10\ 17 CFR 240.17Ad-22(b)(1). \11\ 17 CFR 240.17Ad-22(b)(2). --------------------------------------------------------------------------- The Commission finds that the proposed rule change is consistent with rules 17Ad-22(b)(1) and (b)(2) under the Act. The proposed rule change is designed to better enable OCC to limit its potential losses from clearing-member defaults under normal market conditions by improving the data, scale factors, and methodology used to derive certain volatility and other estimates for purposes of margin calculations. By improving these estimates, the STANS margin requirements would better ensure that OCC's members post sufficient collateral in connection with their options positions, thereby protecting OCC against the potential losses from a clearing-member default. Furthermore, by limiting OCC's exposure to such losses, the proposed rule change better ensures that OCC would continue operations without disruption and that non-defaulting clearing members would not be exposed to losses they cannot anticipate or control. The proposed rule change also would improve the risk-based models and parameters that OCC uses to set margin requirements and limit its credit exposures to clearing members under normal market conditions. STANS, as discussed above, is a risk-based, forecasting tool that OCC currently uses to calculate margin requirements that are intended to be sufficient to collateralize each clearing member's losses over a two- day period under normal market conditions. The proposed change incrementally enhances STANS by improving the data, scale factors, and methodology used to derive certain volatility and other estimates relevant to risk-based margin calculations. The proposed rule change would improve the quality of data used to estimate risk drivers in the STANS margin calculations, for example, by relying solely on published index data throughout the uniform scale factor time-series data period. In addition, the four new scale factors would more accurately reflect intra-month volatility risks associated with applicable option underliers in the STANS margin calculations. The proposed rule change would better ensure that the STANS margin requirements remain anchored to historical average volatilities, thereby mitigating procyclical reductions in margin requirements, by applying the relevant scale factor to the greater of an observed, historical average and a forecasted volatility measure. Finally, incorporating daily updates into time-series data used to construct the U.S. Treasury yield curve would improve valuation of U.S. Treasury collateral and the accuracy of STANS margin calculations, because margin requirements account for expected changes in the value of posted U.S. Treasury collateral. For the reasons stated above, the Commission finds that the proposed change is consistent with Rules 17Ad-22(b)(1) and (b)(2) under the Act. [[Page 13166]] III. Conclusion On the basis of the foregoing, the Commission finds that the proposed change is consistent with the requirements of the Act, and in particular, with the requirements of Section 17A of the Act \12\ and the rules and regulations thereunder. --------------------------------------------------------------------------- \12\ 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). --------------------------------------------------------------------------- It is therefore ordered, pursuant to Section 19(b)(2) of the Exchange Act,\13\ that the proposed rule change (SR-OCC-2017-001) be, and it hereby is, approved. --------------------------------------------------------------------------- \13\ 15 U.S.C. 78s(b)(2). For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.\14\ --------------------------------------------------------------------------- \14\ 17 CFR 200.30-3(a)(12). --------------------------------------------------------------------------- Eduardo A. Aleman, Assistant Secretary. [FR Doc. 2017-04599 Filed 3-8-17; 8:45 am] BILLING CODE 8011-01-P
![Federal Register / Vol. 82, No. 45 / Thursday, March 9, 2017 / Notices 13163
automatic nature of the registration days to three days.36 In this regard, Form U5.41 The additional time
process in many states where, under a NYSE suggests that the relevant timing associated with the proposed rule
30-day standard, a state may not have is when information provided on the change should contribute to the
Form U5 information before it is Form U5 is made available on accuracy of information contained in
required to make a new licensing BrokerCheck. NYSE also states that the Form U5. The Commission notes
decision.27 NASAA further suggests that unless FINRA moves to a shorter that Forms U5 must be accurate and
it is time for a comprehensive review of timeframe it would be a burden on complete so that investors have the
Form U5 filing deadlines.28 In addition, competition for NYSE MKT and NYSE information that they need to determine
NASAA asserts that the importance of Arca to continue to maintain a different if they wish to work with a particular
state licensing decisions outweigh any standard than is required of members of registered person, and regulators have
arguable burden of the shorter filing other self-regulatory organizations.37 the information they need to properly
deadline.29 NASAA also asserts that oversee the associated persons engaged
Finally, NYSE asserts its belief that
because ‘‘approximately 73% of Form in the securities business in their
the proposals are consistent with the
U5s are already filed within 10 days of jurisdictions, as soon as possible. In
Act because they conform to the rules of addition, the Commission notes that
a representative’s termination,’’ the other self-regulatory organizations.38
burden of maintaining a shorter filing proposed time limits are consistent with
Further, NYSE believes that the the rules of other self-regulatory
deadline is demonstrably minimal, as
proposals should eliminate potential organizations.42
the vast majority of firms already
reporting inaccuracies caused by any
comply with the deadline.30 Thus, IV. Conclusion
such disparities among exchanges’
NASAA does not believe that the 10-day
regulatory reporting requirements and It is therefore ordered, pursuant to
requirement imposes a competitive
ensure greater accuracy in Form U5 Section 19(b)(2) of the Act,43 that the
disadvantage on the Exchanges’
reporting because the proposed proposed rule changes (SR–NYSEMKT–
members.31 NASAA also asserts that
timeframes would provide Members 2016–52 and SR–NYSE Arca 2016–103)
Commission approval of the proposal
with sufficient time to perform due be, and hereby are, approved.
would be premature, as NASAA’s
diligence before reporting a
ongoing work in this area may lead to For the Commission, by the Division of
termination.39 Specifically responding Trading and Markets, pursuant to delegated
an industry-wide examination of Form
to SIFMA and ARM, NYSE states that authority.44
U5 filing issues, and ultimately a
the proposed rule language is not Eduardo A. Aleman,
recommendation to shorten the
ambiguous, adding that the ‘‘prompt’’ Assistant Secretary.
deadlines for filing the Form U5.32 OIA
requirement is consistent with rules of
supports a harmonized approach among [FR Doc. 2017–04606 Filed 3–8–17; 8:45 am]
other self-regulatory organizations and
the self-regulatory organizations but BILLING CODE 8011–01–P
should encourage prompt filing of Form
argues that the appropriate way to
U5, but does not shorten the deadline of
harmonize the requirement would be to
30 days.40 SECURITIES AND EXCHANGE
shorten the filing timeframes to 10 days
across the industry.33 As discussed above, the Commission COMMISSION
believes that the changes, which will
NYSE responds by stating that the [Release No. 34–80147; File No. SR–OCC–
provide additional time for Members to
proposed rule changes would 2017–001]
file Forms U5, may result in more
harmonize the Exchanges’ rules with the
accurate information describing the Self-Regulatory Organizations; The
existing rules of the other exchanges
reasons for the termination of a Options Clearing Corporation; Order
and FINRA and thereby ensure
registered person, which would serve to Approving Proposed Rule Change
uniformity and promote clarity and
consistency.34 In addition, the Exchange protect investors and the public interest. Concerning The Options Clearing
believes that maintaining a requirement Certain commenters appear to be Corporation’s Margin Coverage During
for NYSE MKT and NYSE Arca concerned that Members may require Times of Increased Volatility
Members different from the requirement additional time to accurately and
completely respond to questions on the March 3, 2017.
for FINRA members results in a burden
on competition.35 With respect to On January 4, 2017, The Options
concerns regarding timely access to
36 See NYSE Letter I at 2. But see OIA Letter at Clearing Corporation (‘‘OCC’’) filed with
information by investors, NYSE
6 noting ‘‘that, while timelier disclosure of Form U5 the Securities and Exchange
information on BrokerCheck impacts the speed in Commission (‘‘Commission’’) the
references a proposed rule change that which a retail investor may be alerted to red flag
amended FINRA’s rules to reduce the conduct, it has no impact on the speed in which proposed rule change SR–OCC–2017–
time period within which information regulators are alerted to, and can respond to, the 001 pursuant to Section 19(b)(1) of the
disclosed on Form U5 is made available
information in the Form U5.’’ Securities Exchange Act of 1934
37 See NYSE Letter I at 2, NYSE Letter II at 3.
to the public via BrokerCheck from 15 (‘‘Act’’),1 and Rule 19b–4 thereunder.2
38 See NYSE Letter I at 1–2, NYSE Letter II at 1–
The proposed rule change was
2, NYSE Letter III at 1–2. NYSE refers to similar
27 See NASAA Letter at 2 and NASAA Response exchange rules featuring a 30-day time limit for the published for comment in the Federal
at 2. See also ASC Letter at 2 (stating it is far more filing and amending of the Form U5, including two Register on January 25, 2017.3 The
efficient for a state to prevent an agent with rules adopted in 2016. See NYSE Letter II at 2. The
Commission approved a rule change, SR–
asabaliauskas on DSK3SPTVN1PROD with NOTICES
disqualifying history from becoming registered than 41 See SIFMA letter at 2, ARM Letter I at 1–2 and
it is to revoke or suspend a registered agent). NYSEArca–2016–104, which amended one rule to
ARM Letter II at 2.
28 See NASAA Response at 2. add ‘‘calendar’’ to modify the 30-day time frame 42 See supra, note 14 and accompanying text.
29 See id. within which to submit Form U5 and a second rule
43 15 U.S.C. 78s(b)(2).
30 See id.
to shorten the time within which to submit the
44 17 CFR 200.30–3(a)(12).
Form U5 from 30 business days to 30 calendar days.
31 See id. at 2–3. 1 15 U.S.C. 78s(b)(1).
See Securities Exchange Act Release No. 78809
32 See id. at 3.
(September 9, 2016), 81 FR 63543 (September 15, 2 17 CFR 240.19b–4.
33 See OIA Letter at 3. 2016). 3 Securities Exchange Act Release No. 79818
34 See NYSE Letter III at 2. 39 See NYSE Letter III at 2.
(January 18, 2017) 82 FR 8455 (January 25, 2017
35 See NYSE Letter I at 1, NYSE Letter II at 2. 40 See id. (SR–OCC–2017–001) (‘‘Notice’’).
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![13166 Federal Register / Vol. 82, No. 45 / Thursday, March 9, 2017 / Notices
III. Conclusion options. The Exchange proposes to Order Entry Ports,5 CTI Ports,6 OTTO
On the basis of the foregoing, the clarify that NOM port fees and other Ports,7 ITTO Ports,8 BONO Ports,9 Order
Commission finds that the proposed services in Chapter VX, Section 3 of Entry DROP Ports,10 OTTO DROP
change is consistent with the NOM Rules are not prorated. Ports 11 and SQF Ports.12 Today, the
requirements of the Act, and in The text of the proposed rule change 5 The Order Entry Port Fee is a connectivity fee
particular, with the requirements of is available on the Exchange’s Web site in connection with routing orders to the Exchange
Section 17A of the Act 12 and the rules at http://nasdaq.cchwallstreet.com, at via an external order entry port. NOM Participants
and regulations thereunder. the principal office of the Exchange, and access the Exchange’s network through order entry
It is therefore ordered, pursuant to ports. A NOM Participant may have more than one
at the Commission’s Public Reference order entry port.
Section 19(b)(2) of the Exchange Act,13 Room. 6 CTI offers real-time clearing trade updates. A
that the proposed rule change (SR– real-time clearing trade update is a message that is
OCC–2017–001) be, and it hereby is, II. Self-Regulatory Organization’s sent to a member after an execution has occurred
approved. Statement of the Purpose of, and and contains trade details. The message containing
Statutory Basis for, the Proposed Rule the trade details is also simultaneously sent to The
For the Commission, by the Division of Options Clearing Corporation. The trade messages
Trading and Markets, pursuant to delegated Change are routed to a member’s connection containing
authority.14 certain information. The administrative and market
Eduardo A. Aleman,
In its filing with the Commission, the event messages include, but are not limited to:
Exchange included statements System event messages to communicate
Assistant Secretary. operational-related events; options directory
concerning the purpose of and basis for
[FR Doc. 2017–04599 Filed 3–8–17; 8:45 am] messages to relay basic option symbol and contract
the proposed rule change and discussed information for options traded on the Exchange;
BILLING CODE 8011–01–P
any comments it received on the complex strategy messages to relay information for
proposed rule change. The text of these those strategies traded on the Exchange; trading
action messages to inform market participants when
SECURITIES AND EXCHANGE statements may be examined at the a specific option or strategy is halted or released for
COMMISSION places specified in Item IV below. The trading on the Exchange; and an indicator which
Exchange has prepared summaries, set distinguishes electronic and non-electronically
[Release No. 34–80153; File No. SR– delivered orders.
forth in sections A, B, and C below, of 7 OTTO provides a method for subscribers to send
NASDAQ–2017–022]
the most significant aspects of such orders and receive status updates on those orders.
Self-Regulatory Organizations; The statements. OTTO accepts limit orders from system subscribers,
and if there is a matching order, the orders will
NASDAQ Stock Market LLC; Notice of A. Self-Regulatory Organization’s execute. Non-matching orders are added to the limit
Filing and Immediate Effectiveness of Statement of the Purpose of, and order book, a database of available limit orders,
Proposed Rule Change Related to Statutory Basis for, the Proposed Rule
where they are matched in price-time priority.
8 ITTO is a data feed that provides quotation
Billing Ports and Other Services
Change information for individual orders on the NOM book,
March 3, 2017. last sale information for trades executed on NOM,
1. Purpose and Order Imbalance Information as set forth in
Pursuant to Section 19(b)(1) of the NOM Rules Chapter VI, Section 8. ITTO is the
Securities Exchange Act of 1934 The purpose of the proposed rule options equivalent of the NASDAQ TotalView/
(‘‘Act’’),1 and Rule 19b–4 thereunder,2 change is to include language within ITCH data feed that NASDAQ offers under
notice is hereby given that on February NASDAQ Rule 7023 with respect to equities traded
Chapter XV, Section 3 to clarify that the on NASDAQ. As with TotalView, members use
21, 2017, The NASDAQ Stock Market port fees and other services noted in this ITTO to ‘‘build’’ their view of the NOM book by
LLC (‘‘Nasdaq’’ or ‘‘Exchange’’) filed section are not subject to proration. adding individual orders that appear on the feed,
with the Securities and Exchange and subtracting individual orders that are executed.
Commission (‘‘SEC’’ or ‘‘Commission’’) Chapter XV, Section 3, entitled See Chapter VI, Section 1 at subsection (a)(3)(A).
the proposed rule change as described ‘‘NASDAQ Options Market—Ports and 9 Best of NASDAQ Options or ‘‘BONO’’ (SM) is a
other Services’’ includes pricing for data feed that provides the NOM Best Bid and Offer
in Items I and II, below, which Items (‘‘NBBO’’) and last sale information for trades
have been prepared by the Exchange. TradeInfo,3 various port fees and executed on NOM. The NBBO and last sale
The Commission is publishing this Remote ITCH to Trade Options (ITTO) information are identical to the information that
notice to solicit comments on the Wave Ports.4 The port fees include NOM sends the Options Price Regulatory Authority
(‘‘OPRA’’) and which OPRA disseminates via the
proposed rule change from interested consolidated data feed for options.
persons. 3 TradeInfo allows an Options Participant to scan 10 The DROP interface provides real time
for all orders it submitted to NOM in a particular information regarding orders sent to NOM and
I. Self-Regulatory Organization’s executions that occurred on NOM. The DROP
security or all orders of a particular type, regardless
Statement of the Terms of Substance of of their status (open, canceled, executed, etc.) [sic] interface is not a trading interface and does not
the Proposed Rule Change Also, it permits a participant to cancel open orders accept order messages.
11 The OTTO DROP data feed provides real-time
The Exchange proposes to amend at the port or firm mnemonic level. TradeInfo
information regarding orders entered through OTTO
allows a NOM Participant to manage its order flow
Chapter XV, entitled ‘‘Options Pricing,’’ and the execution of those orders. The OTTO DROP
and mitigate risk by giving users the ability to view data feed is not a trading interface and does not
at Section 3, which governs pricing for its orders and executions, as well as the ability to accept order messages.
Exchange members using the NASDAQ perform cancels at the port or firm mnemonic level. 12 SQF is an interface that allows NOM Market
Options Market (‘‘NOM’’), the Finally, TradeInfo has the ability download records Makers to connect and send quotes and sweeps into
Exchange’s facility for executing and of orders and executions for recordkeeping the System. Data includes the following: (1) Options
routing standardized equity and index
asabaliauskas on DSK3SPTVN1PROD with NOTICES
purposes. Auction Notifications (e.g., opening imbalance,
4 These are wireless networks through which market exhaust, PRISM Auction information, or
12 In approving this proposed rule change, the Nasdaq provides ITTO market data. A Remote Wave other information); (2) Options Symbol Directory
Port is a physical port located in Nasdaq’s space Messages; (3) System Event Messages (e.g., start of
Commission has considered the proposed rule’s
messages, start of system hours, start of quoting,
impact on efficiency, competition, and capital within a third-party’s (remote) data center that
start of opening); (4) Option Trading Action
formation. See 15 U.S.C. 78c(f). receives market data delivered by Nasdaq via a
13 15 U.S.C. 78s(b)(2).
Messages (e.g., halts, resumes); and (5) Quote
wireless network, which is then simultaneously Messages (quote/sweep messages, risk protection
14 17 CFR 200.30–3(a)(12). distributed to Wave Ports within that location. triggers or purge notifications). An Active Purge
1 15 U.S.C. 78s(b)(1). Clients must separately subscribe to the data Port may be configured as a ‘‘Purge-only’’ port of
2 17 CFR 240.19b–4. received by the Remote Wave Port service. purging option interest from the Exchange’s system
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Document Created: 2017-03-09 04:59:05
Document Modified: 2017-03-09 04:59:05
| 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 | 82 FR 13163 |
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