82 FR 22036 - Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing of Amendment No. 1 and Order Granting Accelerated Approval of a Proposed Rule Change, as Modified by Amendment No. 1, Amending Rule 6.80 To Make Permanent a Program That Allows Cabinet Trade Transactions To Take Place at a Price Below $1 Per Option Contract

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 82, Issue 90 (May 11, 2017)

[Federal Register Volume 82, Number 90 (Thursday, May 11, 2017)]
[Notices]
[Pages 22036-22038]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2017-09531]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-80615; File No. SR-NYSEArca-2017-24]


Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
of Amendment No. 1 and Order Granting Accelerated Approval of a 
Proposed Rule Change, as Modified by Amendment No. 1, Amending Rule 
6.80 To Make Permanent a Program That Allows Cabinet Trade Transactions 
To Take Place at a Price Below $1 Per Option Contract

May 5, 2017.

I. Introduction

    On March 2, 2017, NYSE Arca, Inc. (the ``Exchange'' or ``NYSE 
Arca'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a 
proposed rule change amending the Exchange's rules to make permanent a 
program that allows transactions to take place in open outcry trading 
at prices of at least $0 but less than $1 per option contract (``sub-
dollar cabinet trades''). The proposed rule change was published for 
comment in the Federal Register on March 23, 2017.\3\ On April 25, 
2017, the Exchange filed Amendment No. 1 to the proposed rule 
change.\4\ The Commission received no comment letters on the proposed 
rule change. This order provides notice of filing of Amendment No. 1 
and approves the proposed rule change, as modified by Amendment No. 1, 
on an accelerated basis.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 80271 (March 17, 
2017), 82 FR 14934 (March 23, 2017) (``Notice'').
    \4\ In Amendment No. 1, the Exchange provided supplemental 
background detail on its proposal, including a summary of why it 
initially put the program on a pilot, a description of the systems 
enhancements it made to be able to process cabinet trades in the 
regular course, an example of how a cabinet trade is done on the 
trading floor, and a representation that, to its knowledge, neither 
the Options Clearing Corporation (``OCC'') nor the Exchange's 
members have reported any operational issues in connection with 
cabinet trades. To promote transparency of its proposed amendment, 
when NYSE Arca filed Amendment No. 1 with the Commission, it also 
submitted Amendment No. 1 as a comment letter to the file, which the 
Commission posted on its Web site and placed in the public comment 
file for SR-NYSEArca-2017-24 (available at https://www.sec.gov/comments/sr-nysearca-2017-24/nysearca201724.htm). The Exchange also 
posted a copy of its Amendment No. 1 on its Web site (https://www.nyse.com/regulation/rule-filings) when it filed it with the 
Commission.
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II. Description of the Proposed Rule Change

    Prior to 2010, Exchange Rule 6.80 (Accommodation Transactions 
(Cabinet Trades)) allowed cabinet trade transactions at a price of $1 
per option contract to occur in open outcry trading for certain 
classes.\5\ In 2010, the Exchange amended Rule 6.80 on a pilot basis to 
allow sub-dollar cabinet trades to take place at prices of at least $0 
but less than $1 per option contract.\6\ The Exchange now proposes to 
amend Rule 6.80 to make permanent its sub-dollar cabinet trade pilot 
program, which currently is scheduled to expire on July 5, 2017.\7\
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    \5\ See Rule 6.80. See also Notice, supra note 3, at 14935 
(discussing Rule 6.80).
    \6\ See Securities Exchange Act Release No. 63476 (December 8, 
2010), 75 FR 77930 (December 14, 2010) (SR-NYSEArca-2010-109).
    \7\ See Commentary .01 to Rule 6.80. See also Securities 
Exchange Act Release No. 79565 (December 15, 2016), 81 FR 93723 
(December 21, 2016) (SR-NYSEArca-2016-163).
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    The Exchange permits sub-dollar cabinet trade transactions to be 
traded pursuant to the same procedures applicable to $1 cabinet trades, 
except that for sub-dollar cabinet trades (i) bids and offers for 
opening transactions are permitted only to accommodate closing 
transactions, and (ii) transactions in option classes participating in 
the Penny Pilot Program are permitted.\8\ As it explained in the 
Notice, the Exchange believes that ``allowing trading at a price of at 
least $0 but less than $1 better accommodates the closing of options 
positions in series that are worthless or not actively traded, 
particularly when there has been a significant move in the price of the 
underlying security, resulting in a large number of series being out-
of-the-money.'' \9\
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    \8\ See Commentary .01 to Rule 6.80. See also Notice, supra note 
3, at 14935 (discussing the pilot).
    \9\ Notice, supra note 3, at 14935.
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III. Discussion and Commission Findings

    After careful review, the Commission finds that the proposed rule 
change is consistent with the requirements of the Act \10\ and the 
rules and regulations thereunder applicable to a national securities 
exchange.\11\ In particular, the Commission finds that the proposed 
rule change is consistent with Section 6(b)(5) of the Act,\12\ which 
requires, among other things, that the rules of a national securities 
exchange be designed to prevent fraudulent and

[[Page 22037]]

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 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.
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    \10\ 15 U.S.C. 78f.
    \11\ 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).
    \12\ 15 U.S.C. 78f(b)(5).
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    In the Notice, as amended, the Exchange explains that it initially 
put the sub-dollar cabinet trade rule on a pilot so that it could 
``evaluate the efficacy of the change and to address any operational 
issues that might arise in processing [c]abinet trades.'' \13\ During 
the course of the pilot, the Exchange made enhancements to its system 
to accommodate cabinet trades at a price as small as $0.00000001.\14\ 
With that systems change, and based on its experience with these types 
of trades, the Exchange notes that its systems now ``allow it to 
process [c]abinet trades in a manner similar to how all other trades 
are processed by the Exchange.'' \15\
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    \13\ Amendment No. 1, supra note 4.
    \14\ See id.
    \15\ Id. See also Notice, supra note 3, at 14935 (noting that 
``in 2016, there were a total of 558 cabinet trades'' on the 
Exchange. ``Of these, 50 trades comprising 47,106 contracts were 
executed at a price of $0.01, while the remaining 508 trades 
comprising 208,078 contracts were executed for a premium of less 
than $0.01'').
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    In support of making the pilot program permanent, the Exchange 
represents that ``there are no operational issues in processing and 
clearing [c]abinet trades in penny and sub-penny increments.'' \16\ The 
Exchange also represents that ``OTP Holders and OTP Firms have not 
raised any concerns with the current method of processing of [c]abinet 
trades.'' \17\ Finally, the Exchange represents that it is ``not aware 
of the Options Clearing Corporation (``OCC'') having operational issues 
with processing [c]abinet trades submitted by the Exchange.'' \18\
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    \16\ Notice, supra note 3, at 14935.
    \17\ Amendment No. 1, supra note 4.
    \18\ Id.
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    Based on the representations of the Exchange, the Commission 
believes that permanent approval of the sub-dollar cabinet trade pilot 
is consistent with the Act. In particular, the Commission notes that 
the Exchange has made the necessary systems changes to accommodate sub-
dollar cabinet trades into its regular trading infrastructure, and thus 
is able to process such trades in the normal course. Further, the 
Exchange has not observed any issues or concerns with sub-dollar 
cabinet trades at the Exchange level or with and among its members or 
in processing the trades through OCC. Accordingly, the Exchange's rule 
appears reasonably designed to remove impediments, prevent fraudulent 
and manipulative acts and practices, and foster cooperation and 
coordination with persons engaged in facilitating transactions in 
securities. Further, permanent approval will continue to provide 
investors with choice when considering a cabinet trade, including the 
ability to price such trades below $1 per contract.

IV. Solicitation of Comments on Amendment No. 1 to the Proposed Rule 
Change

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether Amendment No. 1 
to 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 [email protected]. Please include 
File Number SR-NYSEArca-2017-24 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-NYSEArca-2017-24. 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-NYSEArca-2017-24, and should 
be submitted on or before June 1, 2017.

V. Accelerated Approval of Proposed Rule Change, as Modified by 
Amendment No. 1

    The Commission finds good cause to approve the proposed rule 
change, as modified by Amendment No. 1, prior to the thirtieth day 
after the date of publication of notice of the amended proposal in the 
Federal Register. In Amendment No. 1, NYSE Arca provided supplemental 
background detail on why the sub-dollar cabinet trade provision was put 
on a pilot initially, described the systems changes that the Exchange 
made to be able to process cabinet trades, and represented its 
understanding that neither OCC nor the Exchange's members have reported 
any operational issues in connection with cabinet trades.\19\ The 
additional information contained in Amendment No. 1 provides further 
support for the Exchange's proposal, is consistent with the proposal as 
initially filed, and does not introduce any new provisions or novel 
arguments in support of the proposal. Further, the Commission notes 
that it did not receive any comment letters on the Exchange's proposal. 
Accordingly, the Commission finds good cause, pursuant to Section 
19(b)(2) of the Act,\20\ to approve the proposed rule change, as 
modified by Amendment No. 1, on an accelerated basis.
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    \19\ See Amendment No. 1, supra note 4. See also supra note 4 
(noting that the Exchange submitted Amendment No. 1 as a comment 
letter to the file, which the Commission posted on its Web site and 
placed in the public comment file).
    \20\ 15 U.S.C. 78s(b)(2).
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VI. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\21\ that the proposed rule change (SR-NYSEArca-2017-24), as 
modified by Amendment No. 1, be, and hereby is, approved on an 
accelerated basis.
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    \21\ 15 U.S.C. 78s(b)(2).
    \22\ 17 CFR 200.30-3(a)(12).


[[Page 22038]]


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    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\22\

Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-09531 Filed 5-10-17; 8:45 am]
 BILLING CODE 8011-01-P