82_FR_37772 82 FR 37618 - Self-Regulatory Organizations; MIAX PEARL, LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend MIAX PEARL Rules 504, Trading Halts, and 521, Nullification and Adjustment of Options Transactions Including Obvious Errors

82 FR 37618 - Self-Regulatory Organizations; MIAX PEARL, LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend MIAX PEARL Rules 504, Trading Halts, and 521, Nullification and Adjustment of Options Transactions Including Obvious Errors

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 82, Issue 154 (August 11, 2017)

Page Range37618-37625
FR Document2017-16927

Federal Register, Volume 82 Issue 154 (Friday, August 11, 2017)
[Federal Register Volume 82, Number 154 (Friday, August 11, 2017)]
[Notices]
[Pages 37618-37625]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2017-16927]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-81324; File No. SR-PEARL-2017-33]


Self-Regulatory Organizations; MIAX PEARL, LLC; Notice of Filing 
and Immediate Effectiveness of a Proposed Rule Change To Amend MIAX 
PEARL Rules 504, Trading Halts, and 521, Nullification and Adjustment 
of Options Transactions Including Obvious Errors

August 7, 2017.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on August 2, 2017, MIAX PEARL, LLC (``MIAX PEARL'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I and 
II below, which Items have been prepared by the Exchange. The 
Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
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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

    The Exchange proposes to amend Exchange Rules 504, Trading Halts, 
and 521, Nullification and Adjustment of Options Transactions including 
Obvious Errors.
    The text of the proposed rule change is available on the Exchange's 
Web site at http://www.miaxoptions.com/rule-filings/pearl at MIAX 
PEARL's principal office, and at the Commission's Public Reference 
Room.

[[Page 37619]]

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
Background
    The Exchange and other options exchanges recently adopted a new, 
harmonized rule related to the adjustment and nullification of 
erroneous options transactions, including a specific provision related 
to coordination in connection with large-scale events involving 
erroneous options transactions.\3\ The Exchange believes that the 
changes the options exchanges implemented with the new, harmonized rule 
have led to increased transparency and finality with respect to the 
adjustment and nullification of erroneous options transactions. 
However, as part of the initial initiative, the Exchange and other 
options exchanges deferred a few specific matters for further 
discussion. Specifically, as described in the Initial Filing, the 
Exchange and all other options exchanges have been working to further 
improve the review of potentially erroneous transactions as well as 
their subsequent adjustment by creating an objective and universal way 
to determine Theoretical Price in the event a reliable NBBO is not 
available. Because this initiative required additional exchange and 
industry discussion as well as additional time for development and 
implementation, the Exchange and the other options exchanges determined 
to proceed with the Initial Filing and to undergo a secondary 
initiative to complete any additional improvements to the applicable 
rule. In this filing, the Exchange proposes to adopt procedures that 
will lead to a more objective and uniform way to determine Theoretical 
Price in the event a reliable NBBO is not available. In addition to 
this change, the Exchange has proposed two additional minor changes to 
its rules. The Exchange's proposal mirrors that of Bats BZX, which the 
Commission approved on July 6, 2017,\4\ and those that the other 
options exchanges intend to or have filed. Finally, the Exchange notes 
that options exchanges that offer complex orders on their options 
platforms either already have in place rules for handling the 
adjustment and nullification of erroneous complex order transactions in 
place or have filed proposals related to such rules, which proposals 
have recently been approved by the Commission or filed on an 
immediately effective basis.\5\
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    \3\ The Exchange's application for registration as a national 
securities exchange, as approved by the Commission, incorporated the 
changes made previously by the other options exchanges. See 
Securities Exchange Act Release No. 79543 (December 13, 2016), 81 FR 
92901 (December 20, 2016) (the ``Initial Filing'').
    \4\ See Securities Exchange Act Release No. 81084 (July 6, 
2017), 82 FR 32216 (July 12, 2017) (granting approval of Bats BZX 
proposal).
    \5\ See e.g., Securities Exchange Act Release Nos. 80040 
(February 14, 2017), 82 FR 11248 (February 21, 2017) (SR-CBOE-2016-
088) (granting approval of CBOE proposal related to the 
nullification and adjustment of complex orders); 80298 (March 22, 
2017), 82 FR 15393 (March 28, 2017) (SR-C2-2017-011) (notice of 
filing and immediate effectiveness of C2 proposal related to the 
nullification and adjustment of complex orders); 80284 (March 21, 
2017), 82 FR 15251 (March 27, 2017) (SR-MIAX-2017-13) (notice of 
filing and immediate effectiveness of MIAX proposal related to the 
nullification and adjustment of complex orders).
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Calculation of Theoretical Price Using a Third Party Provider
    Under the harmonized rule, when reviewing a transaction as 
potentially erroneous, the Exchange needs to first determine the 
``Theoretical Price'' of the option, i.e., the Exchange's estimate of 
the correct market price for the option. Pursuant to Rule 521, if the 
applicable option series is traded on at least one other options 
exchange, then the Theoretical Price of an option series is the last 
national best bid (``NBB'') just prior to the trade in question with 
respect to an erroneous sell transaction or the last national best 
offer (``NBO'') just prior to the trade in question with respect to an 
erroneous buy transaction unless one of the exceptions described below 
exists. Thus, whenever the Exchange has a reliable NBB or NBO, as 
applicable, just prior to the transaction, then the Exchange uses this 
NBB or NBO as the Theoretical Price.
    The Rule also contains various provisions governing specific 
situations where the NBB or NBO is not available or may not be 
reliable. Specifically, the Rule specifies situations in which there 
are no quotes or no valid quotes for comparison purposes, when the 
national best bid or offer (``NBBO'') is determined to be too wide to 
be reliable, and at the open of trading on each trading day. In each of 
these circumstances, in turn, because the NBB or NBO is not available 
or is deemed to be unreliable, the Exchange determines Theoretical 
Price. Under the current Rule, when determining Theoretical Price, 
Exchange personnel generally consult and refer to data such as the 
prices of related series, especially the closest strikes in the option 
in question. Exchange personnel may also take into account the price of 
the underlying security and the volatility characteristics of the 
option as well as historical pricing of the option and/or similar 
options. Although the Rule is administered by experienced personnel and 
the Exchange believes the process is currently appropriate, the 
Exchange recognizes that it is also subjective and could lead to 
disparate results for a transaction that spans multiple options 
exchanges.
    The Exchange proposes to adopt Interpretation and Policy .03 to 
specify how the Exchange will determine Theoretical Price when required 
by sub-paragraphs (b)(1)-(3) of the Rule (i.e., at the open, when there 
are no valid quotes or when there is a wide quote). In particular, the 
Exchange has been working with other options exchanges to identify and 
select a reliable third party vendor (``TP Provider'') that would 
provide Theoretical Price to the Exchange whenever one or more 
transactions is under review pursuant to Rule 521 and the NBBO is 
unavailable or deemed unreliable pursuant to Rule 521(b). The Exchange 
and other options exchanges have selected CBOE Livevol, LLC 
(``Livevol'') as the TP Provider, as described below. As further 
described below, proposed Interpretation and Policy .03 would codify 
the use of the TP Provider as well as limited exceptions where the 
Exchange would be able to deviate from the Theoretical Price given by 
the TP Provider.
    Pursuant to proposed Interpretation and Policy .03, when the 
Exchange must determine Theoretical Price pursuant to the sub-
paragraphs (b)(1)-(3) of the Rule, the Exchange will request 
Theoretical Price from the third party vendor to which the Exchange and 
all other options exchanges have subscribed. Thus, as set forth in this 
proposed language, Theoretical Price would be provided to the Exchange 
by the TP Provider on request and not through a streaming data feed.\6\ 
This

[[Page 37620]]

language also makes clear that the Exchange and all other options 
exchanges will use the same TP Provider.
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    \6\ Though the Exchange and other options exchanges considered a 
streaming feed, it was determined that it would be more feasible to 
develop and implement an on demand service and that such a service 
would satisfy the goals of the initiative.
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    As noted above, the proposed TP Provider selected by the Exchange 
and other options exchanges is Livevol. The Exchange proposes to codify 
this selection in proposed paragraph (d) to Interpretation and Policy 
.03. As such, the Exchange would file a rule proposal and would provide 
notice to the options industry of any proposed change to the TP 
Provider.
    The Exchange and other options exchanges have selected Livevol as 
the proposed TP Provider after diligence into various alternatives. 
Livevol has, since 2009, been the options industry leader in providing 
equity and index options market data and analytics services.\7\ The 
Exchange believes that Livevol has established itself within the 
options industry as a trusted provider of such services and notes that 
it and all other options exchanges already subscribe to various Livevol 
services. In connection with this proposal, Livevol will develop a new 
tool based on its existing technology and services that will supply 
Theoretical Price to the Exchange and other options exchanges upon 
request. The Theoretical Price tool will leverage current market data 
and surrounding strikes to assist in a relative value pricing approach 
to generating a Theoretical Price. When relative value methods are 
incapable of generating a valid Theoretical Price, the Theoretical 
Price tool will utilize historical trade and quote data to calculate 
Theoretical Price.
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    \7\ The Exchange notes that in 2015, Livevol was acquired by 
CBOE Holdings, Inc., the ultimate parent company of the Chicago 
Board Options Exchange (``CBOE'') and C2 Options Exchange (``C2'').
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    Because the purpose of the proposal is to move away from a 
subjective determination by Exchange personnel when the NBBO is 
unavailable or unreliable, the Exchange intends to use the Theoretical 
Price provided by the TP Provider in all such circumstances. However, 
the Exchange believes it is necessary to retain the ability to contact 
the TP Provider if it believes that the Theoretical Price provided is 
fundamentally incorrect and to determine the Theoretical Price in the 
limited circumstance of a systems issue experienced by the TP Provider, 
as described below.
    As proposed, to the extent an Official \8\ of the Exchange believes 
that the Theoretical Price provided by the TP Provider is fundamentally 
incorrect and cannot be used consistent with the maintenance of a fair 
and orderly market, the Official shall contact the TP Provider to 
notify the TP Provider of the reason the Official believes such 
Theoretical Price is inaccurate and to request a review and correction 
of the calculated Theoretical Price. For example, if an Official 
received from the TP Provider a Theoretical Price of $80 in a series 
that the Official might expect to be instead in the range of $8 to $10 
because of a recent corporate action in the underlying, the Official 
would request that the TP Provider review and confirm its calculation 
and determine whether it had appropriately accounted for the corporate 
action. In order to ensure that other options exchanges that may 
potentially be relying on the same Theoretical Price that, in turn, the 
Official believes to be fundamentally incorrect, the Exchange also 
proposes to promptly provide notice to other options exchanges that the 
TP Provider has been contacted to review and correct the calculated 
Theoretical Price at issue and to include a brief explanation of the 
reason for the request.\9\ Although not directly addressed by the 
proposed Rule, the Exchange expects that all other options exchanges 
once in receipt of this notification would await the determination of 
the TP Provider and would use the corrected price as soon as it is 
available. The Exchange further notes that it expects the TP Provider 
to cooperate with, but to be independent of, the Exchange and other 
options exchanges.\10\
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    \8\ For purposes of the Rule, an Official is an Officer of the 
Exchange or such other employee designee of the Exchange that is 
trained in the application of Rule 521.
    \9\ See proposed paragraph (b) to Interpretation and Policy .03.
    \10\ The Exchange expects any TP Provider selected by the 
Exchange and other options exchanges to act independently in its 
determination and calculation of Theoretical Price. With respect to 
Livevol specifically, the Exchange again notes that Livevol is a 
subsidiary of CBOE Holdings, Inc., which is also the ultimate parent 
company of multiple options exchanges. The Exchange expects Livevol 
to calculate Theoretical Price independent of its affiliated 
exchanges in the same way it will calculate Theoretical Price 
independent of non-affiliated exchanges.
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    The Exchange believes that the proposed provision to allow an 
Official to contact the TP Provider if he or she believes the provided 
Theoretical Price is fundamentally incorrect is necessary, particularly 
because the Exchange and other options exchanges will be using the new 
process for the first time. Although the exchanges have conducted 
thorough diligence with respect to Livevol as the selected TP Provider 
and would do so with any potential replacement TP Provider, the 
Exchange is concerned that certain scenarios could arise where the 
Theoretical Price generated by the TP Provider does not take into 
account relevant factors and would result in an unfair result for 
market participants involved in a transaction. The Exchange notes that 
if such situations do indeed arise, to the extent practicable the 
Exchange will also work with the TP Provider and other options 
exchanges to improve the TP Provider's calculation of Theoretical Price 
in future situations. For instance, if the Exchange determines that a 
particular type of corporate action is not being appropriately captured 
by the TP Provider when such provider is generating Theoretical Price, 
while the Exchange believes that it needs the ability to request a 
review and correction of the Theoretical Price in connection with a 
specific review in order to provide a timely decision to market 
participants, the Exchange would share information regarding the 
specific situation with the TP Provider and other options exchanges in 
an effort to improve the Theoretical Price service for future use. The 
Exchange notes that it does not anticipate needing to rely on this 
provision frequently, if at all, but believes the provision is 
necessary nonetheless to best prepare for all potential circumstances. 
Further, the Theoretical Price used by the Exchange in connection with 
its rulings will always be that received from the TP Provider and the 
Exchange has not proposed the ability to deviate from such price.\11\
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    \11\ To the extent the TP Provider has been contacted by an 
Official of the Exchange, reviews the Theoretical Price provided but 
disagrees that there has been any error, then the Exchange would be 
bound to use the Theoretical Price provided by the TP Provider.
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    Pursuant to proposed paragraph (c) to Interpretation and Policy 
.03, an Official of the Exchange may determine the Theoretical Price if 
the TP Provider has experienced a systems issue that has rendered its 
services unavailable to accurately calculate Theoretical Price and such 
issue cannot be corrected in a timely manner. The Exchange notes that 
it does not anticipate needing to rely on this provision frequently, if 
at all, but believes the provision is necessary nonetheless to best 
prepare for all potential circumstances. Further, consistent with 
existing text in Rule 521(e)(4), the Exchange has not proposed a 
specific time by which the service must be available in order to be 
considered timely.\12\ The Exchange

[[Page 37621]]

expects that it would await the TP Provider's services becoming 
available again so long as the Exchange was able to obtain information 
regarding the issue and the TP Provider had a reasonable expectation of 
being able to resume normal operations within the next several hours 
based on communications with the TP Provider. More specifically with 
respect to Livevol, Livevol has business continuity and disaster 
recovery procedures that will help to ensure that the Theoretical Price 
tool remains available or, in the event of an outage, that service is 
restored in a timely manner.
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    \12\ In the context of a Significant Market Event, the Exchange 
may determine, ``in consultation with other options exchanges . . . 
that timely adjustment is not feasible due to the extraordinary 
nature of the situation.'' See Rule 521(e)(4).
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    The Exchange also notes that if a wide-scale event occurred, even 
if such event did not qualify as a ``Significant Market Event'' 
pursuant to Rule 521(e), and the TP Provider was unavailable or 
otherwise experiencing difficulty, the Exchange believes that it and 
other options exchanges would seek to coordinate to the extent 
possible. In particular, the Exchange and other options exchanges now 
have a process, administered by the Options Clearing Corporation, to 
invoke a discussion amongst all options exchanges in the event of any 
widespread or significant market events. The Exchange believes that 
this process could be used in the event necessary if there were an 
issue with the TP Provider.
    The Exchange also proposes to adopt language in paragraph (d) of 
Interpretation and Policy .03 to Rule 521 to disclaim the liability of 
the Exchange and the TP Provider in connection with the proposed Rule, 
the TP Provider's calculation of Theoretical Price, and the Exchange's 
use of such Theoretical Price. Specifically, the proposed rule would 
state that neither the Exchange, the TP Provider, nor any affiliate of 
the TP Provider (the TP Provider and its affiliates are referred to 
collectively as the ``TP Provider''), makes any warranty, express or 
implied, as to the results to be obtained by any person or entity from 
the use of the TP Provider pursuant to Interpretation .03. The proposed 
rule would further state that the TP Provider does not guarantee the 
accuracy or completeness of the calculated Theoretical Price and that 
the TP Provider disclaims all warranties of merchantability or fitness 
for a particular purpose or use with respect to such Theoretical Price. 
Finally, the proposed Rule would state that neither the Exchange nor 
the TP Provider shall have any liability for any damages, claims, 
losses (including any indirect or consequential losses), expenses, or 
delays, whether direct or indirect, foreseen or unforeseen, suffered by 
any person arising out of any circumstance or occurrence relating to 
the use of such Theoretical Price or arising out of any errors or 
delays in calculating such Theoretical Price. This proposed language is 
modeled after existing language in Exchange Rules regarding ``reporting 
authorities'' that calculate indices.\13\
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    \13\ See, e.g., MIAX PEARL Rule 526, which relates to index 
options potentially listed and traded on the Exchange and disclaims 
liability for a reporting authority and their affiliates.
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    In connection with the proposed change described above, the 
Exchange proposes to modify Rule 521 to state that the Exchange will 
rely on paragraph (b) and Interpretation and Policy .03 when 
determining Theoretical Price.
No Valid Quotes--Market Participant Quoting on Multiple Exchanges
    As described above, one of the times where the NBB or NBO is deemed 
to be unreliable for purposes of Theoretical Price is when there are no 
quotes or no valid quotes for the affected series. In addition to when 
there are no quotes, the Exchange does not consider the following to be 
valid quotes: (i) All quotes in the applicable option series published 
at a time where the last NBB is higher than the last NBO in such series 
(a ``crossed market''); (ii) quotes published by the Exchange that were 
submitted by either party to the transaction in question; and (iii) 
quotes published by another options exchange against which the Exchange 
has declared self-help. In recognition of today's market structure 
where certain participants actively provide liquidity on multiple 
exchanges simultaneously, the Exchange proposes to add an additional 
category of invalid quotes. Specifically, in order to avoid a situation 
where a market participant has established the market at an erroneous 
price on multiple exchanges, the Exchange proposes to consider as 
invalid the quotes in a series published by another options exchange if 
either party to the transaction in question submitted the quotes in the 
series representing such options exchange's best bid or offer. Thus, 
similar to being able to ignore for purposes of the Rule the quotes 
published by the Exchange if submitted by either party to the 
transaction in question, the Exchange would be able to ignore for 
purposes of the rule quotations on other options exchanges by that same 
market participant.
    In order to continue to apply the Rule in a timely and organized 
fashion, however, the Exchange proposes to initially limit the scope of 
this proposed provision in two ways. First, because the process will 
take considerable coordination with other options exchanges to confirm 
that the quotations in question on an away options exchange were indeed 
submitted by a party to a transaction on the Exchange, the Exchange 
proposes to limit this provision to apply to up to twenty-five (25) 
total options series (i.e., whether such series all relate to the same 
underlying security or multiple underlying securities). Second, the 
Exchange proposes to require the party that believes it established the 
best bid or offer on one or more other options exchanges to identify to 
the Exchange the quotes which were submitted by such party and 
published by other options exchanges. In other words, as proposed, the 
burden will be on the party seeking that the Exchange disregard their 
quotations on other options exchanges to identify such quotations. In 
turn, the Exchange will verify with such other options exchanges that 
such quotations were indeed submitted by such party.
    Below are examples of both the current rule and the rule as 
proposed to be amended.
Example 1--Current Rule, Member Erroneously Quotes on One Exchange
Assumptions
    For purposes of this example, assume the following:
     A Member acting as a Market Maker on the Exchange 
(``Market Maker A'') is quoting in twenty series of options underlying 
security ABCD on the Exchange (and only the Exchange).
     Market Maker A makes an error in calculating the market 
for options on ABCD, and publishes quotes in all twenty series to buy 
options at $1.00 and to sell options at $1.05.
     In fact, options on ABCD in these series are nearly 
worthless and no other market participant is quoting in such series.
     Therefore, the NBBO in the twenty series at issue is $1.00 
x $1.05 (with the Exchange representing the NBBO based on Market Maker 
A's quotes).
     Assume Member A immediately enters sell orders and 
executes against Market Maker A's quotes at $1.00.
     Assume Market Maker A submits to the Exchange a timely 
request for review of the trades with Member A as potentially erroneous 
transactions to buy.
Result
     Based on the Exchange's current rules, the Exchange would 
identify

[[Page 37622]]

Market Maker A as a participant to the trades at issue and would 
consider Market Maker A's quotations invalid pursuant to Rule 
521(b)(2).
     As there were no other valid quotes to use as a reference 
price, the Exchange would then determine Theoretical Price.
     Assume the Exchange determines a Theoretical Price of 
$0.05.
    [cir] The execution price of $1.00 exceeds the $0.25 minimum amount 
set forth in the Exchange's table to determine whether an obvious error 
has occurred (i.e., $0.05 + $0.25 = $0.30) so any execution at or above 
this price is an obvious error.
    [cir] Accordingly, the executions in all series would be adjusted 
by the Exchange to executions at $0.20 per contract (Theoretical Price 
of $0.05 plus $0.15) to the extent the incoming orders submitted by 
Member A were non-Customer orders.
    [cir] The executions in all series would be nullified to the extent 
the incoming orders submitted by Member A were Customer orders.
Example 2--Current Rule, Member Erroneously Quotes on Multiple 
Exchanges
Assumptions
    For purposes of this example, assume the following:
     A Member acting as a Market Maker on the Exchange 
(``Market Maker A'') is quoting in twenty series of options underlying 
security ABCD on the Exchange and on a second exchange (``Away 
Exchange'').
     Market Maker A makes an error in calculating the market 
for options on ABCD, and publishes quotes on both the Exchange and the 
Away Exchange in all twenty series to buy options at $1.00 and to sell 
options at $1.05.
     In fact, options on ABCD in these series are nearly 
worthless and no other market participant is quoting in such series.
     Therefore, the NBBO in the twenty series at issue is $1.00 
x $1.05 (with the Exchange and the Away Exchange representing the NBBO 
based on Market Maker A's quotes).
     Assume Member A immediately enters sell orders and 
executes against Market Maker A's quotes at $1.00.
     Assume Market Maker A submits to the Exchange and to the 
Away Exchange timely requests for review of the trades with Member A as 
potentially erroneous transactions to buy.
Result
     Based on the Exchange's current rules, the Exchange would 
identify Market Maker A as a participant to the trades at issue and 
would consider Market Maker A's quotations on the Exchange invalid 
pursuant to Rule 521(b)(2). The Exchange, however, would view the Away 
Exchange's quotations as valid, and would thus determine Theoretical 
Price to be $1.05 (i.e., the NBO in the case of a potentially erroneous 
buy transaction).
     The execution price of $1.00 does not exceed the $0.25 
minimum amount set forth in the Exchange's table to determine whether 
an obvious error has occurred (i.e., $1.05 + $0.25 = $1.30) so any 
execution at or above this price is an obvious error.
     The transactions on the Exchange would not be nullified or 
adjusted.
     As the Exchange and all other options exchanges have 
identical rules with respect to the process described above, the 
transactions on the Away Exchange would not be nullified or adjusted.
Example 3--Proposed Rule, Member Erroneously Quotes on Multiple 
Exchanges \14\
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    \14\ The Exchange notes that its proposed rule will not impact 
the proposed handling of a request for review where a market 
participant is quoting only on the Exchange, thus, the Exchange has 
not included a separate example for such a fact-pattern.
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Assumptions
    For purposes of this example, assume the following:
     A Member acting as a Market Maker on the Exchange 
(``Market Maker A'') is quoting in twenty series of options underlying 
security ABCD on the Exchange and on a second exchange (``Away 
Exchange'').\15\
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    \15\ The Exchange notes that the proposed rule would operate the 
same if Market Maker A was quoting on more than two exchanges. The 
Exchange has limited the example to two exchanges for simplicity.
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     Market Maker A makes an error in calculating the market 
for options on ABCD, and publishes quotes on both the Exchange and the 
Away Exchange in all twenty series to buy options at $1.00 and to sell 
options at $1.05.
     In fact, options on ABCD in these series are nearly 
worthless and no other market participant is quoting in such series.
     Therefore, the NBBO in the twenty series at issue is $1.00 
x $1.05 (with the Exchange and the Away Exchange representing the NBBO 
based on Market Maker A's quotes).
     Assume Member A immediately enters sell orders and 
executes against Market Maker A's quotes at $1.00.
     Assume Market Maker A submits to the Exchange and to the 
Away Exchange timely requests for review of the trades with Member A as 
potentially erroneous transactions to buy. At the time of submitting 
the requests for review to the Exchange and the Away Exchange, Market 
Maker A identifies to the Exchange the quotes on the Away Exchange as 
quotes also represented by Market Maker A (and to the Away Exchange, 
the quotes on the Exchange as quotes also represented by Market Maker 
A).
Result
     Based on the proposed rules, the Exchange would identify 
Market Maker A as a participant to the trades at issue and would 
consider Market Maker A's quotations on the Exchange invalid pursuant 
to Rule 521(b)(2).
     The Exchange and the Away Exchange would also coordinate 
to confirm that the quotations identified by Market Maker A on the 
other exchange were indeed Market Maker A's quotations. Once confirmed, 
each of the Exchange and the Away Exchange would also consider invalid 
the quotations published on the other exchange.
     As there were no other valid quotes to use as a reference 
price, the Exchange would then determine Theoretical Price.
     Assume the Exchange determines a Theoretical Price of 
$0.05.
    [cir] The execution price of $1.00 exceeds the $0.25 minimum amount 
set forth in the Exchange's table to determine whether an obvious error 
has occurred (i.e., $0.05 + $0.25 = $0.30) so any execution at or above 
this price is an obvious error.
    [cir] Accordingly, the executions in all series would be adjusted 
by the Exchange to executions at $0.20 per contract (Theoretical Price 
of $0.05 plus $0.15) to the extent the incoming orders submitted by 
Member A were non-Customer orders.
    [cir] The executions in all series would be nullified to the extent 
the incoming orders submitted by Member A were Customer orders.
     As the Exchange and all other options exchanges would have 
identical rules with respect to the process described above, as other 
options exchanges intend to adopt the same rule if the proposed rule is 
approved, the transactions on the Away Exchange would also be nullified 
or adjusted as set forth above.
     If this example was instead modified such that Market 
Maker A was quoting in 200 series rather than 20, the Exchange notes 
that Market Maker A could only request that the Exchange consider as 
invalid their quotations in 25 of those series on other exchanges. As 
noted above, the Exchange has proposed to limit the proposed rule to

[[Page 37623]]

25 series in order to continue to process requests for review in a 
timely and organized fashion in order to provide certainty to market 
participants. This is due to the amount of coordination that will be 
necessary in such a scenario to confirm that the quotations in question 
on an away options exchange were indeed submitted by a party to a 
transaction on the Exchange.
Trading Halts--Clarifying Change to Rules 504 and 521(f)
    Exchange Rules 504 and 521(f) describe the Exchange's authority to 
declare trading halts in one or more options traded on the Exchange. 
Currently, Rule 521(f) and Interpretation and Policy .04 to Rule 504 
both state that the Exchange shall nullify any transaction that occurs 
during a trading halt in the affected option on the Exchange or, with 
respect to equity options, during a trading halt on the primary listing 
market for the underlying security. The Exchange proposes to make clear 
with respect to equity options that it shall nullify any transaction 
that occurs during a regulatory halt as declared by the primary listing 
market for the underlying security. The Exchange believes this change 
is necessary to distinguish a declared regulatory halt, where the 
underlying security should not be actively trading on any venue, from 
an operational issue on the primary listing exchange where the security 
continues to safely trade on other trading venues.
Implementation Date
    The Exchange proposes to delay the operative date of this proposal 
to a date within ninety (90) days after the Commission approved the 
Bats BZX proposal on July 6, 2017.\16\ The Exchange will announce the 
operative date in a Regulatory Alert made available to its Members.
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    \16\ See supra, note 4.
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2. Statutory Basis
    The Exchange believes that its proposal is consistent with the 
requirements of the Act and the rules and regulations thereunder that 
are applicable to a national securities exchange, and, in particular, 
with the requirements of Section 6(b) of the Act.\17\ Specifically, the 
proposal is consistent with Section 6(b)(5) of the Act \18\ because it 
would promote just and equitable principles of trade, remove 
impediments to, and perfect the mechanism of, a free and open market 
and a national market system, and, in general, protect investors and 
the public interest.
---------------------------------------------------------------------------

    \17\ 15 U.S.C. 78f(b).
    \18\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    As described above, the Exchange and other options exchanges are 
seeking to further modify their harmonized rules related to the 
adjustment and nullification of erroneous options transactions. The 
Exchange believes that the proposal to utilize a TP Provider in the 
event the NBBO is unavailable or unreliable will provide greater 
transparency and clarity with respect to the adjustment and 
nullification of erroneous options transactions. Particularly, the 
proposed changes seek to achieve consistent results for participants 
across U.S. options exchanges while maintaining a fair and orderly 
market, protecting investors and protecting the public interest. Thus, 
the Exchange believes that the proposal is consistent with Section 
6(b)(5) of the Act \19\ in that the proposed Rule will foster 
cooperation and coordination with persons engaged in regulating and 
facilitating transactions.
---------------------------------------------------------------------------

    \19\ Id.
---------------------------------------------------------------------------

    The Exchange again reiterates that it has retained the standard of 
the current rule for most reviews of options transactions pursuant to 
Rule 521, which is to rely on the NBBO to determine Theoretical Price 
if such NBBO can reasonably be relied upon. The proposal to use a TP 
Provider when the NBBO is unavailable or unreliable is consistent with 
Section 6(b)(5) of the Act \20\ in that the proposed Rule will foster 
cooperation and coordination with persons engaged in regulating and 
facilitating transactions by further reducing the possibility of 
disparate results between options exchanges and increasing the 
objectivity of the application of Rule 521. Further, the Exchange 
believes that the proposed Rule is transparent with respect to the 
limited circumstances under which the Exchange will request a review 
and correction of Theoretical Price from the TP Provider, and has 
sought to limit such circumstances as much as possible. The Exchange 
notes that under the current Rule, Exchange personnel are required to 
determine Theoretical Price in certain circumstances and yet rarely do 
so because such circumstances have already been significantly limited 
under the harmonized rule (for example, because the wide quote 
provision of the harmonized rule only applies if the quote was narrower 
and then gapped but does not apply if the quote had been persistently 
wide). Thus, the Exchange believes it will need to request Theoretical 
Price from the TP Provider only in very rare circumstances and in turn, 
the Exchange anticipates that the need to contact the TP Provider for 
additional review of the Theoretical Price provided by the TP Provider 
will be even rarer. Similarly, the Exchange believes it is unlikely 
that an Exchange Official will ever be required to determine 
Theoretical Price, as such circumstance would only be in the event of a 
systems issue that has rendered the TP Provider's services unavailable 
and such issue cannot be corrected in a timely manner.
---------------------------------------------------------------------------

    \20\ Id.
---------------------------------------------------------------------------

    The Exchange also believes its proposal to adopt language in 
paragraph (d) of Interpretation and Policy .03 to Rule 521 to disclaim 
the liability of the Exchange and the TP Provider in connection with 
the proposed Rule, the TP Provider's calculation of Theoretical Price, 
and the Exchange's use of such Theoretical Price is consistent with the 
Act. As noted above, this proposed language is modeled after existing 
language in Exchange Rules regarding ``reporting authorities'' that 
calculate indices,\21\ and is consistent with Section 6(b)(5) of the 
Act \22\ in that the proposed Rule will foster cooperation and 
coordination with persons engaged in regulating and facilitating 
transactions.
---------------------------------------------------------------------------

    \21\ See supra, note 13.
    \22\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    As described above, the Exchange proposes a modification to the 
valid quotes provision to also exclude quotes in a series published by 
another options exchange if either party to the transaction in question 
submitted the orders or quotes in the series representing such options 
exchange's best bid or offer. The Exchange believes this proposal is 
consistent with Section 6(b)(5) of the Act \23\ because the application 
of the rule will foster cooperation and coordination with persons 
engaged in regulating and facilitating transactions by allowing the 
Exchange to coordinate with other options exchanges to determine 
whether a market participant that is party to a potentially erroneous 
transaction on the Exchange established the market in an option on 
other options exchanges; to the extent this can be established, the 
Exchange believes such participant's quotes should be excluded in the 
same way such quotes are excluded on the Exchange. The Exchange also 
believes it is reasonable to limit the scope of this provision to 
twenty-five (25) series and to require the party that believes it 
established the best bid or offer on one or more other options 
exchanges to identify to the Exchange the quotes which were submitted 
by that party and

[[Page 37624]]

published by other options exchanges. The Exchange believes these 
limitations are consistent with Section 6(b)(5) of the Act \24\ because 
they will ensure that the Exchange is able to continue to apply the 
Rule in a timely and organized fashion, thus fostering cooperation and 
coordination with persons engaged in regulating and facilitating 
transactions and also removing impediments to and perfecting the 
mechanism of a free and open market and a national market system.
---------------------------------------------------------------------------

    \23\ 15 U.S.C. 78f(b)(5).
    \24\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    Finally, with respect to the proposed modification to the 
Exchange's trading halt rules, Rule 504 and Rule 521(f), the Exchange 
believes that this proposal is consistent with Section 6(b)(5) of the 
Act \25\ because such proposal clarifies the provision by 
distinguishing between a trading halt in an underlying security where 
the security has halted trading across the industry (i.e., a regulatory 
halt) from a situation where the primary exchange has experienced a 
technical issue but the underlying security continues to trade on other 
equities platforms. The Exchange notes that this distinction is already 
clear in the rules of certain other options exchanges, and thus, has 
been found to be consistent with the Act.\26\
---------------------------------------------------------------------------

    \25\ Id.
    \26\ See, e.g., Interpretation and Policy .07 to CBOE Rule 6.3.
---------------------------------------------------------------------------

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 that is not necessary or appropriate 
in furtherance of the purposes of the Act. The Exchange believes the 
entire proposal is consistent with Section 6(b)(8) of the Act \27\ in 
that it does not impose any burden on competition that is not necessary 
or appropriate in furtherance of the purposes of the Act as explained 
below.
---------------------------------------------------------------------------

    \27\ 15 U.S.C. 78f(b)(8).
---------------------------------------------------------------------------

    Importantly, the Exchange does not believe that the proposal will 
impose a burden on intermarket competition but rather that it will 
alleviate any burden on competition because it is the result of a 
collaborative effort by all options exchanges to further harmonize and 
improve the process related to the adjustment and nullification of 
erroneous options transactions. The Exchange does not believe that the 
rules applicable to such process in [sic] an area where options 
exchanges should compete, but rather, that all options exchanges should 
have consistent rules to the extent possible. Particularly where a 
market participant trades on several different exchanges and an 
erroneous trade may occur on multiple markets nearly simultaneously, 
the Exchange believes that a participant should have a consistent 
experience with respect to the nullification or adjustment of 
transactions. To that end, the selection and implementation of a TP 
Provider utilized by all options exchanges will further reduce the 
possibility that participants with potentially erroneous transactions 
that span multiple options exchanges are handled differently on such 
exchanges. Similarly, the proposed ability to consider quotations 
invalid on another options exchange if ultimately originating from a 
party to a potentially erroneous transaction on the Exchange represents 
a proposal intended to further foster cooperation by the options 
exchanges with respect to market events. The Exchange understands that 
all other options exchanges either have or they intend to file 
proposals that are substantially similar to this proposal.
    The Exchange does not believe that the proposed rule change imposes 
a burden on intramarket competition because the proposed provisions 
apply to all market participants equally.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    Written comments were neither solicited nor 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 after the date of the filing, or such 
shorter time as the Commission may designate, it has become effective 
pursuant to 19(b)(3)(A) of the Act \28\ and Rule 19b-4(f)(6) \29\ 
thereunder.
---------------------------------------------------------------------------

    \28\ 15 U.S.C. 78s(b)(3)(A).
    \29\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file the proposed rule change, 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, or such shorter time as designated by the Commission. 
The Exchange has satisfied this requirement.
---------------------------------------------------------------------------

    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act. If the Commission 
takes such action, the Commission shall institute proceedings to 
determine whether the proposed rule should be approved or disapproved.

IV. Solicitation of Comments

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

Electronic 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-PEARL-2017-33 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-PEARL-2017-33. 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 such 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-PEARL-2017-33, and should be

[[Page 37625]]

submitted on or before September 1, 2017.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\30\
Eduardo A. Aleman,
Assistant Secretary.
---------------------------------------------------------------------------

    \30\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

[FR Doc. 2017-16927 Filed 8-10-17; 8:45 am]
BILLING CODE 8011-01-P



                                                    37618                         Federal Register / Vol. 82, No. 154 / Friday, August 11, 2017 / Notices

                                                    SUMMARY:   The Commission is noticing a                 with the policies of title 39. For                    of Filing (Under Seal) of Unredacted
                                                    recent Postal Service filing for the                    request(s) that the Postal Service states             Governors’ Decision, Contract, and
                                                    Commission’s consideration concerning                   concern market dominant product(s),                   Supporting Data; Filing Acceptance
                                                    negotiated service agreements. This                     applicable statutory and regulatory                   Date: August 4, 2017; Filing Authority:
                                                    notice informs the public of the filing,                requirements include 39 U.S.C. 3622, 39               39 CFR 3020.30; Public Representative:
                                                    invites public comment, and takes other                 U.S.C. 3642, 39 CFR part 3010, and 39                 Matthew R. Ashford; Comments Due:
                                                    administrative steps.                                   CFR part 3020, subpart B. For request(s)              August 16, 2017.
                                                    DATES: Comments are due: August 15,                     that the Postal Service states concern
                                                    2017 (Comment due date applies to                       competitive product(s), applicable                      This notice will be published in the
                                                    CP2017–257; CP2017–258); August 16,                     statutory and regulatory requirements                 Federal Register.
                                                    2017 (Comment due date applies to                       include 39 U.S.C. 3632, 39 U.S.C. 3633,
                                                                                                                                                                  Stacy L. Ruble,
                                                    CP2017–259; MC2017–167; CP2017–                         39 U.S.C. 3642, 39 CFR part 3015, and
                                                                                                            39 CFR part 3020, subpart B. Comment                  Secretary.
                                                    260; MC2017–168; CP2017–261).
                                                                                                            deadline(s) for each request appear in                [FR Doc. 2017–16935 Filed 8–10–17; 8:45 am]
                                                    ADDRESSES: Submit comments
                                                    electronically via the Commission’s                     section II.                                           BILLING CODE 7710–FW–P

                                                    Filing Online system at http://                         II. Docketed Proceeding(s)
                                                    www.prc.gov. Those who cannot submit
                                                                                                               1. Docket No(s).: CP2017–257; Filing
                                                    comments electronically should contact
                                                                                                            Title: Notice of the United States Postal             SECURITIES AND EXCHANGE
                                                    the person identified in the FOR FURTHER
                                                                                                            Service of Filing a Functionally                      COMMISSION
                                                    INFORMATION CONTACT section by
                                                                                                            Equivalent Global Plus 1D Negotiated
                                                    telephone for advice on filing
                                                                                                            Service Agreement and Application for                 [Release No. 34–81324; File No. SR–
                                                    alternatives.
                                                                                                            Non-Public Treatment of Materials Filed               PEARL–2017–33]
                                                    FOR FURTHER INFORMATION CONTACT:                        Under Seal; Filing Acceptance Date:
                                                    David A. Trissell, General Counsel, at                  August 4, 2017; Filing Authority: 39 CFR              Self-Regulatory Organizations; MIAX
                                                    202–789–6820.                                           3015.5; Public Representative:                        PEARL, LLC; Notice of Filing and
                                                    SUPPLEMENTARY INFORMATION:                              Christopher C. Mohr; Comments Due:                    Immediate Effectiveness of a Proposed
                                                                                                            August 15, 2017.                                      Rule Change To Amend MIAX PEARL
                                                    Table of Contents
                                                                                                               2. Docket No(s).: CP2017–258; Filing               Rules 504, Trading Halts, and 521,
                                                    I. Introduction                                         Title: Notice of the United States Postal
                                                    II. Docketed Proceeding(s)                                                                                    Nullification and Adjustment of
                                                                                                            Service of Filing a Functionally                      Options Transactions Including
                                                    I. Introduction                                         Equivalent Global Plus 3 Negotiated                   Obvious Errors
                                                                                                            Service Agreement and Application for
                                                       The Commission gives notice that the
                                                                                                            Non-Public Treatment of Materials Filed               August 7, 2017.
                                                    Postal Service filed request(s) for the
                                                                                                            Under Seal; Filing Acceptance Date:
                                                    Commission to consider matters related                                                                           Pursuant to Section 19(b)(1) of the
                                                                                                            August 4, 2017; Filing Authority: 39 CFR
                                                    to negotiated service agreement(s). The                                                                       Securities Exchange Act of 1934 (the
                                                                                                            3015.5; Public Representative: Jennaca
                                                    request(s) may propose the addition or                                                                        ‘‘Act’’),1 and Rule 19b–4 thereunder,2
                                                                                                            D. Upperman; Comments Due: August
                                                    removal of a negotiated service                                                                               notice is hereby given that on August 2,
                                                                                                            15, 2017.
                                                    agreement from the market dominant or                                                                         2017, MIAX PEARL, LLC (‘‘MIAX
                                                    the competitive product list, or the                       3. Docket No(s).: CP2017–259; Filing
                                                                                                            Title: Notice of the United States Postal             PEARL’’ or ‘‘Exchange’’) filed with the
                                                    modification of an existing product                                                                           Securities and Exchange Commission
                                                    currently appearing on the market                       Service of Filing a Functionally
                                                                                                            Equivalent Global Plus 3 Negotiated                   (‘‘Commission’’) the proposed rule
                                                    dominant or the competitive product                                                                           change as described in Items I and II
                                                    list.                                                   Service Agreement and Application for
                                                                                                            Non-Public Treatment of Materials Filed               below, which Items have been prepared
                                                       Section II identifies the docket                                                                           by the Exchange. The Commission is
                                                    number(s) associated with each Postal                   Under Seal; Filing Acceptance Date:
                                                                                                            August 4, 2017; Filing Authority: 39 CFR              publishing this notice to solicit
                                                    Service request, the title of each Postal
                                                                                                            3015.5; Public Representative: Jennaca                comments on the proposed rule change
                                                    Service request, the request’s acceptance
                                                                                                            D. Upperman; Comments Due: August                     from interested persons.
                                                    date, and the authority cited by the
                                                    Postal Service for each request. For each               16, 2017.
                                                                                                                                                                  I. Self-Regulatory Organization’s
                                                    request, the Commission appoints an                        4. Docket No(s).: MC2017–167 and                   Statement of the Terms of Substance of
                                                    officer of the Commission to represent                  CP2017–260; Filing Title: Request of the              the Proposed Rule Change
                                                    the interests of the general public in the              United States Postal Service to Add
                                                    proceeding, pursuant to 39 U.S.C. 505                   Priority Mail Contract 339 to                            The Exchange proposes to amend
                                                    (Public Representative). Section II also                Competitive Product List and Notice of                Exchange Rules 504, Trading Halts, and
                                                    establishes comment deadline(s)                         Filing (Under Seal) of Unredacted                     521, Nullification and Adjustment of
                                                    pertaining to each request.                             Governors’ Decision, Contract, and                    Options Transactions including Obvious
                                                       The public portions of the Postal                    Supporting Data; Filing Acceptance                    Errors.
                                                    Service’s request(s) can be accessed via                Date: August 4, 2017; Filing Authority:
                                                                                                            39 CFR 3015.5; Public Representative:                    The text of the proposed rule change
asabaliauskas on DSKBBXCHB2PROD with NOTICES




                                                    the Commission’s Web site (http://
                                                                                                            Matthew R. Ashford; Comments Due:                     is available on the Exchange’s Web site
                                                    www.prc.gov). Non-public portions of
                                                                                                            August 16, 2017.                                      at http://www.miaxoptions.com/rule-
                                                    the Postal Service’s request(s), if any,
                                                    can be accessed through compliance                         5. Docket No(s).: MC2017–168 and                   filings/pearl at MIAX PEARL’s principal
                                                    with the requirements of 39 CFR                         CP2017–261; Filing Title: Request of the              office, and at the Commission’s Public
                                                    3007.40.                                                United States Postal Service to Add                   Reference Room.
                                                       The Commission invites comments on                   Priority Mail Express, Priority Mail &
                                                    whether the Postal Service’s request(s)                 First-Class Package Service Contract 21                 1 15   U.S.C. 78s(b)(1).
                                                    in the captioned docket(s) are consistent               to Competitive Product List and Notice                  2 17   CFR 240.19b–4.



                                               VerDate Sep<11>2014   17:18 Aug 10, 2017   Jkt 241001   PO 00000   Frm 00062   Fmt 4703   Sfmt 4703   E:\FR\FM\11AUN1.SGM     11AUN1


                                                                                   Federal Register / Vol. 82, No. 154 / Friday, August 11, 2017 / Notices                                                   37619

                                                    II. Self-Regulatory Organization’s                      Exchange proposes to adopt procedures                   determined to be too wide to be reliable,
                                                    Statement of the Purpose of, and                        that will lead to a more objective and                  and at the open of trading on each
                                                    Statutory Basis for, the Proposed Rule                  uniform way to determine Theoretical                    trading day. In each of these
                                                    Change                                                  Price in the event a reliable NBBO is not               circumstances, in turn, because the NBB
                                                       In its filing with the Commission, the               available. In addition to this change, the              or NBO is not available or is deemed to
                                                    Exchange included statements                            Exchange has proposed two additional                    be unreliable, the Exchange determines
                                                    concerning the purpose of and basis for                 minor changes to its rules. The                         Theoretical Price. Under the current
                                                    the proposed rule change and discussed                  Exchange’s proposal mirrors that of Bats                Rule, when determining Theoretical
                                                    any comments it received on the                         BZX, which the Commission approved                      Price, Exchange personnel generally
                                                    proposed rule change. The text of these                 on July 6, 2017,4 and those that the                    consult and refer to data such as the
                                                    statements may be examined at the                       other options exchanges intend to or                    prices of related series, especially the
                                                    places specified in Item IV below. The                  have filed. Finally, the Exchange notes                 closest strikes in the option in question.
                                                    Exchange has prepared summaries, set                    that options exchanges that offer                       Exchange personnel may also take into
                                                    forth in sections A, B, and C below, of                 complex orders on their options                         account the price of the underlying
                                                    the most significant aspects of such                    platforms either already have in place                  security and the volatility
                                                    statements.                                             rules for handling the adjustment and                   characteristics of the option as well as
                                                                                                            nullification of erroneous complex order                historical pricing of the option and/or
                                                    A. Self-Regulatory Organization’s                       transactions in place or have filed                     similar options. Although the Rule is
                                                    Statement of the Purpose of, and                        proposals related to such rules, which                  administered by experienced personnel
                                                    Statutory Basis for, the Proposed Rule                  proposals have recently been approved                   and the Exchange believes the process is
                                                    Change                                                  by the Commission or filed on an                        currently appropriate, the Exchange
                                                    1. Purpose                                              immediately effective basis.5                           recognizes that it is also subjective and
                                                                                                            Calculation of Theoretical Price Using a                could lead to disparate results for a
                                                    Background
                                                                                                            Third Party Provider                                    transaction that spans multiple options
                                                       The Exchange and other options                                                                               exchanges.
                                                    exchanges recently adopted a new,                         Under the harmonized rule, when                          The Exchange proposes to adopt
                                                    harmonized rule related to the                          reviewing a transaction as potentially                  Interpretation and Policy .03 to specify
                                                    adjustment and nullification of                         erroneous, the Exchange needs to first                  how the Exchange will determine
                                                    erroneous options transactions,                         determine the ‘‘Theoretical Price’’ of the              Theoretical Price when required by sub-
                                                    including a specific provision related to               option, i.e., the Exchange’s estimate of                paragraphs (b)(1)–(3) of the Rule (i.e., at
                                                    coordination in connection with large-                  the correct market price for the option.                the open, when there are no valid
                                                    scale events involving erroneous                        Pursuant to Rule 521, if the applicable                 quotes or when there is a wide quote).
                                                    options transactions.3 The Exchange                     option series is traded on at least one                 In particular, the Exchange has been
                                                    believes that the changes the options                   other options exchange, then the                        working with other options exchanges
                                                    exchanges implemented with the new,                     Theoretical Price of an option series is
                                                                                                                                                                    to identify and select a reliable third
                                                    harmonized rule have led to increased                   the last national best bid (‘‘NBB’’) just
                                                                                                                                                                    party vendor (‘‘TP Provider’’) that
                                                    transparency and finality with respect to               prior to the trade in question with
                                                                                                                                                                    would provide Theoretical Price to the
                                                    the adjustment and nullification of                     respect to an erroneous sell transaction
                                                                                                                                                                    Exchange whenever one or more
                                                    erroneous options transactions.                         or the last national best offer (‘‘NBO’’)
                                                                                                                                                                    transactions is under review pursuant to
                                                    However, as part of the initial initiative,             just prior to the trade in question with
                                                                                                                                                                    Rule 521 and the NBBO is unavailable
                                                    the Exchange and other options                          respect to an erroneous buy transaction
                                                                                                                                                                    or deemed unreliable pursuant to Rule
                                                    exchanges deferred a few specific                       unless one of the exceptions described
                                                                                                                                                                    521(b). The Exchange and other options
                                                    matters for further discussion.                         below exists. Thus, whenever the
                                                                                                                                                                    exchanges have selected CBOE Livevol,
                                                    Specifically, as described in the Initial               Exchange has a reliable NBB or NBO, as
                                                                                                            applicable, just prior to the transaction,              LLC (‘‘Livevol’’) as the TP Provider, as
                                                    Filing, the Exchange and all other                                                                              described below. As further described
                                                    options exchanges have been working to                  then the Exchange uses this NBB or
                                                                                                            NBO as the Theoretical Price.                           below, proposed Interpretation and
                                                    further improve the review of                                                                                   Policy .03 would codify the use of the
                                                    potentially erroneous transactions as                     The Rule also contains various
                                                                                                            provisions governing specific situations                TP Provider as well as limited
                                                    well as their subsequent adjustment by                                                                          exceptions where the Exchange would
                                                    creating an objective and universal way                 where the NBB or NBO is not available
                                                                                                            or may not be reliable. Specifically, the               be able to deviate from the Theoretical
                                                    to determine Theoretical Price in the                                                                           Price given by the TP Provider.
                                                    event a reliable NBBO is not available.                 Rule specifies situations in which there
                                                                                                            are no quotes or no valid quotes for                       Pursuant to proposed Interpretation
                                                    Because this initiative required                                                                                and Policy .03, when the Exchange must
                                                    additional exchange and industry                        comparison purposes, when the
                                                                                                            national best bid or offer (‘‘NBBO’’) is                determine Theoretical Price pursuant to
                                                    discussion as well as additional time for                                                                       the sub-paragraphs (b)(1)–(3) of the
                                                    development and implementation, the                                                                             Rule, the Exchange will request
                                                                                                               4 See Securities Exchange Act Release No. 81084
                                                    Exchange and the other options                                                                                  Theoretical Price from the third party
                                                                                                            (July 6, 2017), 82 FR 32216 (July 12, 2017) (granting
                                                    exchanges determined to proceed with                    approval of Bats BZX proposal).                         vendor to which the Exchange and all
                                                    the Initial Filing and to undergo a                        5 See e.g., Securities Exchange Act Release Nos.
                                                                                                                                                                    other options exchanges have
                                                    secondary initiative to complete any                    80040 (February 14, 2017), 82 FR 11248 (February
                                                                                                                                                                    subscribed. Thus, as set forth in this
asabaliauskas on DSKBBXCHB2PROD with NOTICES




                                                    additional improvements to the                          21, 2017) (SR–CBOE–2016–088) (granting approval
                                                                                                            of CBOE proposal related to the nullification and       proposed language, Theoretical Price
                                                    applicable rule. In this filing, the                    adjustment of complex orders); 80298 (March 22,         would be provided to the Exchange by
                                                                                                            2017), 82 FR 15393 (March 28, 2017) (SR–C2–2017–        the TP Provider on request and not
                                                      3 The Exchange’s application for registration as a    011) (notice of filing and immediate effectiveness of
                                                    national securities exchange, as approved by the        C2 proposal related to the nullification and            through a streaming data feed.6 This
                                                    Commission, incorporated the changes made               adjustment of complex orders); 80284 (March 21,
                                                    previously by the other options exchanges. See          2017), 82 FR 15251 (March 27, 2017) (SR–MIAX–             6 Though the Exchange and other options

                                                    Securities Exchange Act Release No. 79543               2017–13) (notice of filing and immediate                exchanges considered a streaming feed, it was
                                                    (December 13, 2016), 81 FR 92901 (December 20,          effectiveness of MIAX proposal related to the           determined that it would be more feasible to
                                                    2016) (the ‘‘Initial Filing’’).                         nullification and adjustment of complex orders).                                                  Continued




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                                                    37620                         Federal Register / Vol. 82, No. 154 / Friday, August 11, 2017 / Notices

                                                    language also makes clear that the                      the Theoretical Price provided by the TP                replacement TP Provider, the Exchange
                                                    Exchange and all other options                          Provider is fundamentally incorrect and                 is concerned that certain scenarios
                                                    exchanges will use the same TP                          cannot be used consistent with the                      could arise where the Theoretical Price
                                                    Provider.                                               maintenance of a fair and orderly                       generated by the TP Provider does not
                                                       As noted above, the proposed TP                      market, the Official shall contact the TP               take into account relevant factors and
                                                    Provider selected by the Exchange and                   Provider to notify the TP Provider of the               would result in an unfair result for
                                                    other options exchanges is Livevol. The                 reason the Official believes such                       market participants involved in a
                                                    Exchange proposes to codify this                        Theoretical Price is inaccurate and to                  transaction. The Exchange notes that if
                                                    selection in proposed paragraph (d) to                  request a review and correction of the                  such situations do indeed arise, to the
                                                    Interpretation and Policy .03. As such,                 calculated Theoretical Price. For                       extent practicable the Exchange will
                                                    the Exchange would file a rule proposal                 example, if an Official received from the               also work with the TP Provider and
                                                    and would provide notice to the options                 TP Provider a Theoretical Price of $80                  other options exchanges to improve the
                                                    industry of any proposed change to the                  in a series that the Official might expect              TP Provider’s calculation of Theoretical
                                                    TP Provider.                                            to be instead in the range of $8 to $10                 Price in future situations. For instance,
                                                       The Exchange and other options                       because of a recent corporate action in                 if the Exchange determines that a
                                                    exchanges have selected Livevol as the                  the underlying, the Official would                      particular type of corporate action is not
                                                    proposed TP Provider after diligence                    request that the TP Provider review and                 being appropriately captured by the TP
                                                    into various alternatives. Livevol has,                 confirm its calculation and determine                   Provider when such provider is
                                                    since 2009, been the options industry                   whether it had appropriately accounted                  generating Theoretical Price, while the
                                                    leader in providing equity and index                    for the corporate action. In order to                   Exchange believes that it needs the
                                                    options market data and analytics                       ensure that other options exchanges that                ability to request a review and
                                                    services.7 The Exchange believes that                   may potentially be relying on the same                  correction of the Theoretical Price in
                                                    Livevol has established itself within the               Theoretical Price that, in turn, the                    connection with a specific review in
                                                    options industry as a trusted provider of               Official believes to be fundamentally                   order to provide a timely decision to
                                                    such services and notes that it and all                 incorrect, the Exchange also proposes to                market participants, the Exchange
                                                    other options exchanges already                         promptly provide notice to other                        would share information regarding the
                                                    subscribe to various Livevol services. In               options exchanges that the TP Provider                  specific situation with the TP Provider
                                                    connection with this proposal, Livevol                  has been contacted to review and                        and other options exchanges in an effort
                                                    will develop a new tool based on its                    correct the calculated Theoretical Price                to improve the Theoretical Price service
                                                    existing technology and services that                   at issue and to include a brief                         for future use. The Exchange notes that
                                                    will supply Theoretical Price to the                    explanation of the reason for the                       it does not anticipate needing to rely on
                                                    Exchange and other options exchanges                    request.9 Although not directly                         this provision frequently, if at all, but
                                                    upon request. The Theoretical Price tool                addressed by the proposed Rule, the                     believes the provision is necessary
                                                    will leverage current market data and                   Exchange expects that all other options                 nonetheless to best prepare for all
                                                    surrounding strikes to assist in a relative             exchanges once in receipt of this                       potential circumstances. Further, the
                                                    value pricing approach to generating a                  notification would await the                            Theoretical Price used by the Exchange
                                                    Theoretical Price. When relative value                  determination of the TP Provider and                    in connection with its rulings will
                                                    methods are incapable of generating a                   would use the corrected price as soon as                always be that received from the TP
                                                    valid Theoretical Price, the Theoretical                it is available. The Exchange further                   Provider and the Exchange has not
                                                    Price tool will utilize historical trade                notes that it expects the TP Provider to                proposed the ability to deviate from
                                                    and quote data to calculate Theoretical                 cooperate with, but to be independent                   such price.11
                                                    Price.                                                  of, the Exchange and other options                         Pursuant to proposed paragraph (c) to
                                                       Because the purpose of the proposal                  exchanges.10                                            Interpretation and Policy .03, an Official
                                                    is to move away from a subjective                          The Exchange believes that the                       of the Exchange may determine the
                                                    determination by Exchange personnel                     proposed provision to allow an Official                 Theoretical Price if the TP Provider has
                                                    when the NBBO is unavailable or                         to contact the TP Provider if he or she                 experienced a systems issue that has
                                                    unreliable, the Exchange intends to use                 believes the provided Theoretical Price                 rendered its services unavailable to
                                                    the Theoretical Price provided by the TP                is fundamentally incorrect is necessary,                accurately calculate Theoretical Price
                                                    Provider in all such circumstances.                     particularly because the Exchange and                   and such issue cannot be corrected in a
                                                    However, the Exchange believes it is                    other options exchanges will be using                   timely manner. The Exchange notes that
                                                    necessary to retain the ability to contact              the new process for the first time.                     it does not anticipate needing to rely on
                                                    the TP Provider if it believes that the                 Although the exchanges have conducted                   this provision frequently, if at all, but
                                                    Theoretical Price provided is                           thorough diligence with respect to                      believes the provision is necessary
                                                    fundamentally incorrect and to                          Livevol as the selected TP Provider and                 nonetheless to best prepare for all
                                                    determine the Theoretical Price in the                  would do so with any potential
                                                    limited circumstance of a systems issue                                                                         potential circumstances. Further,
                                                    experienced by the TP Provider, as                                                                              consistent with existing text in Rule
                                                                                                            designee of the Exchange that is trained in the
                                                    described below.                                        application of Rule 521.                                521(e)(4), the Exchange has not
                                                       As proposed, to the extent an                           9 See proposed paragraph (b) to Interpretation and   proposed a specific time by which the
                                                    Official 8 of the Exchange believes that                Policy .03.                                             service must be available in order to be
                                                                                                               10 The Exchange expects any TP Provider selected
                                                                                                                                                                    considered timely.12 The Exchange
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                                                                                                            by the Exchange and other options exchanges to act
                                                    develop and implement an on demand service and          independently in its determination and calculation        11 To the extent the TP Provider has been
                                                    that such a service would satisfy the goals of the      of Theoretical Price. With respect to Livevol
                                                    initiative.                                             specifically, the Exchange again notes that Livevol     contacted by an Official of the Exchange, reviews
                                                       7 The Exchange notes that in 2015, Livevol was
                                                                                                            is a subsidiary of CBOE Holdings, Inc., which is        the Theoretical Price provided but disagrees that
                                                    acquired by CBOE Holdings, Inc., the ultimate           also the ultimate parent company of multiple            there has been any error, then the Exchange would
                                                    parent company of the Chicago Board Options             options exchanges. The Exchange expects Livevol         be bound to use the Theoretical Price provided by
                                                    Exchange (‘‘CBOE’’) and C2 Options Exchange             to calculate Theoretical Price independent of its       the TP Provider.
                                                    (‘‘C2’’).                                               affiliated exchanges in the same way it will              12 In the context of a Significant Market Event, the
                                                       8 For purposes of the Rule, an Official is an        calculate Theoretical Price independent of non-         Exchange may determine, ‘‘in consultation with
                                                    Officer of the Exchange or such other employee          affiliated exchanges.                                   other options exchanges . . . that timely adjustment



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                                                                                   Federal Register / Vol. 82, No. 154 / Friday, August 11, 2017 / Notices                                             37621

                                                    expects that it would await the TP                       delays, whether direct or indirect,                     however, the Exchange proposes to
                                                    Provider’s services becoming available                   foreseen or unforeseen, suffered by any                 initially limit the scope of this proposed
                                                    again so long as the Exchange was able                   person arising out of any circumstance                  provision in two ways. First, because
                                                    to obtain information regarding the                      or occurrence relating to the use of such               the process will take considerable
                                                    issue and the TP Provider had a                          Theoretical Price or arising out of any                 coordination with other options
                                                    reasonable expectation of being able to                  errors or delays in calculating such                    exchanges to confirm that the quotations
                                                    resume normal operations within the                      Theoretical Price. This proposed                        in question on an away options
                                                    next several hours based on                              language is modeled after existing                      exchange were indeed submitted by a
                                                    communications with the TP Provider.                     language in Exchange Rules regarding                    party to a transaction on the Exchange,
                                                    More specifically with respect to                        ‘‘reporting authorities’’ that calculate                the Exchange proposes to limit this
                                                    Livevol, Livevol has business continuity                 indices.13                                              provision to apply to up to twenty-five
                                                    and disaster recovery procedures that                       In connection with the proposed                      (25) total options series (i.e., whether
                                                    will help to ensure that the Theoretical                 change described above, the Exchange                    such series all relate to the same
                                                    Price tool remains available or, in the                  proposes to modify Rule 521 to state                    underlying security or multiple
                                                    event of an outage, that service is                      that the Exchange will rely on paragraph                underlying securities). Second, the
                                                    restored in a timely manner.                             (b) and Interpretation and Policy .03                   Exchange proposes to require the party
                                                       The Exchange also notes that if a                     when determining Theoretical Price.                     that believes it established the best bid
                                                    wide-scale event occurred, even if such                                                                          or offer on one or more other options
                                                    event did not qualify as a ‘‘Significant                 No Valid Quotes—Market Participant                      exchanges to identify to the Exchange
                                                    Market Event’’ pursuant to Rule 521(e),                  Quoting on Multiple Exchanges                           the quotes which were submitted by
                                                    and the TP Provider was unavailable or                      As described above, one of the times                 such party and published by other
                                                    otherwise experiencing difficulty, the                   where the NBB or NBO is deemed to be                    options exchanges. In other words, as
                                                    Exchange believes that it and other                      unreliable for purposes of Theoretical                  proposed, the burden will be on the
                                                    options exchanges would seek to                          Price is when there are no quotes or no                 party seeking that the Exchange
                                                    coordinate to the extent possible. In                    valid quotes for the affected series. In                disregard their quotations on other
                                                    particular, the Exchange and other                       addition to when there are no quotes,                   options exchanges to identify such
                                                    options exchanges now have a process,                    the Exchange does not consider the                      quotations. In turn, the Exchange will
                                                    administered by the Options Clearing                     following to be valid quotes: (i) All                   verify with such other options
                                                    Corporation, to invoke a discussion                      quotes in the applicable option series                  exchanges that such quotations were
                                                    amongst all options exchanges in the                     published at a time where the last NBB                  indeed submitted by such party.
                                                    event of any widespread or significant                   is higher than the last NBO in such                       Below are examples of both the
                                                    market events. The Exchange believes                     series (a ‘‘crossed market’’); (ii) quotes              current rule and the rule as proposed to
                                                    that this process could be used in the                   published by the Exchange that were                     be amended.
                                                    event necessary if there were an issue                   submitted by either party to the
                                                    with the TP Provider.                                                                                            Example 1—Current Rule, Member
                                                                                                             transaction in question; and (iii) quotes               Erroneously Quotes on One Exchange
                                                       The Exchange also proposes to adopt                   published by another options exchange
                                                    language in paragraph (d) of                             against which the Exchange has                          Assumptions
                                                    Interpretation and Policy .03 to Rule 521                declared self-help. In recognition of                     For purposes of this example, assume
                                                    to disclaim the liability of the Exchange                today’s market structure where certain                  the following:
                                                    and the TP Provider in connection with                   participants actively provide liquidity                   • A Member acting as a Market Maker
                                                    the proposed Rule, the TP Provider’s                     on multiple exchanges simultaneously,                   on the Exchange (‘‘Market Maker A’’) is
                                                    calculation of Theoretical Price, and the                the Exchange proposes to add an                         quoting in twenty series of options
                                                    Exchange’s use of such Theoretical                       additional category of invalid quotes.                  underlying security ABCD on the
                                                    Price. Specifically, the proposed rule                   Specifically, in order to avoid a                       Exchange (and only the Exchange).
                                                    would state that neither the Exchange,                   situation where a market participant has                  • Market Maker A makes an error in
                                                    the TP Provider, nor any affiliate of the                established the market at an erroneous                  calculating the market for options on
                                                    TP Provider (the TP Provider and its                     price on multiple exchanges, the                        ABCD, and publishes quotes in all
                                                    affiliates are referred to collectively as               Exchange proposes to consider as                        twenty series to buy options at $1.00
                                                    the ‘‘TP Provider’’), makes any                          invalid the quotes in a series published                and to sell options at $1.05.
                                                    warranty, express or implied, as to the                  by another options exchange if either                     • In fact, options on ABCD in these
                                                    results to be obtained by any person or                  party to the transaction in question                    series are nearly worthless and no other
                                                    entity from the use of the TP Provider                   submitted the quotes in the series                      market participant is quoting in such
                                                    pursuant to Interpretation .03. The                      representing such options exchange’s                    series.
                                                    proposed rule would further state that                   best bid or offer. Thus, similar to being                 • Therefore, the NBBO in the twenty
                                                    the TP Provider does not guarantee the                   able to ignore for purposes of the Rule                 series at issue is $1.00 × $1.05 (with the
                                                    accuracy or completeness of the                          the quotes published by the Exchange if                 Exchange representing the NBBO based
                                                    calculated Theoretical Price and that the                submitted by either party to the                        on Market Maker A’s quotes).
                                                    TP Provider disclaims all warranties of                  transaction in question, the Exchange                     • Assume Member A immediately
                                                    merchantability or fitness for a                         would be able to ignore for purposes of                 enters sell orders and executes against
                                                    particular purpose or use with respect to                the rule quotations on other options                    Market Maker A’s quotes at $1.00.
                                                                                                                                                                       • Assume Market Maker A submits to
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                                                    such Theoretical Price. Finally, the                     exchanges by that same market
                                                    proposed Rule would state that neither                                                                           the Exchange a timely request for review
                                                                                                             participant.
                                                    the Exchange nor the TP Provider shall                                                                           of the trades with Member A as
                                                                                                                In order to continue to apply the Rule
                                                    have any liability for any damages,                                                                              potentially erroneous transactions to
                                                                                                             in a timely and organized fashion,
                                                    claims, losses (including any indirect or                                                                        buy.
                                                    consequential losses), expenses, or                        13 See, e.g., MIAX PEARL Rule 526, which relates
                                                                                                                                                                     Result
                                                                                                             to index options potentially listed and traded on the
                                                    is not feasible due to the extraordinary nature of the   Exchange and disclaims liability for a reporting          • Based on the Exchange’s current
                                                    situation.’’ See Rule 521(e)(4).                         authority and their affiliates.                         rules, the Exchange would identify


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                                                    37622                         Federal Register / Vol. 82, No. 154 / Friday, August 11, 2017 / Notices

                                                    Market Maker A as a participant to the                  trades at issue and would consider                     transactions to buy. At the time of
                                                    trades at issue and would consider                      Market Maker A’s quotations on the                     submitting the requests for review to the
                                                    Market Maker A’s quotations invalid                     Exchange invalid pursuant to Rule                      Exchange and the Away Exchange,
                                                    pursuant to Rule 521(b)(2).                             521(b)(2). The Exchange, however,                      Market Maker A identifies to the
                                                       • As there were no other valid quotes                would view the Away Exchange’s                         Exchange the quotes on the Away
                                                    to use as a reference price, the Exchange               quotations as valid, and would thus                    Exchange as quotes also represented by
                                                    would then determine Theoretical Price.                 determine Theoretical Price to be $1.05                Market Maker A (and to the Away
                                                       • Assume the Exchange determines a                   (i.e., the NBO in the case of a potentially            Exchange, the quotes on the Exchange
                                                    Theoretical Price of $0.05.                             erroneous buy transaction).                            as quotes also represented by Market
                                                       Æ The execution price of $1.00                          • The execution price of $1.00 does                 Maker A).
                                                    exceeds the $0.25 minimum amount set                    not exceed the $0.25 minimum amount
                                                                                                                                                                   Result
                                                    forth in the Exchange’s table to                        set forth in the Exchange’s table to
                                                    determine whether an obvious error has                  determine whether an obvious error has                    • Based on the proposed rules, the
                                                    occurred (i.e., $0.05 + $0.25 = $0.30) so               occurred (i.e., $1.05 + $0.25 = $1.30) so              Exchange would identify Market Maker
                                                    any execution at or above this price is                 any execution at or above this price is                A as a participant to the trades at issue
                                                    an obvious error.                                       an obvious error.                                      and would consider Market Maker A’s
                                                       Æ Accordingly, the executions in all                    • The transactions on the Exchange                  quotations on the Exchange invalid
                                                    series would be adjusted by the                         would not be nullified or adjusted.                    pursuant to Rule 521(b)(2).
                                                    Exchange to executions at $0.20 per                        • As the Exchange and all other                        • The Exchange and the Away
                                                    contract (Theoretical Price of $0.05 plus               options exchanges have identical rules                 Exchange would also coordinate to
                                                    $0.15) to the extent the incoming orders                with respect to the process described                  confirm that the quotations identified by
                                                    submitted by Member A were non-                         above, the transactions on the Away                    Market Maker A on the other exchange
                                                    Customer orders.                                        Exchange would not be nullified or                     were indeed Market Maker A’s
                                                       Æ The executions in all series would                 adjusted.                                              quotations. Once confirmed, each of the
                                                    be nullified to the extent the incoming                                                                        Exchange and the Away Exchange
                                                                                                            Example 3—Proposed Rule, Member                        would also consider invalid the
                                                    orders submitted by Member A were                       Erroneously Quotes on Multiple
                                                    Customer orders.                                                                                               quotations published on the other
                                                                                                            Exchanges 14                                           exchange.
                                                    Example 2—Current Rule, Member                          Assumptions                                               • As there were no other valid quotes
                                                    Erroneously Quotes on Multiple                                                                                 to use as a reference price, the Exchange
                                                    Exchanges                                                  For purposes of this example, assume
                                                                                                                                                                   would then determine Theoretical Price.
                                                                                                            the following:                                            • Assume the Exchange determines a
                                                    Assumptions                                                • A Member acting as a Market Maker
                                                                                                                                                                   Theoretical Price of $0.05.
                                                       For purposes of this example, assume                 on the Exchange (‘‘Market Maker A’’) is                   Æ The execution price of $1.00
                                                    the following:                                          quoting in twenty series of options                    exceeds the $0.25 minimum amount set
                                                       • A Member acting as a Market Maker                  underlying security ABCD on the                        forth in the Exchange’s table to
                                                    on the Exchange (‘‘Market Maker A’’) is                 Exchange and on a second exchange                      determine whether an obvious error has
                                                    quoting in twenty series of options                     (‘‘Away Exchange’’).15                                 occurred (i.e., $0.05 + $0.25 = $0.30) so
                                                    underlying security ABCD on the                            • Market Maker A makes an error in                  any execution at or above this price is
                                                    Exchange and on a second exchange                       calculating the market for options on                  an obvious error.
                                                    (‘‘Away Exchange’’).                                    ABCD, and publishes quotes on both the                    Æ Accordingly, the executions in all
                                                       • Market Maker A makes an error in                   Exchange and the Away Exchange in all                  series would be adjusted by the
                                                    calculating the market for options on                   twenty series to buy options at $1.00                  Exchange to executions at $0.20 per
                                                    ABCD, and publishes quotes on both the                  and to sell options at $1.05.                          contract (Theoretical Price of $0.05 plus
                                                    Exchange and the Away Exchange in all                      • In fact, options on ABCD in these                 $0.15) to the extent the incoming orders
                                                    twenty series to buy options at $1.00                   series are nearly worthless and no other               submitted by Member A were non-
                                                    and to sell options at $1.05.                           market participant is quoting in such                  Customer orders.
                                                       • In fact, options on ABCD in these                  series.                                                   Æ The executions in all series would
                                                    series are nearly worthless and no other                   • Therefore, the NBBO in the twenty                 be nullified to the extent the incoming
                                                    market participant is quoting in such                   series at issue is $1.00 × $1.05 (with the             orders submitted by Member A were
                                                    series.                                                 Exchange and the Away Exchange                         Customer orders.
                                                       • Therefore, the NBBO in the twenty                  representing the NBBO based on Market                     • As the Exchange and all other
                                                    series at issue is $1.00 × $1.05 (with the              Maker A’s quotes).                                     options exchanges would have identical
                                                    Exchange and the Away Exchange                             • Assume Member A immediately                       rules with respect to the process
                                                    representing the NBBO based on Market                   enters sell orders and executes against                described above, as other options
                                                    Maker A’s quotes).                                      Market Maker A’s quotes at $1.00.                      exchanges intend to adopt the same rule
                                                       • Assume Member A immediately                           • Assume Market Maker A submits to                  if the proposed rule is approved, the
                                                    enters sell orders and executes against                 the Exchange and to the Away Exchange                  transactions on the Away Exchange
                                                    Market Maker A’s quotes at $1.00.                       timely requests for review of the trades               would also be nullified or adjusted as
                                                       • Assume Market Maker A submits to                   with Member A as potentially erroneous                 set forth above.
                                                                                                                                                                      • If this example was instead
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                                                    the Exchange and to the Away Exchange                     14 The Exchange notes that its proposed rule will
                                                    timely requests for review of the trades                                                                       modified such that Market Maker A was
                                                                                                            not impact the proposed handling of a request for
                                                    with Member A as potentially erroneous                  review where a market participant is quoting only      quoting in 200 series rather than 20, the
                                                    transactions to buy.                                    on the Exchange, thus, the Exchange has not            Exchange notes that Market Maker A
                                                                                                            included a separate example for such a fact-pattern.   could only request that the Exchange
                                                    Result                                                    15 The Exchange notes that the proposed rule
                                                                                                                                                                   consider as invalid their quotations in
                                                                                                            would operate the same if Market Maker A was
                                                      • Based on the Exchange’s current                     quoting on more than two exchanges. The Exchange
                                                                                                                                                                   25 of those series on other exchanges.
                                                    rules, the Exchange would identify                      has limited the example to two exchanges for           As noted above, the Exchange has
                                                    Market Maker A as a participant to the                  simplicity.                                            proposed to limit the proposed rule to


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                                                                                   Federal Register / Vol. 82, No. 154 / Friday, August 11, 2017 / Notices                                           37623

                                                    25 series in order to continue to process                and a national market system, and, in                 only in very rare circumstances and in
                                                    requests for review in a timely and                      general, protect investors and the public             turn, the Exchange anticipates that the
                                                    organized fashion in order to provide                    interest.                                             need to contact the TP Provider for
                                                    certainty to market participants. This is                   As described above, the Exchange and               additional review of the Theoretical
                                                    due to the amount of coordination that                   other options exchanges are seeking to                Price provided by the TP Provider will
                                                    will be necessary in such a scenario to                  further modify their harmonized rules                 be even rarer. Similarly, the Exchange
                                                    confirm that the quotations in question                  related to the adjustment and                         believes it is unlikely that an Exchange
                                                    on an away options exchange were                         nullification of erroneous options                    Official will ever be required to
                                                    indeed submitted by a party to a                         transactions. The Exchange believes that              determine Theoretical Price, as such
                                                    transaction on the Exchange.                             the proposal to utilize a TP Provider in              circumstance would only be in the
                                                                                                             the event the NBBO is unavailable or                  event of a systems issue that has
                                                    Trading Halts—Clarifying Change to                       unreliable will provide greater                       rendered the TP Provider’s services
                                                    Rules 504 and 521(f)                                     transparency and clarity with respect to              unavailable and such issue cannot be
                                                       Exchange Rules 504 and 521(f)                         the adjustment and nullification of                   corrected in a timely manner.
                                                    describe the Exchange’s authority to                     erroneous options transactions.                          The Exchange also believes its
                                                    declare trading halts in one or more                     Particularly, the proposed changes seek               proposal to adopt language in paragraph
                                                    options traded on the Exchange.                          to achieve consistent results for                     (d) of Interpretation and Policy .03 to
                                                    Currently, Rule 521(f) and Interpretation                participants across U.S. options                      Rule 521 to disclaim the liability of the
                                                    and Policy .04 to Rule 504 both state                    exchanges while maintaining a fair and                Exchange and the TP Provider in
                                                    that the Exchange shall nullify any                      orderly market, protecting investors and              connection with the proposed Rule, the
                                                    transaction that occurs during a trading                 protecting the public interest. Thus, the             TP Provider’s calculation of Theoretical
                                                    halt in the affected option on the                       Exchange believes that the proposal is                Price, and the Exchange’s use of such
                                                    Exchange or, with respect to equity                      consistent with Section 6(b)(5) of the                Theoretical Price is consistent with the
                                                    options, during a trading halt on the                    Act 19 in that the proposed Rule will                 Act. As noted above, this proposed
                                                    primary listing market for the                           foster cooperation and coordination                   language is modeled after existing
                                                    underlying security. The Exchange                        with persons engaged in regulating and                language in Exchange Rules regarding
                                                    proposes to make clear with respect to                   facilitating transactions.                            ‘‘reporting authorities’’ that calculate
                                                    equity options that it shall nullify any                    The Exchange again reiterates that it              indices,21 and is consistent with Section
                                                    transaction that occurs during a                         has retained the standard of the current              6(b)(5) of the Act 22 in that the proposed
                                                    regulatory halt as declared by the                       rule for most reviews of options                      Rule will foster cooperation and
                                                    primary listing market for the                           transactions pursuant to Rule 521,                    coordination with persons engaged in
                                                    underlying security. The Exchange                        which is to rely on the NBBO to                       regulating and facilitating transactions.
                                                    believes this change is necessary to                     determine Theoretical Price if such                      As described above, the Exchange
                                                    distinguish a declared regulatory halt,                  NBBO can reasonably be relied upon.                   proposes a modification to the valid
                                                    where the underlying security should                     The proposal to use a TP Provider when                quotes provision to also exclude quotes
                                                    not be actively trading on any venue,                    the NBBO is unavailable or unreliable is              in a series published by another options
                                                    from an operational issue on the                         consistent with Section 6(b)(5) of the                exchange if either party to the
                                                    primary listing exchange where the                       Act 20 in that the proposed Rule will                 transaction in question submitted the
                                                    security continues to safely trade on                    foster cooperation and coordination                   orders or quotes in the series
                                                    other trading venues.                                    with persons engaged in regulating and                representing such options exchange’s
                                                                                                             facilitating transactions by further                  best bid or offer. The Exchange believes
                                                    Implementation Date                                      reducing the possibility of disparate                 this proposal is consistent with Section
                                                      The Exchange proposes to delay the                     results between options exchanges and                 6(b)(5) of the Act 23 because the
                                                    operative date of this proposal to a date                increasing the objectivity of the                     application of the rule will foster
                                                    within ninety (90) days after the                        application of Rule 521. Further, the                 cooperation and coordination with
                                                    Commission approved the Bats BZX                         Exchange believes that the proposed                   persons engaged in regulating and
                                                    proposal on July 6, 2017.16 The                          Rule is transparent with respect to the               facilitating transactions by allowing the
                                                    Exchange will announce the operative                     limited circumstances under which the                 Exchange to coordinate with other
                                                    date in a Regulatory Alert made                          Exchange will request a review and                    options exchanges to determine whether
                                                    available to its Members.                                correction of Theoretical Price from the              a market participant that is party to a
                                                                                                             TP Provider, and has sought to limit                  potentially erroneous transaction on the
                                                    2. Statutory Basis                                       such circumstances as much as possible.               Exchange established the market in an
                                                       The Exchange believes that its                        The Exchange notes that under the                     option on other options exchanges; to
                                                    proposal is consistent with the                          current Rule, Exchange personnel are                  the extent this can be established, the
                                                    requirements of the Act and the rules                    required to determine Theoretical Price               Exchange believes such participant’s
                                                    and regulations thereunder that are                      in certain circumstances and yet rarely               quotes should be excluded in the same
                                                    applicable to a national securities                      do so because such circumstances have                 way such quotes are excluded on the
                                                    exchange, and, in particular, with the                   already been significantly limited under              Exchange. The Exchange also believes it
                                                    requirements of Section 6(b) of the                      the harmonized rule (for example,                     is reasonable to limit the scope of this
                                                    Act.17 Specifically, the proposal is                     because the wide quote provision of the               provision to twenty-five (25) series and
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                                                    consistent with Section 6(b)(5) of the                   harmonized rule only applies if the                   to require the party that believes it
                                                    Act 18 because it would promote just                     quote was narrower and then gapped                    established the best bid or offer on one
                                                    and equitable principles of trade,                       but does not apply if the quote had been              or more other options exchanges to
                                                    remove impediments to, and perfect the                   persistently wide). Thus, the Exchange                identify to the Exchange the quotes
                                                    mechanism of, a free and open market                     believes it will need to request                      which were submitted by that party and
                                                                                                             Theoretical Price from the TP Provider
                                                      16 See supra, note 4.                                                                                          21 See supra, note 13.
                                                      17 15 U.S.C. 78f(b).                                     19 Id.                                                22 15 U.S.C. 78f(b)(5).
                                                      18 15 U.S.C. 78f(b)(5).                                  20 Id.                                                23 15 U.S.C. 78f(b)(5).




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                                                    37624                             Federal Register / Vol. 82, No. 154 / Friday, August 11, 2017 / Notices

                                                    published by other options exchanges.                       where a market participant trades on                      public interest, for the protection of
                                                    The Exchange believes these limitations                     several different exchanges and an                        investors, or otherwise in furtherance of
                                                    are consistent with Section 6(b)(5) of the                  erroneous trade may occur on multiple                     the purposes of the Act. If the
                                                    Act 24 because they will ensure that the                    markets nearly simultaneously, the                        Commission takes such action, the
                                                    Exchange is able to continue to apply                       Exchange believes that a participant                      Commission shall institute proceedings
                                                    the Rule in a timely and organized                          should have a consistent experience                       to determine whether the proposed rule
                                                    fashion, thus fostering cooperation and                     with respect to the nullification or                      should be approved or disapproved.
                                                    coordination with persons engaged in                        adjustment of transactions. To that end,
                                                                                                                the selection and implementation of a                     IV. Solicitation of Comments
                                                    regulating and facilitating transactions
                                                    and also removing impediments to and                        TP Provider utilized by all options                         Interested persons are invited to
                                                    perfecting the mechanism of a free and                      exchanges will further reduce the                         submit written data, views, and
                                                    open market and a national market                           possibility that participants with                        arguments concerning the foregoing,
                                                    system.                                                     potentially erroneous transactions that                   including whether the proposed rule
                                                       Finally, with respect to the proposed                    span multiple options exchanges are                       change is consistent with the Act.
                                                    modification to the Exchange’s trading                      handled differently on such exchanges.                    Comments may be submitted by any of
                                                    halt rules, Rule 504 and Rule 521(f), the                   Similarly, the proposed ability to                        the following methods:
                                                    Exchange believes that this proposal is                     consider quotations invalid on another
                                                                                                                options exchange if ultimately                            Electronic Comments
                                                    consistent with Section 6(b)(5) of the
                                                    Act 25 because such proposal clarifies                      originating from a party to a potentially                   • Use the Commission’s Internet
                                                    the provision by distinguishing between                     erroneous transaction on the Exchange                     comment form (http://www.sec.gov/
                                                    a trading halt in an underlying security                    represents a proposal intended to                         rules/sro.shtml); or
                                                    where the security has halted trading                       further foster cooperation by the options                   • Send an email to rule-comments@
                                                    across the industry (i.e., a regulatory                     exchanges with respect to market                          sec.gov. Please include File Number SR–
                                                    halt) from a situation where the primary                    events. The Exchange understands that                     PEARL–2017–33 on the subject line.
                                                    exchange has experienced a technical                        all other options exchanges either have
                                                                                                                or they intend to file proposals that are                 Paper Comments
                                                    issue but the underlying security
                                                    continues to trade on other equities                        substantially similar to this proposal.                     • Send paper comments in triplicate
                                                    platforms. The Exchange notes that this                        The Exchange does not believe that                     to Brent J. Fields, Secretary, Securities
                                                    distinction is already clear in the rules                   the proposed rule change imposes a                        and Exchange Commission, 100 F Street
                                                    of certain other options exchanges, and                     burden on intramarket competition                         NE., Washington, DC 20549–1090.
                                                    thus, has been found to be consistent                       because the proposed provisions apply
                                                                                                                to all market participants equally.                       All submissions should refer to File
                                                    with the Act.26                                                                                                       Number SR–PEARL–2017–33. This file
                                                    B. Self-Regulatory Organization’s                           C. Self-Regulatory Organization’s                         number should be included on the
                                                    Statement on Burden on Competition                          Statement on Comments on the                              subject line if email is used. To help the
                                                                                                                Proposed Rule Change Received From                        Commission process and review your
                                                      The Exchange does not believe that                        Members, Participants, or Others                          comments more efficiently, please use
                                                    the proposed rule change will impose                                                                                  only one method. The Commission will
                                                    any burden on competition that is not                         Written comments were neither
                                                                                                                solicited nor received.                                   post all comments on the Commission’s
                                                    necessary or appropriate in furtherance                                                                               Internet Web site (http://www.sec.gov/
                                                    of the purposes of the Act. The                             III. Date of Effectiveness of the                         rules/sro.shtml). Copies of the
                                                    Exchange believes the entire proposal is                    Proposed Rule Change and Timing for                       submission, all subsequent
                                                    consistent with Section 6(b)(8) of the                      Commission Action                                         amendments, all written statements
                                                    Act 27 in that it does not impose any                          Because the foregoing proposed rule                    with respect to the proposed rule
                                                    burden on competition that is not                           change does not: (i) Significantly affect                 change that are filed with the
                                                    necessary or appropriate in furtherance                     the protection of investors or the public                 Commission, and all written
                                                    of the purposes of the Act as explained                     interest; (ii) impose any significant                     communications relating to the
                                                    below.                                                      burden on competition; and (iii) become                   proposed rule change between the
                                                      Importantly, the Exchange does not                        operative for 30 days after the date of                   Commission and any person, other than
                                                    believe that the proposal will impose a                     the filing, or such shorter time as the                   those that may be withheld from the
                                                    burden on intermarket competition but                       Commission may designate, it has                          public in accordance with the
                                                    rather that it will alleviate any burden                    become effective pursuant to 19(b)(3)(A)                  provisions of 5 U.S.C. 552, will be
                                                    on competition because it is the result                     of the Act 28 and Rule 19b–4(f)(6) 29                     available for Web site viewing and
                                                    of a collaborative effort by all options                    thereunder.                                               printing in the Commission’s Public
                                                    exchanges to further harmonize and                             At any time within 60 days of the                      Reference Room, 100 F Street NE.,
                                                    improve the process related to the                          filing of the proposed rule change, the                   Washington, DC 20549 on official
                                                    adjustment and nullification of                             Commission summarily may                                  business days between the hours of
                                                    erroneous options transactions. The                         temporarily suspend such rule change if                   10:00 a.m. and 3:00 p.m. Copies of such
                                                    Exchange does not believe that the rules                    it appears to the Commission that such                    filing also will be available for
                                                    applicable to such process in [sic] an                      action is necessary or appropriate in the                 inspection and copying at the principal
                                                    area where options exchanges should
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                                                                                                                                                                          office of the Exchange. All comments
                                                    compete, but rather, that all options                         28 15  U.S.C. 78s(b)(3)(A).                             received will be posted without change;
                                                    exchanges should have consistent rules                        29 17  CFR 240.19b–4(f)(6). In addition, Rule 19b–
                                                                                                                                                                          the Commission does not edit personal
                                                    to the extent possible. Particularly                        4(f)(6) requires a self-regulatory organization to give
                                                                                                                the Commission written notice of its intent to file       identifying information from
                                                      24 15
                                                                                                                the proposed rule change, along with a brief              submissions. You should submit only
                                                               U.S.C. 78f(b)(5).                                description and text of the proposed rule change,
                                                      25 Id.                                                                                                              information that you wish to make
                                                                                                                at least five business days prior to the date of filing
                                                      26 See, e.g., Interpretation and Policy .07 to CBOE
                                                                                                                of the proposed rule change, or such shorter time
                                                                                                                                                                          available publicly. All submissions
                                                    Rule 6.3.                                                   as designated by the Commission. The Exchange             should refer to File Number SR–
                                                      27 15 U.S.C. 78f(b)(8).                                   has satisfied this requirement.                           PEARL–2017–33, and should be


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                                                                                   Federal Register / Vol. 82, No. 154 / Friday, August 11, 2017 / Notices                                                 37625

                                                    submitted on or before September 1,                     II. Self-Regulatory Organization’s                    announce via Information Memo the
                                                    2017.                                                   Statement of the Purpose of, and                      operative date of the deletion of this Rule and
                                                                                                            Statutory Basis for, the Proposed Rule                implementation of ‘‘Rule 7.4T. Ex-Dividend
                                                      For the Commission, by the Division of                                                                      or Ex-Right Dates.’’
                                                    Trading and Markets, pursuant to delegated              Change
                                                    authority.30                                              In its filing with the Commission, the                The following preamble was added to
                                                    Eduardo A. Aleman,                                      self-regulatory organization included                 Rule 7.4T:
                                                    Assistant Secretary.                                    statements concerning the purpose of,                   The Exchange will file separate proposed
                                                    [FR Doc. 2017–16927 Filed 8–10–17; 8:45 am]             and basis for, the proposed rule change               rule changes to establish the operative date
                                                                                                            and discussed any comments it received                of Rule 7.4T, to delete ‘‘Rule 7.4. Ex-
                                                    BILLING CODE 8011–01–P
                                                                                                                                                                  Dividend or Ex-Right Dates’’ and the
                                                                                                            on the proposed rule change. The text
                                                                                                                                                                  preamble text from Rule 7.4, and to remove
                                                                                                            of those statements may be examined at                the preamble text from the version of Rule
                                                    SECURITIES AND EXCHANGE                                 the places specified in Item IV below.                7.4T. Until such time, ‘‘Rule 7.4. Ex-Dividend
                                                    COMMISSION                                              The Exchange has prepared summaries,                  or Ex-Right Dates’’ will remain operative. In
                                                                                                            set forth in sections A, B, and C below,              addition to filing the necessary proposed rule
                                                    [Release No. 34–81325; File No. SR–                     of the most significant parts of such                 changes, the Exchange will announce via
                                                    NYSEARCA–2017–82]                                       statements.                                           Information Memo the implementation of
                                                                                                                                                                  this Rule and the operative date of the
                                                    Self-Regulatory Organizations; NYSE                     A. Self-Regulatory Organization’s                     deletion of ‘‘Rule 7.4. Ex-Dividend or Ex-
                                                    Arca, Inc.; Notice of Filing and                        Statement of the Purpose of, and the                  Right Dates.’’
                                                    Immediate Effectiveness of Proposed                     Statutory Basis for, the Proposed Rule                  On March 22, 2017, the SEC adopted
                                                    Rule Change in Connection With the                      Change                                                the proposed amendment to Rule 15c6–
                                                    September 5, 2017 Compliance Date                       1. Purpose                                            1(a) under the Act 6 with a compliance
                                                    for the Shortening of the Standard                                                                            date of September 5, 2017.7
                                                                                                               In connection with the September 5,
                                                    Settlement Cycle From Three Business
                                                                                                            2017, compliance date for shortening of               Proposed Rule Change
                                                    Days After the Trade Date to Two
                                                                                                            the standard settlement cycle from T+3                   In order to comply with the
                                                    Business Days After the Trade Date
                                                                                                            to T+2, the Exchange proposes to (1)                  September 5, 2017, transition to T+2
                                                    August 7, 2017.                                         delete NYSE Arca Equities Rule 7.4                    settlement, the Exchange proposes to:
                                                       Pursuant to Section 19(b)(1) 1 of the                (‘‘Rule 7.4’’); (2) delete the preamble and              • Delete Rule 7.4, including the
                                                    Securities Exchange Act of 1934 (the                    ‘‘T’’ modifier from Rule 7.4T; and (3)                preamble, in its entirety;
                                                    ‘‘Act’’) 2 and Rule 19b–4 thereunder,3                  establish the operative date of Rule 7.4T                • delete the preamble to Rule 7.4T;
                                                    notice is hereby given that, on July 26,                as September 5, 2017.                                 and
                                                    2017, NYSE Arca, Inc. (the ‘‘Exchange’’                 Background                                               • delete the ‘‘T’’ modifier in Rule
                                                    or ‘‘NYSE Arca’’) filed with the                                                                              7.4T, which distinguished it from Rule
                                                                                                              On September 28, 2016, the Securities               7.4.
                                                    Securities and Exchange Commission
                                                                                                            and Exchange Commission (‘‘SEC’’)                        The Exchange proposes that the
                                                    (the ‘‘Commission’’) the proposed rule
                                                                                                            proposed amendments to Rule 15c6–                     changes described herein would take
                                                    change as described in Items I and II
                                                                                                            1(a) to shorten the standard settlement               effect on September 5, 2017, to coincide
                                                    below, which Items have been prepared
                                                                                                            cycle from T+3 to T+2.4 Following this                with the transition to T+2. The
                                                    by the self-regulatory organization. The
                                                                                                            action by the SEC, the Exchange                       Exchange will announce via Information
                                                    Commission is publishing this notice to
                                                                                                            adopted a new Rule 7.4 with the                       Memo the implementation of Rule 7.4T
                                                    solicit comments on the proposed rule
                                                                                                            modifier ‘‘T’’ to reflect a T+2 settlement            and the operative date of the deletion of
                                                    change from interested persons.
                                                                                                            cycle.5 Because the Exchange would not                Rule 7.4.
                                                    I. Self-Regulatory Organization’s                       implement Rule 7.4T until after the final
                                                    Statement of the Terms of Substance of                  implementation of T+2, the Exchange                   2. Statutory Basis
                                                    the Proposed Rule Change                                retained the version of Rule 7.4                         The Exchange believes that the
                                                                                                            reflecting T+3 settlement on its books.               proposed rule change is consistent with
                                                       The Exchange proposes in connection                  In order to reduce the potential for
                                                    with the September 5, 2017, compliance                                                                        Section 6(b) of the Act,8 in general, and
                                                                                                            confusion regarding which version of                  further the objectives of Section 6(b)(5)
                                                    date for the shortening of the standard                 the rule governs, the Exchange added
                                                    settlement cycle from three business                                                                          of the Act,9 in particular, because it is
                                                                                                            explanatory preambles to Rule 7.4 and                 designed to prevent fraudulent and
                                                    days after the trade date (‘‘T+3’’) to two              Rule 7.4T.
                                                    business days after the trade date                                                                            manipulative acts and practices,
                                                                                                              In particular, the following preamble               promote just and equitable principles of
                                                    (‘‘T+2’’), to (1) delete NYSE Arca                      was added to Rule 7.4:
                                                    Equities Rule 7.4 (Ex-Dividend or Ex-                                                                         trade, remove impediments to and
                                                    Right Dates); (2) delete the preamble and                 This version of Rule 7.4 will remain                perfect the mechanism of a free and
                                                    ‘‘T’’ modifier from NYSE Arca Equities
                                                                                                            operative until the Exchange files separate           open market and a national market
                                                                                                            proposed rule changes as necessary to                 system, and, in general, to protect
                                                    Rule 7.4T (‘‘Rule 7.4T’’); and (3)                      establish the operative date of ‘‘Rule 7.4T.
                                                    establish the operative date of Rule                                                                          investors and the public interest.
                                                                                                            Ex-Dividend or Ex-Right Dates,’’ to delete               In particular, the Exchange believes
                                                    7.4T. The proposed rule change is                       this version of Rule 7.4 and preamble, and to
                                                                                                                                                                  that the proposed changes remove
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                                                    available on the Exchange’s Web site at                 remove the preamble text from the version of
                                                    www.nyse.com, at the principal office of                Rule 7.4T. In addition to filing the necessary        impediments to and perfect the
                                                    the Exchange, and at the Commission’s                   proposed rule changes, the Exchange will              mechanism of a free and open market by
                                                    Public Reference Room.                                                                                          6 See
                                                                                                               4 See Securities Exchange Act Release No. 78962            17 CFR 240.15c6–1(a).
                                                                                                                                                                    7 See Securities Exchange Act Release No. 80295
                                                                                                            (September 28, 2016), 81 FR 69240 (October 5,
                                                      30 17 CFR 200.30–3(a)(12).                            2016) (File No. S7–22–16).                            (March 22, 2017), 82 FR 15564 (March 29, 2017)
                                                      1 15 U.S.C. 78s(b)(1).                                   5 See Securities Exchange Act Release No. 79732    (File No. S7–22–16).
                                                      2 15 U.S.C. 78a.                                                                                              8 15 U.S.C. 78f(b).
                                                                                                            (January 4, 2017), 82 FR 3042 (January 10, 2017)
                                                      3 17 CFR 240.19b–4.                                   (SR–NYSEArca–2016–145).                                 9 15 U.S.C. 78f(b)(5).




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Document Created: 2018-10-24 11:47:58
Document Modified: 2018-10-24 11:47:58
CategoryRegulatory Information
CollectionFederal Register
sudoc ClassAE 2.7:
GS 4.107:
AE 2.106:
PublisherOffice of the Federal Register, National Archives and Records Administration
SectionNotices
FR Citation82 FR 37618 

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