82 FR 37639 - Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Chapter V, Section 6, Nullification and Adjustment of Options Transactions Including Obvious Errors
SECURITIES AND EXCHANGE COMMISSION Federal Register Volume 82, Issue 154 (August 11, 2017)
Federal Register Volume 82, Issue 154 (August 11, 2017)
| Page Range | 37639-37645 | |
| FR Document | 2017-16926 |
[Federal Register Volume 82, Number 154 (Friday, August 11, 2017)] [Notices] [Pages 37639-37645] From the Federal Register Online [www.thefederalregister.org] [FR Doc No: 2017-16926] ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION [Release No. 34-81323; File No. SR-NASDAQ-2017-078] Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Chapter V, Section 6, 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 July 26, 2017, The NASDAQ Stock Market LLC (``Nasdaq'' 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. --------------------------------------------------------------------------- \1\ 15 U.S.C. 78s(b)(1). \2\ 17 CFR 240.19b-4. --------------------------------------------------------------------------- I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to amend Chapter V, Section 6 of the Exchange's Options Rules (the ``Rules''), entitled ``Nullification and Adjustment of Options Transactions including Obvious Errors.'' While these amendments are effective upon filing, the Exchange has designated the proposed amendments to be operative on a date that is within ninety (90) days after the Commission approved a similar proposal filed by Bats BZX on July 6, 2017. The text of the proposed rule change is available on the Exchange's Web site at http://nasdaq.cchwallstreet.com, at the principal office of the Exchange, and at the Commission's Public Reference Room. II. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the Exchange included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant aspects of such statements. A. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose The 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 [[Page 37640]] 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 Exchange [sic] approved on July 6, 2017,\4\ and those that the other options exchanges intend to file. --------------------------------------------------------------------------- \3\ See Securities Exchange Act Release No. 34-74915 (May 8, 2015); 80 FR 27801 (May 14, 2015) (SR-NASDAQ-2015-054) (the ``Initial Filing''). \4\ See Securities Exchange Act Release No. 34-81084 (July 6, 2017) (granting approval of Bats BZX proposal), 82 FR 32216 (July 12, 2017); 82 FR 23684 (May 23, 2017) (SR-BatsBZX-2017-035) (notice of filing of Bats BZX proposal). --------------------------------------------------------------------------- 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 Chapter V, Section 6 of the Rules, 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 Commentary .04 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 Chapter V, Section 6 of the Rules and the NBBO is unavailable or deemed unreliable pursuant to Chapter V, Section 6(b) of the Rules. The Exchange and other options exchanges have selected CBOE Livevol, LLC (``Livevol'') as the TP Provider, as described below. As further described below, proposed Commentary .04 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 Commentary .04, 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.\5\ This language also makes clear that the Exchange and all other options exchanges will use the same TP Provider. --------------------------------------------------------------------------- \5\ 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. --------------------------------------------------------------------------- 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 Commentary .04. 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.\6\ 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. --------------------------------------------------------------------------- \6\ 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''). --------------------------------------------------------------------------- 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 \7\ 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 [[Page 37641]] 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.\8\ 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.\9\ --------------------------------------------------------------------------- \7\ For purposes of the Rule, an Official is an Exchange staff member or contract employee designated as such by the Chief Regulatory Officer. See NOM Rules, Chapter V, Sec. 6(a)(3). \8\ See proposed paragraph (b) to Commentary .04. \9\ 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. --------------------------------------------------------------------------- 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.\10\ --------------------------------------------------------------------------- \10\ 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. --------------------------------------------------------------------------- Pursuant to proposed paragraph (c) to Commentary .04, 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 Chapter V, Section 6(e)(4) of the Rules, the Exchange has not proposed a specific time by which the service must be available in order to be considered timely.\11\ The Exchange 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. --------------------------------------------------------------------------- \11\ 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 NOM Rules, Chapter V, Sec. 6(e)(4). --------------------------------------------------------------------------- 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 Chapter V, Section 6(e) of the Rules, 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 Commentary .04 to Chapter V, Section 6 of the Rules 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 Commentary .04. 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.\12\ --------------------------------------------------------------------------- \12\ See, e.g., NOM Rules, Chapter XIV, Sec. 13, which relates to index options potentially listed and traded on the Exchange and disclaims liability for a reporting authority and their affiliates. --------------------------------------------------------------------------- In connection with the proposed change described above, the Exchange proposes to modify Chapter V, Section 6 of the Rules to state that the Exchange will rely on paragraph (b) and Commentary .04 when determining Theoretical Price. [[Page 37642]] 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 Market Maker A as a participant to the trades at issue and would consider Market Maker A's quotations invalid pursuant to Chapter V, Section 6(b)(2) of the Rules. 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. 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. 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. 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 Chapter V, Section 6(b)(2) of the Rules. 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 [[Page 37643]] 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 \13\ --------------------------------------------------------------------------- \13\ 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. --------------------------------------------------------------------------- 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'').\14\ --------------------------------------------------------------------------- \14\ 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. --------------------------------------------------------------------------- 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 Chapter V, Section 6(b)(2) of the Rules. 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. 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. 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. 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 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 Chapter V, Section 3 Chapter V, Section 3 of the Rules describes the Exchange's authority to declare trading halts in one or more options traded on the Exchange. The Exchange proposes to add to this provision Commentary .01 to provide that, with respect to equity options, the Exchange 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. The Exchange will announce the operative date in a Regulatory Alert made available to its Members. 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.\15\ Specifically, the proposal is consistent with Section 6(b)(5) of the Act \16\ 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. --------------------------------------------------------------------------- \15\ 15 U.S.C. 78f(b). \16\ 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 \17\ in that the proposed Rule will foster cooperation and coordination with persons engaged in regulating and facilitating transactions. --------------------------------------------------------------------------- \17\ Id. --------------------------------------------------------------------------- [[Page 37644]] The Exchange again reiterates that it has retained the standard of the current rule for most reviews of options transactions pursuant to Chapter V, Section 6 of the Rules, 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 \18\ 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 Chapter V, Section 6 of the Rules. 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. --------------------------------------------------------------------------- \18\ Id. --------------------------------------------------------------------------- The Exchange also believes its proposal to adopt language in paragraph (d) of Commentary .04 to Chapter V, Section 6 of the Rules 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,\19\ and 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. --------------------------------------------------------------------------- \19\ See supra, note 12. \20\ 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 \21\ 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 published by other options exchanges. The Exchange believes these limitations are consistent with Section 6(b)(5) of the Act \22\ 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. --------------------------------------------------------------------------- \21\ 15 U.S.C. 78f(b)(5). \22\ Id. --------------------------------------------------------------------------- Finally, with respect to the proposed addition of Commentary .01 to the Exchange's trading halt rule, Chapter V, Section 3, the Exchange believes that this proposal is consistent with Section 6(b)(5) of the Act \23\ because it specifically provides for nullification where a trading half exists with respect to an underling security across the industry (i.e., a regulatory halt) as distinguished 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 a similar provision already exists in the rules of certain other options exchanges, and thus, has been found to be consistent with the Act.\24\ --------------------------------------------------------------------------- \23\ Id. \24\ See, e.g., Interpretation and Policy .07 to CBOE Rule 6.3. --------------------------------------------------------------------------- B. Self-Regulatory Organization's Statement on Burden on Competition The Exchange believes the entire proposal is consistent with Section 6(b)(8) of the Act \25\ 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. --------------------------------------------------------------------------- \25\ 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 o [sic] erroneous options transactions. The Exchange does not believe that the rules applicable to such process is 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 [[Page 37645]] 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 No written comments were either solicited or received. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Because the foregoing proposed rule change does not: (i) Significantly affect the protection of investors or the public interest; (ii) impose any significant burden on competition; and (iii) become operative for 30 days from the date on which it was filed, or such shorter time as the Commission may designate, it has become effective pursuant to Section 19(b)(3)(A)(iii) of the Act \26\ and subparagraph (f)(6) of Rule 19b-4 thereunder.\27\ --------------------------------------------------------------------------- \26\ 15 U.S.C. 78s(b)(3)(A)(iii). \27\ 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: (i) Necessary or appropriate in the public interest; (ii) for the protection of investors; or (iii) otherwise in furtherance of the purposes of the Act. If the Commission takes such action, the Commission shall institute proceedings to determine whether the proposed rule should be approved or disapproved. 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-NASDAQ-2017-078 on the subject line. Paper Comments Send paper comments in triplicate to Brent J. Fields, Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090. All submissions should refer to File Number SR-NASDAQ-2017-078. 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-NASDAQ-2017-078, and should be submitted on or before September 1, 2017. --------------------------------------------------------------------------- \28\ 17 CFR 200.30-3(a)(12). For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.\28\ Eduardo A. Aleman, Assistant Secretary. [FR Doc. 2017-16926 Filed 8-10-17; 8:45 am] BILLING CODE 8011-01-P
![Federal Register / Vol. 82, No. 154 / Friday, August 11, 2017 / Notices 37639
Commission takes such action, the For the Commission, by the Division of II. Self-Regulatory Organization’s
Commission shall institute proceedings Trading and Markets, pursuant to delegated Statement of the Purpose of, and
to determine whether the proposed rule authority.30 Statutory Basis for, the Proposed Rule
should be approved or disapproved. Eduardo A. Aleman, Change
IV. Solicitation of Comments Assistant Secretary. In its filing with the Commission, the
[FR Doc. 2017–16924 Filed 8–10–17; 8:45 am] Exchange included statements
Interested persons are invited to BILLING CODE 8011–01–P concerning the purpose of and basis for
submit written data, views, and the proposed rule change and discussed
arguments concerning the foregoing, any comments it received on the
including whether the proposed rule SECURITIES AND EXCHANGE proposed rule change. The text of these
change is consistent with the Act. COMMISSION statements may be examined at the
Comments may be submitted by any of places specified in Item IV below. The
the following methods: [Release No. 34–81323; File No. SR– Exchange has prepared summaries, set
NASDAQ–2017–078] forth in sections A, B, and C below, of
Electronic Comments the most significant aspects of such
• Use the Commission’s Internet Self-Regulatory Organizations; The statements.
comment form (http://www.sec.gov/ NASDAQ Stock Market LLC; Notice of A. Self-Regulatory Organization’s
rules/sro.shtml); or Filing and Immediate Effectiveness of Statement of the Purpose of, and
• Send an email to rule-comments@ Proposed Rule Change To Amend Statutory Basis for, the Proposed Rule
sec.gov. Please include File Number SR– Chapter V, Section 6, Nullification and Change
MIAX–2017–38 on the subject line. Adjustment of Options Transactions
1. Purpose
Including Obvious Errors
Paper Comments The Exchange and other options
August 7, 2017. exchanges recently adopted a new,
• Send paper comments in triplicate harmonized rule related to the
Pursuant to Section 19(b)(1) of the
to Brent J. Fields, Secretary, Securities adjustment and nullification of
and Exchange Commission, 100 F Street Securities Exchange Act of 1934 (the
‘‘Act’’),1 and Rule 19b–4 thereunder,2 erroneous options transactions,
NE., Washington, DC 20549–1090. including a specific provision related to
notice is hereby given that on July 26,
All submissions should refer to File 2017, The NASDAQ Stock Market LLC coordination in connection with large-
Number SR–MIAX–2017–38. This file (‘‘Nasdaq’’ or ‘‘Exchange’’) filed with the scale events involving erroneous
number should be included on the options transactions.3 The Exchange
Securities and Exchange Commission
subject line if email is used. To help the believes that the changes the options
(‘‘Commission’’) the proposed rule
Commission process and review your exchanges implemented with the new,
change as described in Items I and II harmonized rule have led to increased
comments more efficiently, please use below, which Items have been prepared
only one method. The Commission will transparency and finality with respect to
by the Exchange. The Commission is the adjustment and nullification of
post all comments on the Commission’s publishing this notice to solicit
Internet Web site (http://www.sec.gov/ erroneous options transactions.
comments on the proposed rule change However, as part of the initial initiative,
rules/sro.shtml). Copies of the from interested persons.
submission, all subsequent the Exchange and other options
amendments, all written statements I. Self-Regulatory Organization’s exchanges deferred a few specific
with respect to the proposed rule Statement of the Terms of Substance of matters for further discussion.
change that are filed with the the Proposed Rule Change Specifically, as described in the Initial
Commission, and all written Filing, the Exchange and all other
communications relating to the The Exchange proposes to amend options exchanges have been working to
proposed rule change between the Chapter V, Section 6 of the Exchange’s further improve the review of
Commission and any person, other than Options Rules (the ‘‘Rules’’), entitled potentially erroneous transactions as
those that may be withheld from the ‘‘Nullification and Adjustment of well as their subsequent adjustment by
public in accordance with the Options Transactions including Obvious creating an objective and universal way
provisions of 5 U.S.C. 552, will be Errors.’’ to determine Theoretical Price in the
available for Web site viewing and event a reliable NBBO is not available.
While these amendments are effective Because this initiative required
printing in the Commission’s Public upon filing, the Exchange has
Reference Room, 100 F Street NE., additional exchange and industry
designated the proposed amendments to discussion as well as additional time for
Washington, DC 20549 on official be operative on a date that is within
business days between the hours of development and implementation, the
ninety (90) days after the Commission Exchange and the other options
10:00 a.m. and 3:00 p.m. Copies of such
approved a similar proposal filed by exchanges determined to proceed with
filing also will be available for
inspection and copying at the principal Bats BZX on July 6, 2017. the Initial Filing and to undergo a
office of the Exchange. All comments The text of the proposed rule change secondary initiative to complete any
received will be posted without change; is available on the Exchange’s Web site additional improvements to the
asabaliauskas on DSKBBXCHB2PROD with NOTICES
the Commission does not edit personal at http://nasdaq.cchwallstreet.com, at applicable rule. In this filing, the
identifying information from the principal office of the Exchange, and Exchange proposes to adopt procedures
submissions. You should submit only at the Commission’s Public Reference that will lead to a more objective and
information that you wish to make Room. uniform way to determine Theoretical
available publicly. All submissions Price in the event a reliable NBBO is not
should refer to File Number SR–MIAX– 30 17 CFR 200.30–3(a)(12). 3 See Securities Exchange Act Release No. 34–
2017–38, and should be submitted on or 1 15 U.S.C. 78s(b)(1). 74915 (May 8, 2015); 80 FR 27801 (May 14, 2015)
before September 1, 2017. 2 17 CFR 240.19b–4. (SR–NASDAQ–2015–054) (the ‘‘Initial Filing’’).
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![37640 Federal Register / Vol. 82, No. 154 / Friday, August 11, 2017 / Notices
available. In addition to this change, the could lead to disparate results for a services.6 The Exchange believes that
Exchange has proposed two additional transaction that spans multiple options Livevol has established itself within the
minor changes to its rules. The exchanges. options industry as a trusted provider of
Exchange’s proposal mirrors that of Bats The Exchange proposes to adopt such services and notes that it and all
BZX, which the Exchange [sic] Commentary .04 to specify how the other options exchanges already
approved on July 6, 2017,4 and those Exchange will determine Theoretical subscribe to various Livevol services. In
that the other options exchanges intend Price when required by sub-paragraphs connection with this proposal, Livevol
to file. (b)(1)–(3) of the Rule (i.e., at the open, will develop a new tool based on its
when there are no valid quotes or when existing technology and services that
Calculation of Theoretical Price Using a
there is a wide quote). In particular, the will supply Theoretical Price to the
Third Party Provider
Exchange has been working with other Exchange and other options exchanges
Under the harmonized rule, when options exchanges to identify and select upon request. The Theoretical Price tool
reviewing a transaction as potentially a reliable third party vendor (‘‘TP will leverage current market data and
erroneous, the Exchange needs to first Provider’’) that would provide surrounding strikes to assist in a relative
determine the ‘‘Theoretical Price’’ of the Theoretical Price to the Exchange value pricing approach to generating a
option, i.e., the Exchange’s estimate of whenever one or more transactions is Theoretical Price. When relative value
the correct market price for the option. under review pursuant to Chapter V, methods are incapable of generating a
Pursuant to Chapter V, Section 6 of the Section 6 of the Rules and the NBBO is valid Theoretical Price, the Theoretical
Rules, if the applicable option series is unavailable or deemed unreliable Price tool will utilize historical trade
traded on at least one other options pursuant to Chapter V, Section 6(b) of and quote data to calculate Theoretical
exchange, then the Theoretical Price of the Rules. The Exchange and other Price.
an option series is the last national best options exchanges have selected CBOE Because the purpose of the proposal
bid (‘‘NBB’’) just prior to the trade in Livevol, LLC (‘‘Livevol’’) as the TP is to move away from a subjective
question with respect to an erroneous Provider, as described below. As further determination by Exchange personnel
sell transaction or the last national best described below, proposed Commentary when the NBBO is unavailable or
offer (‘‘NBO’’) just prior to the trade in .04 would codify the use of the TP unreliable, the Exchange intends to use
question with respect to an erroneous the Theoretical Price provided by the TP
Provider as well as limited exceptions
buy transaction unless one of the Provider in all such circumstances.
where the Exchange would be able to
exceptions described below exists. However, the Exchange believes it is
deviate from the Theoretical Price given
Thus, whenever the Exchange has a necessary to retain the ability to contact
by the TP Provider.
reliable NBB or NBO, as applicable, just the TP Provider if it believes that the
Pursuant to proposed Commentary
prior to the transaction, then the Theoretical Price provided is
.04, when the Exchange must determine
Exchange uses this NBB or NBO as the fundamentally incorrect and to
Theoretical Price. Theoretical Price pursuant to the sub-
paragraphs (b)(1)–(3) of the Rule, the determine the Theoretical Price in the
The Rule also contains various limited circumstance of a systems issue
provisions governing specific situations Exchange will request Theoretical Price
from the third party vendor to which the experienced by the TP Provider, as
where the NBB or NBO is not available described below.
or may not be reliable. Specifically, the Exchange and all other options
exchanges have subscribed. Thus, as set As proposed, to the extent an
Rule specifies situations in which there Official 7 of the Exchange believes that
are no quotes or no valid quotes for forth in this proposed language,
Theoretical Price would be provided to the Theoretical Price provided by the TP
comparison purposes, when the Provider is fundamentally incorrect and
national best bid or offer (‘‘NBBO’’) is the Exchange by the TP Provider on
request and not through a streaming cannot be used consistent with the
determined to be too wide to be reliable, maintenance of a fair and orderly
and at the open of trading on each data feed.5 This language also makes
clear that the Exchange and all other market, the Official shall contact the TP
trading day. In each of these Provider to notify the TP Provider of the
circumstances, in turn, because the NBB options exchanges will use the same TP
Provider. reason the Official believes such
or NBO is not available or is deemed to Theoretical Price is inaccurate and to
be unreliable, the Exchange determines As noted above, the proposed TP
Provider selected by the Exchange and request a review and correction of the
Theoretical Price. Under the current
other options exchanges is Livevol. The calculated Theoretical Price. For
Rule, when determining Theoretical
Exchange proposes to codify this example, if an Official received from the
Price, Exchange personnel generally
selection in proposed paragraph (d) to TP Provider a Theoretical Price of $80
consult and refer to data such as the
Commentary .04. As such, the Exchange in a series that the Official might expect
prices of related series, especially the
would file a rule proposal and would to be instead in the range of $8 to $10
closest strikes in the option in question.
provide notice to the options industry of because of a recent corporate action in
Exchange personnel may also take into
any proposed change to the TP Provider. the underlying, the Official would
account the price of the underlying
The Exchange and other options request that the TP Provider review and
security and the volatility
characteristics of the option as well as exchanges have selected Livevol as the confirm its calculation and determine
historical pricing of the option and/or proposed TP Provider after diligence whether it had appropriately accounted
similar options. Although the Rule is into various alternatives. Livevol has, for the corporate action. In order to
administered by experienced personnel since 2009, been the options industry ensure that other options exchanges that
asabaliauskas on DSKBBXCHB2PROD with NOTICES
and the Exchange believes the process is leader in providing equity and index 6 The Exchange notes that in 2015, Livevol was
currently appropriate, the Exchange options market data and analytics acquired by CBOE Holdings, Inc., the ultimate
recognizes that it is also subjective and parent company of the Chicago Board Options
5 Though the Exchange and other options Exchange (‘‘CBOE’’) and C2 Options Exchange
4 See Securities Exchange Act Release No. 34– exchanges considered a streaming feed, it was (‘‘C2’’).
81084 (July 6, 2017) (granting approval of Bats BZX determined that it would be more feasible to 7 For purposes of the Rule, an Official is an
proposal), 82 FR 32216 (July 12, 2017); 82 FR 23684 develop and implement an on demand service and Exchange staff member or contract employee
(May 23, 2017) (SR–BatsBZX–2017–035) (notice of that such a service would satisfy the goals of the designated as such by the Chief Regulatory Officer.
filing of Bats BZX proposal). initiative. See NOM Rules, Chapter V, Sec. 6(a)(3).
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![37644 Federal Register / Vol. 82, No. 154 / Friday, August 11, 2017 / Notices
The Exchange again reiterates that it authorities’’ that calculate indices,19 primary exchange has experienced a
has retained the standard of the current and is consistent with Section 6(b)(5) of technical issue but the underlying
rule for most reviews of options the Act 20 in that the proposed Rule will security continues to trade on other
transactions pursuant to Chapter V, foster cooperation and coordination equities platforms. The Exchange notes
Section 6 of the Rules, which is to rely with persons engaged in regulating and that a similar provision already exists in
on the NBBO to determine Theoretical facilitating transactions. the rules of certain other options
Price if such NBBO can reasonably be As described above, the Exchange exchanges, and thus, has been found to
relied upon. The proposal to use a TP proposes a modification to the valid be consistent with the Act.24
Provider when the NBBO is unavailable quotes provision to also exclude quotes
or unreliable is consistent with Section in a series published by another options B. Self-Regulatory Organization’s
6(b)(5) of the Act 18 in that the proposed exchange if either party to the Statement on Burden on Competition
Rule will foster cooperation and transaction in question submitted the The Exchange believes the entire
coordination with persons engaged in orders or quotes in the series proposal is consistent with Section
regulating and facilitating transactions representing such options exchange’s 6(b)(8) of the Act 25 in that it does not
by further reducing the possibility of best bid or offer. The Exchange believes impose any burden on competition that
disparate results between options this proposal is consistent with Section is not necessary or appropriate in
exchanges and increasing the objectivity 6(b)(5) of the Act 21 because the furtherance of the purposes of the Act
of the application of Chapter V, Section application of the rule will foster as explained below.
6 of the Rules. Further, the Exchange cooperation and coordination with
Importantly, the Exchange does not
believes that the proposed Rule is persons engaged in regulating and
believe that the proposal will impose a
transparent with respect to the limited facilitating transactions by allowing the
burden on intermarket competition but
circumstances under which the Exchange to coordinate with other
rather that it will alleviate any burden
Exchange will request a review and options exchanges to determine whether
on competition because it is the result
correction of Theoretical Price from the a market participant that is party to a
of a collaborative effort by all options
TP Provider, and has sought to limit potentially erroneous transaction on the
exchanges to further harmonize and
such circumstances as much as possible. Exchange established the market in an
improve the process related to the
The Exchange notes that under the option on other options exchanges; to
adjustment and nullification o [sic]
current Rule, Exchange personnel are the extent this can be established, the
erroneous options transactions. The
required to determine Theoretical Price Exchange believes such participant’s
Exchange does not believe that the rules
in certain circumstances and yet rarely quotes should be excluded in the same
applicable to such process is an area
do so because such circumstances have way such quotes are excluded on the
where options exchanges should
already been significantly limited under Exchange. The Exchange also believes it
the harmonized rule (for example, compete, but rather, that all options
is reasonable to limit the scope of this
because the wide quote provision of the exchanges should have consistent rules
provision to twenty-five (25) series and
harmonized rule only applies if the to the extent possible. Particularly
to require the party that believes it
quote was narrower and then gapped where a market participant trades on
established the best bid or offer on one
but does not apply if the quote had been several different exchanges and an
or more other options exchanges to
persistently wide). Thus, the Exchange erroneous trade may occur on multiple
identify to the Exchange the quotes
believes it will need to request markets nearly simultaneously, the
which were submitted by that party and
Theoretical Price from the TP Provider Exchange believes that a participant
published by other options exchanges.
only in very rare circumstances and in should have a consistent experience
The Exchange believes these limitations
turn, the Exchange anticipates that the with respect to the nullification or
are consistent with Section 6(b)(5) of the
need to contact the TP Provider for adjustment of transactions. To that end,
Act 22 because they will ensure that the
additional review of the Theoretical the selection and implementation of a
Exchange is able to continue to apply
Price provided by the TP Provider will TP Provider utilized by all options
the Rule in a timely and organized
be even rarer. Similarly, the Exchange exchanges will further reduce the
fashion, thus fostering cooperation and
believes it is unlikely that an Exchange possibility that participants with
coordination with persons engaged in
Official will ever be required to potentially erroneous transactions that
regulating and facilitating transactions
determine Theoretical Price, as such span multiple options exchanges are
and also removing impediments to and
circumstance would only be in the handled differently on such exchanges.
perfecting the mechanism of a free and
event of a systems issue that has Similarly, the proposed ability to
open market and a national market
rendered the TP Provider’s services consider quotations invalid on another
system.
unavailable and such issue cannot be Finally, with respect to the proposed options exchange if ultimately
corrected in a timely manner. addition of Commentary .01 to the originating from a party to a potentially
The Exchange also believes its Exchange’s trading halt rule, Chapter V, erroneous transaction on the Exchange
proposal to adopt language in paragraph Section 3, the Exchange believes that represents a proposal intended to
(d) of Commentary .04 to Chapter V, this proposal is consistent with Section further foster cooperation by the options
Section 6 of the Rules to disclaim the 6(b)(5) of the Act 23 because it exchanges with respect to market
liability of the Exchange and the TP specifically provides for nullification events. The Exchange understands that
Provider in connection with the where a trading half exists with respect all other options exchanges either have
asabaliauskas on DSKBBXCHB2PROD with NOTICES
proposed Rule, the TP Provider’s to an underling security across the or they intend to file proposals that are
calculation of Theoretical Price, and the industry (i.e., a regulatory halt) as substantially similar to this proposal.
Exchange’s use of such Theoretical Price distinguished from a situation where the The Exchange does not believe that
is consistent with the Act. As noted the proposed rule change imposes a
above, this proposed language is 19 See supra, note 12. burden on intramarket competition
modeled after existing language in 20 15 U.S.C. 78f(b)(5).
Exchange Rules regarding ‘‘reporting 21 15 U.S.C. 78f(b)(5). 24 See, e.g., Interpretation and Policy .07 to CBOE
22 Id. Rule 6.3.
18 Id. 23 Id. 25 15 U.S.C. 78f(b)(8).
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![Federal Register / Vol. 82, No. 154 / Friday, August 11, 2017 / Notices 37645
because the proposed provisions apply and Exchange Commission, 100 F Street ‘‘Act’’),1 and Rule 19b–4 thereunder,2
to all market participants equally. NE., Washington, DC 20549–1090. notice is hereby given that on July 31,
All submissions should refer to File 2017, Bats BYX Exchange, Inc. (the
C. Self-Regulatory Organization’s
Number SR–NASDAQ–2017–078. This ‘‘Exchange’’ or ‘‘BYX’’) filed with the
Statement on Comments on the
file number should be included on the Securities and Exchange Commission
Proposed Rule Change Received From
subject line if email is used. To help the (‘‘Commission’’) the proposed rule
Members, Participants, or Others change as described in Items I, II and III
Commission process and review your
No written comments were either below, which Items have been prepared
comments more efficiently, please use
solicited or received. by the Exchange. The Exchange has
only one method. The Commission will
designated the proposed rule change as
III. Date of Effectiveness of the post all comments on the Commission’s
one establishing or changing a member
Proposed Rule Change and Timing for Internet Web site (http://www.sec.gov/
due, fee, or other charge imposed by the
Commission Action rules/sro.shtml). Copies of the
Exchange under Section 19(b)(3)(A)(ii)
submission, all subsequent
Because the foregoing proposed rule of the Act3 and Rule 19b–4(f)(2)
amendments, all written statements
change does not: (i) Significantly affect thereunder,4 which renders the
with respect to the proposed rule
the protection of investors or the public proposed rule change effective upon
change that are filed with the filing with the Commission. The
interest; (ii) impose any significant
Commission, and all written Commission is publishing this notice to
burden on competition; and (iii) become
communications relating to the solicit comments on the proposed rule
operative for 30 days from the date on
proposed rule change between the change from interested persons.
which it was filed, or such shorter time
Commission and any person, other than
as the Commission may designate, it has I. Self-Regulatory Organization’s
those that may be withheld from the
become effective pursuant to Section Statement of the Terms of Substance of
public in accordance with the
19(b)(3)(A)(iii) of the Act 26 and the Proposed Rule Change
provisions of 5 U.S.C. 552, will be
subparagraph (f)(6) of Rule 19b–4
available for Web site viewing and The Exchange filed a proposal to
thereunder.27
printing in the Commission’s Public amend the fee schedule applicable to
At any time within 60 days of the
Reference Room, 100 F Street NE., Members 5 and non-Members of the
filing of the proposed rule change, the
Washington, DC 20549 on official Exchange pursuant to BYX Rules 15.1(a)
Commission summarily may
business days between the hours of and (c).
temporarily suspend such rule change if
10:00 a.m. and 3:00 p.m. Copies of such The text of the proposed rule change
it appears to the Commission that such
filing also will be available for is available at the Exchange’s Web site
action is: (i) Necessary or appropriate in
inspection and copying at the principal at www.bats.com, at the principal office
the public interest; (ii) for the protection
office of the Exchange. All comments of the Exchange, and at the
of investors; or (iii) otherwise in
received will be posted without change; Commission’s Public Reference Room.
furtherance of the purposes of the Act.
the Commission does not edit personal
If the Commission takes such action, the II. Self-Regulatory Organization’s
identifying information from
Commission shall institute proceedings Statement of the Purpose of, and
submissions. You should submit only
to determine whether the proposed rule Statutory Basis for, the Proposed Rule
information that you wish to make
should be approved or disapproved. Change
available publicly. All submissions
IV. Solicitation of Comments should refer to File Number SR– In its filing with the Commission, the
NASDAQ–2017–078, and should be Exchange included statements
Interested persons are invited to concerning the purpose of and basis for
submitted on or before September 1,
submit written data, views, and the proposed rule change and discussed
2017.
arguments concerning the foregoing, any comments it received on the
including whether the proposed rule For the Commission, by the Division of
proposed rule change. The text of these
change is consistent with the Act. Trading and Markets, pursuant to delegated
authority.28 statements may be examined at the
Comments may be submitted by any of places specified in Item IV below. The
the following methods: Eduardo A. Aleman,
Exchange has prepared summaries, set
Assistant Secretary.
Electronic Comments forth in Sections A, B, and C below, of
[FR Doc. 2017–16926 Filed 8–10–17; 8:45 am] the most significant parts of such
• Use the Commission’s Internet BILLING CODE 8011–01–P statements.
comment form (http://www.sec.gov/
rules/sro.shtml); or (A) Self-Regulatory Organization’s
• Send an email to rule-comments@ SECURITIES AND EXCHANGE Statement of the Purpose of, and
sec.gov. Please include File Number SR– COMMISSION Statutory Basis for, the Proposed Rule
NASDAQ–2017–078 on the subject line. Change
[Release No. 34–81326; File No. SR– 1. Purpose
Paper Comments BatsBYX–2017–17]
The Exchange proposes to amend its
• Send paper comments in triplicate
Self-Regulatory Organizations; Bats fee schedule to modify existing Tier 3
to Brent J. Fields, Secretary, Securities
BYX Exchange, Inc.; Notice of Filing and add a new tier under footnote 1,
asabaliauskas on DSKBBXCHB2PROD with NOTICES
26 15
and Immediate Effectiveness of a Add/Remove Volume Tiers. The
U.S.C. 78s(b)(3)(A)(iii).
27 17 CFR 240.19b–4(f)(6). In addition, Rule 19b–
Proposed Rule Change Related to Fees
1 15 U.S.C. 78s(b)(1).
4(f)(6) requires a self-regulatory organization to give for Use on Bats BYX Exchange, Inc.
2 17 CFR 240.19b–4.
the Commission written notice of its intent to file
the proposed rule change, along with a brief August 7, 2017. 3 15 U.S.C. 78s(b)(3)(A)(ii).
4 17 CFR 240.19b–4(f)(2).
description and text of the proposed rule change, Pursuant to Section 19(b)(1) of the
at least five business days prior to the date of filing Securities Exchange Act of 1934 (the
5 The term ‘‘Member’’ is defined as ‘‘any
of the proposed rule change, or such shorter time registered broker or dealer that has been admitted
as designated by the Commission. The Exchange to membership in the Exchange.’’ See Exchange
has satisfied this requirement. 28 17 CFR 200.30–3(a)(12). Rule 1.5(n).
VerDate Sep<11>2014 17:18 Aug 10, 2017 Jkt 241001 PO 00000 Frm 00089 Fmt 4703 Sfmt 4703 E:\FR\FM\11AUN1.SGM 11AUN1](https://thefederalregister.org/doc/82_FR_37793/page/7.svg)
Document Created: 2018-10-24 11:46:48
Document Modified: 2018-10-24 11:46:48
| Category | Regulatory Information | |
| Collection | Federal Register | |
| sudoc Class | AE 2.7: GS 4.107: AE 2.106: | |
| Publisher | Office of the Federal Register, National Archives and Records Administration | |
| Section | Notices | |
| FR Citation | 82 FR 37639 |
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