82 FR 37910 - Self-Regulatory Organizations; NASDAQ BX, Inc.; 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 155 (August 14, 2017)
Federal Register Volume 82, Issue 155 (August 14, 2017)
| Page Range | 37910-37917 | |
| FR Document | 2017-17053 |
[Federal Register Volume 82, Number 155 (Monday, August 14, 2017)] [Notices] [Pages 37910-37917] From the Federal Register Online [www.thefederalregister.org] [FR Doc No: 2017-17053] ======================================================================= ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION [Release No. 34-81348; File No. SR-BX-2017-038] Self-Regulatory Organizations; NASDAQ BX, Inc.; 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 8, 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 3, 2017, NASDAQ BX, Inc. (``BX'' or ``Exchange'') filed with the Securities and Exchange Commission (``Commission'') the proposed rule change as described in Items I and II [[Page 37911]] 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://nasdaqbx.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 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. 34-74916 (May 8, 2015); 80 FR 27733 (May 14, 2015) (SR-BX-2015-028) (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 [[Page 37912]] 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 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 BX 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 [[Page 37913]] 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 BX 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., BX 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. 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. [[Page 37914]] 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 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. [[Page 37915]] 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 6 Commentary .03 to Chapter V, Section 6 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 modify this provision 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\ --------------------------------------------------------------------------- \15\ 15 U.S.C. 78f(b). --------------------------------------------------------------------------- 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. --------------------------------------------------------------------------- \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. --------------------------------------------------------------------------- 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 [[Page 37916]] 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 modification to Commentary .03 to Chapter V, Section 6, 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 halt exists with respect to an underlying 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. --------------------------------------------------------------------------- \23\ Id. --------------------------------------------------------------------------- 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 \24\ 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. --------------------------------------------------------------------------- \24\ 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 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 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 \25\ and Rule 19b-4(f)(6) \26\ thereunder. --------------------------------------------------------------------------- \25\ 15 U.S.C. 78s(b)(3)(A). \26\ 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-BX-2017-038 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-BX-2017-038. 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-BX-2017-038, and should be submitted on or before September 5, 2017. [[Page 37917]] For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.\27\ --------------------------------------------------------------------------- \27\ 17 CFR 200.30-3(a)(12). --------------------------------------------------------------------------- Eduardo A. Aleman, Assistant Secretary. [FR Doc. 2017-17053 Filed 8-11-17; 8:45 am] BILLING CODE 8011-01-P
![37910 Federal Register / Vol. 82, No. 155 / Monday, August 14, 2017 / Notices
site-help/e-submittals.html. Participants A person filing electronically using unless an NRC regulation or other law
may not submit paper copies of their the NRC’s adjudicatory E-Filing system requires submission of such
filings unless they seek an exemption in may seek assistance by contacting the information. For example, in some
accordance with the procedures NRC’s Electronic Filing Help Desk instances, individuals provide home
described below. through the ‘‘Contact Us’’ link located addresses in order to demonstrate
To comply with the procedural on the NRC’s public Web site at http:// proximity to a facility or site. With
requirements of E-Filing, at least 10 www.nrc.gov/site-help/e- respect to copyrighted works, except for
days prior to the filing deadline, the submittals.html, by email to limited excerpts that serve the purpose
participant should contact the Office of MSHD.Resource@nrc.gov, or by a toll- of the adjudicatory filings and would
the Secretary by email at free call at 1–866–672–7640. The NRC constitute a Fair Use application,
hearing.docket@nrc.gov, or by telephone Electronic Filing Help Desk is available participants are requested not to include
at 301–415–1677, to request (1) a digital between 9 a.m. and 6 p.m., Eastern copyrighted materials in their
identification (ID) certificate, which Time, Monday through Friday, submission.
allows the participant (or its counsel or excluding government holidays. Detailed information about the license
representative) to digitally sign Participants who believe that they renewal process can be found under the
submissions and access the E-Filing have a good cause for not submitting Nuclear Reactors icon at http://
system for any proceeding in which it documents electronically must file an www.nrc.gov/reactors/operating/
is participating; and (2) advise the exemption request, in accordance with licensing/renewal.html on the NRC’s
Secretary that the participant will be 10 CFR 2.302(g), with their initial paper Web site. Copies of the application to
submitting a request or other filing stating why there is good cause for renew the operating license for RBS are
adjudicatory document (even in not filing electronically and requesting available for public inspection at the
instances in which the participant, or its authorization to continue to submit NRC’s PDR, and at http://www.nrc.gov/
counsel or representative, already holds documents in paper format. Such filings reactors/operating/licensing/renewal/
an NRC-issued digital ID certificate). must be submitted by: (1) First class applications.html, the NRC’s Web site
Based upon this information, the mail addressed to the Office of the while the application is under review.
Secretary will establish an electronic Secretary of the Commission, U.S. The NRC staff has verified that a copy
docket for the hearing in this proceeding Nuclear Regulatory Commission, of the license renewal application is
if the Secretary has not already Washington, DC 20555–0001, Attention: also available to local residents near the
established an electronic docket. Rulemaking and Adjudications Staff; or site at the St. Charles Parish Library—
Information about applying for a (2) courier, express mail, or expedited East Regional Library, 160 W. Campus
digital ID certificate is available on the delivery service to the Office of the Drive, Destrehan, Louisiana 70047.
NRC’s public Web site at http:// Secretary, 11555 Rockville Pike,
www.nrc.gov/site-help/e-submittals/ Rockville, Maryland, 20852, Attention: Dated at Rockville, Maryland, this 9th day
getting-started.html. Once a participant of August, 2017.
Rulemaking and Adjudications Staff.
has obtained a digital ID certificate and Participants filing adjudicatory For the Nuclear Regulatory Commission.
a docket has been created, the documents in this manner are Sheldon Stuchell,
participant can then submit responsible for serving the document on Chief, Projects Management and Guidance
adjudicatory documents. Submissions all other participants. Filing is Branch, Division of License Renewal, Office
must be in Portable Document Format considered complete by first-class mail of Nuclear Reactor Regulation.
(PDF). Additional guidance on PDF as of the time of deposit in the mail, or [FR Doc. 2017–17125 Filed 8–11–17; 8:45 am]
submissions is available on the NRC’s by courier, express mail, or expedited BILLING CODE 7590–01–P
public Web site at http://www.nrc.gov/ delivery service upon depositing the
site-help/electronic-sub-ref-mat.html. A document with the provider of the
filing is considered complete at the time service. A presiding officer, having SECURITIES AND EXCHANGE
the document is submitted through the granted an exemption request from COMMISSION
NRC’s E-Filing system. To be timely, an using E-Filing, may require a participant
[Release No. 34–81348; File No. SR–BX–
electronic filing must be submitted to or party to use E-Filing if the presiding 2017–038]
the E-Filing system no later than 11:59 officer subsequently determines that the
p.m. Eastern Time on the due date. reason for granting the exemption from Self-Regulatory Organizations;
Upon receipt of a transmission, the E- use of E-Filing no longer exists. NASDAQ BX, Inc.; Notice of Filing and
Filing system time-stamps the document Documents submitted in adjudicatory Immediate Effectiveness of Proposed
and sends the submitter an email notice proceedings will appear in the NRC’s Rule Change To Amend Chapter V,
confirming receipt of the document. The electronic hearing docket which is Section 6, Nullification and Adjustment
E-Filing system also distributes an email available to the public at https:// of Options Transactions Including
notice that provides access to the adams.nrc.gov/ehd, unless excluded Obvious Errors
document to the NRC’s Office of the pursuant to an order of the Commission
General Counsel and any others who or the presiding officer. If you do not August 8, 2017.
have advised the Office of the Secretary have an NRC-issued digital ID certificate Pursuant to Section 19(b)(1) of the
that they wish to participate in the as described above, click cancel when Securities Exchange Act of 1934 (the
proceeding, so that the filer need not the link requests certificates and you ‘‘Act’’),1 and Rule 19b–4 thereunder,2
serve the document on those will be automatically directed to the notice is hereby given that on August 3,
sradovich on DSK3GMQ082PROD with NOTICES
participants separately. Therefore, NRC’s electronic hearing dockets where 2017, NASDAQ BX, Inc. (‘‘BX’’ or
applicants and other participants (or you will be able to access any publicly ‘‘Exchange’’) filed with the Securities
their counsel or representative) must available documents in a particular and Exchange Commission
apply for and receive a digital ID hearing docket. Participants are (‘‘Commission’’) the proposed rule
certificate before adjudicatory requested not to include personal change as described in Items I and II
documents are filed so that they can privacy information, such as social
obtain access to the documents via the security numbers, home addresses, or 1 15 U.S.C. 78s(b)(1).
E-Filing system. personal phone numbers in their filings, 2 17 CFR 240.19b–4.
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![Federal Register / Vol. 82, No. 155 / Monday, August 14, 2017 / Notices 37911
below, which Items have been prepared erroneous options transactions. where the NBB or NBO is not available
by the Exchange. The Commission is However, as part of the initial initiative, or may not be reliable. Specifically, the
publishing this notice to solicit the Exchange and other options Rule specifies situations in which there
comments on the proposed rule change exchanges deferred a few specific are no quotes or no valid quotes for
from interested persons. matters for further discussion. comparison purposes, when the
Specifically, as described in the Initial national best bid or offer (‘‘NBBO’’) is
I. Self-Regulatory Organization’s
Filing, the Exchange and all other determined to be too wide to be reliable,
Statement of the Terms of Substance of
options exchanges have been working to and at the open of trading on each
the Proposed Rule Change
further improve the review of trading day. In each of these
The Exchange proposes to amend potentially erroneous transactions as circumstances, in turn, because the NBB
Chapter V, Section 6 of the Exchange’s well as their subsequent adjustment by or NBO is not available or is deemed to
Options Rules (the ‘‘Rules’’), entitled creating an objective and universal way be unreliable, the Exchange determines
‘‘Nullification and Adjustment of to determine Theoretical Price in the Theoretical Price. Under the current
Options Transactions including Obvious event a reliable NBBO is not available. Rule, when determining Theoretical
Errors.’’ Because this initiative required Price, Exchange personnel generally
While these amendments are effective additional exchange and industry consult and refer to data such as the
upon filing, the Exchange has discussion as well as additional time for prices of related series, especially the
designated the proposed amendments to development and implementation, the closest strikes in the option in question.
be operative on a date that is within Exchange and the other options Exchange personnel may also take into
ninety (90) days after the Commission exchanges determined to proceed with account the price of the underlying
approved a similar proposal filed by the Initial Filing and to undergo a security and the volatility
Bats BZX on July 6, 2017. secondary initiative to complete any characteristics of the option as well as
The text of the proposed rule change additional improvements to the historical pricing of the option and/or
is available on the Exchange’s Web site applicable rule. In this filing, the similar options. Although the Rule is
at http://nasdaqbx.cchwallstreet.com/, Exchange proposes to adopt procedures administered by experienced personnel
at the principal office of the Exchange, that will lead to a more objective and and the Exchange believes the process is
and at the Commission’s Public uniform way to determine Theoretical currently appropriate, the Exchange
Reference Room. Price in the event a reliable NBBO is not recognizes that it is also subjective and
II. Self-Regulatory Organization’s available. In addition to this change, the could lead to disparate results for a
Statement of the Purpose of, and Exchange has proposed two additional transaction that spans multiple options
Statutory Basis for, the Proposed Rule minor changes to its rules. The exchanges.
Change Exchange’s proposal mirrors that of Bats The Exchange proposes to adopt
BZX, which the Exchange [sic] Commentary .04 to specify how the
In its filing with the Commission, the approved on July 6, 2017,4 and those Exchange will determine Theoretical
Exchange included statements that the other options exchanges intend Price when required by sub-paragraphs
concerning the purpose of and basis for to file. (b)(1)–(3) of the Rule (i.e., at the open,
the proposed rule change and discussed when there are no valid quotes or when
any comments it received on the Calculation of Theoretical Price Using a there is a wide quote). In particular, the
proposed rule change. The text of these Third Party Provider Exchange has been working with other
statements may be examined at the Under the harmonized rule, when options exchanges to identify and select
places specified in Item IV below. The reviewing a transaction as potentially a reliable third party vendor (‘‘TP
Exchange has prepared summaries, set erroneous, the Exchange needs to first Provider’’) that would provide
forth in sections A, B, and C below, of determine the ‘‘Theoretical Price’’ of the Theoretical Price to the Exchange
the most significant aspects of such option, i.e., the Exchange’s estimate of whenever one or more transactions is
statements. the correct market price for the option. under review pursuant to Chapter V,
Pursuant to Chapter V, Section 6 of the Section 6 of the Rules and the NBBO is
A. Self-Regulatory Organization’s
Rules, if the applicable option series is unavailable or deemed unreliable
Statement of the Purpose of, and
traded on at least one other options pursuant to Chapter V, Section 6(b) of
Statutory Basis for, the Proposed Rule
exchange, then the Theoretical Price of the Rules. The Exchange and other
Change
an option series is the last national best options exchanges have selected CBOE
1. Purpose bid (‘‘NBB’’) just prior to the trade in Livevol, LLC (‘‘Livevol’’) as the TP
The Exchange and other options question with respect to an erroneous Provider, as described below. As further
exchanges recently adopted a new, sell transaction or the last national best described below, proposed Commentary
harmonized rule related to the offer (‘‘NBO’’) just prior to the trade in .04 would codify the use of the TP
adjustment and nullification of question with respect to an erroneous Provider as well as limited exceptions
erroneous options transactions, buy transaction unless one of the where the Exchange would be able to
including a specific provision related to exceptions described below exists. deviate from the Theoretical Price given
coordination in connection with large- Thus, whenever the Exchange has a by the TP Provider.
scale events involving erroneous reliable NBB or NBO, as applicable, just Pursuant to proposed Commentary
options transactions.3 The Exchange prior to the transaction, then the .04, when the Exchange must determine
believes that the changes the options Exchange uses this NBB or NBO as the Theoretical Price pursuant to the sub-
Theoretical Price.
sradovich on DSK3GMQ082PROD with NOTICES
exchanges implemented with the new, paragraphs (b)(1)–(3) of the Rule, the
The Rule also contains various Exchange will request Theoretical Price
harmonized rule have led to increased
provisions governing specific situations from the third party vendor to which the
transparency and finality with respect to
the adjustment and nullification of Exchange and all other options
4 See Securities Exchange Act Release No. 34–
exchanges have subscribed. Thus, as set
81084 (July 6, 2017) (granting approval of Bats BZX forth in this proposed language,
3 See Securities Exchange Act Release No. 34– proposal), 82 FR 32216 (July 12, 2017); 82 FR 23684
74916 (May 8, 2015); 80 FR 27733 (May 14, 2015) (May 23, 2017) (SR–BatsBZX–2017–035) (notice of Theoretical Price would be provided to
(SR–BX–2015–028) (the ‘‘Initial Filing’’). filing of Bats BZX proposal). the Exchange by the TP Provider on
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![37916 Federal Register / Vol. 82, No. 155 / Monday, August 14, 2017 / Notices
or more other options exchanges to Exchange believes that a participant Commission shall institute proceedings
identify to the Exchange the quotes should have a consistent experience to determine whether the proposed rule
which were submitted by that party and with respect to the nullification or should be approved or disapproved.
published by other options exchanges. adjustment of transactions. To that end,
IV. Solicitation of Comments
The Exchange believes these limitations the selection and implementation of a
are consistent with Section 6(b)(5) of the TP Provider utilized by all options Interested persons are invited to
Act 22 because they will ensure that the exchanges will further reduce the submit written data, views, and
Exchange is able to continue to apply possibility that participants with arguments concerning the foregoing,
the Rule in a timely and organized potentially erroneous transactions that including whether the proposed rule
fashion, thus fostering cooperation and span multiple options exchanges are change is consistent with the Act.
coordination with persons engaged in handled differently on such exchanges. Comments may be submitted by any of
regulating and facilitating transactions Similarly, the proposed ability to the following methods:
and also removing impediments to and consider quotations invalid on another
perfecting the mechanism of a free and options exchange if ultimately Electronic Comments
open market and a national market originating from a party to a potentially • Use the Commission’s Internet
system. erroneous transaction on the Exchange comment form (http://www.sec.gov/
Finally, with respect to the proposed represents a proposal intended to rules/sro.shtml); or
modification to Commentary .03 to further foster cooperation by the options
Chapter V, Section 6, the Exchange exchanges with respect to market • Send an email to rule-comments@
believes that this proposal is consistent events. The Exchange understands that sec.gov. Please include File Number SR–
with Section 6(b)(5) of the Act 23 all other options exchanges either have BX–2017–038 on the subject line.
because it specifically provides for or they intend to file proposals that are Paper Comments
nullification where a trading halt exists substantially similar to this proposal.
with respect to an underlying security The Exchange does not believe that • Send paper comments in triplicate
across the industry (i.e., a regulatory the proposed rule change imposes a to Brent J. Fields, Secretary, Securities
halt) as distinguished from a situation burden on intramarket competition and Exchange Commission, 100 F Street
where the primary exchange has because the proposed provisions apply NE., Washington, DC 20549–1090.
experienced a technical issue but the to all market participants equally. All submissions should refer to File
underlying security continues to trade C. Self-Regulatory Organization’s Number SR–BX–2017–038. This file
on other equities platforms. The Statement on Comments on the number should be included on the
Exchange notes that a similar provision Proposed Rule Change Received From subject line if email is used. To help the
already exists in the rules of certain Members, Participants, or Others Commission process and review your
other options exchanges, and thus, has comments more efficiently, please use
been found to be consistent with the No written comments were either
solicited or received. only one method. The Commission will
Act. post all comments on the Commission’s
B. Self-Regulatory Organization’s III. Date of Effectiveness of the Internet Web site (http://www.sec.gov/
Statement on Burden on Competition Proposed Rule Change and Timing for rules/sro.shtml). Copies of the
Commission Action submission, all subsequent
The Exchange believes the entire
proposal is consistent with Section Because the foregoing proposed rule amendments, all written statements
6(b)(8) of the Act 24 in that it does not change does not: (i) Significantly affect with respect to the proposed rule
impose any burden on competition that the protection of investors or the public change that are filed with the
is not necessary or appropriate in interest; (ii) impose any significant Commission, and all written
furtherance of the purposes of the Act burden on competition; and (iii) become communications relating to the
as explained below. operative for 30 days after the date of proposed rule change between the
Importantly, the Exchange does not the filing, or such shorter time as the Commission and any person, other than
believe that the proposal will impose a Commission may designate, it has those that may be withheld from the
burden on intermarket competition but become effective pursuant to 19(b)(3)(A) public in accordance with the
rather that it will alleviate any burden of the Act 25 and Rule 19b–4(f)(6) 26 provisions of 5 U.S.C. 552, will be
on competition because it is the result thereunder. available for Web site viewing and
of a collaborative effort by all options At any time within 60 days of the printing in the Commission’s Public
exchanges to further harmonize and filing of the proposed rule change, the Reference Room, 100 F Street NE.,
improve the process related to the Commission summarily may Washington, DC 20549 on official
temporarily suspend such rule change if business days between the hours of
adjustment and nullification o [sic]
it appears to the Commission that such 10:00 a.m. and 3:00 p.m. Copies of such
erroneous options transactions. The
action is necessary or appropriate in the filing also will be available for
Exchange does not believe that the rules
public interest, for the protection of inspection and copying at the principal
applicable to such process is an area
investors, or otherwise in furtherance of office of the Exchange. All comments
where options exchanges should
the purposes of the Act. If the received will be posted without change;
compete, but rather, that all options
Commission takes such action, the the Commission does not edit personal
exchanges should have consistent rules
to the extent possible. Particularly identifying information from
25 15 U.S.C. 78s(b)(3)(A). submissions. You should submit only
sradovich on DSK3GMQ082PROD with NOTICES
where a market participant trades on 26 17 CFR 240.19b–4(f)(6). In addition, Rule 19b–
several different exchanges and an information that you wish to make
4(f)(6) requires a self-regulatory organization to give
erroneous trade may occur on multiple the Commission written notice of its intent to file available publicly. All submissions
markets nearly simultaneously, the the proposed rule change, along with a brief should refer to File Number SR–BX–
description and text of the proposed rule change, 2017–038, and should be submitted on
at least five business days prior to the date of filing or before September 5, 2017.
22 Id.
of the proposed rule change, or such shorter time
23 Id.
as designated by the Commission. The Exchange
24 15 U.S.C. 78f(b)(8). has satisfied this requirement. 27 17 CFR 200.30–3(a)(12).
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![Federal Register / Vol. 82, No. 155 / Monday, August 14, 2017 / Notices 37917
For the Commission, by the Division of changes to the ICC Clearing Rules committed repurchase facility,
Trading and Markets, pursuant to delegated (‘‘Rules’’). consisting of committed repo lines from
authority.27 multiple financial institutions (as
Eduardo A. Aleman, A. Liquidity Risk Management
opposed to committed repurchase
Framework
Assistant Secretary. agreements as before), and its recently
[FR Doc. 2017–17053 Filed 8–11–17; 8:45 am] ICC proposed to reorganize the format instituted committed FX facilities for
BILLING CODE 8011–01–P
of the Liquidity Risk Management converting USD cash to EUR cash. ICC
Framework to consist of three elements: also proposed removing reference to FX
Liquidity Risk Management Model; Swaps and Immediate FX Spot
SECURITIES AND EXCHANGE Measurement and Monitoring; and Transactions because these
COMMISSION Governance. The Regulatory arrangements are not committed and
Requirements element, previously therefore are not ‘‘qualifying liquidity
[Release No. 34–81347; File No. SR–ICC– included as an element of the resources’’ under CFTC Regulation
2017–011] framework, would be deleted; however, 39.33, according to ICC.7 ICC also
the regulatory requirements applicable proposed removing reference to the
Self-Regulatory Organizations; ICE to liquidity risk management would still Intercontinental Exchange, Inc.
Clear Credit LLC; Order Granting be referenced in the framework. committed line of credit because ICC no
Accelerated Approval of Proposed longer participates in the arrangement.
Rule Change Relating to the ICC 1. Liquidity Risk Management Model
In the Liquidity Waterfall component,
Liquidity Risk Management Framework ICC proposed to enhance the ICC proposed revisions to its definition
and the ICC Stress Testing Framework description of several components of its of Available Liquidity Resources
August 8, 2017.
Liquidity Risk Management Model. As (‘‘ALR’’) to note that ALR consists of the
revised, the Liquidity Risk Management available deposits currently in cash of
I. Introduction Model now includes, but is not limited the required currency of denomination
On June 28, 2017, ICE Clear Credit to, the following components: Currency- and the cash equivalent of the available
LLC (‘‘ICC’’ or ‘‘ICE Clear Credit’’) filed Specific Risk Requirements; Acceptable deposits in collateral types that ICC can
with the Securities and Exchange Collateral; Liquidity Requirements; convert to cash, in the required currency
Commission (‘‘Commission’’), pursuant Collateral Valuation Methodology; of denomination, using all sources of
to Section 19(b)(1) of the Securities Investment Strategy; Clearing liquidity available to it. For reference,
Exchange Act of 1934 (‘‘Exchange Participant (‘‘CP’’) Deposits as a the Liquidity Waterfall classifies ALR
Act’’) 1 and Rule 19b–4 thereunder,2 a Liquidity Pool, Liquidity Facilities on any given day into four levels. Level
proposed rule change (SR–ICC–2017– (including committed repo facilities and One includes the House IM and GF cash
011) to revise the ICC Liquidity Risk committed foreign exchange (‘‘FX’’) deposits of the defaulting CP. Level Two
Management Framework and the ICC facilities); and Liquidity Waterfall. includes GF cash deposits of ICC and
Stress Testing Framework. The For the Currency-Specific Risk non-defaulting CPs. Level Three
proposed rule change was published for Requirements component, ICC proposed includes House IM cash deposits of the
comment in the Federal Register on July to add language to cross reference ICC’s non-defaulting CPs. Level Four includes
12, 2017.3 The Commission did not current policy of maintaining cash and committed repo facilities and FX
receive comments regarding the collateral assets posted by CPs (on facilities, as described above in the
proposed changes. For the reasons behalf of themselves and/or their changes to the Liquidity Facilities
discussed below, the Commission is clients) to meet currency-specific Initial component.
approving the proposed rule change on Margin (‘‘IM’’) and Guaranty Fund A few of the Liquidity Risk
an accelerated basis. (‘‘GF’’) requirements, to ensure ICC has Management Model components would
sufficient total resources in the required remain the same or substantially the
II. Description of the Proposed Rule currencies of denomination. same. The Acceptable Collateral
Change With respect to the Liquidity component would remain the same and
ICC stated that the proposed revisions Requirements component,5 ICC will note that CPs may post IM and GF
to its Liquidity Risk Management proposed to add a cross reference to deposits that meet ICC’s acceptable
Framework and Stress Testing ICC’s requirement that each CP collateral criteria as described in ICC’s
Framework are for the purpose of contribute to the GF a minimum of 20 Treasury Operations Policies and
revising its liquidity monitoring million wholly in U.S. Dollars (‘‘USD’’), Procedures and Schedule 401 of the ICC
program to enhance compliance with which is not a change but rather a Rules. The Investment Strategy
U.S. Commodity Futures Trading restatement of ICC’s current rules.6 component would remain substantially
Commission (‘‘CFTC’’) regulations, Further, ICC proposed revisions to the same and was proposed to be
including Regulations 39.11, 39.33, and extend ICC’s margin risk horizon up to revised to note that, when beneficial,
39.36.4 ICC represented that the 6-days in order to account for the risk ICC diversifies its cash investments
proposed revisions will also facilitate associated with clearing Asia Pacific across multiple depository institutions
the prompt and accurate clearance and products. This change would apply to reduce its liquidity exposure to any
settlement of securities transactions and throughout the framework. single depository. The CP Deposits as a
With respect to the Liquidity Liquidity Pool and Collateral Valuation
derivative agreements, contracts, and
Facilities component, ICC proposed Methodology components also would
transactions for which it is responsible.
sradovich on DSK3GMQ082PROD with NOTICES
revisions to add reference to its remain substantially the same.
These revisions would not require any
5 The Liquidity Requirements component also 2. Measurement and Monitoring
1 15 U.S.C. 78s(b)(1). reflects the changes to ICC’s liquidity thresholds for With respect to the Measurement and
2 17 CFR 240.19b–4.
Euro (‘‘EUR’’) denominated products approved by
3 Exchange Act Release No. 34–81132 (July 12, the Commission in rule filing ICC–2017–002. See
Monitoring element of the Liquidity
2017), 82 FR 32895 (July 18, 2017) (SR–ICC–2017– Exchange Act Release No. 34–80324 (Mar. 28, Risk Management Framework, ICC
011) (‘‘Notice’’). 2017), 82 FR 16244 (Apr. 3, 2017).
4 17 CFR 39.11; 17 CFR 39.33; 17 CFR 39.36. 6 See Schedule 401 of the ICC Rules. 7 17 CFR 39.33.
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Document Created: 2018-10-24 11:50:16
Document Modified: 2018-10-24 11:50:16
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| 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 37910 |
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