82 FR 37958 - Self-Regulatory Organizations; Nasdaq GEMX, LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Rule 720, 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 | 37958-37964 | |
| FR Document | 2017-17069 |
[Federal Register Volume 82, Number 155 (Monday, August 14, 2017)] [Notices] [Pages 37958-37964] From the Federal Register Online [www.thefederalregister.org] [FR Doc No: 2017-17069] ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION [Release No. 34-81354; File No. SR-GEMX-2017-36] Self-Regulatory Organizations; Nasdaq GEMX, LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Rule 720, 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 GEMX, LLC (``GEMX'' 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 Rule 720, 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 www.ise.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, except that it omits the section of the proposal that pertains to trading halts due to the fact that the Supplementary Material to Exchange Rule 702 already includes the applicable language. --------------------------------------------------------------------------- \3\ See Securities Exchange Act Release No. 74897 (May 7, 2015); 80 FR 27415 (May 13, 2015) (SR-ISE-Gemini-2015-11) (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 Rule 720, 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. [[Page 37959]] 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 Supplementary Material to Rule 720, Item .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 Rule 720 and the NBBO is unavailable or deemed unreliable pursuant to Rule 720(b). The Exchange and other options exchanges have selected CBOE Livevol, LLC (``Livevol'') as the TP Provider, as described below. As further described below, proposed Supplementary Material to Rule 720, Item .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 Supplementary Material to Rule 720, Item .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 Supplementary Material to Rule 720, Item .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 Officer of the Exchange or such other employee designee of the Exchange that is trained in the application of this Rule. See Rule 720(a)(3). \8\ See proposed paragraph (b) to Supplementary Material to Rule 720, Item .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 [[Page 37960]] 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 Supplementary Material to Rule 720, Item .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 Rule 720(e)(4), 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 Rule 720(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 Rule 720(e), and the TP Provider was unavailable or otherwise experiencing difficulty, the Exchange believes that it and other options exchanges would seek to coordinate to the extent possible. In particular, the Exchange and other options exchanges now have a process, administered by the Options Clearing Corporation, to invoke a discussion amongst all options exchanges in the event of any widespread or significant market events. The Exchange believes that this process could be used in the event necessary if there were an issue with the TP Provider. The Exchange also proposes to adopt language in paragraph (d) of Supplementary Material to Rule 720, Item .04 to Rule 720 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 Supplementary Material to Rule 720, Item .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., ISE Rule 2011, which is incorporated by reference into the GEMX rules and which relates to index options potentially listed and traded on the Exchange and disclaim [sic] liability for a reporting authority and their affiliates. --------------------------------------------------------------------------- In connection with the proposed change described above, the Exchange proposes to modify Rule 720 to state that the Exchange will rely on paragraph (b) and Supplementary Material to Rule 720, Item .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 [[Page 37961]] 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 Rule 720(b)(2). As there were no other valid quotes to use as a reference price, the Exchange would then determine Theoretical Price. Assume the Exchange determines a Theoretical Price of $0.05. 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 Rule 720(b)(2). The Exchange, however, would view the Away Exchange's quotations as valid, and would thus determine Theoretical Price to be $1.05 (i.e., the NBO in the case of a potentially erroneous buy transaction). The execution price of $1.00 does not exceed the $0.25 minimum amount set forth in the Exchange's table to determine whether an obvious error has occurred (i.e., $1.05 + $0.25 = $1.30) so any execution at or above this price is an obvious error. The transactions on the Exchange would not be nullified or adjusted. As the Exchange and all other options exchanges have identical rules with respect to the process described above, the transactions on the Away Exchange would not be nullified or adjusted. Example 3--Proposed Rule, Member Erroneously Quotes on Multiple Exchanges \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. [[Page 37962]] Therefore, the NBBO in the twenty series at issue is $1.00 *$1.05 (with the Exchange and the Away Exchange representing the NBBO based on Market Maker A's quotes). Assume Member A immediately enters sell orders and executes against Market Maker A's quotes at $1.00. Assume Market Maker A submits to the Exchange and to the Away Exchange timely requests for review of the trades with Member A as potentially erroneous transactions to buy. At the time of submitting the requests for review to the Exchange and the Away Exchange, Market Maker A identifies to the Exchange the quotes on the Away Exchange as quotes also represented by Market Maker A (and to the Away Exchange, the quotes on the Exchange as quotes also represented by Market Maker A). Result Based on the proposed rules, the Exchange would identify Market Maker A as a participant to the trades at issue and would consider Market Maker A's quotations on the Exchange invalid pursuant to Rule 720(b)(2). The Exchange and the Away Exchange would also coordinate to confirm that the quotations identified by Market Maker A on the other exchange were indeed Market Maker A's quotations. Once confirmed, each of the Exchange and the Away Exchange would also consider invalid the quotations published on the other exchange. As there were no other valid quotes to use as a reference price, the Exchange would then determine Theoretical Price. Assume the Exchange determines a Theoretical Price of $0.05. 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. 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. --------------------------------------------------------------------------- The Exchange again reiterates that it has retained the standard of the current rule for most reviews of options transactions pursuant to Rule 720, 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 Rule 720. 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 Supplementary Material to Rule 720, Item .04 to Rule 720 to disclaim the liability of the Exchange and the TP [[Page 37963]] 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. --------------------------------------------------------------------------- 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 \23\ 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. --------------------------------------------------------------------------- \23\ 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 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 \24\ and subparagraph (f)(6) of Rule 19b-4 thereunder.\25\ --------------------------------------------------------------------------- \24\ 15 U.S.C. 78s(b)(3)(A)(iii). \25\ 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-GEMX-2017-36 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-GEMX-2017-36. 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 [[Page 37964]] 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-GEMX-2017-36, and should be submitted on or before September 5, 2017. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.\26\ --------------------------------------------------------------------------- \26\ 17 CFR 200.30-3(a)(12). --------------------------------------------------------------------------- Eduardo A. Aleman, Assistant Secretary. [FR Doc. 2017-17069 Filed 8-11-17; 8:45 am] BILLING CODE 8011-01-P
![37958 Federal Register / Vol. 82, No. 155 / Monday, August 14, 2017 / Notices
only one method. The Commission will below, which Items have been prepared exchanges deferred a few specific
post all comments on the Commission’s by the Exchange. The Commission is matters for further discussion.
Internet Web site (http://www.sec.gov/ publishing this notice to solicit Specifically, as described in the Initial
rules/sro.shtml). Copies of the comments on the proposed rule change Filing, the Exchange and all other
submission, all subsequent from interested persons. options exchanges have been working to
amendments, all written statements further improve the review of
I. Self-Regulatory Organization’s
with respect to the proposed rule potentially erroneous transactions as
Statement of the Terms of Substance of
change that are filed with the well as their subsequent adjustment by
the Proposed Rule Change
Commission, and all written creating an objective and universal way
communications relating to the The Exchange proposes to amend to determine Theoretical Price in the
proposed rule change between the Rule 720, Nullification and Adjustment event a reliable NBBO is not available.
Commission and any person, other than of Options Transactions including Because this initiative required
those that may be withheld from the Obvious Errors. additional exchange and industry
public in accordance with the While these amendments are effective discussion as well as additional time for
provisions of 5 U.S.C. 552, will be upon filing, the Exchange has development and implementation, the
available for Web site viewing and designated the proposed amendments to Exchange and the other options
printing in the Commission’s Public be operative on a date that is within exchanges determined to proceed with
Reference Room, 100 F Street NE., ninety (90) days after the Commission the Initial Filing and to undergo a
Washington, DC 20549, on official approved a similar proposal filed by secondary initiative to complete any
business days between the hours of Bats BZX on July 6, 2017. additional improvements to the
10:00 a.m. and 3:00 p.m. Copies of the The text of the proposed rule change applicable rule. In this filing, the
filing also will be available for is available on the Exchange’s Web site Exchange proposes to adopt procedures
inspection and copying at the principal at www.ise.com, at the principal office that will lead to a more objective and
office of the Exchange. All comments of the Exchange, and at the uniform way to determine Theoretical
received will be posted without change; Commission’s Public Reference Room. Price in the event a reliable NBBO is not
the Commission does not edit personal II. Self-Regulatory Organization’s available. In addition to this change, the
identifying information from Statement of the Purpose of, and Exchange has proposed two additional
submissions. You should submit only Statutory Basis for, the Proposed Rule minor changes to its rules. The
information that you wish to make Change Exchange’s proposal mirrors that of Bats
available publicly. All submissions BZX, which the Exchange [sic]
should refer to File No. SR–NASDAQ– In its filing with the Commission, the
Exchange included statements approved on July 6, 2017,4 and those
2017–068, and should be submitted on that the other options exchanges intend
or before September 5, 2017. concerning the purpose of and basis for
the proposed rule change and discussed to file, except that it omits the section
For the Commission, by the Division of
any comments it received on the of the proposal that pertains to trading
Trading and Markets, pursuant to delegated halts due to the fact that the
authority.14 proposed rule change. The text of these
statements may be examined at the Supplementary Material to Exchange
Eduardo A. Aleman, Rule 702 already includes the
places specified in Item IV below. The
Assistant Secretary. applicable language.
Exchange has prepared summaries, set
[FR Doc. 2017–17049 Filed 8–11–17; 8:45 am]
forth in sections A, B, and C below, of Calculation of Theoretical Price Using a
BILLING CODE 8011–01–P
the most significant aspects of such Third Party Provider
statements.
Under the harmonized rule, when
SECURITIES AND EXCHANGE A. Self-Regulatory Organization’s reviewing a transaction as potentially
COMMISSION Statement of the Purpose of, and erroneous, the Exchange needs to first
Statutory Basis for, the Proposed Rule determine the ‘‘Theoretical Price’’ of the
[Release No. 34–81354; File No. SR–GEMX–
2017–36] Change option, i.e., the Exchange’s estimate of
1. Purpose the correct market price for the option.
Self-Regulatory Organizations; Nasdaq Pursuant to Rule 720, if the applicable
GEMX, LLC; Notice of Filing and The Exchange and other options option series is traded on at least one
Immediate Effectiveness of Proposed exchanges recently adopted a new, other options exchange, then the
Rule Change To Amend Rule 720, harmonized rule related to the Theoretical Price of an option series is
Nullification and Adjustment of adjustment and nullification of the last national best bid (‘‘NBB’’) just
Options Transactions Including erroneous options transactions, prior to the trade in question with
Obvious Errors including a specific provision related to respect to an erroneous sell transaction
coordination in connection with large- or the last national best offer (‘‘NBO’’)
August 8, 2017. scale events involving erroneous just prior to the trade in question with
Pursuant to Section 19(b)(1) of the options transactions.3 The Exchange respect to an erroneous buy transaction
Securities Exchange Act of 1934 (the believes that the changes the options unless one of the exceptions described
‘‘Act’’),1 and Rule 19b–4 thereunder,2 exchanges implemented with the new, below exists. Thus, whenever the
notice is hereby given that on August 3, harmonized rule have led to increased Exchange has a reliable NBB or NBO, as
2017, Nasdaq GEMX, LLC (‘‘GEMX’’ or transparency and finality with respect to applicable, just prior to the transaction,
sradovich on DSK3GMQ082PROD with NOTICES
‘‘Exchange’’) filed with the Securities the adjustment and nullification of then the Exchange uses this NBB or
and Exchange Commission erroneous options transactions. NBO as the Theoretical Price.
(‘‘Commission’’) the proposed rule However, as part of the initial initiative,
change as described in Items I and II the Exchange and other options 4 See Securities Exchange Act Release No. 34–
81084 (July 6, 2017) (granting approval of Bats BZX
14 17 CFR 200.30–3(a)(12). 3 See Securities Exchange Act Release No. 74897 proposal), 82 FR 32216 (July 12, 2017); 82 FR 23684
1 15 U.S.C. 78s(b)(1). (May 7, 2015); 80 FR 27415 (May 13, 2015) (SR– (May 23, 2017) (SR–BatsBZX–2017–035) (notice of
2 17 CFR 240.19b–4. ISE–Gemini–2015–11) (the ‘‘Initial Filing’’). filing of Bats BZX proposal).
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![37960 Federal Register / Vol. 82, No. 155 / Monday, August 14, 2017 / Notices
is fundamentally incorrect is necessary, potential circumstances. Further, Theoretical Price and that the TP
particularly because the Exchange and consistent with existing text in Rule Provider disclaims all warranties of
other options exchanges will be using 720(e)(4), the Exchange has not merchantability or fitness for a
the new process for the first time. proposed a specific time by which the particular purpose or use with respect to
Although the exchanges have conducted service must be available in order to be such Theoretical Price. Finally, the
thorough diligence with respect to considered timely.11 The Exchange proposed Rule would state that neither
Livevol as the selected TP Provider and expects that it would await the TP the Exchange nor the TP Provider shall
would do so with any potential Provider’s services becoming available have any liability for any damages,
replacement TP Provider, the Exchange again so long as the Exchange was able claims, losses (including any indirect or
is concerned that certain scenarios to obtain information regarding the consequential losses), expenses, or
could arise where the Theoretical Price issue and the TP Provider had a delays, whether direct or indirect,
generated by the TP Provider does not reasonable expectation of being able to foreseen or unforeseen, suffered by any
take into account relevant factors and resume normal operations within the person arising out of any circumstance
would result in an unfair result for next several hours based on or occurrence relating to the use of such
market participants involved in a communications with the TP Provider. Theoretical Price or arising out of any
transaction. The Exchange notes that if More specifically with respect to errors or delays in calculating such
such situations do indeed arise, to the Livevol, Livevol has business continuity Theoretical Price. This proposed
extent practicable the Exchange will and disaster recovery procedures that language is modeled after existing
also work with the TP Provider and will help to ensure that the Theoretical language in Exchange Rules regarding
other options exchanges to improve the Price tool remains available or, in the ‘‘reporting authorities’’ that calculate
TP Provider’s calculation of Theoretical event of an outage, that service is indices.12
Price in future situations. For instance, restored in a timely manner. In connection with the proposed
if the Exchange determines that a The Exchange also notes that if a change described above, the Exchange
particular type of corporate action is not wide-scale event occurred, even if such proposes to modify Rule 720 to state
being appropriately captured by the TP event did not qualify as a ‘‘Significant that the Exchange will rely on paragraph
Provider when such provider is Market Event’’ pursuant to Rule 720(e), (b) and Supplementary Material to Rule
generating Theoretical Price, while the and the TP Provider was unavailable or 720, Item .04 when determining
Exchange believes that it needs the otherwise experiencing difficulty, the Theoretical Price.
ability to request a review and Exchange believes that it and other
No Valid Quotes—Market Participant
correction of the Theoretical Price in options exchanges would seek to
Quoting on Multiple Exchanges
connection with a specific review in coordinate to the extent possible. In
order to provide a timely decision to particular, the Exchange and other As described above, one of the times
market participants, the Exchange options exchanges now have a process, where the NBB or NBO is deemed to be
would share information regarding the administered by the Options Clearing unreliable for purposes of Theoretical
specific situation with the TP Provider Corporation, to invoke a discussion Price is when there are no quotes or no
and other options exchanges in an effort amongst all options exchanges in the valid quotes for the affected series. In
to improve the Theoretical Price service event of any widespread or significant addition to when there are no quotes,
for future use. The Exchange notes that market events. The Exchange believes the Exchange does not consider the
it does not anticipate needing to rely on that this process could be used in the following to be valid quotes: (i) All
this provision frequently, if at all, but event necessary if there were an issue quotes in the applicable option series
believes the provision is necessary with the TP Provider. published at a time where the last NBB
nonetheless to best prepare for all The Exchange also proposes to adopt is higher than the last NBO in such
potential circumstances. Further, the language in paragraph (d) of series (a ‘‘crossed market’’); (ii) quotes
Theoretical Price used by the Exchange Supplementary Material to Rule 720, published by the Exchange that were
in connection with its rulings will Item .04 to Rule 720 to disclaim the submitted by either party to the
always be that received from the TP liability of the Exchange and the TP transaction in question; and (iii) quotes
Provider and the Exchange has not Provider in connection with the published by another options exchange
proposed the ability to deviate from proposed Rule, the TP Provider’s against which the Exchange has
such price.10 calculation of Theoretical Price, and the declared self-help. In recognition of
Pursuant to proposed paragraph (c) to Exchange’s use of such Theoretical today’s market structure where certain
Supplementary Material to Rule 720, Price. Specifically, the proposed rule participants actively provide liquidity
Item .04, an Official of the Exchange would state that neither the Exchange, on multiple exchanges simultaneously,
may determine the Theoretical Price if the TP Provider, nor any affiliate of the the Exchange proposes to add an
the TP Provider has experienced a TP Provider (the TP Provider and its additional category of invalid quotes.
systems issue that has rendered its affiliates are referred to collectively as Specifically, in order to avoid a
services unavailable to accurately the ‘‘TP Provider’’), makes any situation where a market participant has
calculate Theoretical Price and such warranty, express or implied, as to the established the market at an erroneous
issue cannot be corrected in a timely results to be obtained by any person or price on multiple exchanges, the
manner. The Exchange notes that it does entity from the use of the TP Provider Exchange proposes to consider as
not anticipate needing to rely on this pursuant to Supplementary Material to invalid the quotes in a series published
provision frequently, if at all, but Rule 720, Item .04. The proposed rule by another options exchange if either
party to the transaction in question
sradovich on DSK3GMQ082PROD with NOTICES
believes the provision is necessary would further state that the TP Provider
nonetheless to best prepare for all does not guarantee the accuracy or submitted the quotes in the series
completeness of the calculated representing such options exchange’s
10 To the extent the TP Provider has been
contacted by an Official of the Exchange, reviews 11 In the context of a Significant Market Event, the 12 See, e.g., ISE Rule 2011, which is incorporated
the Theoretical Price provided but disagrees that Exchange may determine, ‘‘in consultation with by reference into the GEMX rules and which relates
there has been any error, then the Exchange would other options exchanges . . . that timely adjustment to index options potentially listed and traded on the
be bound to use the Theoretical Price provided by is not feasible due to the extraordinary nature of the Exchange and disclaim [sic] liability for a reporting
the TP Provider. situation.’’ See Rule 720(e)(4). authority and their affiliates.
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![Federal Register / Vol. 82, No. 155 / Monday, August 14, 2017 / Notices 37963
Provider in connection with the B. Self-Regulatory Organization’s III. Date of Effectiveness of the
proposed Rule, the TP Provider’s Statement on Burden on Competition Proposed Rule Change and Timing for
calculation of Theoretical Price, and the Commission Action
Exchange’s use of such Theoretical Price The Exchange believes the entire
proposal is consistent with Section Because the foregoing proposed rule
is consistent with the Act. As noted change does not: (i) Significantly affect
above, this proposed language is 6(b)(8) of the Act 23 in that it does not
impose any burden on competition that the protection of investors or the public
modeled after existing language in interest; (ii) impose any significant
is not necessary or appropriate in
Exchange Rules regarding ‘‘reporting burden on competition; and (iii) become
furtherance of the purposes of the Act
authorities’’ that calculate indices,19 operative for 30 days from the date on
as explained below.
and is consistent with Section 6(b)(5) of which it was filed, or such shorter time
the Act 20 in that the proposed Rule will Importantly, the Exchange does not as the Commission may designate, it has
foster cooperation and coordination believe that the proposal will impose a become effective pursuant to Section
with persons engaged in regulating and burden on intermarket competition but 19(b)(3)(A)(iii) of the Act 24 and
facilitating transactions. rather that it will alleviate any burden subparagraph (f)(6) of Rule 19b–4
on competition because it is the result thereunder.25
As described above, the Exchange of a collaborative effort by all options At any time within 60 days of the
proposes a modification to the valid exchanges to further harmonize and filing of the proposed rule change, the
quotes provision to also exclude quotes improve the process related to the Commission summarily may
in a series published by another options adjustment and nullification o [sic] temporarily suspend such rule change if
exchange if either party to the erroneous options transactions. The it appears to the Commission that such
transaction in question submitted the Exchange does not believe that the rules action is: (i) Necessary or appropriate in
orders or quotes in the series applicable to such process is an area the public interest; (ii) for the protection
representing such options exchange’s where options exchanges should of investors; or (iii) otherwise in
best bid or offer. The Exchange believes compete, but rather, that all options furtherance of the purposes of the Act.
this proposal is consistent with Section exchanges should have consistent rules If the Commission takes such action, the
6(b)(5) of the Act 21 because the to the extent possible. Particularly Commission shall institute proceedings
application of the rule will foster where a market participant trades on to determine whether the proposed rule
cooperation and coordination with several different exchanges and an should be approved or disapproved.
persons engaged in regulating and erroneous trade may occur on multiple
IV. Solicitation of Comments
facilitating transactions by allowing the markets nearly simultaneously, the
Exchange to coordinate with other Exchange believes that a participant Interested persons are invited to
options exchanges to determine whether should have a consistent experience submit written data, views, and
a market participant that is party to a with respect to the nullification or arguments concerning the foregoing,
potentially erroneous transaction on the adjustment of transactions. To that end, including whether the proposed rule
the selection and implementation of a change is consistent with the Act.
Exchange established the market in an
TP Provider utilized by all options Comments may be submitted by any of
option on other options exchanges; to
exchanges will further reduce the the following methods:
the extent this can be established, the
Exchange believes such participant’s possibility that participants with Electronic Comments
potentially erroneous transactions that
quotes should be excluded in the same
span multiple options exchanges are • Use the Commission’s Internet
way such quotes are excluded on the comment form (http://www.sec.gov/
Exchange. The Exchange also believes it handled differently on such exchanges.
Similarly, the proposed ability to rules/sro.shtml); or
is reasonable to limit the scope of this • Send an email to rule-comments@
consider quotations invalid on another
provision to twenty-five (25) series and sec.gov. Please include File Number SR–
options exchange if ultimately
to require the party that believes it GEMX–2017–36 on the subject line.
originating from a party to a potentially
established the best bid or offer on one erroneous transaction on the Exchange Paper Comments
or more other options exchanges to represents a proposal intended to
identify to the Exchange the quotes • Send paper comments in triplicate
further foster cooperation by the options to Brent J. Fields, Secretary, Securities
which were submitted by that party and exchanges with respect to market
published by other options exchanges. and Exchange Commission, 100 F Street
events. The Exchange understands that NE., Washington, DC 20549–1090.
The Exchange believes these limitations all other options exchanges either have
are consistent with Section 6(b)(5) of the All submissions should refer to File
or they intend to file proposals that are
Act 22 because they will ensure that the Number SR–GEMX–2017–36. This file
substantially similar to this proposal.
Exchange is able to continue to apply number should be included on the
The Exchange does not believe that subject line if email is used. To help the
the Rule in a timely and organized the proposed rule change imposes a Commission process and review your
fashion, thus fostering cooperation and burden on intramarket competition comments more efficiently, please use
coordination with persons engaged in because the proposed provisions apply only one method. The Commission will
regulating and facilitating transactions to all market participants equally. post all comments on the Commission’s
and also removing impediments to and
perfecting the mechanism of a free and C. Self-Regulatory Organization’s 24 15 U.S.C. 78s(b)(3)(A)(iii).
sradovich on DSK3GMQ082PROD with NOTICES
open market and a national market Statement on Comments on the 25 17 CFR 240.19b–4(f)(6). In addition, Rule 19b–
system. Proposed Rule Change Received From 4(f)(6) requires a self-regulatory organization to give
Members, Participants, or Others the Commission written notice of its intent to file
the proposed rule change, along with a brief
19 See supra, note 12. No written comments were either description and text of the proposed rule change,
20 15 solicited or received. at least five business days prior to the date of filing
U.S.C. 78f(b)(5).
of the proposed rule change, or such shorter time
21 15 U.S.C. 78f(b)(5).
as designated by the Commission. The Exchange
22 Id. 23 15 U.S.C. 78f(b)(8). has satisfied this requirement.
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![37964 Federal Register / Vol. 82, No. 155 / Monday, August 14, 2017 / Notices
Internet Web site (http://www.sec.gov/ solicit comments on the proposed rule collection of ORF among the various
rules/sro.shtml). Copies of the change from interested persons. options exchanges that assess such a fee.
submission, all subsequent Furthermore, the Exchange supports
I. Self-Regulatory Organization’s
amendments, all written statements guidance from the Commission
Statement of the Terms of Substance of
with respect to the proposed rule regarding regulatory cost structures to
the Proposed Rule Change
change that are filed with the ensure equal knowledge and treatment
Commission, and all written The Exchange proposes to revise among options markets assessing ORF.
communications relating to the Section IV, Part D of the Pricing The Exchange assesses an ORF of
proposed rule change between the Schedule to more closely reflect the $0.0045 per contract side. This
Commission and any person, other than manner in which Phlx assesses and proposed rule change does not seek to
those that may be withheld from the collects its Options Regulatory Fee amend the amount of the ORF.
public in accordance with the (‘‘ORF’’). Currently, Phlx assesses its ORF for
provisions of 5 U.S.C. 552, will be The text of the proposed rule change each Customer option transaction that is
available for Web site viewing and is available on the Exchange’s Web site either: (1) Executed by a member 5 on
printing in the Commission’s Public at http://nasdaqphlx.cchwallstreet. Phlx; or (2) cleared by a Phlx member
Reference Room, 100 F Street NE., com/, at the principal office of the at The Options Clearing Corporation
Washington, DC 20549 on official Exchange, and at the Commission’s (‘‘OCC’’) in the Customer range,6 even if
business days between the hours of Public Reference Room. the transaction was executed by a non-
10:00 a.m. and 3:00 p.m. Copies of such II. Self-Regulatory Organization’s member of Phlx, regardless of the
filing also will be available for Statement of the Purpose of, and exchange on which the transaction
inspection and copying at the principal Statutory Basis for, the Proposed Rule occurs.7 If the OCC clearing member is
office of the Exchange. All comments Change a Phlx member, ORF is assessed and
received will be posted without change; collected on all cleared Customer
the Commission does not edit personal In its filing with the Commission, the
contracts (after adjustment for CMTA 8);
identifying information from Exchange included statements
and (2) if the OCC clearing member is
submissions. You should submit only concerning the purpose of and basis for
not a Phlx member, ORF is collected
information that you wish to make the proposed rule change and discussed
only on the cleared Customer contracts
available publicly. All submissions any comments it received on the
executed at Phlx, taking into account
should refer to File Number SR–GEMX– proposed rule change. The text of these
any CMTA instructions which may
2017–36, and should be submitted on or statements may be examined at the
result in collecting the ORF from a non-
before September 5, 2017. places specified in Item IV below. The
member.
Exchange has prepared summaries, set
For the Commission, by the Division of By way of example, if Broker A, a
forth in sections A, B, and C below, of
Trading and Markets, pursuant to delegated Phlx member, routes a Customer order
the most significant aspects of such
authority.26 to CBOE and the transaction executes on
statements.
Eduardo A. Aleman, CBOE and clears in Broker A’s OCC
Assistant Secretary. A. Self-Regulatory Organization’s Clearing account, ORF will be collected
[FR Doc. 2017–17069 Filed 8–11–17; 8:45 am] Statement of the Purpose of, and the by Phlx from Broker A’s clearing
BILLING CODE 8011–01–P
Statutory Basis for, the Proposed Rule account at OCC via direct debit. While
Change this transaction was executed on a
1. Purpose market other than Phlx, it was cleared
SECURITIES AND EXCHANGE by a Phlx member in the member’s OCC
COMMISSION Phlx initially filed to establish its ORF clearing account in the Customer range,
in 2009.3 The Exchange has amended its therefore there is a regulatory nexus
[Release No. 34–81343; File No. SR–Phlx– ORF several times since the inception of between Phlx and the transaction. If
2017–54] this fee.4 At this time, the Exchange Broker A was not a Phlx member, then
proposes to revise Section IV, Part D of no ORF should be assessed and
Self-Regulatory Organizations;
the Pricing Schedule to more closely collected because there is no nexus; the
NASDAQ PHLX LLC; Notice of Filing
reflect the manner in which Phlx
and Immediate Effectiveness of
assesses and collects its ORF. 5 For purposes of this filing the term ‘‘member’’
Proposed Rule Change To Amend the The Exchange supports a common shall mean either a ‘‘member’’ or a ‘‘member
Exchange’s Pricing Schedule With approach for the assessment and organization.’’
Respect to the Options Regulatory Fee 6 Exchange Rules require each member to record
3 See Securities Exchange Act Release No. 61133 the appropriate account origin code on all orders at
August 8, 2017. the time of entry in order to allow the Exchange to
(December 9, 2009), 74 FR 66715 (December 16,
Pursuant to Section 19(b)(1) of the 2009) (SR–Phlx–2009–100) (Notice of Filing and properly prioritize and route orders and assess
Securities Exchange Act of 1934 Immediate Effectiveness of Proposed Rule Change transaction fees pursuant to the Rules of the
(‘‘Act’’) 1, and Rule 19b–4 thereunder,2 Relating to an Options Regulatory Fee). Exchange and report resulting transactions to OCC.
4 See Securities Exchange Act Release Nos. 61529 The Exchange represents that it has surveillances in
notice is hereby given that on July 26, place to verify that members mark orders with the
(February 17, 2010), 75 FR 8421 (February 24, 2010)
2017, NASDAQ PHLX LLC (‘‘Phlx’’ or (SR–Phlx–2010–17); 62619 (July 30, 2010), 75 FR correct account origin code.
‘‘Exchange’’) filed with the Securities 47874 (August 9, 2010) (SR–Phlx–2010–100); 63436
7 The Exchange uses reports from OCC when
and Exchange Commission (‘‘SEC’’ or (December 6, 2010), 75 FR 77021 (December 10, assessing and collecting the ORF.
8 CMTA or Clearing Member Trade Assignment is
‘‘Commission’’) the proposed rule 2010) (SR–Phlx–2010–166); 65897 (December 6,
2011), 76 FR 77277 (December 12, 2011) (SR–Phlx– a form of ‘‘give-up’’ whereby the position will be
sradovich on DSK3GMQ082PROD with NOTICES
change as described in Items I, II, and 2011–163); 66664 (March 27, 2012), 77 FR 19743 assigned to a specific clearing firm at OCC. Phlx
III, below, which Items have been (April 2, 2012) (SR–Phlx–2012–36); 71569 Rule 1052 provides that every Clearing Member is
prepared by the Exchange. The (February 19, 2014), 79 FR 10593 (February 25, responsible for the clearance of the Exchange
Commission is publishing this notice to 2014) (SR–Phlx–2014–12); 75749 (August 21, 2015), options transactions of such Clearing Member and
80 FR 52073 (August 27, 2017) (SR–Phlx–2015–71); of each member who gives up the name of such
77032 (February 2, 2016), 81 FR 6560 (February 8, Clearing Member in an Exchange options
26 17 CFR 200.30–3(a)(12). 2016) (SR–Phlx–2016–04); and 79751 (January 6, transaction, provided the Clearing Member has
1 15 U.S.C. 78s(b)(1). 2017), 82 FR 3826 (January 12, 2017) (SR–Phlx– authorized such member to give up its name with
2 17 CFR 240.19b–4. 2017–02). respect to Exchange options transactions.
VerDate Sep<11>2014 16:45 Aug 11, 2017 Jkt 241001 PO 00000 Frm 00126 Fmt 4703 Sfmt 4703 E:\FR\FM\14AUN1.SGM 14AUN1](https://thefederalregister.org/doc/82_FR_38113/page/7.svg)
Document Created: 2018-10-24 11:51:32
Document Modified: 2018-10-24 11:51:32
| 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 37958 |
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