83_FR_29269 83 FR 29148 - Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Exchange Rule 1101A, Terms of Option Contracts

83 FR 29148 - Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Exchange Rule 1101A, Terms of Option Contracts

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 83, Issue 121 (June 22, 2018)

Page Range29148-29150
FR Document2018-13380

Federal Register, Volume 83 Issue 121 (Friday, June 22, 2018)
[Federal Register Volume 83, Number 121 (Friday, June 22, 2018)]
[Notices]
[Pages 29148-29150]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2018-13380]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-83458; File No. SR-Phlx-2018-47]


Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Amend Exchange 
Rule 1101A, Terms of Option Contracts

June 18, 2018.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on June 11, 2018, Nasdaq PHLX LLC (``Phlx'' or the ``Exchange'') filed 
with the Securities and Exchange Commission (``SEC'' or ``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 Exchange Rule 1101A, Terms of Option 
Contracts.
    The text of the proposed rule change is available on the Exchange's 
website at http://nasdaqphlx.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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The purpose of the proposed rule change is to adopt new Commentary 
.06 to Exchange Rules 1101A, to codify that the Exchange will defer to 
The Options Clearing Corporation (``OCC'') in determining settlement 
prices for index options when OCC elects to do so in accordance with 
its own rules and bylaws. Such OCC-determined settlement prices may be 
determined in a manner that differs from the settlement price 
procedures under the Exchange's own rules.
    Exchange Rule 1101A(d) currently states that the Rules of the 
Options Clearing Corporation specify that, unless the Rules of the 
Exchange provide otherwise, the current index

[[Page 29149]]

value used to settle the exercise of an index options contract shall be 
the closing index value for the day on which the index options contract 
is exercised in accordance with the Rules of the Options Clearing 
Corporation or, if such day is not a business day, for the most recent 
business day. Exchange Rule 1101A(e) currently states that the current 
index value at the expiration of an A.M.-settled index option shall be 
determined, for all purposes under Exchange rules and OCC rules, on the 
last day of trading in the underlying securities prior to expiration, 
by reference to the reported level of such index as derived from first 
reported sale (opening) prices of the underlying securities on such 
day, except that in the event that the primary market for an underlying 
security is open for trading on that day, but that particular security 
does not open for trading on that day, the price of that security, for 
the purposes of calculating the current index value at expiration, 
shall be the last reported sale price of the security.
    The Exchange proposes to add new Commentary .06 to Rule 1101A to 
make clear that the Exchange's settlement price procedures shall not be 
used if the current index value at expiration is fixed in accordance 
with OCC rules and by-laws. This language recognizes that OCC is 
authorized under its rules and by-laws to take certain actions relating 
to settlement in the event of the unavailability or inaccuracy of the 
current underlying interest value.\3\ An option holder's contract with 
OCC is governed by OCC rules and by-laws. The proposed language makes 
clear that Exchange rules concerning settlement value calculation would 
not apply in the event that OCC exercises its authority to determine 
settlement prices under OCC rules and by-laws. In that case, the 
Exchange would defer to OCC.
---------------------------------------------------------------------------

    \3\ See OCC By-Laws Article XVII, Section 4(a), which provides 
in relevant part that if OCC shall determine that the primary market 
for one or more index components did not open or remain open for 
trading (or that any such components did not open or remain open for 
trading on such market(s)) on a trading day at or before the time 
when the current index value for that trading day would ordinarily 
be determined, or that a current index value or other value or price 
to be used as, or to determine, the exercise settlement amount (a 
``required value'') for a trading day is otherwise unreported, 
inaccurate, unreliable, unavailable or inappropriate for purposes of 
calculating the exercise settlement amount, then, in addition to any 
other actions that OCC may be entitled to take under OCC's bylaws 
and rules, the OCC is empowered to take any or all of a range of 
permitted actions with respect to any series of options on such 
index, including fixing the exercise settlement amount.
---------------------------------------------------------------------------

    Proposed Rule 1101A Commentary .06 is based in part upon Chapter 
XIV, Section 10(g) of the Nasdaq rulebook, Chapter XIV, Section 10(g) 
of the BX rulebook, and ISE Rule 2008(g).\4\
---------------------------------------------------------------------------

    \4\ These rules generally provide that the exchanges' settlement 
price rules will not apply when the settlement price is determined 
in accordance with OCC rules and bylaws.
---------------------------------------------------------------------------

2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\5\ in general, and furthers the objectives of Section 
6(b)(5) of the Act,\6\ in particular, in that it is designed to promote 
just and equitable principles of trade, to remove impediments to and 
perfect the mechanism of a free and open market and a national market 
system, and, in general to protect investors and the public interest.
---------------------------------------------------------------------------

    \5\ 15 U.S.C. 78f(b).
    \6\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    OCC may elect to use various procedures in the event it exercises 
its authority to set settlement prices.\7\ By adopting the proposed 
rule, the Exchange would acknowledge clearly that OCC may, under its 
rules and by-laws, establish settlement prices for expiring index 
options that may differ from the settlement prices that would otherwise 
be provided for in Exchange rules, thereby protecting investors and the 
public interest by reducing potential for confusion in that regard.
---------------------------------------------------------------------------

    \7\ OCC By-Laws Article XVII, Section 4(a)(2) provides in 
relevant part that if OCC elects to exercise its authority under 
Section 4(a), it may, among other actions, fix the exercise 
settlement amount using the reported price or value for the relevant 
security(ies), at the close of regular trading hours on the last 
preceding trading day for which such a price or value was reported 
by the reporting authority. Section 4(a)(2) provides that OCC may 
elect instead to fix the exercise settlement amount using other 
prices, such as the reported price or value for the relevant 
security(ies) at the opening of regular trading hours on the next 
trading day for which such an opening price or value is reported by 
the reporting authority.
---------------------------------------------------------------------------

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act. On the contrary, the Exchange 
believes that the proposed amendment will benefit investors, market 
participants, and the marketplace in general by stating that the 
Exchange will defer to OCC in the determination of settlement prices 
when and if OCC exercises its authority under its own settlement price 
procedures in accordance with its rules and by-laws.

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

    The Exchange has filed the proposed rule change pursuant to Section 
19(b)(3)(A) of the Act \8\ and Rule 19b-4(f)(6) thereunder.\9\ Because 
the 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) of the Act and Rule 19b-4(f)(6) thereunder.\10\
---------------------------------------------------------------------------

    \8\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \9\ 17 CFR 240.19b-4(f)(6).
    \10\ In addition, Rule 19b-4(f)(6)(iii) requires a self-
regulatory organization to give the Commission written notice of its 
intent to file 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.
---------------------------------------------------------------------------

    A proposed rule change filed under Rule 19b-4(f)(6) \11\ normally 
does not become operative for 30 days after the date of the filing. 
However, pursuant to Rule 19b-4(f)(6)(iii),\12\ the Commission may 
designate a shorter time if such action is consistent with the 
protection of investors and the public interest. In its filing with the 
Commission, the Exchange has asked the Commission to waive the 30-day 
operative delay so that the proposal may become operative immediately 
upon filing to immediately eliminate any perceived conflict between the 
Exchange's settlement price rules and OCC's rules and by-laws regarding 
the establishment of settlement prices. The Exchange noted that the 
proliferation of expiration dates resulting from new index option 
weekly listings has increased the possibility that unforeseen events 
may occur on an expiration date, thereby necessitating that OCC 
determine settlement prices. As such, the Commission believes that 
waiver of the 30-day operative delay is consistent with the protection 
of investors and the public interest and designates the proposed rule 
change operative upon filing.\13\
---------------------------------------------------------------------------

    \11\ 17 CFR 240.19b-4(f)(6).
    \12\ 17 CFR 240.19b-4(f)(6)(iii).
    \13\ For purposes only of waiving the operative delay, the 
Commission has considered the proposed rule's impact on efficiency, 
competition, and capital formation. See 15 U.S.C. 78c(f).

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[[Page 29150]]

    At any time within 60 days of the filing of such 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 under 
Section 19(b)(2)(B) of the Act \14\ to determine whether the proposed 
rule change should be approved or disapproved.
---------------------------------------------------------------------------

    \14\ 15 U.S.C. 78s(b)(2)(B).
---------------------------------------------------------------------------

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-Phlx-2018-47 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.

All submissions should refer to File Number SR-Phlx-2018-47. 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 website (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 website 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. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-Phlx-2018-47, and should be submitted on 
or before July 13, 2018.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\15\
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    \15\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-13380 Filed 6-21-18; 8:45 am]
 BILLING CODE 8011-01-P



                                               29148                             Federal Register / Vol. 83, No. 121 / Friday, June 22, 2018 / Notices

                                               B. Clearing Agency’s Statement on                         All submissions should refer to File                    (‘‘Act’’) 1 and Rule 19b–4 thereunder,2
                                               Burden on Competition                                     Number SR–LCH SA–2018–003. This                         notice is hereby given that on June 11,
                                                  LCH SA does not believe the                            file number should be included on the                   2018, Nasdaq PHLX LLC (‘‘Phlx’’ or the
                                               Proposed Rule Change would have any                       subject line if email is used. To help the              ‘‘Exchange’’) filed with the Securities
                                               impact, or impose any burden, on                          Commission process and review your                      and Exchange Commission (‘‘SEC’’ or
                                               competition. The Proposed Rule Change                     comments more efficiently, please use                   ‘‘Commission’’) the proposed rule
                                               does not address any competitive issue                    only one method. The Commission will                    change as described in Items I and II
                                               or have any impact on the competition                     post all comments on the Commission’s                   below, which Items have been prepared
                                               among central counterparties. LCH SA                      internet website (http://www.sec.gov/                   by the Exchange. The Commission is
                                               operates an open access model, and the                    rules/sro.shtml). Copies of the                         publishing this notice to solicit
                                               Proposed Rule Change will have no                         submission, all subsequent                              comments on the proposed rule change
                                               effect on this model.                                     amendments, all written statements                      from interested persons.
                                                                                                         with respect to the proposed rule                       I. Self-Regulatory Organization’s
                                               C. Clearing Agency’s Statement on                         change that are filed with the
                                               Comments on the Proposed Rule                                                                                     Statement of the Terms of Substance of
                                                                                                         Commission, and all written                             the Proposed Rule Change
                                               Change Received From Members,                             communications relating to the
                                               Participants or Others                                    proposed rule change between the                           The Exchange proposes to amend
                                                 Written comments relating to the                        Commission and any person, other than                   Exchange Rule 1101A, Terms of Option
                                               Proposed Rule Change have not been                        those that may be withheld from the                     Contracts.
                                               solicited or received. LCH SA will                        public in accordance with the                              The text of the proposed rule change
                                               notify the Commission of any written                      provisions of 5 U.S.C. 552, will be                     is available on the Exchange’s website at
                                               comments received by LCH SA.                              available for website viewing and                       http://nasdaqphlx.cchwallstreet.com/,
                                                                                                                                                                 at the principal office of the Exchange,
                                               III. Date of Effectiveness of the                         printing in the Commission’s Public
                                                                                                                                                                 and at the Commission’s Public
                                               Proposed Rule Change and Timing for                       Reference Room, 100 F Street NE,
                                                                                                                                                                 Reference Room.
                                               Commission Action                                         Washington, DC 20549, on official
                                                                                                         business days between the hours of                      II. Self-Regulatory Organization’s
                                                  Within 45 days of the date of                          10:00 a.m. and 3:00 p.m. Copies of such                 Statement of the Purpose of, and
                                               publication of this notice in the Federal                 filings will also be available for                      Statutory Basis for, the Proposed Rule
                                               Register or within such longer period                     inspection and copying at the principal                 Change
                                               up to 90 days (i) as the Commission may                   office of LCH SA and on LCH SA’s
                                               designate if it finds such longer period                                                                             In its filing with the Commission, the
                                                                                                         website at http://www.lch.com/asset-                    Exchange included statements
                                               to be appropriate and publishes its                       classes/cdsclear.
                                               reasons for so finding or (ii) as to which                                                                        concerning the purpose of and basis for
                                                                                                            All comments received will be posted                 the proposed rule change and discussed
                                               the self-regulatory organization                          without change. Persons submitting
                                               consents, the Commission will:                                                                                    any comments it received on the
                                                                                                         comments are cautioned that we do not                   proposed rule change. The text of these
                                                  (A) By order approve or disapprove                     redact or edit personal identifying
                                               such proposed rule change, or                                                                                     statements may be examined at the
                                                                                                         information from comment submissions.                   places specified in Item IV below. The
                                                  (B) institute proceedings to determine
                                                                                                         You should submit only information                      Exchange has prepared summaries, set
                                               whether the proposed rule change
                                                                                                         that you wish to make available                         forth in sections A, B, and C below, of
                                               should be disapproved.
                                                                                                         publicly. All submissions should refer                  the most significant aspects of such
                                               IV. Solicitation of Comments                              to File Number SR–LCH SA–2018–003                       statements.
                                                 Interested persons are invited to                       and should be submitted on or before
                                                                                                         July 12, 2018.                                          A. Self-Regulatory Organization’s
                                               submit written data, views, and                                                                                   Statement of the Purpose of, and the
                                               arguments concerning the foregoing,                         For the Commission, by the Division of                Statutory Basis for, the Proposed Rule
                                               including whether the proposed rule                       Trading and Markets, pursuant to delegated
                                                                                                                                                                 Change
                                               change is consistent with the Act.                        authority.11
                                               Comments may be submitted by any of                       Eduardo A. Aleman,                                      1. Purpose
                                               the following methods:                                    Assistant Secretary.                                       The purpose of the proposed rule
                                               Electronic Comments                                       [FR Doc. 2018–13378 Filed 6–21–18; 8:45 am]             change is to adopt new Commentary .06
                                                                                                         BILLING CODE 8011–01–P                                  to Exchange Rules 1101A, to codify that
                                                 • Use the Commission’s internet                                                                                 the Exchange will defer to The Options
                                               comment form (http://www.sec.gov/                                                                                 Clearing Corporation (‘‘OCC’’) in
                                               rules/sro.shtml) or                                       SECURITIES AND EXCHANGE                                 determining settlement prices for index
                                                 • Send an email to rule-comments@                       COMMISSION                                              options when OCC elects to do so in
                                               sec.gov. Please include File Number SR–
                                                                                                                                                                 accordance with its own rules and
                                               LCH SA–2018–003 on the subject line.                      [Release No. 34–83458; File No. SR–Phlx–
                                                                                                         2018–47]                                                bylaws. Such OCC-determined
                                               Paper Comments                                                                                                    settlement prices may be determined in
                                                 • Send paper comments in triplicate                     Self-Regulatory Organizations; Nasdaq                   a manner that differs from the
                                               to Secretary, Securities and Exchange                     PHLX LLC; Notice of Filing and                          settlement price procedures under the
                                               Commission, 100 F Street NE,                              Immediate Effectiveness of Proposed                     Exchange’s own rules.
                                               Washington, DC 20549–1090.                                Rule Change To Amend Exchange                              Exchange Rule 1101A(d) currently
daltland on DSKBBV9HB2PROD with NOTICES




                                                                                                         Rule 1101A, Terms of Option Contracts                   states that the Rules of the Options
                                                  ‘‘A CCP shall at all times have access to adequate                                                             Clearing Corporation specify that,
                                               liquidity to perform its services and activities. . . .   June 18, 2018.                                          unless the Rules of the Exchange
                                               A CCP shall measure, on a daily basis, its potential        Pursuant to Section 19(b)(1) of the                   provide otherwise, the current index
                                               liquidity needs [taking] into account the liquidity
                                               risk generated by the default of at least the two
                                                                                                         Securities Exchange Act of 1934
                                                                                                                                                                  1 15   U.S.C. 78s(b)(1).
                                               clearing members to which it has the largest
                                               exposures.’’                                                11 17   CFR 200.30–3(a)(12).                           2 17   CFR 240.19b–4.



                                          VerDate Sep<11>2014    17:16 Jun 21, 2018   Jkt 244001   PO 00000   Frm 00061     Fmt 4703   Sfmt 4703   E:\FR\FM\22JNN1.SGM    22JNN1


                                                                                Federal Register / Vol. 83, No. 121 / Friday, June 22, 2018 / Notices                                                         29149

                                               value used to settle the exercise of an                 Chapter XIV, Section 10(g) of the BX                      C. Self-Regulatory Organization’s
                                               index options contract shall be the                     rulebook, and ISE Rule 2008(g).4                          Statement on Comments on the
                                               closing index value for the day on                                                                                Proposed Rule Change Received From
                                               which the index options contract is                     2. Statutory Basis                                        Members, Participants, or Others
                                               exercised in accordance with the Rules                     The Exchange believes that its                           No written comments were either
                                               of the Options Clearing Corporation or,                 proposal is consistent with Section 6(b)                  solicited or received.
                                               if such day is not a business day, for the              of the Act,5 in general, and furthers the
                                               most recent business day. Exchange                                                                                III. Date of Effectiveness of the
                                                                                                       objectives of Section 6(b)(5) of the Act,6
                                               Rule 1101A(e) currently states that the                                                                           Proposed Rule Change and Timing for
                                                                                                       in particular, in that it is designed to                  Commission Action
                                               current index value at the expiration of
                                                                                                       promote just and equitable principles of
                                               an A.M.-settled index option shall be                                                                                The Exchange has filed the proposed
                                               determined, for all purposes under                      trade, to remove impediments to and
                                                                                                       perfect the mechanism of a free and                       rule change pursuant to Section
                                               Exchange rules and OCC rules, on the                                                                              19(b)(3)(A) of the Act 8 and Rule 19b–
                                               last day of trading in the underlying                   open market and a national market
                                                                                                       system, and, in general to protect                        4(f)(6) thereunder.9 Because the
                                               securities prior to expiration, by                                                                                proposed rule change does not: (i)
                                               reference to the reported level of such                 investors and the public interest.
                                                                                                                                                                 Significantly affect the protection of
                                               index as derived from first reported sale                  OCC may elect to use various                           investors or the public interest; (ii)
                                               (opening) prices of the underlying                      procedures in the event it exercises its                  impose any significant burden on
                                               securities on such day, except that in                  authority to set settlement prices.7 By                   competition; and (iii) become operative
                                               the event that the primary market for an                adopting the proposed rule, the                           for 30 days from the date on which it
                                               underlying security is open for trading                 Exchange would acknowledge clearly                        was filed, or such shorter time as the
                                               on that day, but that particular security               that OCC may, under its rules and by-                     Commission may designate, it has
                                               does not open for trading on that day,                  laws, establish settlement prices for                     become effective pursuant to Section
                                               the price of that security, for the                     expiring index options that may differ                    19(b)(3)(A) of the Act and Rule 19b–
                                               purposes of calculating the current                     from the settlement prices that would                     4(f)(6) thereunder.10
                                               index value at expiration, shall be the                 otherwise be provided for in Exchange                        A proposed rule change filed under
                                               last reported sale price of the security.                                                                         Rule 19b–4(f)(6) 11 normally does not
                                                                                                       rules, thereby protecting investors and
                                                  The Exchange proposes to add new                                                                               become operative for 30 days after the
                                                                                                       the public interest by reducing potential
                                               Commentary .06 to Rule 1101A to make                                                                              date of the filing. However, pursuant to
                                                                                                       for confusion in that regard.
                                               clear that the Exchange’s settlement                                                                              Rule 19b–4(f)(6)(iii),12 the Commission
                                               price procedures shall not be used if the               B. Self-Regulatory Organization’s                         may designate a shorter time if such
                                               current index value at expiration is                    Statement on Burden on Competition                        action is consistent with the protection
                                               fixed in accordance with OCC rules and                                                                            of investors and the public interest. In
                                               by-laws. This language recognizes that                     The Exchange does not believe that
                                                                                                                                                                 its filing with the Commission, the
                                               OCC is authorized under its rules and                   the proposed rule change will impose
                                                                                                                                                                 Exchange has asked the Commission to
                                               by-laws to take certain actions relating                any burden on competition not                             waive the 30-day operative delay so that
                                               to settlement in the event of the                       necessary or appropriate in furtherance                   the proposal may become operative
                                               unavailability or inaccuracy of the                     of the purposes of the Act. On the                        immediately upon filing to immediately
                                               current underlying interest value.3 An                  contrary, the Exchange believes that the                  eliminate any perceived conflict
                                               option holder’s contract with OCC is                    proposed amendment will benefit                           between the Exchange’s settlement price
                                               governed by OCC rules and by-laws.                      investors, market participants, and the                   rules and OCC’s rules and by-laws
                                               The proposed language makes clear that                  marketplace in general by stating that                    regarding the establishment of
                                               Exchange rules concerning settlement                    the Exchange will defer to OCC in the                     settlement prices. The Exchange noted
                                               value calculation would not apply in                    determination of settlement prices when                   that the proliferation of expiration dates
                                               the event that OCC exercises its                        and if OCC exercises its authority under                  resulting from new index option weekly
                                               authority to determine settlement prices                its own settlement price procedures in                    listings has increased the possibility
                                               under OCC rules and by-laws. In that                    accordance with its rules and by-laws.                    that unforeseen events may occur on an
                                               case, the Exchange would defer to OCC.                                                                            expiration date, thereby necessitating
                                                  Proposed Rule 1101A Commentary                                                                                 that OCC determine settlement prices.
                                               .06 is based in part upon Chapter XIV,                    4 These rules generally provide that the
                                                                                                                                                                 As such, the Commission believes that
                                               Section 10(g) of the Nasdaq rulebook,                   exchanges’ settlement price rules will not apply          waiver of the 30-day operative delay is
                                                                                                       when the settlement price is determined in                consistent with the protection of
                                                  3 See OCC By-Laws Article XVII, Section 4(a),        accordance with OCC rules and bylaws.
                                               which provides in relevant part that if OCC shall         5 15 U.S.C. 78f(b).
                                                                                                                                                                 investors and the public interest and
                                               determine that the primary market for one or more         6 15 U.S.C. 78f(b)(5).
                                                                                                                                                                 designates the proposed rule change
                                               index components did not open or remain open for          7 OCC By-Laws Article XVII, Section 4(a)(2)
                                                                                                                                                                 operative upon filing.13
                                               trading (or that any such components did not open
                                               or remain open for trading on such market(s)) on        provides in relevant part that if OCC elects to
                                                                                                                                                                   8 15  U.S.C. 78s(b)(3)(A)(iii).
                                               a trading day at or before the time when the current    exercise its authority under Section 4(a), it may,
                                                                                                                                                                   9 17  CFR 240.19b–4(f)(6).
                                               index value for that trading day would ordinarily       among other actions, fix the exercise settlement
                                                                                                                                                                   10 In addition, Rule 19b–4(f)(6)(iii) requires a self-
                                               be determined, or that a current index value or         amount using the reported price or value for the
                                               other value or price to be used as, or to determine,                                                              regulatory organization to give the Commission
                                                                                                       relevant security(ies), at the close of regular trading
                                               the exercise settlement amount (a ‘‘required value’’)                                                             written notice of its intent to file the proposed rule
                                                                                                       hours on the last preceding trading day for which         change at least five business days prior to the date
daltland on DSKBBV9HB2PROD with NOTICES




                                               for a trading day is otherwise unreported,              such a price or value was reported by the reporting
                                               inaccurate, unreliable, unavailable or inappropriate                                                              of filing of the proposed rule change, or such
                                                                                                       authority. Section 4(a)(2) provides that OCC may          shorter time as designated by the Commission. The
                                               for purposes of calculating the exercise settlement
                                                                                                       elect instead to fix the exercise settlement amount       Exchange has satisfied this requirement.
                                               amount, then, in addition to any other actions that
                                               OCC may be entitled to take under OCC’s bylaws          using other prices, such as the reported price or           11 17 CFR 240.19b–4(f)(6).

                                               and rules, the OCC is empowered to take any or all      value for the relevant security(ies) at the opening         12 17 CFR 240.19b–4(f)(6)(iii).

                                               of a range of permitted actions with respect to any     of regular trading hours on the next trading day for        13 For purposes only of waiving the operative

                                               series of options on such index, including fixing the   which such an opening price or value is reported          delay, the Commission has considered the proposed
                                               exercise settlement amount.                             by the reporting authority.                                                                             Continued




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                                               29150                           Federal Register / Vol. 83, No. 121 / Friday, June 22, 2018 / Notices

                                                  At any time within 60 days of the                    filing also will be available for                      a floor of one percent to the calculation
                                               filing of such proposed rule change, the                inspection and copying at the principal                of the existing fails charge rules, (ii)
                                               Commission summarily may                                office of the Exchange. All comments                   clarify the target rate that may be used
                                               temporarily suspend such rule change if                 received will be posted without change.                in the fails charge calculations under
                                               it appears to the Commission that such                  Persons submitting comments are                        certain circumstances, and (iii) make
                                               action is necessary or appropriate in the               cautioned that we do not redact or edit                certain technical changes to the fails
                                               public interest, for the protection of                  personal identifying information from                  charge provisions to ensure consistent
                                               investors, or otherwise in furtherance of               comment submissions. You should                        use of defined terms.5 The proposed
                                               the purposes of the Act. If the                         submit only information that you wish                  rule change would also update the
                                               Commission takes such action, the                       to make available publicly. All                        MBSD Rules to clarify that a cap applies
                                               Commission shall institute proceedings                  submissions should refer to File                       to the MBSD fails charge.6 Each of these
                                               under Section 19(b)(2)(B) of the Act 14 to              Number SR–Phlx–2018–47, and should                     proposed changes are described below.
                                               determine whether the proposed rule                     be submitted on or before July 13, 2018.
                                                                                                                                                              A. Proposed One Percent Floor
                                               change should be approved or                              For the Commission, by the Division of
                                               disapproved.                                            Trading and Markets, pursuant to delegated                In a securities transaction, a
                                                                                                       authority.15                                           settlement fail occurs when the seller
                                               IV. Solicitation of Comments                                                                                   does not deliver the securities to the
                                                                                                       Eduardo A. Aleman,
                                                 Interested persons are invited to                     Assistant Secretary.
                                                                                                                                                              buyer on the agreed upon settlement
                                               submit written data, views, and                                                                                date. FICC states that although
                                                                                                       [FR Doc. 2018–13380 Filed 6–21–18; 8:45 am]
                                               arguments concerning the foregoing,                                                                            settlement fails are generally not treated
                                                                                                       BILLING CODE 8011–01–P
                                               including whether the proposed rule                                                                            as contractual default events, provided
                                               change is consistent with the Act.                                                                             that the failing seller delivers the
                                               Comments may be submitted by any of                                                                            securities soon after the settlement date,
                                                                                                       SECURITIES AND EXCHANGE
                                               the following methods:                                                                                         persistent elevated levels of settlement
                                                                                                       COMMISSION
                                                                                                                                                              fails create market inefficiencies and
                                               Electronic Comments                                     [Release No. 34–83457; File No. SR–FICC–               increase credit risk for market
                                                 • Use the Commission’s internet                       2018–004]                                              participants.7
                                               comment form (http://www.sec.gov/                                                                                 To help mitigate settlement fails, FICC
                                                                                                       Self-Regulatory Organizations; Fixed                   maintains a fails charge in both the GSD
                                               rules/sro.shtml); or
                                                 • Send an email to rule-comments@                     Income Clearing Corporation; Order                     Rules and the MBSD Rules.8 However,
                                               sec.gov. Please include File Number SR–                 Approving Proposed Rule Change To                      FICC states that under the current GSD
                                                                                                       Introduce a Floor to the Calculation of                Rules and MBSD Rules, the respective
                                               Phlx–2018–47 on the subject line.
                                                                                                       the Fails Charges and Make Other                       fails charge calculations could result in
                                               Paper Comments                                          Changes                                                a zero charge.9 Specifically, under the
                                                 • Send paper comments in triplicate                   June 18, 2018.                                         GSD version of the current fails charge,
                                               to Secretary, Securities and Exchange                      On May 8, 2018, Fixed Income                        if the federal funds target rate would
                                               Commission, 100 F Street NE,                            Clearing Corporation (‘‘FICC’’) filed                  rise to three percent, then the
                                               Washington, DC 20549–1090.                              with the Securities and Exchange                       calculation of the charge would result in
                                               All submissions should refer to File                    Commission (‘‘Commission’’) proposed                   a zero charge.10 Similarly, under the
                                               Number SR–Phlx–2018–47. This file                       rule change SR–FICC–2018–004,                          MBSD version of the current fails
                                               number should be included on the                        pursuant to Section 19(b)(1) of the                    charge, if the federal funds target rate
                                               subject line if email is used. To help the              Securities Exchange Act of 1934                        would rise to two percent, then the
                                               Commission process and review your                      (‘‘Act’’) 1 and Rule 19b–4 thereunder.2                calculation of the charge would result in
                                               comments more efficiently, please use                   The proposed rule change was                           a zero charge.11 To address this issue,
                                               only one method. The Commission will                    published for comment in the Federal                   FICC proposes to amend the GSD Rules
                                               post all comments on the Commission’s                   Register on May 17, 2018.3 The                         and the MBSD Rules to add a one
                                               internet website (http://www.sec.gov/                   Commission did not receive any                         percent floor to the respective GSD and
                                               rules/sro.shtml). Copies of the                         comment letters on the proposed rule                   MBSD fails charge calculations.12
                                               submission, all subsequent                              change. For the reasons discussed                         FICC’s proposal comes in response to
                                               amendments, all written statements                      below, the Commission approves the                     a recent announcement by the Treasury
                                               with respect to the proposed rule                       proposed rule change.                                  Market Practices Group (‘‘TMPG’’),13 in
                                               change that are filed with the
                                               Commission, and all written                             I. Description of the Proposed Rule                      5 Notice,   83 FR at 23032–34.
                                               communications relating to the                          Change                                                   6 Id.
                                                                                                                                                                 7 See Notice, 83 FR at 23033. See also Frequently
                                               proposed rule change between the                           The proposed rule change would                      Asked Questions: TMPG Fails Charges (April 23,
                                               Commission and any person, other than                   update FICC’s Government Securities                    2018) at 1, available at https://
                                               those that may be withheld from the                     Division (‘‘GSD’’) Rulebook (‘‘GSD                     www.newyorkfed.org/medialibrary/microsites/
                                                                                                       Rules’’) and FICC’s Mortgage-Backed                    tmpg/files/TMPG-Fails-Charge-FAQ-04-23-2018.pdf
                                               public in accordance with the                                                                                  (‘‘FAQ’’).
                                               provisions of 5 U.S.C. 552, will be                     Securities Division (‘‘MBSD’’) Clearing                   8 GSD Rule 11; MBSD Rule 12, supra note 4.
                                               available for website viewing and                       Rules (‘‘MBSD Rules’’) 4 to (i) introduce                 9 Id.; Notice, 83 FR at 23034.

                                               printing in the Commission’s Public                                                                               10 Id.
                                                                                                         15 17 CFR 200.30–3(a)(12).
                                               Reference Room, 100 F Street NE,
daltland on DSKBBV9HB2PROD with NOTICES




                                                                                                                                                                 11 Id.
                                                                                                         1 15 U.S.C. 78s(b)(1).
                                               Washington, DC 20549 on official                                                                                  12 Id.
                                                                                                         2 17 CFR 240.19b–4.                                     13 The TMPG was formed in 2007, under the
                                               business days between the hours of                        3 See Securities Exchange Act Release No. 83222
                                                                                                                                                              sponsorship of the Federal Reserve Bank of New
                                               10:00 a.m. and 3:00 p.m. Copies of such                 (May 11, 2018), 83 FR 23032 (May 17, 2018) (SR–        York, to help address settlement fails and other
                                                                                                       FICC–2018–004) (‘‘Notice’’).                           issues affecting the U.S. Government debt and
                                               rule’s impact on efficiency, competition, and capital     4 The GSD Rules and the MBSD Rules are               mortgage-backed securities markets. The Treasury
                                               formation. See 15 U.S.C. 78c(f).                        available at http://www.dtcc.com/legal/rules-and-      Market Practices Group: Creation and Early
                                                 14 15 U.S.C. 78s(b)(2)(B).                            procedures.                                            Initiatives (August 2017) at 3, available at https://



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Document Created: 2018-11-06 09:51:01
Document Modified: 2018-11-06 09:51:01
CategoryRegulatory Information
CollectionFederal Register
sudoc ClassAE 2.7:
GS 4.107:
AE 2.106:
PublisherOffice of the Federal Register, National Archives and Records Administration
SectionNotices
FR Citation83 FR 29148 

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