[Federal Register Volume 79, Number 194 (Tuesday, October 7, 2014)]
[Notices]
[Pages 60552-60553]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-23840]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-73281; File No. SR-NYSEArca-2014-110]
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing
of Proposed Rule Change Amending Rule 6.2A To Authorize the Exchange To
Share Any User-Designated Risk Settings in Exchange Systems With the
Clearing Member That Clears Transactions on Behalf of the User
October 1, 2014.
Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby
given that, on September 19, 2014, NYSE Arca, Inc. (the ``Exchange'' or
``NYSE Arca'') filed with the Securities and Exchange Commission (the
``Commission'') the proposed rule change as described in Items I, II,
and III below, which Items have been prepared by the self-regulatory
organization. The Commission is publishing this notice to solicit
comments on the proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 15 U.S.C. 78a.
\3\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of the
Substance of the Proposed Rule Change
The Exchange proposes to amend Rule 6.2A (Access to and Conduct on
OX) to authorize the Exchange to share any User-designated risk
settings in Exchange systems with the Clearing Member that clears
transactions on behalf of the User. The text of the proposed rule
change is available on the Exchange's Web site at www.nyse.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 self-regulatory organization
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 those 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 parts 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 proposes to amend Rule 6.2A (Access to and Conduct on
OX) to authorize the Exchange to share any User-designated risk
settings in Exchange systems with the Clearing Member that clears
transactions on behalf of the User.
Rule 6.2A states that ``[u]nless otherwise provided in the Rules,
no one but a User shall effect any transaction on OX.'' \4\ OX is ``the
Exchange's electronic order delivery, execution and reporting system
for designated option issues through which orders and quotes of Users
are consolidated for execution and/or display.'' \5\ The Exchange
proposes to amend the current rule by adding the following sentence:
``The Exchange may share any User-designated risk settings in OX with
the Clearing Member that clears transactions on behalf of the User.''
\6\ A ``User'' is ``any OTP Holder, OTP Firm or Sponsored Participant
that is authorized to obtain access to OX pursuant to Rule 6.2A.'' \7\
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\4\ See Rule 6.2A.
\5\ See Rule 6.1A(13) [sic].
\6\ See proposed Rule 6.2A.
\7\ See Rule 6.1A(19) [sic].
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Each User that transacts through a Clearing Member on the Exchange
executes a Clearing Letter of Consent, which ``shall be deemed a letter
of guarantee, letter of authorization, or notice of consent pursuant to
NYSE Arca Rules and may be relied upon by NYSE Arca, Inc., the
[National Securities Clearing Corporation], the [Options Clearing
Corporation], and their respective members.'' \8\ The Exchange believes
that because Clearing Members that execute a Clearing Letter of Consent
guarantee all transactions of those Users, and therefore bear the risk
associated with those transactions, it is appropriate for Clearing
Members to have knowledge of what risk settings a User may utilize
within Exchange systems.
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\8\ See NYSE Arca Options OTP Application, Section 8 (Clearing
Letter of Consent), available here, https://www.nyse.com/publicdocs/nyse/markets/arca-options/NYSE_Arca_Options_OTP_Firm_Application.pdf.
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At this time, the risk settings covered by this proposal are set
forth in Rule 6.40 (Risk Limitation Mechanism).\9\ Pursuant to Rule
6.40(b)-(d), Users may set certain risk control thresholds in the Risk
Limitation Mechanism, which are designed to mitigate the potential
risks of multiple executions against a User's trading interest that, in
today's highly automated and electronic trading environment, can occur
simultaneously across multiple series and multiple option classes. As
proposed, the Exchange may share a User's Risk Limitation Mechanism
settings with the Clearing Member that guarantees the User's
transactions on the Exchange, and therefore has a financial interest in
understanding the risk tolerance of the User.
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\9\ The Exchange may adopt additional rules providing for User-
enabled risk settings that would be covered under this proposal. The
Exchange will announce via Trader Update any additional risk
settings (i.e., other than Rule 6.40(b)-(d)) that are adopted and
covered by proposed Rule 6.2A.
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Because the Clearing Letter of Consent codifies relationships
between each User and Clearing Member, the Exchange is on notice of
which Clearing Members have relationships with which Users. The
proposed rule change would simply provide the Exchange with authority
to directly provide Clearing Members with information that may
otherwise be available to such Clearing Members by virtue of their
relationship with the respective Users.
2. Statutory Basis
The statutory basis for the proposed rule change is Section 6(b)(5)
of the Securities Exchange Act of 1934 (the ``Act''), in general, and
furthers the objectives of Section 6(b)(5),\10\ which requires the
rules of an exchange to prevent fraudulent and manipulative acts and
practices, 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.
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\10\ 15 U.S.C. 78f(b)(5).
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The Exchange believes that the proposed rule change removes
impediments to and perfects the mechanism of a free and open market by
codifying that the Exchange can directly
[[Page 60553]]
furnish to Clearing Members that guarantee that User's transactions on
the Exchange the User-designated risk settings in OX, including Risk
Limitation Mechanism settings, which are designed to mitigate the
potential risks of multiple executions against a User's trading
interest that, in today's highly automated and electronic trading
environment, can occur simultaneously across multiple series and
multiple option classes. The Exchange believes that the proposal is
consistent with the protection of investors and the public interests
because it will permit Clearing Members with a financial interest in a
User's risk settings to better monitor and manage the potential risks
assumed by Users with whom the Clearing Member has entered into a
Clearing Letter of Consent, thereby providing Clearing Members with
greater control and flexibility over setting their own risk tolerance
and exposure.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act. The proposed rule change is
not designed to address any competitive issues, but would provide
authority for the Exchange to directly share risk settings with
Clearing Members regarding the Users with whom the Clearing Member has
executed a Clearing Letter of Consent so the Clearing Member can better
monitor and manage the potential risks assumed by these Users, thereby
providing them with greater control and flexibility over setting their
own risk tolerance and exposure. Nonetheless, the proposal does not
pose an undue burden on non-Clearing Members because, unlike Clearing
Members, non-Clearing Members do not guarantee the execution of the
User transactions on the Exchange. The proposal is structured to offer
the same enhancement to all Clearing Members, regardless of size, and
would not impose a competitive burden on any participant.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were solicited or received with respect to the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period (i) as the Commission may
designate up to 90 days of such date if it finds such longer period to
be appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
(A) By order approve or disapprove the proposed rule change, or
(B) institute proceedings to determine whether the proposed rule
change should be 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-NYSEArca-2014-110 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-NYSEArca-2014-110. This
file number should be included on the subject line if email is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for Web site viewing and
printing in the Commission's Public Reference Room, 100 F Street NE.,
Washington, DC 20549-1090, 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-
NYSEArca-2014-110, and should be submitted on or before October 28,
2014.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\11\
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\11\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-23840 Filed 10-6-14; 8:45 am]
BILLING CODE 8011-01-P