[Federal Register Volume 80, Number 26 (Monday, February 9, 2015)]
[Notices]
[Pages 7048-7050]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-02502]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-74195; File No. SR-BX-2015-007]
Self-Regulatory Organizations; NASDAQ OMX BX, Inc.; Notice of
Filing and Immediate Effectiveness of Proposed Rule Change To Add New
Section 20, Exchange Sharing of Participant-Designated Risk Settings,
to Chapter VI, Trading Systems
February 3, 2015.
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 January 28, 2015, NASDAQ OMX BX, Inc. (``BX'' or ``Exchange'')
filed with the Securities and Exchange Commission (``SEC'' or
``Commission'') the proposed rule change as described in Items I, II,
and III, 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.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 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 add new Section 20, Exchange Sharing of
Participant-Designated Risk Settings, to Chapter VI, Trading Systems,
of the Exchange's Options rules to authorize the Exchange to share any
Participant-designated risk settings in the Exchange's Trading System
with the Clearing Participant that clears transactions on behalf of the
Participant.\3\
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\3\ A ``Participant'' or ``Options Participant'' is a firm or
organization that is registered with the Exchange pursuant to
Chapter II of the BX Rules for purposes of participating in options
trading on BX Options as a ``BX Options Order Entry Firm'' or ``BX
Options Market Maker''. The term ``BX Options Market Maker'' or
``Options Market Maker'' means an Options Participant registered
with the Exchange for the purpose of making markets in options
contracts traded on the Exchange and that is vested with the rights
and responsibilities specified in Chapter VII of the BX Rules. The
terms ``BX Options Order Entry Firm'' or ``Order Entry Firm'' or
``OEF'' mean those Options Participants representing as agent
Customer Orders on BX Options and those non-Market Maker
Participants conducting proprietary trading. A ``Clearing
Participant'' means a Participant that is self-clearing or a
Participant that clears BX Options Transactions for other
Participants of BX Options. The term ``Trading System'' or
``System'' means the automated trading system used by BX Options for
the trading of options contracts. See Chapter I, Section 1,
Definitions, of the BX Rules.
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The text of the proposed rule change is below; proposed new
language is
[[Page 7049]]
italicized; proposed deletions are in brackets.
* * * * *
NASDAQ OMX BX Rules
Options Rules
* * * * *
Chapter VI, Trading Systems
Sec. 1-19. No change.
Sec. 20 Exchange Sharing of Participant-Designated Risk Settings.
The Exchange may share any Participant-designated risk settings in
the Trading System with the Clearing Participant that clears
transactions on behalf of the Participant.
* * * * *
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 is proposing to adopt new Section 20, Exchange Sharing
of Participant-Designated Risk Settings, in Chapter VI, Trading
Systems, of the BX Rules in order to authorize the Exchange to share
any Participant-designated risk settings in Exchange's Trading System
with the Clearing Participant that clears transactions on behalf of the
Participant. Pursuant to Chapter II, Participation, Section 2,
Requirements for Options Participation, of the BX Rules, Options
Participants must be Options Clearing Participants or establish a
clearing arrangement with a Clearing Participant. Every Clearing
Participant is responsible for the clearance of BX Options Transactions
\4\ of each Options Participant that gives up such Clearing
Participant's name pursuant to a letter of authorization, letter of
guarantee or other authorization (``Letter of Guarantee'') given by
such Clearing Participant to such Options Participant, which
authorization must be submitted to BX.\5\ Further, no Options
Participant may make any transactions on BX Options unless a Letter of
Guarantee providing that the issuing Clearing Participant accepts
financial responsibilities for all BX Options Transactions made by the
guaranteed Participant has been issued for such Participant by a
Clearing Participant and filed with BX Regulation.\6\
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\4\ The term ``BX Options'' means the BX Options Market, an
options trading facility of the Exchange under Section 3(a)(2) of
the Exchange Act. The term ``BX Options Transaction'' means a
transaction involving an options contract that is effected on or
through BX Options or its facilities or systems.
\5\ See Chapter VI, BX Trading Systems, Section 15, Submission
for Clearance, Subsection (a).
\6\ See Chapter VII, Section 8, Letters of Guarantee.
Thus, while not all Participants are Clearing Participants, all
Participants require a Clearing Participant's consent to clear
transactions on their behalf in order to conduct business on the
Exchange. Each Participant that transacts through a Clearing
Participant on the Exchange executes a Letter of Guarantee which
codifies the relationship between the Participant and the Clearing
Participant and provides the Exchange with notice of which Clearing
Participants have relationships with which Participants. The Clearing
Member that guarantees the Participants transactions on the Exchange
has a financial interest in understanding the risk tolerance of the
Participant. The proposal would provide the Exchange with authority to
directly provide Clearing Participants with information that may
otherwise be available to such Clearing Participants by virtue of their
relationship with the respective Participants.
At this time, the risk settings covered by this proposal are set
forth in Chapter VI, Trading Systems, Section 19, Risk Monitor
Mechanism.\7\ The Exchange may adopt additional rules providing for
Participant-designated risk settings other than those provided in
Chapter VI, Section 19 that could be shared with a Participant's
Clearing Participant under the proposal, and the Exchange would
announce these additional risk settings by issuing an Options Trader
Alert.
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\7\ See Securities Exchange Act Release No. 67256 (June 26,
2012), 77 FR 39277 (July 2, 2012) (SR-BX-2012-030). The Mechanism
provides protection to participants from the risk of multiple
executions across multiple series of an option. Quoting across many
series in an option creates the possibility of ``rapid fire''
executions that can create large, unintended principal positions
that expose market makers, who are required to continuously quote in
assigned options, to potentially significant market risk.
Participants may establish a specified time period, not to exceed 15
seconds, within which a counting program will count the number of
contracts traded in an option by such Participant. When the
Participant has traded a certain number of contracts during the
specified time period, the Risk Monitor Mechanism will automatically
remove such Participant's quotations from the Exchange's
disseminated quotation in all series of the particular option.
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2. Statutory Basis
The Exchange believes that the proposed rule change 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.\8\ In
particular, the proposal is consistent with Section 6(b)(5) of the
Act,\9\ because it is designed to promote just and equitable principles
of trade, remove impediments to and perfect the mechanisms 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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\8\ 15 U.S.C. 78f(b).
\9\ 15 U.S.C. 78f(b)(5).
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The proposed rule change will allow the Exchange to directly
provide a Participant's designated risk settings to the Clearing
Participant that clears trades on behalf of the Participant. Because a
Clearing Participant that executes a clearing Letter of Guarantee on
behalf of a Participant guarantees all transactions of that
Participant, and therefore bears the risk associated with those
transactions, it is appropriate for the Clearing Participant to have
knowledge of what risk settings the Participant may utilize within the
Exchange's trading system. The proposal will permit Clearing
Participants who have a financial interest in the risk settings of
Participants with whom the Clearing Participant has entered into a
clearing Letter of Guarantee to better monitor and manage the potential
risks assumed by Clearing Participants, thereby providing Clearing
Participants with greater control and flexibility over setting their
own risk tolerance and exposure and aiding Clearing Participants in
complying with the Act. To the extent a Clearing Participant might
reasonably require a Participant to provide access to its risk setting
as a prerequisite to continuing to clear trades on the Participant's
behalf, the Exchange's proposal to share those risk settings directly
reduces the administrative burden on Participants and ensures that
Clearing Participants are receiving information that is up to date and
conforms to the settings active in the Exchange's trading system.
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
[[Page 7050]]
necessary or appropriate in furtherance of the purposes of the Act. The
proposed rule change is not designed to address any competitive issues
and does not pose an undue burden on non-Clearing Participants because,
unlike Clearing Participants, non-Clearing Participants do not
guarantee the execution of a Participant's transactions on the
Exchange. The proposal is structured to offer the same enhancement to
all Clearing Participants, regardless of size, and would not impose a
competitive burden on any Participant. Any Participant that does not
wish to share its designated risk settings with its Clearing
Participant could avoid sharing such settings by becoming a Clearing
Participant.
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)(ii) [sic] of the Act \10\ and
subparagraph (f)(6) of Rule 19b-4 thereunder.\11\
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\10\ 15 U.S.C. 78s(b)(3)(a)(ii).
\11\ 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 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.
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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-BX-2015-007 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-BX-2015-007. This file
number should be included on the subject line if email is used. To help
the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for Web site viewing and
printing in the Commission's Public Reference Room, 100 F Street NE.,
Washington, DC 20549, on official business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of such filing also will be available
for inspection and copying at the principal offices of the Exchange.
All comments received will be posted without change; the Commission
does not edit personal identifying information from submissions. You
should submit only information that you wish to make available
publicly. All submissions should refer to File Number SR-BX-2015-007,
and should be submitted on or before March 2, 2015.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\12\
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\12\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2015-02502 Filed 2-6-15; 8:45 am]
BILLING CODE 8011-01-P