[Federal Register Volume 80, Number 26 (Monday, February 9, 2015)]
[Notices]
[Pages 7068-7070]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-02504]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-74197; File No. SR-Phlx-2015-11]
Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of
Filing and Immediate Effectiveness of Proposed Rule Change To Add New
Rule 1016 To Authorize the Exchange To Share Phlx XL Participant-
Designated Risk Settings in Phlx XL
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 PHLX LLC (``Phlx'' 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.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of the
Substance of the Proposed Rule Change
The Exchange proposes to add new Rule 1016 to authorize the
Exchange to share any Phlx XL participant-designated risk settings in
Phlx XL, the Exchange's trading system, with the clearing member that
clears transactions on behalf of the Phlx XL participant.
The text of the proposed rule change is below; proposed new
language is italicized; proposed deletions are in brackets.
NASDAQ OMX PHLX Rules
Options Rules
* * * * *
[Rule 1016. Reserved.]
Rule 1016. Exchange Sharing of Phlx XL Participant-Designated Risk
Settings
The Exchange may share any Phlx XL participant-designated risk
settings in
[[Page 7069]]
the trading system with the clearing member that clears transactions on
behalf of the Phlx XL participant. For purposes of this rule a Phlx XL
participant is any specialist, streaming quote trader or remote
streaming quote trader.
* * * * *
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 proposed to adopt new Rule 1016 to authorize the
Exchange to share any Phlx XL participant-designated risk settings in
Exchange's trading system with the clearing member that clears
transactions on behalf of the Phlx XL participant. For purposes of Rule
1016, a Phlx XL participant is any specialist, streaming quote trader
(``SQT'') or remote streaming quote trader (``RSQT'').\3\
---------------------------------------------------------------------------
\3\ A Specialist is an Exchange member who is registered as an
options specialist pursuant to Rule 1020(a). An SQT is defined in
Exchange Rule 1014(b)(ii)(A) as a Registered Options Trader
(``ROT'') who has received permission from the Exchange to generate
and submit option quotations electronically in options to which such
SQT is assigned. An RSQT is defined in Exchange Rule in
1014(b)(ii)(B) as an ROT that is a member affiliated with an RSQTO
with no physical trading floor presence who has received permission
from the Exchange to generate and submit option quotations
electronically in options to which such RSQT has been assigned. A
Remote Streaming Quote Trader Organization or ``RSQTO,'' which may
also be referred to as a Remote Market Making Organization
(``RMO''), is a member organization in good standing that satisfies
the RSQTO readiness requirements in Rule 507(a). A ROT includes a
SQT, a RSQT and a Non-SQT, which by definition is neither a SQT nor
a RSQT and to which Rule 1016 will not apply. A Registered Options
Trader is defined in Exchange Rule 1014(b) as a regular member of
the Exchange located on the trading floor who has received
permission from the Exchange to trade in options for his own
account. See Exchange Rule 1014(b)(i) and (ii).
---------------------------------------------------------------------------
Phlx XL participants are required to be members of the Exchange.\4\
Rule 1046 requires a member or member organization conducting an
options business to either be: (i) A clearing member of The Options
Clearing Corporation (``OCC''); or (ii) have a clearing arrangement
with an Exchange member organization that is a clearing member of OCC.
Further, pursuant to Rule 1052, every member organization which is a
clearing member of the OCC shall be responsible for the clearance of
the Exchange options transactions of each member or member organization
who gives up the name of such clearing member in an Exchange options
transaction, provided the clearing member has authorized such member or
member organization to give up its name with respect to Exchange
options transactions.
---------------------------------------------------------------------------
\4\ As noted above, A Registered Options Trader is defined in
Exchange Rule 1014(b) as a regular member of the Exchange located on
the trading floor who has received permission from the Exchange to
trade in options for his own account. See Exchange Rule 1014(b)(i)
and (ii).
---------------------------------------------------------------------------
While not all Phlx XL participants are clearing members, all Phlx
XL participants require a clearing member's consent to clear
transactions on their behalf in order to conduct business on the
Exchange. Each Phlx XL participant that transacts through a clearing
member on the exchange executes a Letter of Guarantee which codifies
the relationship between each Phlx XL participant and clearing member
and provides the Exchange with notice of which clearing members have
relationships with which Phlx XL participants. The clearing member that
guarantees the Phlx XL participant's transactions on the Exchange has a
financial interest in understanding the risk tolerance of the Phlx XL
participant. The proposal would 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 Phlx XL participants.
At this time, the risk settings covered by this proposal are set
forth in Rule 1093, Phlx XL Risk Monitor Mechanism.\5\ The Exchange may
adopt additional rules providing for Phlx XL participant-designated
risk settings other than those provided in Exchange Rule 1093 that
could be shared with a Phlx XL participant's clearing member under the
proposal, and the Exchange would announce these additional risk
settings by issuing an Options Trader Alert.
---------------------------------------------------------------------------
\5\ See Securities Exchange Act Release No. 53166 (January 23,
2006), 71 FR 4625 (January 27, 2006) (SR-Phlx-2006-05). 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. Specialists, SQTs and RSQTs (collectively, ``Phlx XL
participants'') assigned in a particular option 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 Phlx XL participant. When the Phlx XL participant has
traded a certain number of contracts during the specified time
period, the Risk Monitor Mechanism will automatically remove such
Phlx XL participant's quotations from the Exchange's disseminated
quotation in all series of the particular option.
---------------------------------------------------------------------------
2. Statutory Basis
Phlx believes that the proposed rule change is consistent with the
provisions of Section 6 of the Act,\6\ in general, and with Section
6(b)(5) of the Act \7\ in particular, in that the proposal is designed
to prevent fraudulent and manipulative acts and practices, to promote
just and equitable principles of trade, to foster cooperation and
coordination with persons engaged in regulating, clearing, settling,
processing information with respect to, and facilitating transactions
in securities, 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.
---------------------------------------------------------------------------
\6\ 15 U.S.C. 78f.
\7\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
The proposed rule change will allow the Exchange to directly
provide a Phlx XL participant's designated risk settings to the
clearing member that clears trades on behalf of the Phlx XL
participant. Because a clearing member that executes a clearing Letter
of Guarantee on behalf of a Phlx XL participant guarantees all
transactions of that Phlx XL participant, and therefore bears the risk
associated with those transactions, it is appropriate for the clearing
member to have knowledge of what risk settings the Phlx XL participant
may utilize within the Exchange's trading system. The proposal will
permit clearing members who have a financial interest in the risk
settings of Phlx XL participants with whom the clearing member has
entered into a clearing Letter of Guarantee to better monitor and
manage the potential risks assumed by clearing members, thereby
providing clearing members with greater control and flexibility over
setting their own risk tolerance and exposure and aiding clearing
members in complying with the Act. To the extent a clearing member
might reasonably require a Phlx XL participant to provide access to its
risk settings as a prerequisite to continuing to clear trades on the
Phlx XL participant's behalf, the Exchange's
[[Page 7070]]
proposal to share those risk settings directly reduces the
administrative burden on Phlx XL participants and ensures that clearing
members 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
Phlx does not believe that the proposed rule change will result in
any burden on competition that is not necessary or appropriate in
furtherance of the purposes of the Act, as amended. The proposed rule
change is not designed to address any competitive issues and does not
pose an undue burden on non-clearing members because, unlike clearing
members, non-clearing members do not guarantee the execution of a Phlx
XL participant's 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. Any Phlx XL participant that does not wish to share its
designated risk settings with its clearing member could avoid sharing
such settings by becoming a clearing member of OCC.
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 \8\ and
subparagraph (f)(6) of Rule 19b-4 thereunder.\9\
---------------------------------------------------------------------------
\8\ 15 U.S.C. 78s(b)(3)(a)(ii).
\9\ 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.
---------------------------------------------------------------------------
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-Phlx-2015-11 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-2015-11. 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-Phlx-2015-11,
and should be submitted on or before March 2, 2015.
---------------------------------------------------------------------------
\10\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\10\
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2015-02504 Filed 2-6-15; 8:45 am]
BILLING CODE 8011-01-P