[Federal Register Volume 81, Number 237 (Friday, December 9, 2016)]
[Notices]
[Pages 89160-89165]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-29466]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-79468; File No. SR-NYSEMKT-2016-110]
Self-Regulatory Organizations; NYSE MKT LLC; Notice of Filing and
Immediate Effectiveness of Proposed Rule Change Amending Rule To Expand
the Risk Limitation Mechanism to All Orders, Including Complex Orders
December 5, 2016.
Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of
1934 (``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby given
that on December 1, 2016, NYSE MKT LLC (``NYSE MKT'' or the
``Exchange'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in Items I and
II below, which Items have been prepared by the Exchange. The
Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
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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 Substance
of the Proposed Rule Change
The Exchange proposes to amend Rule 928NY (Risk Limitation
Mechanism) to expand the risk limitation mechanism to all orders,
including Complex Orders. 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 the
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to amend Rule 928NY (Risk Limitation
Mechanism) to expand the risk limitation mechanism to all orders,
including Complex Orders.\4\
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\4\ Rule 900.3NY(e) defines a Complex Order as any order
involving the simultaneous purchase and/or sale of two or more
different option series in the same underlying security, for the
same account, in a ratio that is equal to or greater than one-to-
three (.333) and less than or equal to three-to-one (3.00) and for
the purpose of executing particular investment strategy.
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Existing Risk Limitation Mechanism
Rule 928NY sets forth the risk-limitation system, which is designed
to help Market Makers, as well as ATP Holders, better manage risk
related to quoting and submitting orders, respectively, during periods
of increased and significant trading
[[Page 89161]]
activity.\5\ The Exchange requires Market Makers to utilize its risk
limitation mechanism, which automatically removes a Market Maker's
quotes in all series of an options class when certain parameter
settings are breached.\6\ The Exchange permits, but does not require,
ATP Holders to utilize its risk limitation mechanism for certain
orders, which automatically cancels such orders when certain parameter
settings are breached.\7\
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\5\ Market Makers are included in the definition of ATP Holders
and therefore, unless the Exchange is discussing the quoting
activity of Market Makers, the Exchange does not distinguish Market
Markers from ATP Holders when discussing the risk limitation
mechanisms. See Rule 900.2NY(5) (defining ATP Holder as ``a natural
person, sole proprietorship, partnership, corporation, limited
liability company or other organization, in good standing, that has
been issued an ATP,'' and requires that ``[a]n ATP Holder must be a
registered broker or dealer pursuant to Section 15 of the Securities
Exchange Act of 1934.'' See also Rule 900.2NY(38) (providing that a
Market Maker is ``an ATP Holder that acts as a Market Maker pursuant
to Rule 920NY'').
\6\ See Rule 928NY(b)(3), (c)(3), (d)(3) and (e)(3). See also
Commentary .04 to Rule 928NY (providing that Market Makers are
required to utilize one of the three risk settings for their
quotes).
\7\ See Rule 928NY(b)(1), (2), (c)(1), (c)(2), (d)(1), (d)(2)
and Commentary .01 to Rule 928NY (regarding the cancellation of
orders once the risk settings have been breached). See also
Commentary .04 to Rule 928NY (providing that ATP Holders may avail
themselves of one of the three risk limitation mechanisms for
certain of their orders).
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Pursuant to Rule 928NY, the Exchange establishes a time period
during which the System calculates for quotes and orders, respectively:
(1) The number of trades executed by the Market Maker or ATP Holder in
a particular options class; (2) the volume of contracts traded by the
Market Maker or ATP Holder in a particular options class; or (3) the
aggregate percentage of the Market Maker's quoted size or ATP Holder's
order size(s) executed in a particular options class (collectively, the
``risk settings'').\8\ When a Market Maker or ATP Holder has breached
its risk settings (i.e., has traded more than the contract or volume
limit or cumulative percentage limit of a class during the specified
measurement interval), the System will cancel all of the Market Maker's
quotes or the ATP Holder's open orders in that class until the Market
Maker or ATP Holder notifies the Exchange it will resume submitting
quotes or orders.\9\ The temporary suspension of quotes or orders from
the market that results when the risk settings are triggered is meant
to operate as a safety valve that enables Market Makers and/or ATP
Holders to re-evaluate their positions before requesting to re-enter
the market.
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\8\ See Rule 928NY(a)-(e) (settings forth the three risk
limitation mechanisms available: Transaction-Based, Volume-Based and
Percentage-Based). A Market Maker may activate one Risk Limitation
Mechanism for its quotes (which is required) and a different Risk
Limitation Mechanism for its orders (which is optional), even if
both are activated for the same class. See also Commentary .04 to
Rule 928NY.
\9\ See Commentaries .01 and .02 to Rule 928NY (requiring that a
Market Maker or ATP Holder request that it be re-enabled after a
breach of its risk settings). In the event that a Market Maker or
ATP Holder experiences multiple, successive triggers of its risk
settings, the Exchange would cancel all of the quotes or Applicable
Orders--as opposed to cancelling only those in the option class
(underlying symbol) in which the risk settings were triggered. See
Rule 928NY(f) and Commentary .02 to Rule 928NY.
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Proposed Expansion of Risk Limitation Mechanism to All Orders
Currently, ATP Holders may voluntarily utilize risk settings for
PNP Orders and PNP-Blind Orders submitted via ArcaDirect, which are
defined as ``Applicable Orders''.\10\ Given the importance of risk
settings in today's trading environment, the Exchange proposes to
expand the availability of the risk settings to all orders traded on
the Exc [sic]
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\10\ See Commentary .07 to Rule 928NY. For purposes of risk
settings relating to orders, the Exchange does not distinguish
Market Maker from ATP Holders.
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The Exchange believes that expanding the availability of the risk
settings to all orders would reduce the likelihood of unintended trades
and would enable ATP Holders to re-evaluate their positions before
requesting to re-enter the market if a risk setting is triggered. The
proposed expansion would, for example, prevent the execution of a large
set of orders that are improperly priced for any number of reasons
(i.e., because of a malfunctioning algorithm, the orders are left over
from the prior day, etc.). By preventing the execution of such trades,
the Exchange may help parties (including clearing members) avoid large
trading losses. Thus, the Exchange believes the proposed expansion of
the risk settings to all orders would allow ATP Holders to better
manage the potential risks of multiple executions against an ATP
Holder's trading interest that, in today's highly automated and
electronic trading environment, can occur simultaneously across
multiple series and multiple option classes. Consistent with the
ability to better manage risk, the Exchange anticipates that the
proposed changes would enhance the Exchange's overall market quality as
a result of narrowed quote widths and increased liquidity for series
traded on the Exchange. This proposed expansion is also being made, in
part, to be responsive to requests from ATP Holders that engage in
high-volume trading in a multitude of series and classes. The Exchange
believes that the proposal to make the risk settings available for all
orders would assist ATP Holders in providing a means to calibrate and
monitor their risk exposure on all orders. As is the case today, the
proposed availability of risk settings for all of an ATP Holder's
orders would not be mandated, but risk settings would continue to be
mandated for all Market Maker quotes.\11\
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\11\ See proposed Commentary .04(a) and (b) to Rule 928NY.
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To effect this change, the Exchange proposes to amend Rule
928NY(a)(1) to provide that the Exchange would maintain separate
``trade counters'' for each of the following scenarios: (i) When any
order, including a single-leg order or any leg of a Complex Order
submitted by an ATP Holder is executed in any series in a specified
class; and (ii) when a Market Maker quote is executed in any series in
an appointed class.\12\ The Exchange proposes this rule text to replace
the current rule text that covers the Applicable Orders of non-Market
Makers and Market Makers, respectively.\13\ Because Market Makers are
also ATP Holders, and because the operation of the risk settings for
orders are identical for all ATP Holders, the Exchange proposes to
streamline the rule text--in Rule 928NY(a)(1) and throughout the Rule--
by removing reference to ``non-Market Makers'' as superfluous and
potentially confusing.\14\ Instead of separately addressing risk
settings for orders that are available to Market Makers and non-Market
Makers, the proposed rule would simply address the option as being
available to all ATP Holders. Proposed Rule 928NY(a)(1) would further
provide that for each of these scenarios, the trade counters would be
incremented every time a trade is executed, in accordance with
Commentary .07 to Rule 928NY.
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\12\ See proposed Rule 928NY(a)(1)(i)-(ii).
\13\ The Exchange also proposes the non-substantive modification
to replace uses of the term ``shall'' with the term ``will''
throughout the rule text. See generally proposed Rule 928NY.
\14\ See supra note 5. See also proposed Rule 928NY(a)(1),
(b)(1), (c)(1), (d)(1), (e)(1), (f)(1) (collapsing into one
paragraph the separate paragraphs in the current Rule relating to
risk settings for orders sent by Market Maker and non-Market Makers
and updating cross-references to condensed rule text).
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The Exchange proposes to amend paragraphs (b), (c), (d), (e), and
(f) to make similar changes so that each of these paragraphs would have
two sub-paragraphs that would be parallel to the proposed changes to
Rule 928NY(a)(1):
The first sub-paragraph of each paragraph would address
how the specific risk setting would be applied to an ATP Holder's
orders, which would
[[Page 89162]]
be the substantive change, as further described below. These proposed
sub-paragraphs would replace current rule text in each paragraph
governing how the specific risk setting would apply to a non-Market
Maker's or Market Maker's Applicable Orders. Accordingly, current sub-
paragraph (2) to each of paragraphs (b), (c), (d), (e), and (f) would
be deleted.
The proposed second sub-paragraph of each paragraph would
address how the specific risk setting would be applied to a Market
Marker's quotes, as further described below. Accordingly, current sub-
paragraph (3) to each of paragraphs (b), (c), (d), (e), and (f) would
be re-numbered as sub-paragraph (2).
In addition to the substantive change to expand risk settings to
all orders, the Exchange further proposes to make non-substantive
amendments to each of the proposed sub-paragraphs to paragraphs (b),
(c), and (d). The Exchange believes that the proposed rule text would
simplify and streamline the rule by describing a risk setting being
triggered when an ATP Holder's orders or Market Marker's quotes ``have
traded'' rather than using the more cumbersome text that an order or
quote has been traded ``against.'' When addressing an ATP Holder's
orders, the proposed rules would provide that the risk setting would be
applicable to all orders in a specific class. When addressing a Market
Maker's quotes, the proposed rules would provide that the risk setting
would be applicable to all of the Market Maker's quotes in an appointed
class. For each risk setting, the proposed new text would provide as
follows.
The Transaction-Based Risk Limitation Mechanism, described
in Rule 928NY(b), would be triggered under the following conditions:
[cir] When a trade counter indicates that within a time period
specified by the Exchange, ``n'' executions of an ATP Holder's open
orders have traded in a specific class (proposed Rule 928NY(b)(1)); or
[cir] when a trade counter indicates that within a time period
specified by the Exchange, ``n'' executions of a Market Marker's quotes
have traded in an appointed class (proposed Rule 928NY(b)(2)).
The Volume-Based Risk Limitation Mechanism, described in
Rule 928NY(c), would be triggered under the following conditions:
[cir] When a trade counter indicates that within a time period
specified by the Exchange, ``k'' contracts of an ATP Holder's open
orders have traded in a specific class (proposed Rule 928NY(c)(1)); or
[cir] when a trade counter indicates that within a time period
specified by the Exchange, ``k'' contracts of a Market Maker's quotes
have traded in an appointed class (proposed Rule 928NY(c)(2)).
The Percentage-Based Risk Limitation Mechanism, described
in Rule 928NY(d), would be triggered under the following conditions:
[cir] When a trade counter has calculated that within a time period
specified by the Exchange, ``p'' percentage of an ATP Holder's open
orders have traded in a specific class (proposed Rule 928NY(d)(1)); or
[cir] when a trade counter has calculated that within a time period
specified by the Exchange, ``p'' percentage of a Market Maker's quotes
have traded in an appointed class (proposed Rule 928NY(d)(2)).
The Exchange also proposes clarifying changes to how the
Percentage-Based Risk Limitation Mechanism operates. The Exchange
proposes to modify Rule 928NY(d)(2)(i)-(ii) to make clear that the
trade counter would first calculate, for each series of an option
class, ``the percentage(s) of an ATP Holder's order size(s) or a Market
Maker's quote size that is executed on each side of the market,
including both displayed and non-displayed size,'' and would then ``sum
the overall percentages of the size(s) for the entire option class to
calculate the `p' percentage.'' The proposed changes are designed to
account for the fact that ATP Holders may submit multiple orders on
each side of the market that may be counted by the risk settings
(whereas Market Makers have only one quote on each side of the market)
and to reduce excess verbiage to streamline and condense the rule text,
which the Exchange believes adds clarity and transparency to the Rule.
Proposed Changes Regarding Routable Orders
Because the proposed expansion of risk settings for orders would
include routable orders, the Exchange proposes to amend Rule 928NY to
address the counting and cancellation of such orders (or unexecuted
portions thereof). First, the Exchange proposes to add rule text to
Commentary .07 to Rule 928NY to provide that executions of routable
orders on away markets would be considered by a trade counter once the
execution report is received by the Exchange.\15\ The Exchange also
proposes to amend Commentary .07 to Rule 928NY to provide that
executions of each leg of a Complex Order would be considered by a
trade counter as an individual transaction.
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\15\ The Exchange also proposes to delete as inapplicable the
rule text in Commentary .07 to Rule 928NY providing that ``[o]nly
executions against order types specified by the Exchange via Trader
Update and against quotes of Market Makers shall be considered by a
trade counter.'' The Exchange likewise proposes to delete the rule
text from Commentary .07 to Rule 928NY that defines ``Applicable
Orders,'' given that this limitation no longer applies. In this
regard, the Exchange proposes to delete reference to ``Applicable
Orders'' throughout the rule text and, where pertinent, and [sic] to
replace uses of the term ``Applicable Orders'' with ``orders.''
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Regarding cancellations, the Exchange proposes to amend Commentary
.01 to Rule 928NY to provide that once the risk settings have been
triggered, pursuant to paragraphs (e) and (f) of the Rule, the System
would automatically generate a ``bulk cancel'' message to cancel Market
Maker quotes and electronic orders, or portions thereof, that have not
been routed to away markets, excluding intraday and prior day Good-
Till-Cancel (``GTC''), All-or-None (``AON''), Customer Best Execution
(``CUBE'') orders, and orders entered in response to an electronic
auction that are valid only for the duration of the auction
(``GTX'').\16\ The Exchange has determined that it would not cancel
GTC, AON, CUBE, or GTX orders because these order types are typically
retail orders which, if automatically cancelled by the Exchange, could
cause an operational issue for any firm that entered the order(s)
(i.e., exposing a firm to the risk of a missed execution on an order
that has come due).\17\ Given these potential operational issues, and
for the protection of investors and the investing public, the Exchange
has determined to exempt these order types from automatic cancellation
when the risk settings are triggered.\18\ The Exchange also proposes to
amend Commentary .01 to Rule 928NY to provide that ``[o]rders and
quotes residing in the Consolidated Book received prior to processing
of the
[[Page 89163]]
bulk cancel message may trade. Any unexecuted portion of an order
subject to a `bulk cancel' message that had routed away, but returned
unexecuted, will be immediately cancelled.'' \19\
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\16\ In light of this change, the Exchange proposes to delete
the following rule text in Commentary .01 to Rule 928NY as no longer
applicable: ``The bulk cancel message shall be processed by the
System in time priority with any other quote or order message
received by the System. Any Applicable Orders or quotes that matched
with a Market Maker's quote or a Market Maker's or non-Market
Maker's Applicable Order and were received by the System prior to
the receipt of the bulk cancel message shall be automatically
executed.'' See id.
\17\ See, e.g., Rule 900.3NY(n) (defining GTC as buy or sell
orders that remain in force until the order is filled, cancelled or
the option contract expires); (d)(4) (defining AON orders as a
Market or Limit Order that is to be executed in its entirety or not
at all); 971.1NY (defining initiating CUBE orders as limit orders
guaranteed by an ATP Holder, as agent, submitted to the CUBE for
possible price improvement, which may not be cancelled or modified).
\18\ The Exchange notes that the trade counters would be
incremented every time a GTC, AON, CUBE or GTX order is executed,
subject to proposed Commentary .07. See proposed Rule 928NY(a)(1).
\19\ Relatedly, the Exchange proposes to delete the following
rule text in Commentary .01 to Rule 928NY: ``Applicable Orders or
quotes received by the System after receipt of the bulk cancel
message shall not be executed.'' The Exchange also proposes to
delete as obsolete the following rule text in Commentary .01 to Rule
928NY, as the Exchange no longer charges a Cancellation Fee:
``Public Customer orders cancelled pursuant to a Risk Limitation
Mechanism bulk cancel message shall not be counted for purposes of
calculating the Exchange's Cancellation Fee''). See Securities
Exchange Act Release No. 70799 (November 1, 2013), 78 FR 66980
(November 7, 2013) (SR-NYSEMKT-2013-87) (eliminating the
Cancellation Fee from the Exchange's fee schedule).
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In addition to the foregoing changes to paragraphs (e) and (f) of
Rule 928NY, the Exchange also proposes to amend these paragraphs to
address the action (i.e., cancellations) that the System would effect
upon the triggering of the risk settings to account for the proposed
amendments to Commentary .01 to the Rule. Specifically, the Exchange
proposes to modify sub-paragraph (1) to both paragraphs (e) and (f) to
provide that if a risk setting is triggered, the System would
automatically cancel an ATP Holder's orders, ``except as provided in
Commentary .01 to this Rule.'' Finally, the Exchange proposes to make
additional conforming changes to Commentary .02 to Rule 928NY to
specify that once the risk settings have been breached, any new orders
(or quotes) would not be accepted until the ATP Holder or Market Maker
contacts the Exchange and requests to be re-enabled.
Proposed Changes to Persistence of Risk Settings for Orders
The Exchange also proposes to amend Commentary .04 to Rule 928NY to
specify the persistence of the risk settings, once activated, by an ATP
Holder for orders to conform this Commentary to the changes described
above to delineate risk settings between an ATP Holder's orders and a
Market Maker's quotes. Specifically, the Exchange proposes to divide
Commentary .04 into two paragraphs to make it easier to navigate--
paragraph (a) would address the persistence of risk settings for
quotes, and paragraph (b) would address the persistence of risk
settings for orders.
Current Commentary .04 to Rule 928NY provides that an ATP Holder
must activate its risk settings for orders on a daily basis. The
Exchange proposes to amend this Commentary .04 to specify that ``[o]nce
an ATP Holder activates a Risk Limitation Mechanism for its orders in a
specified class, the mechanism and the settings established will remain
active unless, and until, the ATP Holder deactivates the Risk
Limitation Mechanism or changes the settings.'' \20\ While the risk
settings for orders remain an optional feature, the Exchange believes
this change would enable each ATP Holder to calibrate its settings as
needed, as opposed to re-establishing the settings on a daily basis.
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\20\ See proposed Commentary .04(b) to Rule 928NY (specifying
that, ``[t]o be effective, an ATP Holder must activate a Risk
Limitation Mechanism, and corresponding settings, for orders in a
specified class''). Regarding the risk settings for quotes, the
Exchange proposes to delete as inapplicable rule text that indicates
that a Market Maker may deactivate its risk settings for quotes, as
this functionality is mandated by the Exchange. See proposed
Commentary .04(a) to Rule 928NY. The Exchange believes removing this
language would add clarity and consistency to the Rule.
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Proposed Modifications to Parameters for Each Risk Limitation Mechanism
The Exchange proposes to adjust the minimum and maximum parameters
for the Risk Limitation Mechanism as set forth in Commentary .03 to the
Rule. The current Rule provides that the Exchange would not exceed the
following minimum and maximum parameters, applicable to quotes and
orders:
Minimum of 1 and maximum of 100 for transaction-based risk
setting;
Minimum of 20 and a maximum of 5,000 for volume-based risk
setting; and
Minimum of 100 and a maximum of 2,000 for percentage-based
risk setting.\21\
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\21\ See Commentary .03 to Rule 928NY.
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The existing parameters have been in place since 2012 and the
Exchange has not modified or increased these parameters in the past
four years.\22\ Since 2012, the markets have experienced more
volatility and fragmentation. To account for these changes, as well as
the ever-increasing automation, speed and volume transacted in today's
electronic trading environment, the Exchange proposes to modify the
minimum and maximum parameters, applicable to quotes and orders, as
follows:
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\22\ See Securities Exchange Act Release No. 67713 (August 22,
2012), 77 FR 52090 (August 28, 2012) (SR-NYSEMKT-2012-39).
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Minimum of 3 and maximum of 2,000 for the transaction-
based setting;
Minimum of 20 and a maximum of 500,000 for volume-based
setting; and
Minimum of 100 and a maximum of 200,000 for percentage-
based setting.\23\
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\23\ See proposed Commentary .03 to Rule 928NY.
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Although this proposal establishes the outside parameters of
allowable settings, Rule 928NY would still obligate the Exchange to
announce via Trader Update ``any applicable minimum, maximum and/or
default settings for the Risk Limitation Mechanisms,'' which would
afford Market Makers and ATP Holders the opportunity to adjust their
own risk settings within the announced parameters.\24\ The Exchange
further believes the proposed adjustments to the minimum/maximum
parameters would enable the Exchange to strike the appropriate balance
to ensure that risk settings may be established at a level that is
consistent with existing market conditions, which would enable the risk
settings to operate in the manner intended. The Exchange believes that
setting the parameters within this broad range would provide ATP
Holders with ample flexibility in setting their tolerance for risk. For
example, ATP Holders with a lower risk tolerance may opt to select a
lower threshold within the range established by the Exchange, thereby
optimizing the protection afforded by this proposed rule change,
whereas ATP Holders with a higher risk tolerance may select the maximum
allowable parameter afforded by the proposed rule change. Moreover,
while the Exchange retains discretion with respect to the levels at
which it could adjust these settings, the Exchange would not be
permitted to adjust the settings below the minimum or above the maximum
proposed, which, the Exchange believes would ensure that the settings
are at all times within a reasonable range. Finally, given that the
risk settings would now be available for all order types, the Exchange
believes it would be prudent to provide ample flexibility for setting
the maximum thresholds.
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\24\ See supra notes 21 and 23 (rule text remains unchanged in
current and proposed Commentary .03 to Rule 928NY).
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Implementation
The Exchange will announce by Trader Update the implementation date
of the proposed rule change to expand the availability of the Risk
Limitation Mechanism to all orders, which implementation will be no
later than 90 days after the effectiveness of this rule change.
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Securities Exchange Act of 1934 (the ``Act''),\25\ in
general, and furthers the objectives of Section 6(b)(5) of the Act,\26\
in particular, in that it is designed to prevent fraudulent and
manipulative acts and practices, to promote just and equitable
principles of trade, to foster
[[Page 89164]]
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.
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\25\ 15 U.S.C. 78f(b).
\26\ 15 U.S.C. 78f(b)(5).
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ATP Holders are vulnerable to the risk from a system or other error
or a market event that may cause them to send a large number of orders
or receive multiple, automatic executions before they can adjust their
order exposure in the market. Without adequate risk management tools,
such as the proposed expanded risk settings for orders, ATP Holders may
opt to reduce the amount of order flow and liquidity that they provide
to the market, which could undermine the quality of the markets
available to market participants. Thus, the Exchange believes that the
proposed rule change to expand the availability of the risk settings to
all orders removes impediments to and perfects the mechanism of a free
and open market by providing ATP Holders with greater control and
flexibility over setting their risk tolerance and more protection over
risk exposure, if the market moves in an unexpected direction. The
proposed expansion of the risk settings to all orders would promote
just and equitable principles of trade because it would help ATP
Holders not only avoid transacting against their interests but would
also reduce the potential for executions at erroneous prices, which
should encourage OTPs [sic] to submit additional order flow and
liquidity to the Exchange.
This proposed expansion, which was specifically requested by some
ATP Holders, would foster cooperation and coordination with persons
engaged in regulating, clearing, settling, and processing information
with respect to, and facilitating transactions in, securities as it
will be available to all ATP Holders for all orders entered on the
Exchange. In addition, the expanded risk settings may prevent the
execution of erroneously priced trades, which would help parties
(including clearing members) avoid large trading losses, thereby
fostering cooperation and coordination with persons engaged in
regulating, clearing, settling, and processing information with respect
to, and facilitating transactions in, securities.
The Exchange believes the proposed adjustments to the minimum/
maximum parameters for each risk limitation mechanism, which have not
been increased since 2012, are consistent with the Act because they
would allow the Exchange to strike the appropriate balance to ensure
that risk settings could be established at a level that is consistent
with existing market conditions, which would enable the risk settings
to operate in the manner intended. The Exchange believes that setting
the parameters within the broad range, as proposed, would provide OTPs
[sic] with ample flexibility in setting their tolerance for risk. For
example, OTPs [sic] with a lower risk tolerance may opt to select a
lower threshold within the range established by the Exchange, thereby
optimizing the protection afforded by this proposed rule change,
whereas OTPs [sic] with a higher risk tolerance may select the maximum
allowable parameter afforded by the proposed rule change. Moreover,
because the Exchange would not be permitted to adjust the settings
below the minimum or above the maximum proposed, the settings should
remain at all times within a reasonable range. Finally, given that the
risk settings would now be available for all order types, the Exchange
believes it would be prudent to provide ample flexibility for setting
the maximum thresholds.
Consistent with the ability to better manage risk, the Exchange
anticipates that the proposed enhancement to the existing Risk
Limitation Mechanism would likewise enhance the Exchange's overall
market quality as a result of narrowed quote widths and increased
liquidity for series traded on the Exchange, which would benefit
investors and the public interest because they receive better prices
and because it lowers volatility in the options market. Moreover, the
Exchange believes that the proposal is consistent with the protection
of investors and the public interests because it would permit ATP
Holders to better manage the potential risks of multiple executions
against an ATP Holder's proprietary interest that, in today's highly
automated and electronic trading environment, can occur simultaneously
across multiple series and multiple option classes.
Finally, the Exchange believes that the proposed changes to
streamline and clarify the rule text, including updated cross
references that conform rule text to proposed changes, promotes just
and equitable principles of trade, fosters cooperation and coordination
among persons engaged in facilitating securities transactions, and
removes impediments to and perfects the mechanism of a free and open
market by ensuring that members, regulators and the public can more
easily navigate the Exchange's rulebook and better understand the
defined terms used by the Exchange.
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 Exchange is proposing a
market enhancement that would provide ATP Holders with greater control
and flexibility over setting their risk tolerance and more protection
over risk exposure, if the market moves in an unexpected direction. The
Exchange believes the proposal would provide market participants with
additional protection from unintended executions. The proposal is
structured to offer the same enhancement to all ATP Holders, regardless
of size, and would not impose a competitive burden on any participant.
The Exchange does not believe that the proposed enhancement to the
existing risk limitation mechanism would impose a burden on competing
options exchanges. Rather, the availability of this mechanism may
foster more competition. Specifically, the Exchange notes that it
operates in a highly competitive market in which market participants
can readily favor competing venues. When an exchange offers enhanced
functionality that distinguishes it from the competition and
participants find it useful, it has been the Exchange's experience that
competing exchanges will move to adopt similar functionality. Thus, the
Exchange believes that this type of competition amongst exchanges is
beneficial to the market place as a whole as it can result in enhanced
processes, functionality, and technologies.
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
The Exchange has filed the proposed rule change pursuant to Section
19(b)(3)(A)(iii) of the Act \27\ and Rule 19b-4(f)(6) thereunder.\28\
Because the
[[Page 89165]]
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 prior to 30 days from the
date on which it was filed, or such shorter time as the Commission may
designate, if consistent with the protection of investors and the
public interest, the proposed rule change has become effective pursuant
to Section 19(b)(3)(A) of the Act and Rule 19b-4(f)(6)(iii) thereunder.
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\27\ 15 U.S.C. 78s(b)(3)(A)(iii).
\28\ 17 CFR 240.19b-4(f)(6). 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, along
with a brief description and text of the proposed rule change, at
least five business days prior to the date of filing of the proposed
rule change, or such shorter time as designated by the Commission.
The Exchange has satisfied this requirement.
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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) \29\ of the Act to determine whether the proposed
rule change should be approved or disapproved.
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\29\ 15 U.S.C. 78s(b)(2)(B).
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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-NYSEMKT-2016-110 on the subject line.
Paper Comments
Send paper comments in triplicate to Brent J. Fields,
Secretary, Securities and Exchange Commission, 100 F Street NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number SR-NYSEMKT-2016-110. 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 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-NYSEMKT-2016-110, and should
be submitted on or before December 30, 2016.
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\30\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\30\
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2016-29466 Filed 12-8-16; 8:45 am]
BILLING CODE 8011-01-P