[Federal Register Volume 79, Number 242 (Wednesday, December 17, 2014)]
[Notices]
[Pages 75215-75217]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-29495]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-73817; File No. SR-NYSEMKT-2014-81]
Self-Regulatory Organizations; NYSE MKT LLC; Notice of Filing of
Amendment No. 1 and Order Granting Accelerated Approval of a Proposed
Rule Change, as Modified by Amendment No. 1 Thereto, Amending Rule
902.1NY 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
December 11, 2014.
I. Introduction
On September 19, 2014, NYSE MKT LLC, (``NYSE MKT'' or ``Exchange'')
filed with the Securities and Exchange Commission (``Commission''),
pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ a proposed rule change to
amend Rule 902.1NY to authorize the Exchange to share any User-
designated risk settings in Exchange systems with the Clearing Member
\3\ that clears transactions on behalf of the User.\4\ The proposed
rule change was published for comment in the Federal Register on
October 7, 2014.\5\ On November 19, 2014, the Exchange submitted
Amendment No. 1 to the proposed rule change.\6\ On November 21, 2014,
pursuant to Section 19(b)(2) of the Exchange Act,\7\ the Commission
designated a longer period within which to approve the proposed rule
change, disapprove the proposed rule change, or institute proceedings
to determine whether to disapprove the proposed rule change.\8\ The
Commission received one comment on the proposal.\9\ The Commission is
publishing this notice to solicit comments from interested persons on
Amendment No. 1 to the proposed rule change and is approving the
proposed rule change, as modified by Amendment No. 1 thereto, on an
accelerated basis.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Exchange Rule 900.2NY (11) defining ``Clearing Member''
as ``an Exchange ATP Holder which has been admitted to membership in
the Options Clearing Corporation pursuant to the provisions of the
Rules of the Options Clearing Corporation.''
\4\ See Exchange Rule 900.2NY (87) defining ``User'' as ``any
ATP Holder that is authorized to obtain access to the System
pursuant to Rule 902.1NY.''
\5\ See Securities Exchange Act Release No. 73280 (October 1,
2014), 79 FR 60553 (``Notice'').
\6\ In Amendment No. 1, the Exchange provided additional
justification for why the Exchange believes the proposed rule change
is consistent with the Act. In Amendment No. 1, the Exchange states,
among other things, that the Exchange believes that sharing a User's
risk settings directly with its Clearing Member could reduce the
administrative burden on Users to provide that information to their
Clearing Members themselves and notes that any User could become a
Clearing Member, which would allow the User to avoid sharing its
risk settings with any third party. Amendment No. 1 has been placed
in the public comment file for SR-NYSEMKT-2014-81 at http://www.sec.gov/comments/sr-nysemkt-2014-81/nysemkt201481-2.pdf (See
letter to Kevin M. O'Neill, Deputy Secretary, Commission, from
Martha Redding, Chief Counsel and Assistant Corporate Secretary, New
York Stock Exchange, dated November 20, 2014) and is also available
on the Exchange's Web site.
\7\ 15 U.S.C. 78s(b)(2).
\8\ See Securities Exchange Act Release No. 34-73669, 79 FR
70903 (November 28, 2014). The Commission designated January 5, 2014
as the date by which it should approve, disapprove, or institute
proceedings to determine whether to disapprove the proposed rule
change.
\9\ See Letter from Dr. Lee Jackson, Esq., dated October 1,
2014. This commenter's letter was incoherent and irrelevant to the
proposed rule change.
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II. Description of the Proposal
The Exchange proposes to amend Exchange Rule 902.1NY (Admission to
the System) to state that the Exchange may share any User-designated
risk settings in the Exchange's System \10\ with the Clearing Member
that clears transactions on behalf of the User.\11\
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\10\ According to the Exchange, ``System'' refers to the
Exchange System facility. See Notice, supra note 5, at 60554. See
also Exchange Rule 900.1NY.
\11\ See proposed Exchange Rule 902.1NY.
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The Exchange states that while not all Users are Clearing Members,
all Users require a Clearing Member's consent to clear transactions on
their behalf in order to conduct business on the Exchange.\12\ The
Exchange states that
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each User that transacts through a Clearing Member on the Exchange
executes a Clearing Letter of Consent, which codifies the relationship
between each User and Clearing Member and provides the Exchange with
notice of which Clearing Members have relationships with which
Users.\13\ The Exchange states that the Clearing Member that guarantees
the User's transactions on the Exchange has a financial interest in
understanding the risk tolerance of the User, and that 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
Users.\14\
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\12\ See Amendment No. 1.
\13\ See Notice, supra note 5, at 60554. See also NYSE Amex
Options ATP Application, Section 8 (Clearing Letter of Consent),
available at: https://www.nyse.com/publicdocs/nyse/markets/amex-options/ATP_Application.pdf..
\14\ See Notice, supra note 5, at 60554.
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The Exchange states that the User-designated risk settings that the
Exchange may share with a User's Clearing Member under the proposal are
set forth in Exchange Rule 928NY (Risk Limitation Mechanism).\15\ The
Exchange states that it may adopt additional rules providing for User-
enabled risk settings other than those provided in Exchange Rule 928NY
that could be shared with a User's Clearing Member under the proposal,
and the Exchange would announce these additional risk settings via
Trader Update.\16\
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\15\ Id. According to the Exchange, pursuant to Rule 928NY(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. Id.
\16\ See id. at n.9.
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III. Discussion and Commission Findings
After careful review, the Commission finds that the proposed rule
change is consistent with the requirements of the Act and the rules and
regulations thereunder applicable to a national securities
exchange.\17\ In particular, the Commission finds that the proposed
rule change is consistent with Section 6(b)(5) of the Act,\18\ which
requires, among other things, that the rules of a national securities
exchange be designed 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, and Section 6(b)(8) of the Act,\19\ which requires
that the rules of the exchange do not impose any burden on competition
not necessary or appropriate in furtherance of the purposes of the Act.
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\17\ In approving this proposal, the Commission has considered
the proposed rule's impact on efficiency, competition, and capital
formation. See 15 U.S.C. 78c(f).
\18\ 15 U.S.C. 78f(b)(5).
\19\ 15 U.S.C. 78f(b)(8).
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The proposed rule change will allow the Exchange to directly
provide a User's designated risk settings to the Clearing Member that
clears trades on behalf of the User. The Exchange states that because a
Clearing Member that executes a Clearing Letter of Consent on behalf of
a User guarantees all transactions of that User, and therefore bears
the risk associated with those transactions, it is appropriate for the
Clearing Member to have knowledge of what risk settings the User may
utilize within the Exchange's systems.\20\ The Exchange states that the
proposal will permit Clearing Members, who have a financial interest in
the risk settings of Users with whom the Clearing Member has entered
into a Clearing Letter of Consent, to better monitor and manage the
potential risks assumed by Users, 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.\21\ The Exchange further states that, to the extent a Clearing
Member might reasonably require a User to provide access to its risk
settings as a prerequisite to continuing to clear trades on the User's
behalf, the Exchange's proposal to share those risk settings directly
reduces the administrative burden on Users and ensures that Clearing
Members are receiving information that is up-to-date and conforms to
the settings active in Exchange systems.\22\
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\20\ See Notice, supra note 5, at 60554.
\21\ Id. See also Amendment No. 1.
\22\ See Amendment No. 1.
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The Exchange also states that it 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.\23\ According
to the Exchange, 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 the User transactions on the
Exchange.\24\ The Exchange notes further that 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.\25\ In addition, the Exchange states that any User 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 the Options Clearing Corporation.\26\
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\23\ See Notice, supra note 5, at 60554.
\24\ Id.
\25\ Id.
\26\ See Amendment No. 1.
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Accordingly, the Commission finds that the proposal to allow the
Exchange to directly provide a User's designated risk settings to the
Clearing Member that clears trades on behalf of the User, guarantees
all transactions of that User, and therefore bears the risk associated
with those transactions, is consistent with the Act.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether Amendment No. 1
to 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-2014-81 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-NYSEMKT-2014-81. 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
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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-NYSEMKT-2014-81, and should be submitted
on or before January 7, 2015.
V. Accelerated Approval of Proposed Rule Change, As Modified by
Amendment No. 1
As discussed above, the Exchange submitted Amendment No. 1 to
provide further justification as to why the Exchange believes the
proposed rule change is consistent with the Act. The Exchange states in
Amendment No. 1, among other things, that to the extent a Clearing
Member might reasonably require a User to provide access to its risk
settings as a prerequisite to continuing to clear trades on the User's
behalf, the Exchange's proposal to share those risk settings directly
reduces the administrative burden on Users and ensures that Clearing
Members are receiving information that is up-to-date and conforms to
the settings active in Exchange systems. The Exchange further notes in
Amendment No. 1 that any User may become a Clearing Member, which would
enable that User to avoid sharing risk settings with any third party.
The Commission believes that Amendment No. 1 does not materially affect
the substance of the proposed rule change or raise any novel or unique
regulatory issues. Accordingly, the Commission finds good cause,
pursuant to Section 19(b)(2) of the Act,\27\ for approving the proposed
rule change, as modified by Amendment No. 1, on an accelerated basis.
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\27\ 15 U.S.C. 78s(b)(2).
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VI. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\28\ that the proposed rule change (SR-NYSEMKT-2014-81), as
modified by Amendment No. 1 thereto, be and it hereby is, approved on
an accelerated basis.
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\28\ Id.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\29\
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\29\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-29495 Filed 12-16-14; 8:45 am]
BILLING CODE 8011-01-P