[Federal Register Volume 80, Number 37 (Wednesday, February 25, 2015)]
[Notices]
[Pages 10187-10189]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-03816]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-74308; File No. SR-NYSEArca-2015-07]


Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change Extending the Pilot 
Period Applicable to Rule 6.65A(c), Obvious and Catastrophic Errors, 
Until October 23, 2015

February 19, 2015.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on February 18, 2015, NYSE Arca, Inc. (the ``Exchange'' or ``NYSE 
Arca'') 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 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\ 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 extend the pilot period applicable to Rule 
6.65A(c), which addresses how the Exchange treats Obvious and 
Catastrophic Errors during periods of extreme market volatility, until 
October 23, 2015. The pilot period is currently set to expire on 
February 20, 2015. 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 extend the pilot period applicable to Rule 
6.65A(c), which addresses how the Exchange treats Obvious and 
Catastrophic Errors during periods of extreme market volatility, until 
October 23, 2015. The pilot period is currently set to expire on 
February 20, 2015.
    In April 2013, in connection with the Plan to Address Extraordinary 
Market Volatility Pursuant to Rule 608 of Regulation NMS (the 
``Plan''),\3\ the Exchange adopted Rule 6.65A(c) to provide that 
options executions would not be adjusted or nullified if the execution 
occurs during periods of extreme market volatility.\4\ Specifically, 
Rule 6.65A(c) provides that, during the pilot period, electronic 
transactions in options that overlay an NMS Stock that occur during a 
Limit State or a Straddle State (as defined by the Plan) are not 
subject to review under Rule 6.87(a) for Obvious Errors or Rule 6.87(d) 
for Catastrophic Errors. Nothing in Rule 6.65A(c) prevents electronic 
transactions in options that overlay an NMS Stock that occur during a 
Limit State or a Straddle State from being reviewed on Exchange motion 
pursuant to 6.87(b)(3).
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    \3\ See Securities Exchange Act Release No. 67091 (May 31, 
2012), 77 FR 33498 (June 6, 2012) (File No. 4-631) (Order Approving, 
on a Pilot Basis, the Plan). The Plan is designed to prevent trades 
in individual NMS Stocks from occurring outside of specified Price 
Bands, which are described in more detail in the Plan.
    \4\ See Securities and Exchange Act Release No. 69340 (April 8, 
2013), 78 FR 22004 (April 12, 2013) (SR-NYSEArca-2013-10) 
(``Approval Order'').
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    The Plan has been amended several times since inception and was not 
implemented until February 24, 2014. The Participants to the Plan 
recently filed to extend the Plan's pilot period until October 23, 2015 
(the ``Eighth Amendment'').\5\ The purpose of this proposed extension 
is to provide time for the Participants to prepare a supplemental 
assessment and recommendation regarding the Plan and for the public to 
comment on such assessment for the purpose of determining whether there 
should be any modifications to the Plan.
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    \5\ See Securities Exchange Act Release No. 74110 (January 21, 
2015), 80 FR 4321 (January 27, 2015) (File No. 4-631) (notice of 
proposed Eighth Amendment to the Plan).
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    In order to align the pilot period for Rule 6.65A(c) with the 
proposed pilot period for the Plan, the Exchange similarly proposes to 
extend the pilot period until October 23, 2015. The Exchange believes 
the benefits afforded to market participants under Rule 6.65A(c) should 
continue on a pilot basis during the same period as the Plan pilot. The 
Exchange continues to believe that adding certainty to the execution of 
orders in Limit or Straddle States would encourage market participants 
to continue to provide liquidity to the Exchange, and thus, promote a 
fair and orderly market during those periods. Thus, the Exchange 
believes that the protections of current Rule 6.65A(c) should continue 
while the industry gains further experience operating the Plan. In 
addition, the Exchange believes that extending the pilot period for 
Rule 6.65A(c) would allow the Exchange to continue to collect and 
evaluate data, as well as to conduct further data analyses, related to 
this provision.
    Specifically, in connection with the adoption of Rule 6.65A(c), the 
Exchange committed to review the operation of this provision and to 
analyze the impact of Limit and Straddle States accordingly.\6\ The 
Exchange agreed to and has been providing to the Commission and the 
public data for each Straddle State and Limit State in NMS Stocks 
underlying options traded on the Exchange beginning in April 2013, 
limited to those option classes that have at least one (1) trade on the 
Exchange during a Straddle State or Limit State.\7\ For each of those 
option classes affected, each data record contains the following 
information:
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    \6\ Specifically, the Exchange committed to: ``(1) Evaluate the 
options market quality during Limit States and Straddle States; (2) 
assess the character of incoming order flow and transactions during 
Limit States and Straddle States; and (3) review any complaints from 
members and their customers concerning executions during Limit 
States and Straddle States.'' See Approval Order, 78 FR at 22008.
    \7\ See Securities Exchange Act Release No. 71869 (April 4, 
2014), 79 FR 19689 (April 9, 2014) (SR-NYSEArca-2014-36).
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     Stock symbol, option symbol, time at the start of the 
Straddle or Limit

[[Page 10188]]

State, an indicator for whether it is a Straddle or Limit State.
     For activity on the Exchange:
     executed volume, time-weighted quoted bid-ask spread, 
time-weighted average quoted depth at the bid, time-weighted average 
quoted depth at the offer;
     high execution price, low execution price;
     number of trades for which a request for review for error 
was received during Straddle and Limit States;
     an indicator variable for whether those options outlined 
above have a price change exceeding 30% during the underlying stock's 
Limit or Straddle state compared to the last available option price as 
reported by OPRA before the start of the Limit or Straddle State (1 if 
observe 30% and 0 otherwise). Another indicator variable for whether 
the option price within five minutes of the underlying stock leaving 
the Limit or Straddle state (or halt if applicable) is 30% away from 
the price before the start of the Limit or Straddle state.
    In addition, the Exchange has committed to provide to the 
Commission by May 29, 2015 assessments relating to the impact of the 
operation of the Obvious Error rules during Limit and Straddle States 
as follows: (1) Evaluate the statistical and economic impact of Limit 
and Straddle States on liquidity and market quality in the options 
markets; and (2) Assess whether the lack of Obvious Error rules in 
effect during the Straddle and Limit States are problematic. The 
Exchange notes that, to date, there have not been any requests for 
review of Obvious Error of options trades that occur during a Limit or 
Straddle State in the underlying security.
    The Exchange believes that the extension of the pilot period of 
Rule 6.65A(c) would allow the Exchange to continue to observe the 
operation of the pilot and conduct its assessments relating to the 
impact of the operation of the Rule during Limit and Straddle States, 
which information will continue to be shared with the Commission and 
the public as set forth above.
2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
Section 6(b) of the Act \8\ in general, and furthers the objectives of 
Section 6(b)(5),\9\ in particular, in that 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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    Specifically, the proposal to extend the pilot program of Rule 
6.65A(c) until October 23, 2015 would align that pilot program with the 
Pilot Period for the Plan, as proposed in the Eighth Amendment to the 
Plan. The Exchange believes that aligning the pilot periods would 
ensure that trading in options that overlay NMS Stocks continues to be 
appropriately modified to reflect market conditions that occur during a 
Limit State or a Straddle State in a manner that promotes just and 
equitable principles of trade and removes impediments to, and perfects 
the mechanism of, a free and open market and a national market system. 
The Exchange believes that the extension of Rule 6.65A(c) would help 
encourage market participants to continue to provide liquidity during 
extraordinary market volatility.
    Moreover, the Exchange believes that extending the pilot period for 
Rule 6.65A(c) would remove impediments to, and perfect the mechanisms 
of, a free and open market because it would enable the Exchange to 
continue to continue to conduct its assessments relating to the impact 
of the operation of the Obvious Error rules during Limit and Straddle 
States as set forth above, which, in turn, provides the Exchange with 
more information from which to assess the impact of Rule 6.65A(c).

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 changes will 
not impose any burden on competition and will instead provide certainty 
regarding the treatment and execution of options orders, specifically 
the treatment of Obvious and Catastrophic Errors during periods of 
extraordinary volatility in the underlying NMS Stock, and will 
facilitate appropriate liquidity during a Limit State or Straddle 
State.

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

    Because the 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 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 \10\ and Rule 19b-
4(f)(6)(iii) thereunder.\11\
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    \10\ 15 U.S.C. 78s(b)(3)(A).
    \11\ 17 CFR 240.19b-4(f)(6)(iii). As required under Rule 19b-
4(f)(6)(iii), the Exchange provided the Commission with written 
notice of its intent to file the proposed rule change, along with a 
brief description and the 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.
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    The Exchange has asked the Commission to waive the 30-day operative 
delay so that the proposal may become operative immediately upon 
filing. The Commission believes that waiving the 30-day operative delay 
is consistent with the protection of investors and the public interest, 
as it will allow the obvious error pilot program to continue 
uninterrupted while the industry gains further experience operating 
under the Plan, and avoid any investor confusion that could result from 
a temporary interruption in the pilot program. For this reason, the 
Commission designates the proposed rule change to be operative upon 
filing.\12\
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    \12\ For purposes only of waiving the 30-day operative delay, 
the Commission has also considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
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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 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 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

[[Page 10189]]

     Send an email to [email protected]. Please include 
File Number SR-NYSEArca-2015-07 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-NYSEArca-2015-07. 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-NYSEArca-2015-07, and should 
be submitted on or before March 18, 2015.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\13\
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    \13\ 17 CFR 200.30-3(a)(12).
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Brent J. Fields,
Secretary.
[FR Doc. 2015-03816 Filed 2-24-15; 8:45 am]
BILLING CODE 8011-01-P