[Federal Register Volume 80, Number 208 (Wednesday, October 28, 2015)]
[Notices]
[Pages 66058-66060]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-27347]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-76227; File No. SR-BX-2015-062]
Self-Regulatory Organizations; NASDAQ OMX BX, Inc.; Notice of
Filing and Immediate Effectiveness of Proposed Rule Change Regarding
the Obvious Error Pilot Program
October 22, 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 October 20, 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 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\ 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 amend the BX Options Rules to extend the
pilot program under Chapter V, Section 3(d)(iv), which provides for how
the Exchange treats obvious and catastrophic options errors in response
to the Plan to Address Extraordinary Market Volatility Pursuant to Rule
608 of Regulation NMS under the Act (the ``Limit Up-Limit Down Plan''
or the ``Plan'').\3\ The Exchange proposes to extend the pilot period
to coincide with the pilot period for the Limit Up-Limit Down Plan,
including any extensions to the pilot period for the Plan.
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\3\ Securities Exchange Act Release Nos. 69140 (March 15, 2013),
78 FR 17255 (March 20, 2013); and 69343 (April 8, 2013), 78 FR 21982
(April 12, 2013) (SR-BX-2013-026).
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The text of the proposed rule change is available on the Exchange's
Web site at http://nasdaqomxbx.cchwallstreet.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 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
In April 2013,\4\ the Commission approved a proposal, on a one year
pilot basis, to adopt Chapter V, Section 3(d)(iv) to provide for how
the Exchange will treat obvious and catastrophic options errors in
response to the Plan, which is applicable to all NMS stocks,
[[Page 66059]]
as defined in Regulation NMS Rule 600(b)(47).\5\ The Plan is designed
to prevent trades in individual NMS stocks from occurring outside of
specified Price Bands.\6\ The requirements of the Plan are coupled with
Trading Pauses to accommodate more fundamental price moves (as opposed
to erroneous trades or momentary gaps in liquidity).
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\4\ Securities Exchange Act Release No. 69343 (April 8, 2013),
78 FR 21982 (April 12, 2013) (SR-BX-2013-026).
\5\ The Plan was extended until February 20, 2015. The Plan was
initially approved for a one-year pilot period, which began on April
8, 2013. Securities Exchange Act Release No. 71649 (March 5, 2014),
79 FR 13696 (March 11, 2014).
\6\ Unless otherwise specified, capitalized terms used in this
rule filing are based on the defined terms of the Plan.
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The Exchange extended the operation of Chapter V, Section 3(d)(iv),
which provides that trades are not subject to an obvious error or
catastrophic error review pursuant to Chapter V, Sections 6(c) or 6(d)
during a Limit State or Straddle State in 2014,\7\ and again in
2015.\8\ The current pilot period expires October 23, 2015. Currently,
the pilot period for the Plan is proposed to be extended until April
22, 2016.\9\ The Exchange now proposes to extend the pilot program for
an additional pilot period to coincide with the pilot period for the
Limit Up-Limit Down Plan, including any extensions to the pilot period
for the Plan. The Exchange believes conducting an obvious error or
catastrophic error review is impracticable given the lack of a reliable
National Best Bid/Offer (``NBBO'') in the options market during Limit
States and Straddle States, and that the resulting actions (i.e.,
nullified trades or adjusted prices) may not be appropriate given
market conditions. Under the pilot, limit orders that are filled during
a Limit State or Straddle State have certainty of execution 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. Moreover, given that options prices
during brief Limit States or Straddle States may deviate substantially
from those available shortly following the Limit State or Straddle
State, the Exchange believes giving market participants time to re-
evaluate a transaction would create an unreasonable adverse selection
opportunity that would discourage participants from providing liquidity
during Limit States or Straddle States. On balance, the Exchange
believes that removing the potential inequity of nullifying or
adjusting executions occurring during Limit States or Straddle States
outweighs any potential benefits from applying those provisions during
such unusual market conditions.
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\7\ Securities Exchange Act Release No. 71900 (April 8, 2014),
79 FR 20951 (April 14, 2014) (SR-BX-2014-017).
\8\ Securities Exchange Act Release No. 74334 (February 20,
2015), 80 FR 10526 (February 26, 2015) (SR-BX-2015-012).
\9\ Securities Exchange Act Release No. 75917 (September 14,
2015), 80 FR 56515 (September 18, 2015).
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The Exchange believes the benefits to market participants from the
pilot program should continue on a pilot basis to coincide with the
operation of the Limit Up-Limit Down Plan. The Exchange believes that
continuing the pilot will protect against any unanticipated
consequences and permit the industry to gain further experience
operating the Plan.
The Exchange will conduct an analysis concerning the elimination of
obvious and catastrophic error provisions during Limit States and
Straddle States and agrees to provide the Commission with relevant data
to assess the impact of this proposed rule change. As part of its
analysis, the Exchange will: (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.
Additionally, the Exchange agrees to provide to the Commission data
requested to evaluate the impact of the elimination of the obvious and
catastrophic error provisions, including data relevant to assessing the
various analyses noted above. No later than five months prior to the
expiration of the pilot period, including any extensions to the pilot
period for the Plan,\10\ the Exchange shall provide to the Commission
and the public assessments relating to the impact of the operation of
the obvious error rules during Limit and Straddle States as follows:
\11\
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\10\ If the Plan extension is approved, the next data assessment
will be due no later than December 18, 2015.
\11\ The Exchange submitted a pilot report on September 30, 2014
and May 29, 2015.
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1. Evaluate the statistical and economic impact of Limit and
Straddle States on liquidity and market quality in the options markets.
2. Assess whether the lack of obvious error rules in effect during
the Straddle and Limit States are problematic.
Each month the Exchange shall provide to the Commission and the public
a dataset containing the data for each Straddle and Limit State in
optionable stocks that had at least one trade on the Exchange during a
Straddle or Limit State. For each of those options affected, each data
record should contain the following information:
Stock symbol, option symbol, time at the start of the Straddle
or Limit 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.\12\
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\12\ The Exchange agreed to provide similar data in the original
proposal. See Securities Exchange Act Release No. 69343 (April 8,
2013), 78 FR 21982 (April 12, 2013) (SR-BX-2013-026) at notes 4 and
11. However, that data included two additional filters pertaining to
the top 10 options and an in-the-money amount, which no longer
apply. The Exchange provided historical data in the new form
pursuant to this proposed rule change, going back to the beginning
of the original pilot period.
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2. Statutory Basis
The Exchange believes the proposed rule change is consistent with
the provisions of Section 6 of the Act,\13\ in general, and with
Section 6(b)(5) of the Act,\14\ in particular, which requires that the
rules of an exchange be designed to promote just and equitable
principles of trade, remove impediments to and perfect the mechanism of
a free and open market and a national market system, and protect
investors and the public interest, because it should continue to
provide certainty about how errors involving options orders and trades
will be handled during periods of extraordinary volatility in the
underlying security. The Exchange believes that it continues to be
necessary and appropriate in the interest of promoting fair and orderly
markets to exclude transactions executed during a Limit State or
[[Page 66060]]
Straddle State from certain aspects of Chapter V, Section 6.
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\13\ 15 U.S.C. 78f.
\14\ 15 U.S.C. 78f(b)(5).
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Although the Limit Up-Limit Down Plan is operational, the Exchange
believes that maintaining the pilot to coincide with the pilot period
for the Plan will help the industry gain further experience operating
the Plan as well as the pilot provisions.
Based on the foregoing, the Exchange believes the benefits to
market participants should continue on a pilot basis to coincide with
the operation of the Limit Up-Limit Down Plan.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange 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.
Specifically, the proposal does not impose an intra-market burden on
competition, because it will apply to all members. Nor will the
proposal impose a burden on competition among the options exchanges,
because, in addition to the vigorous competition for order flow among
the options exchanges, the proposal addresses a regulatory situation
common to all options exchanges. To the extent that market participants
disagree with the particular approach taken by the Exchange herein,
market participants can easily and readily direct order flow to
competing venues. The Exchange believes this proposal will not impose a
burden on competition and will help provide certainty during periods of
extraordinary volatility in an NMS stock.
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 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 \15\ and Rule 19b-
4(f)(6)(iii) thereunder.\16\
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\15\ 15 U.S.C. 78s(b)(3)(A).
\16\ 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.\17\
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\17\ 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
Send an email to [email protected]. Please include
File Number SR-BX-2015-062 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-BX-2015-062. 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-BX-2015-062, and should be
submitted on or before November 18, 2015.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\18\
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\18\ 17 CFR 200.30-3(a)(12).
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Brent J. Fields,
Secretary.
[FR Doc. 2015-27347 Filed 10-27-15; 8:45 am]
BILLING CODE 8011-01-P