[Federal Register Volume 80, Number 209 (Thursday, October 29, 2015)]
[Notices]
[Pages 66591-66594]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-27518]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-76248; File No. SR-NYSEMKT-2015-88]


Self-Regulatory Organizations; NYSE MKT LLC; Notice of Filing and 
Immediate Effectiveness of Proposed Rule Change Extending the Pilot 
Period Applicable to Rule 953.1NY(c), Which Addresses How the Exchange 
Treats Obvious and Catastrophic Errors During Periods of Extreme Market 
Volatility to Coincide with the Pilot Period for the Plan To Address 
Extraordinary Market Volatility Pursuant to Rule 608 of Regulation NMS

October 23, 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 October 22, 2015, NYSE MKT LLC (the ``Exchange'' or ``NYSE 
MKT'') 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

[[Page 66592]]

953.1NY(c), which addresses how the Exchange treats Obvious and 
Catastrophic Errors during periods of extreme market volatility to 
coincide with the pilot period for the Plan to Address Extraordinary 
Market Volatility Pursuant to Rule 608 of Regulation NMS. The pilot 
period is currently set to expire on October 23, 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 
953.1NY(c), which addresses how the Exchange treats Obvious and 
Catastrophic Errors during periods of extreme market volatility to 
coincide with the pilot period for the Plan to Address Extraordinary 
Market Volatility Pursuant to Rule 608 of Regulation NMS, as it may be 
amended from time to time (``LULD Plan''), including any extensions to 
the pilot period for the LULD Plan. The pilot period is currently set 
to expire on October 23, 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 953.1NY(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 953.1NY(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 975NY(c) for Obvious Errors or Rule 
975NY(d) for Catastrophic Errors. Nothing in Rule 953.1NY(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 975NY(c)(3), or a bust or adjust pursuant 
to paragraphs (e) through (j) and (l) of Rule 975NY.\5\
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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. 69339 (April 8, 
2013), 78 FR 22011 (April 12, 2013) (SR-NYSEMKT-2013-10) (``Approval 
Order'').
    \5\ See Rule 975NY, Commentary .03.
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    The Plan has been amended several times since inception and was 
implemented on February 24, 2014. On May 28, 2015, the Participants 
submitted to the Commission a Supplemental Joint Assessment that 
recommended that the Plan be adopted as permanent with certain 
modifications.\6\ The purpose of this proposed extension is to allow 
the Participants to conduct, and the Commission to consider, further 
analysis of data in support of the recommendations made in the 
Supplemental Joint Assessment, including around the attributes of limit 
states; the length of trading pauses; the use of an alternative 
reference price at the open of trading; and the alignment of the 
percentage parameters with the Clearly Erroneous Execution (CEE) 
thresholds (with the goal of largely eliminating the Participants' CEE 
authority).
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    \6\ See Letter from Christopher B. Stone, Vice President, FINRA, 
to Brent J. Fields, Secretary, SEC, dated May 28, 2015. In addition, 
the Participants to the Plan recently filed to extend the Plan's 
pilot period until April 22, 2016 (the ``Ninth Amendment''). See 
Securities Exchange Act Release No. 75917 (September 14, 2015), 80 
FR 56515 (September 18, 2015) (File No. 4-631) (notice of proposed 
Ninth Amendment to the Plan).
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    In order to align the pilot period for Rule 953.1NY(c) with the 
proposed pilot period for the Plan, the Exchange similarly proposes to 
extend the pilot period. The Exchange has committed to provide the 
Commission with its data assessments five months prior to the 
expiration of the LULD Plan pilot period, including any extensions. If 
the Plan extension is approved, the Exchange will deliver its next data 
assessment to the Commission by December 18, 2015.
    In connection with the proposed change, the Exchange proposes to 
modify the text of Rule 953.1NY to make clear that paragraph (c), like 
paragraphs (a) and (b), will be in effect for a pilot period to 
coincide with the pilot period for the LULD Plan, including any 
extensions to the pilot period for the LULD Plan. The Exchange believes 
the benefits afforded to market participants under Rule 953.1NY(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 953.1NY(c) 
should continue while the industry gains further experience operating 
the Plan. In addition, the Exchange believes that extending the pilot 
period for Rule 953.1NY(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 953.1NY(c), 
the Exchange committed to review the operation of this provision and to 
analyze the impact of Limit and Straddle States accordingly.\7\ 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.\8\ For each of those 
option classes affected, each data record contains the following 
information:
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    \7\ 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 22015.
    \8\ See Securities Exchange Act Release No. 71870 (April 4, 
2014), 79 FR 19692 (April 9, 2014) (SR-NYSEMKT-2014-31).
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     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;

[[Page 66593]]

     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.
    The Exchange believes that the extension of the pilot period of 
Rule 953.1NY(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.
    Finally, the Exchange proposes to amend 953.1NY (c) to update 
cross-references to Rule 975NY that reflect the recent amendments of 
that rule, which add clarity and consistency to Exchange rules. The 
Exchange also proposes to similarly amend Commentary .03 to Rule 975NY 
regarding the Limit Up-Limit Down State to reflect the extension of the 
pilot to coincide with the pilot period for the LULD Plan, including 
any extensions to the pilot period for the LULD Plan.
2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
Section 6(b) of the Act \9\ in general, and furthers the objectives of 
Section 6(b)(5),\10\ 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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    \9\ 15 U.S.C. 78f(b).
    \10\ 15 U.S.C. 78f(b)(5).
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    Specifically, the proposal to extend the pilot program of Rule 
953.1NY(c) and Commentary .03 to Rule 975NY to coincide with the pilot 
period for the LULD Plan, as it may be amended from time to time, 
including any extensions to the pilot period for the LULD Plan would 
align that pilot program with the Pilot Period for the Plan, as 
proposed in the Ninth 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 953.1NY(c) and Commentary .03 to Rule 975NY 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 953.1NY(c) and Commentary .03 to Rule 975NY would remove 
impediments to, and perfect the mechanisms of, a free and open market 
because it would enable the Exchange 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 953.1NY(c) and Commentary .03 to Rule 975NY.
    Finally, the Exchange believes that amending Rule 953.1NY (c) to 
update cross-references to Rule 975NY to reflect the recent amendments 
of that rule would remove impediments to, and perfect the mechanisms 
of, a free and open market by adding clarity and consistency to 
Exchange rules to the benefit of all market participants.

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 \11\ and Rule 19b-
4(f)(6)(iii) thereunder.\12\
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    \11\ 15 U.S.C. 78s(b)(3)(A).
    \12\ 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.\13\
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    \13\ 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.

[[Page 66594]]

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-2015-88 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-2015-88. 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-2015-88, and should 
be submitted on or before November 19, 2015.
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    \14\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\14\
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2015-27518 Filed 10-28-15; 8:45 am]
 BILLING CODE 8011-01-P