[Federal Register Volume 81, Number 135 (Thursday, July 14, 2016)]
[Notices]
[Pages 45575-45577]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-16617]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-78266; File No. SR-NYSEMKT-2016-66]


Self-Regulatory Organizations; NYSE MKT LLC; Notice of Filing and 
Immediate Effectiveness of Proposed Rule Change Amending Rule 975NY 
Regarding Transactions That Qualify as a Catastrophic Error as it 
Relates to Binary Return Derivatives Contracts

July 8, 2016.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (the ``Act''),\2\ and Rule 19b-4 thereunder,\3\ notice is hereby 
given that on July 1, 2016, NYSE MKT LLC (the ``Exchange'' or ``NYSE 
MKT'') filed with the Securities and Exchange Commission (the 
``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\ 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 the 
Substance of the Proposed Rule Change

    The Exchange proposes to amend Rule 975NY regarding transactions 
that qualify as a Catastrophic Error as it relates to Binary Return 
Derivatives contracts (``ByRDs''). 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 is proposing to amend Rule 975NY (Nullification and 
Adjustment of Options Transactions including Obvious Errors) regarding 
transactions that qualify as a Catastrophic Error as it relates to 
ByRDs.
    The Exchange recently amended its rules related to ByRDs, including 
portions of Rule 975NY regarding when a ByRDs transaction may qualify 
as a Catastrophic Error.\4\ In the ByRDs filing, the Exchange clarified 
that any transactions in ByRDs qualifying as a Catastrophic Error 
``that is higher or lower than the Theoretical Price by $.50 or more 
shall be deemed a Catastrophic Error, subject to the adjustment 
procedures of paragraph (d)(3) unless such adjustment would result in a 
price higher than $1.02, in which case the

[[Page 45576]]

adjustment price shall be $1.02.'' \5\ This change was designed to 
ensure that ByRDs trades that are deemed Catastrophic Errors are never 
adjusted to a price above $1.02.
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    \4\ See Securities Exchange Act Release No. 77014 (February 2, 
2016), 81 FR 6566 (February 8, 2016) (SR-NYSEMKT-2016-16) (the 
``ByRDs filing'').
    \5\ See Rule 975NY(d)(3)(A). This change was made to ensure 
consistency with obvious errors in ByRDs, which likewise caps any 
adjustment to ByRDs at a price no higher than $1.02. See Rule 
975NY(c)(6).
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    In connection with this modification, the Exchange deleted language 
from the definition of Catastrophic Error providing that any ByRDs 
transaction occurring at a price greater than $1.02 was presumptively a 
Catastrophic Error.\6\ The Exchange proposes to restore this concept to 
the rule text, as the deletion was erroneous. Specifically, the current 
rule does not appropriately capture as Catastrophic Errors those 
transactions in ByRDs occurring at prices greater than $1.02 but not 
more than $0.50 away from the Theoretical Price.
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    \6\ See supra n. 3, 81 FR at 6566 (striking from Rule 
975NY(d)(1) the caveat that ``except for Binary Return Derivatives 
where any transaction occurring at a price greater than $1.02 shall 
qualify as a Catastrophic Error'').
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    ByRDs are binary options and, as such, differ from traditional 
options traded on U.S. options exchanges by providing a discontinuous 
or non-linear payout. An in-the-money ByRD will pay a fixed sum at 
expiration regardless of the magnitude of the difference between the 
option's exercise price and the settlement price. Specifically, at 
expiration, a ByRDs contract will be worth $0 or $1.00; it will never 
have a value greater than $1.00. Any transaction in ByRDs for over 
$1.00 would result in an automatic loss. Consistent with the Exchange 
adjusting a Catastrophic Error in a ByRDs trade to a price no greater 
than $1.02 as provided for in Rule 975NY(d)(3)(A), the Exchange 
believes that no trade in ByRDs greater than $1.02 should stand, but 
should instead be adjusted to $1.02.\7\ Thus, the Exchange believes the 
proposed change would ensure that ByRDs trades that are $1.02 or more 
are deemed a Catastrophic Error, in addition to being appropriately 
adjusted.\8\
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    \7\ See proposed 975NY(d)(3)(A) (providing that any transaction 
in ByRDs that is ``(1) higher or lower than the Theoretical Price by 
$.50 or more or (2) at a price greater than $1.02 shall be deemed a 
Catastrophic Error, subject to the adjustment procedures of 
paragraph (d)(3) unless such adjustment would result in a price 
higher than $1.02, in which case the adjustment price shall be 
$1.02'').
    \8\ As noted in the ByRDs filing, ByRDs contracts were outside 
of the scope of the industry wide effort to harmonize Obvious and 
Catastrophic Error rules, and the proposed change therefore does not 
impact the harmonization effort. See Securities Exchange Act Release 
No. 74920 (May 8, 2015), 80 FR 27816, 27822 (May 14, 2015) (SR-
NYSEMKT-2015-39).
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    Finally, the Exchange proposes to correct the reference to 
``ByRDS'' in Rule 975NY(d)(3)(A) to ``ByRDs,'' which would make the 
reference consistent with other Exchange rules.
2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
Section 6(b) \9\ of the Securities Exchange Act of 1934 (the ``Act''), 
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, to foster cooperation and coordination with 
persons engaged in facilitating transactions in securities, and to 
remove impediments to and perfect the mechanism of a free and open 
market and a national market system.
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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 proposed change is designed to promote just and 
equitable principles of trade, and to remove impediments to and perfect 
the mechanism of a free and open market and a national market system, 
as the proposed change would ensure that ByRDs trades resulting from 
Catastrophic Errors are appropriately characterized as such and, in 
turn, appropriately adjusted. In addition, the proposed change would 
ensure that the Exchange would not be prevented from adjusting a trade 
in ByRDs that is the result of a Catastrophic Error, which would 
protect investors and the public interest.

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 believes that 
the proposed rule change will serve to promote regulatory clarity and 
consistency, thereby reducing burdens on the marketplace and 
facilitating investor protection.

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 foregoing 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, it has become 
effective pursuant to Section 19(b)(3)(A) of the Act and Rule 19b-
4(f)(6) thereunder.\11\
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    \11\ 17 CFR 240.19b-4(f)(6). 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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    A proposed rule change filed pursuant to Rule 19b-4(f)(6) under the 
Act \12\ normally does not become operative for 30 days after the date 
of its filing. However, Rule 19b-4(f)(6)(iii) \13\ permits the 
Commission to designate a shorter time if such action is consistent 
with the protection of investors and the public interest. The Exchange 
has asked the Commission to waive the 30-day operative delay so that 
the proposal may become operative immediately upon filing. The Exchange 
stated that the proposed rule change would ensure that the manner by 
which the Exchange determines whether a Catastrophic Error in a ByRDs 
trade has occurred is consistent with the standards by which the 
Exchange would adjust a ByRDs trade as provided for in Rule 
975NY(d)(3). The Exchange further stated that waiver of the operative 
delay is consistent with the protection of investors and the public 
interest because it would promote regulatory clarity and consistency, 
thereby reducing burdens on the marketplace and facilitating investor 
protection. The Commission believes that waiving the 30-day operative 
delay is consistent with the protection of investors and the public 
interest. Therefore, the Commission hereby waives the operative delay 
and designates the proposed rule change operative upon filing.\14\
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    \12\ 17 CFR 240.19b-4(f)(6).
    \13\ 17 CFR 240.19b-4(f)(6)(iii).
    \14\ For purposes only of waiving the 30-day operative delay, 
the Commission has 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

[[Page 45577]]

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-NYSEMKT-2016-66 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-2016-66. 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-2016-66, and should 
be submitted on or before August 4, 2016.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\15\
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    \15\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2016-16617 Filed 7-13-16; 8:45 am]
 BILLING CODE 8011-01-P