[Federal Register Volume 82, Number 90 (Thursday, May 11, 2017)]
[Notices]
[Pages 22033-22035]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-09532]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-80616; File No. SR-NYSEMKT-2017-13]


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, Amending Rule 968NY To 
Make Permanent a Program That Allows Cabinet Trade Transactions To Take 
Place at a Price Below $1 Per Option Contract

May 5, 2017.

I. Introduction

    On March 2, 2017, NYSE MKT LLC (the ``Exchange'' or ``NYSE MKT'') 
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 
amending the Exchange's rules to make permanent a program that allows 
transactions to take place in open outcry trading at prices of at least 
$0 but less than $1 per option contract (``sub-dollar cabinet 
trades''). The proposed rule change was published for comment in the 
Federal Register on March 23, 2017.\3\ On April 25, 2017, the Exchange 
filed Amendment No. 1 to the proposed rule change.\4\ The Commission 
received no comment letters on the proposed rule change. This order 
provides notice of filing of Amendment No. 1 and approves the proposed 
rule change, as modified by Amendment No. 1, on an accelerated basis.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 80272 (March 17, 
2017), 82 FR 14936 (March 23, 2017) (``Notice'').
    \4\ In Amendment No. 1, the Exchange provided supplemental 
background detail on its proposal, including a summary of why it 
initially put the program on a pilot, a description of the systems 
enhancements it made to be able to process cabinet trades in the 
regular course, an example of how a cabinet trade is done on the 
trading floor, and a representation that, to its knowledge, neither 
the Options Clearing Corporation (``OCC'') nor the Exchange's 
members have reported any operational issues in connection with 
cabinet trades. To promote transparency of its proposed amendment, 
when NYSE MKT filed Amendment No. 1 with the Commission, it also 
submitted Amendment No. 1 as a comment letter to the file, which the 
Commission posted on its Web site and placed in the public comment 
file for SR-NYSEMKT-2017-13 (available at https://www.sec.gov/comments/sr-nysemkt-2017-13/nysemkt201713.htm). The Exchange also 
posted a copy of its Amendment No. 1 on its Web site (https://www.nyse.com/regulation/rule-filings) when it filed it with the 
Commission.
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II. Description of the Proposed Rule Change

    Prior to 2010, Exchange Rule 968NY (Cabinet Trades (Accommodation 
Transactions)) allowed cabinet trade transactions at a price of $1 per 
option contract to occur in open outcry trading for certain classes.\5\ 
In 2010, the Exchange amended Rule 968NY on a pilot basis to allow sub-
dollar cabinet trades to take place at prices of at least $0 but less 
than $1 per option contract.\6\ The Exchange now proposes to amend Rule 
968NY to make permanent its sub-dollar cabinet trade pilot program, 
which currently is scheduled to expire on July 5, 2017.\7\
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    \5\ See Rule 968NY. See also Notice, supra note 3, at 14936 
(discussing Rule 968NY).
    \6\ See Securities Exchange Act Release No. 63475 (December 8, 
2010), 75 FR 77932 (December 14, 2010) (SR-NYSEAmex-2010-114).
    \7\ See Commentary .01 to Rule 968NY. See also Securities 
Exchange Act Release No. 79564 (December 15, 2016), 81 FR 93716 
(December 21, 2016) (SR-NYSEMKT-2016-116).

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[[Page 22034]]

    The Exchange permits sub-dollar cabinet trade transactions to be 
traded pursuant to the same procedures applicable to $1 cabinet trades, 
except that for sub-dollar cabinet trades (i) bids and offers for 
opening transactions are permitted only to accommodate closing 
transactions, and (ii) transactions in option classes participating in 
the Penny Pilot Program are permitted.\8\ As it explained in the 
Notice, the Exchange believes that ``allowing trading at a price of at 
least $0 but less than $1 better accommodates the closing of options 
positions in series that are worthless or not actively traded, 
particularly when there has been a significant move in the price of the 
underlying security, resulting in a large number of series being out-
of-the-money.'' \9\
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    \8\ See Commentary .01 to Rule 968NY. See also Notice, supra 
note 3, at 14937 (discussing the pilot).
    \9\ Notice, supra note 3, at 14937.
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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 \10\ and the 
rules and regulations thereunder applicable to a national securities 
exchange.\11\ In particular, the Commission finds that the proposed 
rule change is consistent with Section 6(b)(5) of the Act,\12\ 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 foster 
cooperation and coordination with persons engaged in regulating, 
clearing, settling, processing information with respect to, and 
facilitating transactions in securities, 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.
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    \10\ 15 U.S.C. 78f.
    \11\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. See 15 U.S.C. 78c(f).
    \12\ 15 U.S.C. 78f(b)(5).
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    In the Notice, as amended, the Exchange explains that it initially 
put the sub-dollar cabinet trade rule on a pilot so that it could 
``evaluate the efficacy of the change and to address any operational 
issues that might arise in processing [c]abinet trades.'' \13\ During 
the course of the pilot, the Exchange made enhancements to its system 
to accommodate cabinet trades at a price as small as $0.00000001.\14\ 
With that systems change, and based on its experience with these types 
of trades, the Exchange notes that its systems now ``allow it to 
process [c]abinet trades in a manner similar to how all other trades 
are processed by the Exchange.'' \15\
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    \13\ Amendment No. 1, supra note 4.
    \14\ See id.
    \15\ Id. See also Notice, supra note 3, at 14937 (noting that 
``in 2016, there were a total of 222 Cabinet trades. Of these, 148 
trades comprising 112,257 contracts were executed at a price of 
$0.01, while the remaining 74 trades comprising 165,868 contracts 
were executed for a premium of less than $0.01'').
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    In support of making the pilot program permanent, the Exchange 
represents that ``there are no operational issues in processing and 
clearing [c]abinet trades in penny and sub-penny increments.'' \16\ The 
Exchange also represents that ``ATP Holders have not raised any 
concerns with the current method of processing of [c]abinet trades.'' 
\17\ Finally, the Exchange represents that it is ``not aware of the 
Options Clearing Corporation (``OCC'') having operational issues with 
processing [c]abinet trades submitted by the Exchange.'' \18\
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    \16\ Notice, supra note 3, at 14937.
    \17\ Amendment No. 1, supra note 4.
    \18\ Id.
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    Based on the representations of the Exchange, the Commission 
believes that permanent approval of the sub-dollar cabinet trade pilot 
is consistent with the Act. In particular, the Commission notes that 
the Exchange has made the necessary systems changes to accommodate sub-
dollar cabinet trades into its regular trading infrastructure, and thus 
is able to process such trades in the normal course. Further, the 
Exchange has not observed any issues or concerns with sub-dollar 
cabinet trades at the Exchange level or with and among its members or 
in processing the trades through OCC. Accordingly, the Exchange's rule 
appears reasonably designed to remove impediments, prevent fraudulent 
and manipulative acts and practices, and foster cooperation and 
coordination with persons engaged in facilitating transactions in 
securities. Further, permanent approval will continue to provide 
investors with choice when considering a cabinet trade, including the 
ability to price such trades below $1 per contract.

IV. Solicitation of Comments on Amendment No. 1 to the Proposed Rule 
Change

    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-2017-13 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-2017-13. 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 the 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-2017-13, and should 
be submitted on or before June 1, 2017.

V. Accelerated Approval of Proposed Rule Change, as Modified by 
Amendment No. 1

    The Commission finds good cause to approve the proposed rule 
change, as modified by Amendment No. 1, prior to the thirtieth day 
after the date of publication of notice of the amended proposal in the 
Federal Register. In Amendment No. 1, NYSE MKT provided supplemental 
background detail on why the sub-dollar cabinet

[[Page 22035]]

trade provision was put on a pilot initially, described the systems 
changes that the Exchange made to be able to process cabinet trades, 
and represented its understanding that neither OCC nor the Exchange's 
members have reported any operational issues in connection with cabinet 
trades.\19\ The additional information contained in Amendment No. 1 
provides further support for the Exchange's proposal, is consistent 
with the proposal as initially filed, and does not introduce any new 
provisions or novel arguments in support of the proposal. Further, the 
Commission notes that it did not receive any comment letters on the 
Exchange's proposal. Accordingly, the Commission finds good cause, 
pursuant to Section 19(b)(2) of the Act,\20\ to approve the proposed 
rule change, as modified by Amendment No. 1, on an accelerated basis.
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    \19\ See Amendment No. 1, supra note 4. See also supra note 4 
(noting that the Exchange submitted Amendment No. 1 as a comment 
letter to the file, which the Commission posted on its Web site and 
placed in the public comment file).
    \20\ 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,\21\ that the proposed rule change (SR-NYSEMKT-2017-13), as 
modified by Amendment No. 1, be, and hereby is, approved on an 
accelerated basis.
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    \21\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\22\
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    \22\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-09532 Filed 5-10-17; 8:45 am]
 BILLING CODE 8011-01-P