[Federal Register Volume 82, Number 188 (Friday, September 29, 2017)]
[Notices]
[Pages 45631-45634]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-20892]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-81717; File No. SR-NYSEArca-2017-96]


Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Amend Rule 6.40-
O To Allow Certain Order Types To Be Excluded From the Risk Limitation 
Mechanism

September 25, 2017.
    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 September 11, 2017, NYSE Arca, Inc. (the ``Exchange'' or 
``NYSE Arca'') 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

[[Page 45632]]

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 6.40-O (Risk Limitation 
Mechanism) to allow certain order types to be excluded from the risk 
limitation mechanism. 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 amend Rule 6.40-O (Risk Limitation 
Mechanism) to allow certain order types to be excluded from the risk 
limitation mechanism. Specifically, the Exchange proposes to provide 
OTP Holder and OTP Firms (collectively, ``OTPs'') with the option to 
exclude Immediate-Or-Cancel (``IOC'') orders from being counted against 
risk limitation thresholds.\4\
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    \4\ An IOC order is ``[a] Limit Order that is to be executed in 
whole or in part on the Exchange as soon as such order is received, 
and the portion not so executed is to be canceled.'' See Rule 
6.62(k).
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Risk Limitation Mechanisms
    The Exchange offers OTPs the option of utilizing risk limitation 
settings to assist OTPs in managing risk related to submitting orders 
during periods of increased and significant trading activity.\5\ An OTP 
can utilize one of three risk limitation mechanisms for its orders--
based on the number of transactions executed, the number of contracts 
traded, or the percent of the OTP's order size--which automatically 
cancels such orders when certain parameter settings are breached.\6\ 
The Exchange maintains trade counters that increment based on the 
number of trades executed, either from a single-leg order or any leg of 
a Complex Order, in any series in a specified class.\7\ The trade 
counters reset after an Exchange-determined time period.\8\ When an OTP 
has breached its risk settings (i.e., has traded more than the contract 
or volume limit or cumulative percentage limit of a class during the 
specified measurement interval), the Exchange will cancel all of the 
OTP's open orders in that class until the OTP notifies the Exchange it 
will resume submitting orders.\9\ The temporary suspension of orders 
from the market that results when the risk settings are triggered is 
meant to operate as a safety valve that enables OTPs to re-evaluate 
their positions before requesting to re-enter the market.
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    \5\ See Commentary .04(b) to Rule 6.40-O (providing that OTPs 
may avail themselves of one of the three risk limitation mechanisms 
for certain of their orders). Under the current Rule, Market Makers 
are required to utilize the risk limitation settings for quotes and 
the Exchange is not proposing to alter any aspect of this Rule in 
this regard. See also Commentary .04(a) to Rule 6.40-O; and Rule 
6.40(b)(2), (c)(2), (d)(2) and (e)(2).
    \6\ See Rule 6.40-O(b)(1), (c)(1), (d)(1) and Commentaries .01 
to Rule 6.40-O (regarding the cancellation of orders once the risk 
settings have been breached).
    \7\ See Rule 6.40-O(a)(1), (f). See also Commentaries .05-.07 to 
Rule 6.40 (regarding the operation of the trade counters).
    \8\ See Commentary .06 to Rule 6.40-O.
    \9\ See Commentaries .01 and .02 to Rule 6.40-O (requiring that 
an OTP request that it be re-enabled after a breach of its risk 
settings). In the event that an OTP experiences multiple, successive 
triggers of its risk settings, the Exchange would cancel all of the 
open orders--as opposed to cancelling only those in the option class 
(underlying symbol) in which the risk settings were triggered. See 
Rule 6.40-O(f) and Commentary .02 to Rule 6.40-O.
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Proposed Exclusion of IOC Orders From Risk Settings
    Under the current Rule, an OTP may activate a Risk Limitation 
Mechanism, and corresponding settings, for orders in a specified class 
and, once activated, the mechanism and the settings established will 
remain active unless, and until, the OTP deactivates the Risk 
Limitation Mechanism or changes the settings.\10\ Thus, once an OTP 
activates risk settings for orders in a specified class, the risk 
settings apply to all order types in that options class. The Exchange 
proposes to modify the rule to provide an OTP that chooses to utilize 
risk settings for its orders the option to exclude both single-legged 
orders and Complex Orders designated as IOC from being considered by 
the trade counter. To effect this change, proposed Commentary .07 to 
Rule 6.40-O would be amended to provide that ``[a]ny OTP that activates 
the Risk Limitation Mechanisms for orders pursuant to Commentary .04(b) 
of this Rule may opt to exclude any orders (i.e., whether single-leg 
orders or Complex Orders) designated with a time-in-force of IOC from 
being considered by a trade counter.''
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    \10\ See Commentary .04(b) to Rule 6.40-O.
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    By their terms, IOC orders (or portions thereof) will cancel if not 
immediately executed. As such, IOC orders are never ranked (as resting 
interest) in the Consolidated Book. The Exchange believes that certain 
OTPs utilize IOC orders to access liquidity on the Exchange. Thus, the 
proposed change is designed to accommodate participants that utilize 
IOCs in this manner by enabling them to exclude IOC orders from being 
counted and avoid potentially triggering their risk settings 
(prematurely), resulting in the cancellation of open orders. The 
Exchange believes that providing OTPs this additional flexibility may 
encourage more OTPs to utilize the risk settings, which benefits all 
market participants. The Exchange also believes that the proposed 
change would result in risk settings that may be better calibrated to 
suit the needs of certain OTPs (i.e., those that routinely utilize IOC 
orders to access liquidity on the Exchange), which improved risk 
settings should encourage OTPs to direct additional order flow and 
liquidity to the Exchange.
    The Exchange notes that the proposed change is limited to IOC 
orders being counted towards whether a risk limitation threshold has 
been reached. In the event an OTP breaches its risk limitation 
settings, any new orders in the specified class, including incoming IOC 
orders, sent by the OTP would be rejected until the OTP requests that 
the Exchange enable the entry of new orders.\11\
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    \11\ See Commentary .02 to Rule 6.40-O.
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Implementation
    The Exchange will announce by Trader Update the implementation date 
of the proposed rule change, which implementation will be no later than 
90 days after the effectiveness of this rule change.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Securities Exchange Act of 1934 (the ``Act''),\12\ in 
general, and furthers the objectives of Section 6(b)(5) of the Act,\13\ 
in particular, in that it is designed to prevent fraudulent and 
manipulative

[[Page 45633]]

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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    \12\ 15 U.S.C. 78f(b).
    \13\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes that the proposed rule change removes 
impediments to and perfects the mechanism of a free and open market by 
providing OTPs greater control and flexibility over setting their risk 
tolerance, which may enhance the efficacy of the risk settings. By 
their terms, IOC orders (or portions thereof) will cancel if not 
immediately executed. As such, IOC orders are never ranked (as resting 
interest) in the Consolidated Book. The Exchange believes that certain 
market participants utilize IOC orders to access liquidity on the 
Exchange. Thus, the proposed change is designed to accommodate 
participants that utilize IOCs in this manner by enabling them to 
exclude IOC orders from being counted and avoid potentially triggering 
their risk settings (prematurely), resulting in the cancellation of 
open orders. The Exchange believes that providing OTPs this additional 
flexibility may encourage more OTPs to utilize the risk settings, which 
benefits all market participants. Further, the proposed change would 
promote just and equitable principles of trade because it would result 
in risk settings that may be better calibrated to suit the needs of 
certain OTPs (i.e., those that routinely utilize IOC orders to access 
liquidity on the Exchange), which improved risk settings should 
encourage OTPs to direct additional order flow and liquidity to the 
Exchange. To the extent additional order flow is submitted to the 
Exchange as a result of the proposed change, all market participants 
stand to benefit from increased trading.
    The Exchange notes that an OTP has the option of utilizing risk 
settings for all orders submitted to the Exchange and, as proposed, 
would have the additional option of excluding from these risk settings 
any IOC orders in a given options class submitted to the Exchange.
    This proposed change, which was specifically requested by some 
OTPs, would foster cooperation and coordination with persons engaged in 
regulating, clearing, settling, and processing information with respect 
to, and facilitating transactions in, securities as it will be 
available to all OTPs on an optional basis and may encourage more OTPs 
to utilize this enhanced functionality to [sic] benefit of all market 
participants. Because the risk controls are designed to prevent the 
execution of erroneously priced trades, the Exchange believes that any 
proposal designed to increase the number of OTPs that utilize the 
functionality would benefit 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 Exchange is proposing a 
market enhancement that would provide OTPs with greater control and 
flexibility over setting their risk tolerance and, potentially, more 
protection over risk exposure. The proposal is structured to offer the 
same enhancement to all OTPs, regardless of size, and would not impose 
a competitive burden on any participant. The Exchange does not believe 
that the proposed enhancement to the existing risk limitation mechanism 
would impose a burden on competing options exchanges. Rather, the 
availability of this mechanism may foster more competition. 
Specifically, the Exchange notes that it operates in a highly 
competitive market in which market participants can readily favor 
competing venues. When an exchange offers enhanced functionality that 
distinguishes it from the competition and participants find it useful, 
it has been the Exchange's experience that competing exchanges will 
move to adopt similar functionality. Thus, the Exchange believes that 
this type of competition amongst exchanges is beneficial to the market 
place [sic] as a whole as it can result in enhanced processes, 
functionality, and technologies.

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, it has become effective pursuant to Section 
19(b)(3)(A) of the Act \14\ and Rule 19b-4(f)(6) thereunder.\15\
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    \14\ 15 U.S.C. 78s(b)(3)(A).
    \15\ 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 \16\ normally does not become operative for 30 days after the date 
of its filing. However, Rule 19b-4(f)(6)(iii) \17\ 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 Exchange can implement the proposal without delay. The Exchange 
believes that waiver of the operative delay would be consistent with 
the protection of investors and the public interest because it would 
enable the Exchange to implement without delay the proposed optional 
functionality, which the Exchange believes may, in turn, encourage more 
OTPs to utilize the optional risk settings for orders. Thus, the 
Exchange believes waiver of the operative delay would protect investors 
by enabling the Exchange to provide greater flexibility to its Risk 
Limitation Mechanisms for orders, which may result in increased usage 
of the risk settings to the benefit of all market participants. The 
Commission believes that waiver of the operative delay is consistent 
with the protection of investors and the public interest because it 
will provide OTP Holders with the flexibility to exclude IOC orders 
from consideration by a trade counter, which, the Exchange believes, 
could encourage additional OTP Holders to use the risk limitation 
settings. As noted above, the risk limitation settings are designed to 
assist OTP Holders in managing risk related to submitting orders during 
periods of increased and significant trading activity. Under the 
proposal, the ability to exclude IOC orders from consideration by a 
trade counter is optional; thus, an OTP Holder that utilizes the risk 
limitation settings and wishes to continue to have its IOC orders 
considered by a trade counter will be able to do so. Accordingly, the 
Commission hereby waives the operative delay and designates the

[[Page 45634]]

proposed rule change operative upon filing.\18\
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    \16\ 17 CFR 240.19b-4(f)(6).
    \17\ 17 CFR 240.19b-4(f)(6)(iii).
    \18\ For purposes only of waiving the 30-day operative delay, 
the Commission also 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 to 
determine whether the proposed rule change 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-NYSEArca-2017-96 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-2017-96. 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-2017-96, and should 
be submitted on or before October 20, 2017.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\19\
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    \19\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-20892 Filed 9-28-17; 8:45 am]
 BILLING CODE 8011-01-P