12664 Federal Register / Vol. 80, No. 46 / Tuesday, March 10, 2015 / Notices 

14 17 CFR 200.30–3(a)(12). 

1 15 U.S.C. 78s(b)(1). 

2 17 CFR 240.19b–4. 

3See Securities Exchange Act Release No. 74018 

(January 8, 2015), 80 FR 1982 (‘‘Notice’’). 

4 In Amendment No. 1, the Exchange clarified 

that it believes that Market Maker bids should not 

be priced the same as or higher than the 

corresponding benchmark, which would be the 

price of the underlying security for call options and 

the strike price for put options. Amendment No. 1 

does not change any of the proposed rule text that 

was submitted in the original filing. Amendment 

No. 1 is technical in nature and, therefore, the 

Commission is not publishing it for comment. 

5Pursuant to Exchange Rule 6.60(b), unless 

determined otherwise by the Exchange and 

announced to OTP Holders and OTP Firms via 

Trader Update, the specified percentage is 100% for 

the contra-side NBB or NBO priced at or below 

$1.00 and 50% for contra-side NBB or NBO priced 

above $1.00. See Notice, supra note 3, at 1983. 

6See Notice, supra note 3, at 1983. 

7The Exchange states that the proposal will assist 

with the maintenance of fair and orderly markets 

by averting the risk of Market Maker quotes 

sweeping through multiple price points resulting in 

executions at prices that are through the last sale 

price or National Best Bid or Best Offer (‘‘NBBO’’). 

See Notice, supra note 3, at 1983. 

8The Exchange represents that this proposed 

price protection mechanism is similar to the 

Exchange’s Limit Order Filter. See Notice, supra 

note 3, at 1983. 

9The Exchange states that the proposed 

percentages are appropriate because they are based 

on the percentages established for the Limit Order 

Filter. See Notice, supra note 3, at 1983. 

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 rule-comments@

sec.gov. Please include File Number SR– 

PHLX–2015–20 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. 

All submissions should refer to File 

Number SR–PHLX–2015–20. 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–PHLX– 

2015–20 and should be submitted on or 

before March 31, 2015. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.14

Brent J. Fields, 

Secretary. 

[FR Doc. 2015–05481 Filed 3–9–15; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–74441; File No. SR– 

NYSEArca–2014–150] 

Self-Regulatory Organizations; NYSE 

Arca, Inc.; Order Granting Approval of 

a Proposed Rule Change, as Modified 

by Amendment No. 1, To Amend Rule 

6.60 and To Adopt Rule 6.61, Which 

Was Previously Reserved, To Provide 

Price Protection for Market Maker 

Quotes 

March 4, 2015. 

I. Introduction 

On December 29, 2014, NYSE Arca, 

Inc. (‘‘Exchange’’) 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 to 

amend Exchange Rule 6.60 (Price 

Protection) and to adopt Exchange Rule 

6.61 to provide price protection for 

Market Maker quotes. The proposed rule 

change was published for comment in 

the Federal Register on January 14, 

2015.3 The Commission received no 

comment letters on the proposal. On 

March 2, 2015, the Exchange filed 

Amendment No. 1 to the proposed rule 

change.4 This order approves the 

proposed rule change, as modified by 

Amendment No. 1 thereto. 

II. Description of the Proposal 

The Exchange proposed to amend 

Exchange Rule 6.60 and to adopt 

Exchange Rule 6.61, which was 

previously Reserved, to provide price 

protection for Market Maker quotes. 

Exchange Rule 6.60 currently applies 

and will continue to apply solely to 

orders. Exchange Rule 6.60(b), provides 

a price protection filter for incoming 

limit orders, pursuant to which the 

Exchange rejects limit orders priced a 

specified percentage 5 through the 

National Best Bid (‘‘NBB’’) or National 

Best Offer (‘‘NBO’’) (‘‘Limit Order 

Filter’’). To clarify that Exchange Rule 

6.60 applies only to orders, the 

Exchange proposed to append the word 

‘‘Orders’’ to the Exchange Rule 6.60 

header to provide ‘‘Rule 6.60. Price 

Protection—Orders.’’ 6

A. Proposed Market Maker Quote Price 

Protection 

The Exchange proposed to adopt new 

Exchange Rule 6.61 to provide for a 

price protection mechanism for quotes 

entered by a Market Maker. Exchange 

Rule 6.61(a) will provide price 

protection filters applicable only for 

quotes entered by a Market Maker 

pursuant to Rule 6.37B and will not be 

applicable to orders entered by a Market 

Maker. The Exchange proposed to 

provide for two layers of price 

protection that will be applicable to all 

incoming Market Maker quotes.7 The 

first layer of price protection will assess 

incoming sell quotes against the NBB 

and incoming buy quotes against the 

NBO.8 The second layer of price 

protection will assess the price of call or 

put bids against a specified benchmark. 

1. NBBO Price Reasonability Check 

Proposed Exchange Rule 6.61(a)(1) 

sets forth the Exchange’s proposed 

NBBO price reasonability check, which 

will compare Market Maker bids with 

the NBO and Market Maker offers with 

the NBB. Specifically, provided that an 

NBBO is available, a Market Maker 

quote will be rejected if it is priced a 

specified dollar amount or percentage 

through the contra-side NBBO as 

follows: 

(A) $1.00 for Market Maker bids when 

the contra-side NBO is priced at or 

below $1.00; or 

(B) 50% for Market Maker bids (offers) 

when the contra-side NBO (NBB) is 

priced above $1.00. 

The Exchange will reject inbound 

Market Maker quotes that exceed the 

parameters set forth in proposed 

Exchange Rule 6.61(a)(1)(A)–(B).9 The 

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Federal Register / Vol. 80, No. 46 / Tuesday, March 10, 2015 / Notices 12665 

10See Notice, supra note 3, at 1983. 

11The Exchange states that such offer prices 

would likely not be erroneous and therefore the 

Exchange does not believe it necessary to reject 

such Market Maker offers. See Notice, supra note 

3, at 1983. 

12See proposed Exchange Rule 6.61(a)(1)(A)–(B) 

(setting forth the specified dollar amount or 

percentages ‘‘unless determined otherwise by the 

Exchange and announced to OTP Holders and OTP 

Firms via Trader Update’’). 

13See proposed Exchange Rule 6.61(b). The 

Exchange states that it believes it is appropriate to 

reject any resting same-side quote because when a 

Market Maker submits a new quote, that Market 

Maker is implicitly instructing the Exchange to 

cancel any resting quote in that same series. See 

Notice, supra note 3, at 1983. 

14See Notice, supra note 3, at 1984 for examples 

illustrating how proposed Exchange Rule 6.61(a) 

will operate. 

15See proposed Exchange Rule 6.61(a)(2). With a 

call bid, a Market Maker is bidding to buy an option 

that would be exercised into the right to acquire the 

underlying security. The Exchange states that it 

does not believe that a derivative product, which 

conveys the right to purchase a security underlying 

the derivative, should ever be priced the same as 

or higher than the prevailing price of the underlying 

security itself. Accordingly, the Exchange believes 

it is appropriate to reject Market Maker bids for call 

options that are equal to or in excess of the price 

of the underlying security. See Notice, supra note 

3, at 1984. See also Amendment No. 1, supra note 

4. 

16According to the Exchange, although the 

underlying securities may trade in the equities 

markets outside of 9:30 a.m. ET to 4:00 p.m. ET, the 

equities market is generally not as liquid during this 

time and equity market makers generally do not 

have quoting obligations in after-hours trading. 

Therefore, the Exchange believes that using the 

previous day’s closing price—based on trading 

during Core Trading Hours, when the market is 

most liquid—provides a more accurate benchmark 

and thus a more precise price protection filter for 

underlying securities that have not yet opened. See 

Notice, supra note 3, at 1984. 

17The Exchange believes that the consolidated 

last sale price for an underlying security that has 

already opened will provide the most accurate 

benchmark because the market is most liquid 

during Core Trading Hours. See Notice, supra note 

3, at 1984. 

18The Exchange states that the value of a put can 

never exceed the strike price of the option, even if 

the stock goes to zero. For example, a put with a 

strike price of $50 gives the holder the right to sell 

the underlying security for $50 (no more, or no 

less), therefore the Exchange states that it would be 

illogical to pay $50 or more for the right to sell that 

underlying security, no matter what the price of the 

underlying security. See Notice, supra note 3, at 

1984. See also Amendment No. 1, supra note 4. 

19See proposed Exchange Rule 6.61(b). The 

Exchange believes that this temporary suspension 

from quoting in the affected option class(es) would 

operate as a safety valve that forces Market Makers 

to re-evaluate their positions before requesting to reenter the market. See Notice, supra note 3, at 1984. 

See also Notice, supra note 3, at 1984–5 for 

examples illustrating how proposed Exchange Rule 

6.61(a)(2) and (a)(3) would operate. 

20 15 U.S.C. 78f(b). 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). 

21 15 U.S.C. 78f(b)(5). 

Exchange states that it has proposed a 

specific dollar threshold for when the 

NBO is priced at or below $1.00 

because, for such low-priced NBOs, the 

Exchange believes it is appropriate to 

provide Market Makers with the ability 

to enter quotes at least $1.00 higher than 

the prevailing NBO.10 For example, if 

the NBO were $0.06, when using a 

100% filter, the Exchange would be 

required to reject any bids priced $0.12 

or more. In addition, the Exchange 

proposed that pursuant to proposed 

Exchange Rule 6.61(a)(1)(A), Market 

Maker offers that arrive when the NBB 

is priced at or below $1.00 will not be 

subject to this filter. The Exchange notes 

that when the NBB is priced at or below 

$1.00, the price of an offer will be 

bound by $0.00, and therefore an offer 

will always be less than $1.00 away 

from the NBB.11

Because there may be market 

scenarios that require the proposed 

parameters to be adjusted, for example, 

during periods of extreme price 

volatility, the Exchange has further 

proposed that the Exchange may revise 

these parameters, provided such revised 

parameters are announced to OTP 

Holders or OTP Firms via a Trader 

Update.12

The Exchange also proposed that if a 

Market Maker quote is rejected pursuant 

to paragraph (a)(1) of the proposed rule, 

the Exchange will also cancel any 

resting same-side quote in the affected 

series from that Market Maker.13

According to the Exchange, even if the 

new quote is rejected because it is 

priced a specified dollar amount or 

percentage through the contra-side 

NBBO, in violation of proposed 

Exchange Rule 6.61(a)(1), the Market 

Maker’s implicit instruction to cancel 

the resting quote remains valid 

nonetheless.14

2. Underlying Stock Price/Strike Price 

Check 

The Exchange also has proposed new 

Exchange Rule 6.61(a)(2) and (3) which 

will set forth the Exchange’s proposed 

second layer of price protection filters 

for Market Maker quotes. These price 

protection mechanisms will be 

applicable when either there is no 

NBBO available, for example, during 

pre-opening or prior to conducting a reopening after a trading halt, or if the 

NBBO is so wide as to not to reflect an 

appropriate price for the respective 

options series. Proposed Exchange Rule 

6.61(a)(2) will also provide price 

protection for Market Maker bids in call 

options. As proposed, if such bids equal 

or exceed the price of the underlying 

security, the Market Maker bid will be 

rejected.15

Under new Exchange Rule 

6.61(a)(2)(A), before the underlying 

security is open, the Exchange will use 

the previous day’s closing price to 

determine the price of the underlying 

security.16 Under new Exchange Rule 

6.61(a)(2)(B), once the underlying 

security has opened, the Exchange will 

use the consolidated last sale price to 

determine the price of the underlying 

security. Under new Exchange Rule 

6.61(a)(2)(C), during a trading halt of the 

underlying security, the Exchange will 

use the consolidated last sale reported 

immediately prior to the trading halt to 

determine the price of the underlying 

security.17 New Exchange Rule 

6.61(a)(3) will provide for price 

protection for Market Maker bids in put 

options. In particular, any Market Maker 

bid for put options will be rejected if the 

price of the bid is equal to or greater 

than the strike price of the option.18

The Exchange also has proposed that 

when a Market Maker quote is rejected 

pursuant to paragraph (a)(2) or (a)(3) of 

the proposed rule, the Exchange will 

also cancel all resting quote(s) in the 

affected class(es) from that Market 

Maker and will not accept new quote(s) 

in the affected class(es) until the Market 

Maker submits a message (which may be 

automated) to the Exchange to enable 

the entry of new quotes.19

B. Implementation 

The Exchange stated that it would 

announce the implementation date of 

the proposed rule change in a Trader 

Update and publish such announcement 

at least 30 days prior to implementation. 

III. Discussion and Commission 

Findings 

After careful review, the Commission 

finds that the proposed rule change is 

consistent with the requirements of the 

Act and the rules and regulations 

thereunder applicable to a national 

securities exchange and, in particular, 

with Section 6(b) of the Act.20 In 

particular, the Commission finds that 

the proposed rule change is consistent 

with Sections 6(b)(5) of the Act,21 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 

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12666 Federal Register / Vol. 80, No. 46 / Tuesday, March 10, 2015 / Notices 

22See Notice, supra note 3, at 1985. 

23See Notice, supra note 3, at 1985. 

24 15 U.S.C. 78s(b)(2). 25 17 CFR 200.30–3(a)(12). 1 15 U.S.C. 78s(b)(1). 

2 17 CFR 240.19b–4. 

3Amendment No. 1 replaces SR–EDGX–2015–08 

and supersedes such filing in its entirety. 4The term ‘‘System’’ is defined as ‘‘the electronic 

communications and trading facility designated by 

the Board through which securities orders of Users 

are consolidated for ranking, execution and, when 

applicable, routing away.’’ See Exchange Rule 

1.5(cc). 

5See Mary Jo White, Chair, Commission, Speech 

at the Sandler O’Neill & Partners, L.P. Global 

Exchange and Brokerage Conference, (June 5, 2014) 

(available at http://www.sec.gov/News/Speech/

Detail/Speech/1370542004312#.VD2HW610w6Y). 

6Securities Exchange Act Release No. 73468 

(October 29, 2014), 79 FR 65450 (November 4, 2014) 

(SR–EDGX–2014–18). 

general, to protect investors and the 

public interest. 

The proposed rule change provides a 

price protection mechanism for quotes 

entered by a Market Maker when an 

NBBO is available that are priced a 

specified dollar amount or percentage 

through the last sale or prevailing 

contra-side market, which the Exchange 

believes is evidence of error. The 

Commission believes that the proposed 

price protection mechanism is 

reasonably designed to promote just and 

equitable principles of trade by 

preventing potential price dislocation 

that could result from erroneous Market 

Maker quotes sweeping through 

multiple price points resulting in 

executions at prices that are through the 

last sale price or NBBO.22

The Exchange’s proposed use of 

benchmarks to check the reasonability 

of Market Maker bids for call and put 

options affords a second layer of price 

protection to Market Maker quotes. The 

Commission believes that the additional 

price reasonability check on Market 

Maker bids that are priced equal to or 

greater than the price of the underlying 

security for call options, and equal to or 

greater than the strike price for put 

options, is reasonably designed to 

operate in manner that would remove 

impediments to and perfect the 

mechanism of a free and open market 

and protect investors and the public 

interest. Further, the Commission notes 

the Exchange’s belief that the additional 

risk controls that result in the 

cancellation of a Market Maker’s resting 

same side quote and/or the temporary 

suspension a Market Maker’s quoting 

activity in the affected option class(es), 

as applicable, provide market 

participants with additional protection 

from anomalous executions.23

Accordingly, the Commission believes 

that the proposed price protection for 

Market Maker quotes is reasonably 

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. 

IV. Conclusion 

For the foregoing reasons, the 

Commission finds that the proposed 

rule change is consistent with the Act 

and the rules and regulations 

thereunder applicable to a national 

securities exchange. 

It is therefore ordered, pursuant to 

Section 19(b)(2) of the Act,24 that the 

proposed rule change (SR–NYSEArca– 

2014–150), as modified by Amendment 

No. 1, be, and hereby is, approved. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.25

Jill M. Peterson, 

Assistant Secretary. 

[FR Doc. 2015–05497 Filed 3–9–15; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–74439; File No. SR–EDGX– 

2015–08] 

Self-Regulatory Organizations; EDGX 

Exchange, Inc.; Notice of Filing of a 

Proposed Rule Change, as Modified by 

Amendment No. 1, To Amend Rules 

11.6, 11.8, 11.9, 11.10 and 11.11 of 

EDGX Exchange, Inc. 

March 4, 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 February 

20, 2015, EDGX Exchange, Inc. (the 

‘‘Exchange’’ or ‘‘EDGX’’) filed with the 

Securities and Exchange Commission 

(‘‘Commission’’) the proposed rule 

change as described in Items I, II and III 

below, which items have been prepared 

by the self-regulatory organization. On 

February 27, 2015, the Exchange filed 

Amendment No. 1 to the proposal.3 The 

Commission is publishing this notice, as 

modified by Amendment No. 1, to 

solicit comments on the proposed rule 

change from interested persons. 

I. Self-Regulatory Organization’s 

Statement of the Terms of the Substance 

of the Proposed Rule Change 

The Exchange filed a proposal to 

amend Rules 11.6, 11.8, 11.9, 11.10 and 

11.11 to clarify and to include 

additional specificity regarding the 

current functionality of the Exchange’s 

System,4 including the operation of its 

order types and order instructions, as 

further described below. 

The text of the proposed rule change 

is available at the Exchange’s Web site 

at www.batstrading.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 the 

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 parts of such 

statements. 

A. Self-Regulatory Organization’s 

Statement of the Purpose of, and the 

Statutory Basis for, the Proposed Rule 

Change 

1. Purpose 

On June 5, 2014, Chair Mary Jo White 

asked all national securities exchanges 

to conduct a comprehensive review of 

each order type offered to members and 

how it operates.5 The Exchange notes 

that a comprehensive rule filing 

clarifying and updating Exchange rules 

was recently approved.6 However, based 

on the request from Chair White, the 

Exchange did indeed conduct further 

review of each order types and its 

operation. The proposals set forth below 

are based on this comprehensive review 

and are intended to clarify and to 

include additional specificity regarding 

the current functionality of the 

Exchange’s System, including the 

operation of its order types and order 

instructions. The proposals set forth 

below are intended to supplement the 

recently approved filing based on 

further review conducted by the 

Exchange and are intended to clarify 

and enhance the understandability of 

the Exchange’s rules related to the 

ranking and execution of orders. The 

proposal is also intended to add 

additional detail with respect to the 

handling of orders with a Discretionary 

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