Federal Register / Vol. 87, No. 25 / Monday, February 7, 2022 / Notices 6917 

14 17 CFR 200.30–3(a)(12). 

1 17 CFR 240.15c3–1. An OTC derivatives dealer 

that is also registered as a security-based swap 

dealer is subject to the net capital provisions of 

Exchange Act Rule 18a–1 (17 CFR 240.18a–1). 

2An OTC derivatives dealer that is also registered 

as a security-based swap dealer may apply to the 

Commission for authorization to compute 

deductions for market and credit risk using models 

under paragraph (d) of Rule 18a–1. 

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

2 17 CFR 240.19b–4. 

All submissions should refer to File 

Number SR–NASDAQ–2022–010. 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 website (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 website 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. 

Persons submitting comments are 

cautioned that we do not redact or edit 

personal identifying information from 

comment submissions. You should 

submit only information that you wish 

to make available publicly. All 

submissions should refer to File 

Number SR–NASDAQ–2022–010 and 

should be submitted on or before 

February 28, 2022. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.14

J. Matthew DeLesDernier, 

Assistant Secretary. 

[FR Doc. 2022–02427 Filed 2–4–22; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[SEC File No. 270–440, OMB Control No. 

3235–0496] 

Proposed Collection; Comment 

Request 

Upon Written Request, Copies Available 

From: Securities and Exchange 

Commission, Office of FOIA Services, 

100 F Street NE, Washington, DC 

20549–2736 

Extension: 

Appendix F to Rule 15c3–1 

Notice is hereby given that pursuant 

to the Paperwork Reduction Act of 1995 

(44 U.S.C. 3501 et seq.) (‘‘PRA’’), the 

Securities and Exchange Commission 

(‘‘Commission’’) is soliciting comments 

on the existing collection of information 

provided for in Appendix F to Rule 

15c3–1 (‘‘Appendix F’’ or ‘‘Rule 15c3– 

1f’’) (17 CFR 240.15c3–1f) under the 

Securities Exchange Act of 1934 (15 

U.S.C. 78a et seq.) (‘‘Exchange Act’’). 

The Commission plans to submit this 

existing collection of information to the 

Office of Management and Budget 

(‘‘OMB’’) for extension and approval. 

Appendix F applies to certain 

members of a class of broker-dealers 

known as over-the-counter (‘‘OTC’’) 

derivatives dealers. Exchange Act Rule 

15c3–1 is the Commission’s net capital 

rule for broker-dealers.1 Under 

Appendix F, an OTC derivatives dealer 

that is not a security-based swap dealer 

may apply to the Commission for 

authorization to compute net capital 

charges for market and credit risk in 

accordance with Appendix F in lieu of 

computing securities haircuts under 

paragraph (c)(2)(vi) of Exchange Act 

Rule 15c3–1.2

At present, three OTC derivatives 

dealers have been approved to use 

Appendix F. No additional OTC 

derivatives dealers have applied to use 

Appendix F, and the staff does not 

expect that any additional OTC 

derivatives dealers will apply to use 

Appendix F during the next three years. 

The Commission estimates that the 

three approved OTC derivatives dealers 

will spend an average of approximately 

1,000 hours each per year reporting 

information concerning their value-atrisk (‘‘VAR’’) models and internal risk 

management systems, for a total annual 

burden of approximately 3,000 hours. 

Written comments are invited on: (a) 

Whether the proposed collection of 

information is necessary for the proper 

performance of the functions of the 

Commission, including whether the 

information shall have practical utility; 

(b) the accuracy of the Commission’s 

estimates of the burden of the proposed 

collection of information; (c) ways to 

enhance the quality, utility, and clarity 

of the information collected; and (d) 

ways to minimize the burden of the 

collection of information on 

respondents, including through the use 

of automated collection techniques or 

other forms of information technology. 

Consideration will be given to 

comments and suggestions submitted in 

writing within 60 days of this 

publication. 

An agency may not conduct or 

sponsor, and a person is not required to 

respond to, a collection of information 

under the PRA unless it displays a 

currently valid OMB control number. 

Please direct your written comments 

to: David Bottom, Director/Chief 

Information Officer, Securities and 

Exchange Commission, c/o John 

Pezzullo, 100 F Street NE, Washington, 

DC 20549, or send an email to: PRA_

Mailbox@sec.gov. 

Dated: February 2, 2022. 

J. Matthew DeLesDernier, 

Assistant Secretary. 

[FR Doc. 2022–02505 Filed 2–4–22; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34 94118; File No. SR–ISE– 

2022–03] 

Self-Regulatory Organizations; Nasdaq 

ISE, LLC; Notice of Filing and 

Immediate Effectiveness of Proposed 

Rule Change To Update the Obvious 

Error Rule 

February 2, 2022. 

Pursuant to Section 19(b)(1) of the 

Securities Exchange Act of 1934 

(‘‘Act’’),1 and Rule 19b–4 thereunder,2

notice is hereby given that on January 

26, 2022, Nasdaq ISE, LLC (‘‘ISE’’ or 

‘‘Exchange’’) filed with the Securities 

and Exchange Commission (‘‘SEC’’ or 

‘‘Commission’’) the proposed rule 

change as described in Items I, II, and 

III, below, which Items have been 

prepared by the Exchange. The 

Commission is publishing this notice to 

solicit comments on the proposed rule 

change from interested persons. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

The Exchange proposes to amend 

Options 3, Section 20 (Nullification and 

Adjustment of Options Transactions 

including Obvious Errors). 

The text of the proposed rule change 

is available on the Exchange’s website at 

https://listingcenter.nasdaq.com/ 

rulebook/ise/rules, at the principal 

office of the Exchange, and at the 

Commission’s Public Reference Room. 


jspears on DSK121TN23PROD with NOTICES1
6918 Federal Register / Vol. 87, No. 25 / Monday, February 7, 2022 / Notices 

3See Arca Rule 6.87–O. See also Securities 

Exchange Act Release No. 93818 (December 17, 

2021), 86 FR 73009 (December 23, 2021) (SR– 

NYSEArca–2021–91) (Order Approving a Proposed 

Rule Change To Amend Rule 6.87–O). 4 See, e.g., Securities Exchange Act Release Nos. 

74896 (May 7, 2015), 80 FR 27373 (May 13, 2015) 

(SR–ISE–2015–18); 80429 (April 11, 2017), 82 FR 

18173 (April 17, 2017) (SR–ISE–2017–30). 

5 See, e.g., Securities Exchange Act Release No. 

81322 (August 7, 2017), 82 FR 37627 (August 11, 

2017) (SR–ISE–2017–76). 6 See, e.g., Securities Exchange Act Release No. 

74896 (May 7, 2015), 80 FR 27373 (May 13, 2015) 

(SR–ISE–2015–18). 

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 

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 aspects of such 

statements. 

A. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

1. Purpose 

The purpose of this proposed rule 

change is to amend Options 3, Section 

20 (Nullification and Adjustment of 

Options Transactions including Obvious 

Errors) to improve the operation of the 

Rule. Following discussions with other 

exchanges and a cross-section of 

industry participants and in 

coordination with the Listed Options 

Market Structure Working Group 

(‘‘LOMSWG’’) (collectively, the 

‘‘Industry Working Group’’), the 

Exchange proposes: (1) To amend 

section (b)(3) of the Rule to permit the 

Exchange to determine the Theoretical 

Price of a Customer option transaction 

in a wide market so long as a narrow 

market exists at any point during the 10- 

second period after an opening or reopening; and (2) to amend section 

(c)(4)(B) of the Rule to adjust, rather 

than nullify, Customer transactions in 

Obvious Error situations, provided the 

adjustment does not violate the limit 

price. The foregoing changes are based 

on the recently amended rules of NYSE 

Arca, Inc. (‘‘Arca’’).3 Further, the 

Exchange proposes to make a nonsubstantive, corrective change. Each 

change is discussed in detail below. 

Proposed Change to Section (b)(3) 

Options 3, Section 20 has been part of 

various harmonization efforts by the 

Industry Working Group.4 These efforts 

have often centered around the 

Theoretical Price for which an options 

transaction should be compared to 

determine whether an Obvious Error has 

occurred. For instance, all options 

exchanges have adopted language 

comparable to Supplementary Material 

.06,5 which explains how an exchange 

is to determine Theoretical Price at the 

open, when there are no valid quotes, 

and when there is a wide quote. This 

includes at times the use of a singular 

third-party vendor, known as a TP 

Provider (currently CBOE Livevol, LLC). 

Similarly, section (b)(3) of Options 3, 

Section 20 was previously harmonized 

across all options exchanges to handle 

situations where executions occur in 

markets that are wide (as set forth in the 

rule).6 Under that section, the Exchange 

determines the Theoretical Price if the 

NBBO for the subject series is wide 

immediately before execution and a 

narrow market (as set forth in the rule) 

existed ‘‘during the 10 seconds prior to 

the transaction.’’ The rule goes on to 

clarify that, should there be no narrow 

quotes ‘‘during the 10 seconds prior to 

the transaction,’’ the Theoretical Price 

for the affected series is the NBBO that 

existed at the time of execution 

(regardless of its width). 

In recent discussions, the Industry 

Working Group has identified proposed 

changes to section (b)(3) of Options 3, 

Section 20 that would improve the 

Rule’s functioning. Currently, section 

(b)(3) does not permit the Exchange to 

determine the Theoretical Price unless 

there is a narrow quote 10 seconds prior 

to the transaction. However, in the first 

seconds of trading, there is no 10- 

second period ‘‘prior to the 

transaction.’’ Further, the Industry 

Working Group has observed that prices 

in certain series can be disjointed at the 

start of trading. Accordingly, the 

Exchange proposes to provide 

additional protections to trading in 

certain circumstances immediately after 

the opening before liquidity has had a 

chance to enter the market. The 

Exchange proposes to amend section 

(b)(3) to allow the Exchange to 

determine the Theoretical Price in a 

wide market so long as a narrow market 

exists at any point during the 10-second 

period after an opening or reopening. 

Specifically, the Exchange proposes 

that the existing text of section (b)(3) 

would become sub-section (A). The 

Exchange proposes to add the following 

heading and text as sub-section (B): 

(B) Customer Transactions Occurring 

Within 10 Seconds or Less After an Opening 

or Re-Opening: 

(i) The Exchange will determine the 

Theoretical Price if the bid/ask differential of 

the NBB and NBO for the affected series just 

prior to the Customer’s erroneous transaction 

was equal to or greater than the Minimum 

Amount set forth in paragraph (A) above and 

there was a bid/ask differential less than the 

Minimum Amount during the 10 seconds 

prior to the transaction. 

(ii) If there was no bid/ask differential less 

than the Minimum Amount during the 10 

seconds prior to the transaction, then the 

Exchange will determine the Theoretical 

Price if the bid/ask differential of the NBB 

and NBO for the affected series just prior to 

the Customer’s erroneous transaction was 

equal to or greater than the Minimum 

Amount set forth in paragraph (A) above and 

there was a bid/ask differential less than the 

Minimum Amount anytime during the 10 

seconds after an opening or re-opening. 

(iii) If there was no bid/ask differential less 

than the Minimum Amount during the 10 

seconds following an Opening or ReOpening, then the Theoretical Price of an 

option series is the last NBB or NBO just 

prior to the Customer transaction in question, 

as set forth in paragraph (b) above. 

(iv) Customer transactions occurring more 

than 10 seconds after an opening or reopening are subject to paragraph (A) above. 

The following examples illustrate the 

functioning of the proposed rule change. 

Consider that the NBBO of a series 

opens as $0.01 at $4.00. A marketable 

limit order to buy one contract arrives 

one second later and is executed at 

$4.00. In the third second of trading, the 

NBBO narrows from $0.01 at $4.00 to 

$2.00 at $2.10. While the execution 

occurred in a market with wide widths, 

there was no tight market within the 10 

seconds prior to execution. Accordingly, 

under the current rule, the trade would 

not qualify for obvious error review, in 

part due to the fact that there was only 

a single second of trading before the 

execution. Under the proposal, since a 

tight market existed at some point in the 

first 10 seconds of trading (i.e., in the 

third second), the Exchange would be 

able to determine the Theoretical Price 

as provided in Supplementary Material 

.06. 

As another example, the NBBO for a 

series opens as $0.01 at $4.00. In the 

seventh second of trading, a marketable 

limit order is received to buy one 

contract and is executed at $4.00. Five 

seconds later (i.e., in the twelfth second 

of trading), the NBBO narrows from 

$0.01 at $4.00 to $2.00 at $2.10. While 

the execution occurred in a market with 

wide widths, there was no tight market 

within 10 seconds prior to execution. 

Accordingly, under the current rule, the 

trade would not qualify for obvious 

error review. Under the proposal, since 

no tight market existed at any point 

during the first 10 seconds of trading 

(i.e., the narrow market occurred in the 


jspears on DSK121TN23PROD with NOTICES1
Federal Register / Vol. 87, No. 25 / Monday, February 7, 2022 / Notices 6919 

7 Specifically, the current Rule provides at 

section (c)(4)(C) that if a Member has 200 or more 

Customer transactions under review concurrently 

and the orders resulting in such transactions were 

submitted during the course of 2 minutes or less, 

where at least one party to the Obvious Error is a 

non-Customer, then the Exchange will apply the 

non-Customer adjustment criteria found in section 

(c)(4)(A). 

8 See supra note 3. 

9 15 U.S.C. 78f(b). 

10 15 U.S.C. 78f(b)(5). 

twelfth second), the trade would not 

qualify for obvious error review. 

The proposed rule change would also 

better harmonize section (b)(3) with 

section (b)(1) of the Rule. Under section 

(b)(1), the Exchange is permitted to 

determine the Theoretical Price for 

transactions occurring as part of the 

opening rotation (as defined in Options 

3, Section 8) if there is no NBB or NBO 

for the affected series just prior to the 

erroneous transaction. However, under 

the current version of section (b)(3), a 

transaction during regular trading hours 

could occur in the same wide market 

but the Exchange would not be 

permitted to determine the Theoretical 

Price. Consider an example where one 

second after the Exchange opens a 

selected series, the NBBO is $1.00 at 

$5.00. At 9:30:03, a customer submits a 

marketable buy order to the Exchange 

and pays $5.00. At 9:30:03, a different 

exchange runs an opening auction that 

results in a customer paying $5.00 for 

the same selected series. At 9:30:06, the 

NBBO changes from $1.00 at $5.00 to 

$1.35 at $1.45. Under the current 

version of section (b)(3), the Exchange 

would not be able to determine the 

Theoretical Price for the trade occurring 

during regular trading hours. However, 

the trade on the other exchange could be 

submitted for review under (b)(1) and 

that exchange would be able to 

determine the Theoretical Price. If the 

proposed change to section (b)(3) were 

approved, both of the trades occurring at 

9:30:03 (on the Exchange during regular 

trading and on another exchange via 

auction) would also be entitled to the 

same review regarding the same 

Theoretical Price based upon the same 

time. 

The proposal would not change any 

obvious error review beyond the first 10 

seconds of an opening or re-opening. 

Proposed Change to Section (c)(4)(B) 

The Exchange proposes to amend 

section (c)(4)(B)—the ‘‘Adjust or Bust’’ 

rule for Customer transactions in 

Obvious Error situations—to adjust 

rather than nullify such orders, 

provided the adjustment does not 

violate the Customer’s limit price. 

Currently, the Rule provides that in 

Obvious Error situations, transactions 

involving non-Customers should be 

adjusted, while transactions involving 

Customers are nullified, unless a certain 

condition applies.7 The Industry 

Working Group has concluded that the 

treatment of these transactions should 

be harmonized under the Rule, such 

that transactions involving Customers 

may benefit from adjustment, just as 

non-Customer transactions currently do, 

except where such adjustment would 

violate the Customer’s limit price; in 

that instance, the trade would be 

nullified. 

Specifically, the Exchange proposes to 

amend the text of section (c)(4)(B) to 

add that where at least one party to the 

Obvious Error is a Customer, ‘‘the 

execution price of the transaction will 

be adjusted by the Official pursuant to 

the table immediately above. Any 

Customer Obvious Error exceeding 50 

contracts will be subject to the Size 

Adjustment Modifier defined in subparagraph (a)(4) above. However, if such 

adjustment(s) would result in an 

execution price higher (for buy 

transactions) or lower (for sell 

transactions) than the Customer’s limit 

price,’’ the trade will be nullified. The 

‘‘table immediately above’’ referenced in 

the proposed text refers to the table at 

current Section (c)(4)(A), which 

provides for the adjustment of prices a 

specified amount away from the 

Theoretical Price, rather than adjusting 

the Theoretical Price. 

Non-Substantive Amendment 

The Exchange proposes a nonsubstantive change in Options 3, 

Section 20(f) to update the reference 

therein to the Exchange’s trading halts 

rule from Options 8, Section 9 to 

Options 3, Section 9. 

Implementation Date 

The proposed rule change will 

become operative no sooner than six 

months following the approval of the 

Arca proposal to coincide with 

implementation on other options 

exchanges.8 The Exchange will 

announce the effective date of the 

proposed changes in an alert distributed 

to all Members. 

2. Statutory Basis 

The Exchange believes that its 

proposal is consistent with Section 6(b) 

of the Act,9 in general, and furthers the 

objectives of Section 6(b)(5) of the Act,10

in particular, in that it is designed to 

promote just and equitable principles of 

trade, 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 and 

because it is not designed to permit 

unfair discrimination between 

customers, issuers, brokers, or dealers. 

The Exchange believes that the 

proposed change to section (b)(3) of the 

Rule would remove impediments to and 

perfect the mechanism of a free and 

open market and a national market 

system, and, in general, protect 

investors and the public interest 

because it provides a method for 

addressing Obvious Error Customer 

transactions that occur in a wide market 

at the opening of trading. Generally, a 

wide market is an indication of a lack 

of liquidity in the market such that the 

market is unreliable. Current section 

(b)(3) recognizes that a persistently wide 

quote (i.e., more than 10 seconds) 

should be considered the reliable 

market regardless of its width, but does 

not address transactions that occur in a 

wide market in the first seconds of 

trading, where there is no preceding 10- 

second period to reference. Accordingly, 

in the first 10 seconds of trading, there 

is no opportunity for a wide quote to 

have persisted for a sufficiently lengthy 

period such that the market should 

consider it a reliable market for the 

purposes of determining an Obvious 

Error transaction. 

The proposed change would rectify 

this disparity and permit the Exchange 

to consider whether a narrow quote is 

present at any time during the 10- 

second period after an opening or reopening. The presence of such a narrow 

quote would indicate that the market 

has gained sufficient liquidity and that 

the previous wide market was 

unreliable, such that it would be 

appropriate for the Exchange to 

determine the Theoretical Price of an 

Obvious Error transaction. In this way, 

the proposed rule harmonizes the 

treatment of Customer transactions that 

execute in an unreliable market at any 

point of the trading day, by making 

them uniformly subject to Exchange 

determination of the Theoretical Price. 

The Exchange believes that the 

proposed change to section (c)(4)(B) of 

the Rule would remove impediments to 

and perfect the mechanism of a free and 

open market and a national market 

system and enhance the protection of 

investors by harmonizing the treatment 

of non-Customer transactions and 

Customer transactions under the Rule. 

Under the current Rule, Obvious Error 

situations involving non-Customer 

transactions are adjusted, while those 

involving Customer transactions are 

generally nullified, unless they meet the 

additional requirements of section 

(c)(4)(C) (i.e., where a Member has 200 

or more Customer transactions under 


jspears on DSK121TN23PROD with NOTICES1
6920 Federal Register / Vol. 87, No. 25 / Monday, February 7, 2022 / Notices 

11See Securities Exchange Act Release No. 74896 

(May 7, 2015), 80 FR 27373 (May 13, 2015) (SR– 

ISE–2015–18). 

12 See ‘‘Retail Traders Adopt Options En Masse’’ 

by Dan Raju, available at https://www.nasdaq.com/ 

articles/retail-traders-adopt-options-en-masse-2020- 

12-08. 

review concurrently and the orders 

resulting in such transactions were 

submitted during the course of 2 

minutes or less). The proposal would 

harmonize the treatment of nonCustomer and Customer transactions by 

providing for the adjustment of all such 

transactions, except where such 

adjustment would violate the 

Customer’s limit price. 

When it proposed the current rule in 

2015, the Exchange believed there were 

sound reasons for treating non-Customer 

transactions and Customer transactions 

differently. At the time, the Exchange 

stated its belief that ‘‘Customers are not 

necessarily immersed in the day-to-day 

trading of the markets, are less likely to 

be watching trading activity in a 

particular option throughout the day, 

and may have limited funds in their 

trading accounts,’’ and that nullifying 

Obvious Error transactions involving 

Customers would give Customers 

‘‘greater protections’’ than adjusting 

such transactions by eliminating the 

possibility that a Customer’s order will 

be adjusted to a significantly different 

price. The Exchange also noted its belief 

that ‘‘Customers are . . . less likely to 

have engaged in significant hedging or 

other trading activity based on earlier 

transactions, and thus, are less in need 

of maintaining a position at an adjusted 

price than non-Customers.11

Those assumptions about Customer 

trading and hedging activity no longer 

hold. The Exchange and the Industry 

Working Group believe that over the 

course of the last five years, Customers 

that use options have become more 

sophisticated, as retail broker-dealers 

have enhanced the trading tools 

available. Pursuant to OCC data, 

volumes clearing in the Customer range 

have expanded from 12,022,163 ADV in 

2015 to 35,081,130 ADV in 2021. This 

increase in trading activity underscores 

the greater understanding of options by 

Customers as a trading tool and its use 

in the markets. Customers who trade 

options today largely are more educated, 

have better trading tools, and have 

better access to financial news than any 

time prior.12 The proposed rule would 

extend the hedging protections 

currently enjoyed by non-Customers to 

Customers, by allowing them to 

maintain an option position at an 

adjusted price, which would in turn 

prevent a cascading effect by 

maintaining the hedge relationship 

between the option transaction and any 

other transactions in a related security. 

The Exchange believes that extending 

such hedging protections to Customer 

transactions would remove 

impediments to and perfect the 

mechanism of a free and open market 

and a national market system and 

enhance the protection of investors by 

providing greater certainty of execution 

for all participants to options 

transactions. Under the current Rule, a 

Customer that believes its transaction 

was executed pursuant to an Obvious 

Error may be disincentivized from 

submitting the transaction for review, 

since during the review process, the 

Customer would be uncertain whether 

the trade would be nullified, and if so, 

whether market conditions would still 

permit the opportunity to execute a 

related order at a better price after the 

nullification ruling is finalized. In 

contrast, under the proposed rule, the 

Customer would know that the only 

likely outcomes of submitting a trade to 

Obvious Error review would be that the 

trade would stand or be re-executed at 

a better price; the trade would only be 

nullified if the adjustment would violate 

the order’s limit. Similarly, under the 

current Rule, during the review period, 

a market maker who traded contra to the 

Customer would be uncertain if it 

should retain any position executed to 

hedge the original trade, or attempt to 

unwind it, possibly at a significant loss. 

Under the proposed rule change, this 

uncertainty is largely eliminated, and 

the question would be whether the 

already-executed and hedged trade 

would be adjusted to a better price for 

the Customer, or if it would stand as 

originally executed. In this way, the 

proposed rule enhances the protection 

of investors and removes impediments 

to and perfects the mechanism of a free 

and open market and a national market 

system. 

The proposed rule also addresses the 

concern the Exchange cited in its 2015 

filing that adjusting, rather than 

nullifying, Customer transactions could 

lead to a Customer’s order being 

adjusted to a significantly different 

price. To address that concern, the 

proposed rule would prevent Customer 

transactions from being adjusted to a 

price that violates the order’s limit; if 

the adjustment would violate a 

Customer’s limit, the trade would 

instead be nullified. The Exchange 

believes it is in the best interest of 

investors to expand the availability of 

adjustments to Customer transactions in 

all Obvious Error situations except 

where the adjustment would violate the 

Customer’s limit price. 

Further, the Exchange believes that, 

with respect to such proposed 

adjustments to Customer transactions, it 

is appropriate to use the same form of 

adjustment as is currently in place with 

respect to non-Customer transactions as 

laid out in the table in section (c)(4)(A). 

That is, the Exchange believes that it is 

appropriate to adjust to prices a 

specified amount away from the 

Theoretical Price rather than to adjust 

the Theoretical Price, even though the 

Exchange has determined a given trade 

to be erroneous in nature, because the 

parties in question should have had 

some expectation of execution at the 

price or prices submitted. Also, it is 

common that by the time it is 

determined that an Obvious Error has 

occurred, additional hedging and 

trading activity has already occurred 

based on the executions that previously 

happened. The Exchange believes that 

providing an adjustment to the 

Theoretical Price in all cases would not 

appropriately incentivize market 

participants to maintain appropriate 

controls to avoid potential errors, while 

adjusting to prices a specified amount 

away from the Theoretical Price would 

incentivize such behavior. 

The Exchange believes that the 

proposal is not designed to permit 

unfair discrimination between 

customers, issuers, brokers, or dealers. 

The proposed change to section (b)(3) 

would apply to all instances of a wide 

market occurring within the first 10 

seconds of trading followed by a narrow 

market at any point in the subsequent 

10-second period, regardless of the 

types of market participants involved in 

such transactions. The proposed change 

to section (c)(4)(B) would harmonize the 

treatment of Obvious Error transactions 

involving Customers and nonCustomers, no matter what type of 

market participants those parties may 

be. 

Lastly, the Exchange believes that the 

non-substantive correction to update the 

rule cite within Options 3, Section 20(f) 

is consistent with the Act because it will 

bring greater transparency to the 

Rulebook and reduce potential 

confusion by investors. 

For these reasons, the Exchange 

believes that the proposal is consistent 

with the Act. 

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 not 

necessary or appropriate in furtherance 

of the purposes of the Act. The 

Exchange anticipates that the other 

options exchanges will adopt 


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Federal Register / Vol. 87, No. 25 / Monday, February 7, 2022 / Notices 6921 

13 15 U.S.C. 78s(b)(3)(A)(iii). 

14 17 CFR 240.19b–4(f)(6). In addition, Rule 19b– 

4(f)(6) requires a self-regulatory organization to give 

the Commission written notice of its intent to file 

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. The Exchange has satisfied this 

requirement. 15 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

substantively similar proposals, such 

that there would be no burden on 

intermarket competition from the 

Exchange’s proposal. Accordingly, the 

proposed change is not meant to affect 

competition among the options 

exchanges. For these reasons, the 

Exchange believes that the proposed 

rule change reflects this competitive 

environment and does not impose any 

undue burden on intermarket 

competition. 

C. Self-Regulatory Organization’s 

Statement on Comments on the 

Proposed Rule Change Received From 

Members, Participants, or Others 

No written comments were either 

solicited or received. 

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)(iii) of the Act 13 and 

subparagraph (f)(6) of Rule 19b0z64 

thereunder.14

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. 

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– 

ISE–2022–03 on the subject line. 

Paper Comments 

• Send paper comments in triplicate 

to Vanessa Countryman, Secretary, 

Securities and Exchange Commission, 

100 F Street NE, Washington, DC 

20549–1090. 

All submissions should refer to File 

Number SR–ISE–2022–03. 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 website (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 website 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. 

Persons submitting comments are 

cautioned that we do not redact or edit 

personal identifying information from 

comment submissions. You should 

submit only information that you wish 

to make available publicly. All 

submissions should refer to File 

Number SR–ISE–2022–03 and should be 

submitted on or before February 28, 

2022. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.15

J. Matthew DeLesDernier, 

Assistant Secretary. 

[FR Doc. 2022–02436 Filed 2–4–22; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–94120; File No. SR–GEMX– 

2022–04] 

Self-Regulatory Organizations; Nasdaq 

GEMX, LLC; Notice of Filing and 

Immediate Effectiveness of Proposed 

Rule Change To Update the Obvious 

Error Rule 

February 1, 2022. 

Pursuant to Section 19(b)(1) of the 

Securities Exchange Act of 1934 

(‘‘Act’’),1 and Rule 19b–4 thereunder,2

notice is hereby given that on January 

26, 2022, Nasdaq GEMX, LLC (‘‘GEMX’’ 

or ‘‘Exchange’’) filed with the Securities 

and Exchange Commission (‘‘SEC’’ or 

‘‘Commission’’) the proposed rule 

change as described in Items I, II, and 

III, below, which Items have been 

prepared by the Exchange. The 

Commission is publishing this notice to 

solicit comments on the proposed rule 

change from interested persons. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

The Exchange proposes to amend 

Options 3, Section 20 (Nullification and 

Adjustment of Options Transactions 

including Obvious Errors). 

The text of the proposed rule change 

is available on the Exchange’s website at 

https://listingcenter.nasdaq.com/ 

rulebook/gemx/rules, 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 

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 aspects of such 

statements. 

A. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

1. Purpose 

The purpose of this proposed rule 

change is to amend Options 3, Section 

20 (Nullification and Adjustment of 


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