Federal Register / Vol. 79, No. 249 / Tuesday, December 30, 2014 / Notices 78519 

advisers to register with the SEC. 

Because the Applicant has regulatory 

assets under management of more than 

$100 million, it is not prohibited from 

registering with Commission under 

Section 203A(a) of the Advisers Act. 

Therefore, absent relief, the Applicant 

would be required to register under 

Section 203(a) of the Advisers Act. 

3. The Applicant submits that its 

relationship with the Additional Family 

Client does not change the nature of the 

office into that of a commercial advisory 

firm. In support of this argument, the 

Applicant notes that if the Former 

Sister-in-Law were the spouse of a lineal 

descendant, rather than the sibling of a 

former spouse of a lineal descendant, 

there would be no question that each of 

the persons presently being served by 

the office would be a Family Member, 

and that the related foundation would 

meet the requirements of paragraph 

(d)(4)(v) of the Family Office Rule 

pertaining to charitable foundations. 

The Applicant states that in requesting 

the order, the office is not attempting to 

expand its operations or engage in any 

level of commercial activity to which 

the Advisers Act is designed to apply. 

Indeed, although the Additional Family 

Client does not fall within the definition 

of Family Member, she is considered to 

be, and treated as, a member of the 

Simon Family and the number of 

natural persons who are not Family 

Members as a percentage of the total 

natural persons to whom the office 

would provide Advisory Services if 

relief were granted would be only 

approximately 11 percent. The 

Applicant maintains that, from the 

perspective of the Simon Family, the 

Applicant seeks to continue providing 

Advisory Services exclusively to 

members of a single family. 

4. The Applicant also submits that 

there is no public interest in requiring 

the Applicant to be registered under the 

Advisers Act. The Applicant states that 

the office is a private organization that 

was formed to be the ‘‘family office’’ for 

the Simon Family, and that the office 

does not have any public clients. The 

Applicant maintains that the office’s 

Advisory Services are tailored 

exclusively to the needs of the Simon 

Family and the Additional Family 

Client. The Applicant argues that the 

presence of the Additional Family 

Client, who has been receiving Advisory 

Services from the office for 26 years, 

does not create any public interest that 

would require the office to be registered 

under the Advisers Act that is different 

in any manner than the considerations 

that apply to a ‘‘family office’’ that 

complies in all respects with the Family 

Office Rule. 

5. The Applicant argues that, although 

the Family Office Rule largely codified 

the exemptive orders that the 

Commission had previously issued 

before the enactment of the Dodd-Frank 

Wall Street Reform and Consumer 

Protection Act, the Commission 

recognized in proposing the rule that 

the exact representations, conditions, or 

terms contained in every exemptive 

order could not be captured in a rule of 

general applicability. The Commission 

noted that family offices would remain 

free to seek a Commission exemptive 

order to advise an individual or entity 

that did not meet the proposed family 

client definition, and that certain 

situations may raise unique conflicts 

and issues that are more appropriately 

addressed through an exemptive order 

process where the Commission can 

consider the specific facts and 

circumstances, than through a rule of 

general applicability. The Applicant 

maintains that its unusual 

circumstances—providing Services to 

Family Clients and to an Additional 

Family Client for the past 26 years— 

have not changed the nature of the 

office’s operations into that of a 

commercial advisory business, and that 

an exemptive order is appropriate based 

on the Applicant’s specific facts and 

circumstances. 

6. For the foregoing reasons, the 

Applicant requests an order declaring it 

to be a person not within the intent of 

Section 202(a)(11) of the Advisers Act. 

The Applicant submits that the order is 

necessary and appropriate, in the public 

interest, consistent with the protection 

of investors, and consistent with the 

purposes fairly intended by the policy 

and provisions of the Advisers Act. 

The Applicant’s Conditions 

1. The Applicant will offer and 

provide Advisory Services only to 

Family Clients and to the Additional 

Family Client, who will generally be 

deemed to be, and be treated as if she 

and the related foundation were, a 

Family Client; provided, however, that 

the Additional Family Client will be 

deemed to be, and treated as if she were, 

a Family Member for purposes of 

paragraph (b)(1) and for purposes of 

paragraph (d)(4)(vi) of the Family Office 

Rule. 

2. The Applicant will at all times be 

wholly owned by Family Clients and 

exclusively controlled (directly or 

indirectly) by one or more Family 

Members and/or Family Entities 

(excluding the Additional Family 

Client’s Family Entity) as defined in 

paragraph (d)(5) of the Family Office 

Rule. 

3. At all times the assets beneficially 

owned by Family Members and/or 

Family Entities (excluding the 

Additional Family Client’s Family 

Entity) will account for at least 75 

percent of the assets for which the 

Applicant provides Advisory Services. 

4. The Applicant will comply with all 

the terms for exclusion from the 

definition of investment adviser under 

the Advisers Act set forth in the Family 

Office Rule except for the limited 

exception requested by this Application. 

For the Commission, by the Division of 

Investment Management, under delegated 

authority. 

Kevin M. O’Neill, 

Deputy Secretary. 

[FR Doc. 2014–30435 Filed 12–29–14; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. IC–31388; File No. 812–14403] 

Royal Bank of Canada, et al.; Notice of 

Application and Temporary Order 

December 19, 2014. 

AGENCY: Securities and Exchange 

Commission (‘‘Commission’’). 

ACTION: Temporary order and notice of 

application for a permanent order under 

section 9(c) of the Investment Company 

Act of 1940 (‘‘Act’’). 

SUMMARY OF APPLICATION: Applicants 

have received a temporary order 

(‘‘Temporary Order’’) exempting them 

from section 9(a) of the Act, with 

respect to an injunction entered against 

Royal Bank of Canada (‘‘RBC’’) on 

December 18, 2014 by the United States 

District Court for the Southern District 

of New York (‘‘Court’’), in connection 

with a consent order between RBC and 

the United States Commodity Futures 

Trading Commission (‘‘CFTC’’), until 

the Commission takes final action on an 

application for a permanent order (the 

‘‘Permanent Order,’’ and with the 

Temporary Order, the ‘‘Orders’’). 

Applicants also have applied for a 

Permanent Order. 

APPLICANTS: RBC, RBC Europe Limited 

(‘‘RBC EL’’), RBC Capital Markets 

Arbitrage, S.A. (‘‘CMA’’), RBC Global 

Asset Management (U.S.) Inc. (‘‘GAM 

US’’), BlueBay Asset Management LLP 

(‘‘BlueBay LLP’’), BlueBay Asset 

Management USA LLC (‘‘BlueBay 

USA’’), and RBC Global Asset 

Management (UK) Limited (‘‘GAM UK’’) 

(each an ‘‘Applicant’’ and collectively, 

the ‘‘Applicants’’). 

DATES: Filing Date: The application was 

filed on December 19, 2014. 

mstockstill on DSK4VPTVN1PROD with NOTICES

78520 Federal Register / Vol. 79, No. 249 / Tuesday, December 30, 2014 / Notices 

1RBC, RBC EL, and CMA are parties to the 

application, but do not and will not engage in Fund 

Services Activities. 

2The alleged conduct giving rise to the Injunction 

(defined below) is referred to herein as the 

‘‘Conduct.’’ 

3See Consent Order, CFTC v. Royal Bank of 

Canada, 12–cv–2497, Dkt. No. 124 (S.D.N.Y. Dec. 

18, 2014). 

HEARING OR NOTIFICATION OF HEARING: An 

order granting the application will be 

issued unless the Commission orders a 

hearing. Interested persons may request 

a hearing by writing to the 

Commission’s Secretary and serving 

Applicants with a copy of the request, 

personally or by mail. Hearing requests 

should be received by the Commission 

by 5:30 p.m. on January 12, 2015, and 

should be accompanied by proof of 

service on Applicants, in the form of an 

affidavit, or for lawyers, a certificate of 

service. Pursuant to rule 0–5 under the 

Act, hearing requests should state the 

nature of the writer’s interest, any facts 

bearing upon the desirability of a 

hearing on the matter, the reason for the 

request, and the issues contested. 

Persons who wish to be notified of a 

hearing may request notification by 

writing to the Commission’s Secretary. 

ADDRESSES: Secretary, U.S. Securities 

and Exchange Commission, 100 F Street 

NE., Washington, DC 20549–1090; 

Applicants: RBC: 200 Bay Street, 

Toronto, Ontario, Canada M5J 2J5, GAM 

US, 50 South 6th Street, Minneapolis, 

MN 55402, BlueBay LLP, 77 Grosvenor 

Street, London W1K 3JR United 

Kingdom, BBAM USA, 4 Stamford 

Plaza, 107 Elm Street, Suite 512, 

Stamford, CT 06902, GAM UK and RBC 

EL, Riverbank House, 2 Swan Lane, 

London EC4R 3BF United Kingdom, and 

CMA, 16 Rue Notre Dame, Luxembourg, 

2240, Luxembourg. 

FOR FURTHER INFORMATION CONTACT: 

Bruce R. MacNeil, Senior Counsel, at 

(202) 551–6817, or Melissa R. Harke, 

Branch Chief, at (202) 551–6821 

(Division of Investment Management, 

Chief Counsel’s Office). 

SUPPLEMENTARY INFORMATION: The 

following is a temporary order and a 

summary of the application. The 

complete application may be obtained 

via the Commission’s Web site by 

searching for the file number, or an 

applicant using the Company name box, 

at http://www.sec.gov/search/

search.htm, or by calling (202) 551– 

8090. 

Applicants’ Representations 

1. RBC is a Canadian-chartered bank 

and a Canada-based global financial 

services firm. RBC is the ultimate parent 

of the other Applicants. RBC EL is a 

United Kingdom-based subsidiary of 

RBC that is registered in the United 

Kingdom to engage in capital market 

activities. CMA is a Luxembourg-based 

subsidiary of RBC that engages 

primarily in interdealer market making 

and proprietary trading. GAM US is a 

corporation formed under the laws of 

Minnesota. BlueBay LLP is a limited 

liability partnership incorporated in 

England and Wales. BlueBay USA is a 

limited liability company formed under 

the laws of Delaware. GAM UK is a 

corporation formed under the laws of 

the United Kingdom. GAM US, BlueBay 

LLP, BlueBay USA and GAM UK are 

each a wholly-owned subsidiary of RBC 

and are each an investment adviser 

registered under the Investment 

Advisers Act of 1940. GAM US, BlueBay 

LLP, BlueBay USA and GAM UK each 

serve as investment adviser or 

investment sub-adviser to investment 

companies registered under the Act, or 

series of such companies (each a 

‘‘Fund’’) and are collectively referred to 

as the ‘‘Fund Servicing Applicants.’’ 

2. While no existing company of 

which RBC is an affiliated person 

within the meaning of section 2(a)(3) of 

the Act (‘‘Affiliated Person’’), other than 

the Fund Servicing Applicants, 

currently serves or acts as an investment 

adviser or depositor of any Fund, 

employees’ securities company or 

investment company that has elected to 

be treated as a business development 

company under the Act, or principal 

underwriter (as defined in section 

2(a)(29) of the Act) for any open-end 

management investment company 

registered under the Act (‘‘Open-End 

Fund’’), unit investment trust registered 

under the Act (‘‘UIT’’), or face-amount 

certificate company registered under the 

Act (‘‘FACC’’) (such activities, ‘‘Fund 

Services Activities’’),1 Applicants 

request that any relief granted also 

apply to any existing company of which 

RBC is an Affiliated Person, other than 

RBC EL and CMA, and to any other 

company of which RBC may become an 

Affiliated Person in the future (together 

with the Fund Servicing Applicants, the 

‘‘Covered Persons’’) with respect to any 

activity contemplated by section 9(a) of 

the Act. 

3. On April 22, 2012, the CFTC filed 

a complaint, and on October 17, 2012, 

an amended complaint which 

superseded the original complaint (the 

‘‘Complaint’’) in the Court captioned 

Commodity Futures Trading 

Commission v. Royal Bank of Canada 

(the ‘‘Action’’). The Complaint alleged 

that RBC entered into certain stock 

futures contract transactions in ‘‘block 

trades,’’ which are privately negotiated 

transactions pursuant to exchange rules, 

and that RBC entered into these block 

trades through its branches and internal 

trading accounts, and it traded opposite 

RBC EL and CMA. The Complaint also 

alleged a violation of Section 4c(a) of 

the Commodity Exchange Act (‘‘CEA’’), 

whereby RBC entered into the block 

trades with an express or implied 

understanding that the positions 

resulting from the trades would later be 

offset or delivered opposite each other, 

which achieved an economic and 

futures market nullity for the RBC 

corporate group because the RBC 

corporate group as a whole was not 

exposed to risk in the futures market. 

Furthermore, the Complaint alleged 

that, in violation of CFTC Regulation 

1.38(a), the express or implied 

understandings for later trades were not 

reported to the OneChicago, LLC 

(‘‘OneChicago’’) futures exchange 

‘‘without delay,’’ as required by 

OneChicago’s rules. 

4. RBC and the CFTC have reached an 

agreement to settle the Action. As part 

of the agreement, the CFTC submitted a 

consent order (‘‘Consent Order’’) to the 

Court. RBC has consented to the entry 

of the Consent Order by the Court, 

without admitting or denying the 

findings set forth therein (other than 

those relating to the jurisdiction of the 

Court and the jurisdiction of the CFTC 

over the Conduct 2). On December 18, 

2014 the Court entered the Consent 

Order which enjoins RBC from violating 

section 4c(a) of the CEA and CFTC 

Regulation 1.38(a) (the ‘‘Injunction’’) 

and required RBC to pay a civil 

monetary penalty of $35,000,000.3

Applicants’ Legal Analysis 

1. Section 9(a)(2) of the Act, in 

relevant part, prohibits a person who 

has been enjoined from engaging in or 

continuing any conduct or practice in 

connection with the purchase or sale of 

a security, or in connection with 

activities as an underwriter, broker or 

dealer, from acting, amCFTC v. Royal 

Bank of Canada, 12–CV–2497, (S.D.N.Y. 

Dec. 18, 2014).ong other things, as an 

investment adviser or depositor of any 

registered investment company or a 

principal underwriter for any Open-End 

Fund, UIT or FACC. Section 9(a)(3) of 

the Act makes the prohibition in section 

9(a)(2) applicable to a company, any 

affiliated person of which has been 

disqualified under the provisions of 

section 9(a)(2). Section 2(a)(3) of the Act 

defines ‘‘affiliated person’’ to include, 

among others, any person directly or 

indirectly controlling, controlled by, or 

under common control with, the other 

person. Applicants state that, taken 

together, sections 9(a)(2) and 9(a)(3) 

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Federal Register / Vol. 79, No. 249 / Tuesday, December 30, 2014 / Notices 78521 

would have the effect of precluding the 

Fund Servicing Applicants and Covered 

Persons from engaging in Fund Services 

Activities upon the entry of the 

Injunction against RBC because RBC is 

an Affiliated Person of each Fund 

Servicing Applicant and Covered 

Person. 

2. Section 9(c) of the Act provides 

that, upon application, the Commission 

shall by order grant an exemption from 

the disqualification provisions of 

section 9(a) of the Act, either 

unconditionally or on an appropriate 

temporary or other conditional basis, to 

any person if that person establishes 

that: (a) The prohibitions of section 9(a), 

as applied to the person, are unduly or 

disproportionately severe or (b) the 

conduct of the person has been such as 

not to make it against the public interest 

or the protection of investors to grant 

the exemption. Applicants have filed an 

application pursuant to section 9(c) 

seeking a Temporary Order and a 

Permanent Order exempting the Fund 

Servicing Applicants and other Covered 

Persons from the disqualification 

provisions of section 9(a) of the Act. The 

Fund Servicing Applicants and other 

Covered Persons may, if the relief is 

granted, in the future act in any of the 

capacities contemplated by section 9(a) 

of the Act subject to the applicable 

terms and conditions of the Orders. 

3. Applicants believe they meet the 

standards for exemption specified in 

section 9(c). Applicants state that the 

prohibitions of section 9(a) as applied to 

them would be unduly and 

disproportionately severe and that the 

conduct of Applicants has not been 

such as to make it against the public 

interest or the protection of investors to 

grant the exemption from section 9(a). 

4. Applicants state the Conduct did 

not involve any of the Applicants 

engaging in Fund Services Activities. 

Applicants also state that the Conduct 

did not involve any Fund or the assets 

of any Fund. In addition, Applicants 

state that the Conduct involved 

proprietary trading in accounts owned 

by RBC, RBC EL and CMA and was not 

conducted on behalf of any Fund or 

using assets of any Fund. 

5. Applicants state that: (a) None of 

the current directors, officers or 

employees of the Fund Servicing 

Applicants (or any other persons serving 

in such capacity during the time period 

covered by the Complaint) participated 

in the Conduct and (b) the personnel at 

RBC, RBC EL, or CMA who participated 

in the Conduct or who may 

subsequently be identified by RBC, RBC 

EL, CMA, or any U.S. or non-U.S. 

regulatory or enforcement agency as 

having been responsible for the Conduct 

have had no, and will not have any 

involvement in providing Fund Services 

Activities and will not serve as an 

officer, director, or employee of any 

Covered Person. Applicants assert that 

because the personnel of the Fund 

Servicing Applicants did not participate 

in the Conduct, the shareholders of 

Funds were not affected any differently 

than if those Funds had received 

services from any other non-affiliated 

investment adviser or sub-adviser. 

6. Applicants submit that section 9(a) 

should not operate to bar them from 

serving the Funds and their 

shareholders in the absence of improper 

practices relating to their Fund Services 

Activities. Applicants state that the 

section 9(a) disqualification could result 

in substantial costs to the Funds to 

which the Fund Servicing Applicants 

provide investment advisory services, 

and such Funds’ operations would be 

disrupted, as they sought to engage new 

advisers or sub-advisers. Applicants 

assert that these effects would be 

unduly severe given the Fund Servicing 

Applicants’ lack of involvement in the 

Conduct. Moreover, Applicants state 

that RBC has taken remedial actions to 

address the Conduct, as outlined in the 

application. Thus, Applicants believe 

that granting the exemption from 

section 9(a), as requested, would be 

consistent with the public interest and 

the protection of investors. 

7. Applicants state that the inability of 

the Fund Servicing Applicants to 

continue to provide investment advisory 

services to Funds would result in those 

Funds and their shareholders facing 

unduly and disproportionately severe 

hardships. Applicants state that they 

will distribute to the boards of directors 

of the Funds (the ‘‘Boards’’) written 

materials describing the circumstances 

that led to the Injunction and any 

impact on the Funds, and the 

application. The written materials will 

include an offer to discuss the materials 

at an in-person meeting with each Board 

for which the Fund Servicing 

Applicants provide Fund Services 

Activities, including the directors who 

are not ‘‘interested persons’’ of such 

Funds as defined in section 2(a)(19) of 

the Act, and their independent legal 

counsel as defined in rule 0–1(a)(6) 

under the Act. Applicants state they 

will provide the Boards with the 

information concerning the Injunction 

and the application that is necessary for 

those Funds to fulfill their disclosure 

and other obligations under the federal 

securities laws and will provide them a 

copy of the Consent Order as entered by 

the Court. 

8. Applicants state that if the Fund 

Servicing Applicants were barred under 

section 9(a) of the Act from providing 

investment advisory services to the 

Funds, and were unable to obtain the 

requested exemption, the effect on their 

businesses and employees would be 

unduly and disproportionately severe 

because they have committed 

substantial capital and other resources 

to establishing an expertise in advising 

Funds. Applicants further state that 

prohibiting the Fund Servicing 

Applicants from engaging in Fund 

Services Activities would not only 

adversely affect their businesses, but 

would also adversely affect their 

employees who are involved in those 

activities. Applicants state that many of 

these employees working for the Fund 

Servicing Applicants could experience 

significant difficulties in finding 

alternative fund-related employment. 

9. Applicants state that certain 

affiliates of the Applicants have 

previously received an order under 

section 9(c) of the Act, as the result of 

conduct that triggered section 9(a), as 

described in greater detail in the 

application. 

Applicants’ Conditions 

Applicants agree that any order 

granted by the Commission pursuant to 

the application will be subject to the 

following conditions: 

1. Any temporary exemption granted 

pursuant to the application shall be 

without prejudice to, and shall not limit 

the Commission’s rights in any manner 

with respect to, any Commission 

investigation of, or administrative 

proceedings involving or against, 

Covered Persons, including without 

limitation, the consideration by the 

Commission of a permanent exemption 

from section 9(a) of the Act requested 

pursuant to the application or the 

revocation or removal of any temporary 

exemptions granted under the Act in 

connection with the application. 

2. Each Applicant and Covered Person 

will adopt and implement policies and 

procedures reasonably designed to 

ensure that it will comply with any 

terms and conditions of the Orders 

within 60 days of the date of the 

Permanent Order. 

3. RBC will comply with the terms 

and conditions of the Consent Order. 

4. Applicants will provide written 

notification to the Chief Counsel of the 

Commission’s Division of Investment 

Management with a copy to the Chief 

Counsel of the Commission’s Division of 

Enforcement of a material violation of 

the terms and conditions of the Orders 

or Consent Order within 30 days of 

discovery of the material violation. 

mstockstill on DSK4VPTVN1PROD with NOTICES

78522 Federal Register / Vol. 79, No. 249 / Tuesday, December 30, 2014 / Notices 

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

2 17 CFR 240.19b–4. 

3The Exchange notes that there are efforts by the 

exchanges to create a uniform trade nullification 

and adjustment rule. Should the uniform rule be 

approved and effective, the Exchange will amend 

its rules appropriately. 

4The Exchange notes that, as proposed, Rule 

6.77A would only apply to trades that were 

executed on the Exchange and, as such, any orders 

that were either fully or partially routed to, or 

executed, on another exchange would not be subject 

to the proposed Rule 6.77A. 

5See Rule 6.87(a)(3) and (7) and 6.87(d)(3). 

6See CBOE Rule 6.19 and Securities Exchange 

Act Release No. 72970 (September 3, 2014), 79 FR 

53498 (September 9, 2014) (SR–CBOE–2014–066) 

and MIAX Rule 531 and Release No. 73463 (October 

29, 2014), 79 FR 65445 (November 4, 2014) (SR– 

MIAX–2014–54). 

7See note 5 supra. 

8See Commentary .02 of Rule 6.77. 

Temporary Order 

The Commission has considered the 

matter and finds that Applicants have 

made the necessary showing to justify 

granting a temporary exemption. 

Accordingly, 

It is hereby ordered, pursuant to 

section 9(c) of the Act, that the Fund 

Servicing Applicants and any other 

Covered Persons are granted a 

temporary exemption from the 

provisions of section 9(a), solely with 

respect to the Injunction, subject to the 

representations and conditions in the 

application, from December 18, 2014, 

until the Commission takes final action 

on their application for a permanent 

order. 

By the Commission. 

Kevin M. O’Neill, 

Deputy Secretary. 

[FR Doc. 2014–30225 Filed 12–29–14; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–73909; File No. SR–

NYSEArca–2014–140] 

Self-Regulatory Organizations; NYSE 

Arca, Inc.; Notice of Filing and 

Immediate Effectiveness of Proposed 

Rule Change Amending Exchange 

Rules Regarding Trade Nullification 

and Price Adjustment 

December 22, 2014. 

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 December 

16, 2014, NYSE Arca, Inc. (the 

‘‘Exchange’’ or ‘‘NYSE Arca’’) filed with 

the Securities and Exchange 

Commission (‘‘Commission’’) the 

proposed rule change as described in 

Items I and II below, which Items have 

been prepared by the self-regulatory 

organization. The Commission is 

publishing this notice to solicit 

comments on the proposed rule change 

from interested persons. 

I. Self-Regulatory Organization’s 

Statement of the Terms of the Substance 

of the Proposed Rule Change 

The Exchange proposes to amend 

exchange rules regarding trade 

nullification and price adjustment. The 

text of the proposed rule change is 

available on the Exchange’s Web site at 

www.nyse.com, at the principal office of 

the Exchange, and at the Commission’s 

Public Reference Room. 

II. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

In its filing with the Commission, the 

self-regulatory organization included 

statements concerning the purpose of, 

and basis for, the proposed rule change 

and discussed any comments it received 

on the proposed rule change. The text 

of those statements may be examined at 

the places specified in Item IV below. 

The Exchange has prepared summaries, 

set forth in sections A, B, and C below, 

of the most significant parts of such 

statements. 

A. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

1. Purpose 

The Exchange is proposing to add 

Rule 6.77A, ‘‘Trade Nullification and 

Price Adjustment Procedure.’’ 3 As 

proposed, Rule 6.77A would allow for 

transactions to be nullified if both 

parties to the transaction agree to the 

nullification and allow the price of 

executions to be adjusted if the price 

adjustment is agreed to by both parties 

to the transaction and authorized by the 

Exchange.4 The Exchange is also 

proposing to make other conforming 

administrative changes to streamline the 

rules governing this subject with the 

Exchange’s rules. 

Background 

Currently, pursuant to Commentary 

.02 of Rule 6.77, the Exchange allows for 

parties to agree to nullify an execution. 

Commentary .02 of Rule 6.77 also states 

that once both parties agree to the trade 

nullification, one party must ‘‘promptly 

notify the Exchange for dissemination of 

cancellation information to the Options 

Price Reporting Authority.’’ In addition, 

the Exchange currently allows for a 

mutual price adjustment for trades that 

meet the obvious error (or catastrophic 

error) requirements pursuant to 

Exchange Rule 6.87 if those mutual 

agreements are done within specific 

timeframes.5 The Exchange is now 

proposing to relocate the 

aforementioned trade nullification 

language and add a provision to allow 

parties to mutually adjust prices of 

executions outside of those done in 

obvious error. The Exchange’s proposal 

is based upon similar rules of the 

Chicago Board Options Exchange 

(‘‘CBOE’’) and Miami International 

Securities Exchange, LLC (‘‘MIAX’’).6

Proposed Rule 6.77A 

The Exchange is proposing to add 

Rule 6.77A, ‘‘Trade Nullification and 

Price Adjustment Procedure,’’ which 

would: (a) Allow for any trades on the 

Exchange to be nullified if both parties 

to the trade agree to such nullification, 

and (b) allow for prices of executions to 

be adjusted if the price adjustment is 

agreed upon by both parties to the trade 

and authorized by the Exchange.7

As stated above, the Exchange 

currently allows for trades to be 

nullified based upon mutual 

agreement.8 With the proposed addition 

of Rule 6.77A, the Exchange is only 

renumbering and relocating this 

provision and is not proposing a 

substantive change to the rule itself. The 

Exchange believes that having the 

provision as a standalone rule would 

make it easier for OTP Holders to locate. 

In addition, the Exchange believes this 

administrative change would streamline 

the provisions surrounding this notion 

to put in one place. 

The Exchange is also proposing to add 

a provision allowing OTP Holders to 

mutually agree to adjust a price of an 

execution. The Exchange believes this 

provision is necessary given the benefits 

of adjusting a trade price rather than 

nullifying the trade completely. Because 

options trades are used to hedge 

transactions in other markets, including 

securities and futures, many OTP 

Holders, and their customers, would 

rather adjust prices of executions rather 

than nullify the transactions and, thus, 

lose a hedge altogether. As such, the 

Exchange believes it is in the best 

interest of investors to allow for price 

adjustments as well as nullifications. In 

addition, the Exchange believes it is in 

the nature of a fair and orderly market 

to allow for price adjustments rather 

than only cancellations because an 

adjustment would result in the least 

amount of disruption to the overall 

market. The Exchange also notes that 

current Exchange rules allow for prices 

of trades to be adjusted at the consent 

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