37920 Federal Register / Vol. 82, No. 155 / Monday, August 14, 2017 / Notices 

15 15 U.S.C. 78s(b)(2)(C). 

16 15 U.S.C. 78q–1(b)(3)(F). 17 15 U.S.C. 78s(b)(2)(C)(iii). 

18 12 U.S.C. 5462(8)(A)(ii). 

19 In approving the proposed rule change, the 

Commission considered the proposal’s impact on 

efficiency, competition, and capital formation. 15 

U.S.C. 78c(f). 

20 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

scenario are extracted from the market 

history of the most actively traded 

instrument for the considered Risk 

Factors. 

ICC proposed to revise the 

Hypothetically Constructed (Forward 

Looking) Extreme but Plausible Market 

Scenarios section to ensure consistency 

with the loss-given default stress 

scenario set forth in the Liquidity Risk 

Management Framework, which 

combines a given historically observed 

extreme but plausible market scenario 

with explicit Jump-to-Default events. 

The proposed revisions specify that 

there would be up to two reference 

entities selected for a hypothetical 

adverse credit event. 

Finally, ICC proposed to revise the 

description of the discordant scenarios 

(i.e., scenarios under which selected 

risk factors move in opposite directions) 

in the Stress Testing Framework to 

reflect the introduction of Risk Factor 

specific scenarios. According to ICC, the 

discordant scenarios are designed to 

reproduce significant discordant market 

outcomes observed during the 

considered historical period. ICC creates 

discordant scenarios for North 

American corporate single names and 

indices; European corporate single 

names and indices; and sovereign 

reference entities. 

III. Discussion and Commission 

Findings 

Section 19(b)(2)(C) of the Exchange 

Act directs the Commission to approve 

a proposed rule change of a selfregulatory organization if it finds that 

such proposed rule change is consistent 

with the requirements of the Exchange 

Act and the rules and regulations 

thereunder applicable to such 

organization.15 Section 17A(b)(3)(F) of 

the Exchange Act requires, among other 

things, that the rules of a registered 

clearing agency be designed to promote 

the prompt and accurate clearance and 

settlement of securities transactions 

and, to the extent applicable, derivative 

agreements, contracts, and 

transactions.16 Rule 17Ad–22(d)(11) 

requires, in relevant part, that a 

registered clearing agency establish 

default procedures that ensure that the 

clearing agency can take timely action to 

contain losses and liquidity pressures 

and to continue meeting its obligations 

in the event of a participant default. 

The Commission finds that the 

proposed rule change, which revises 

ICC’s Liquidity Risk Management 

Framework and makes conforming 

changes to ICC’s Stress Testing 

Framework, is consistent with Section 

17A of the Exchange Act and Rule 

17Ad–22(d)(11) thereunder. As 

represented by ICC, the various 

elements set forth in the Liquidity Risk 

Management Framework, and described 

above, ensure that ICC has sufficient 

liquidity resources to effectively 

measure, monitor, and manage its 

liquidity risk. Further, ICC represented 

the Liquidity Risk Management 

Framework supports ICC’s ability to 

maintain sufficient liquid resources in 

all relevant currencies to effect sameday and, where appropriate, intraday 

and multiday settlement of payment 

obligations with a high degree of 

confidence under a wide range of 

potential stress scenarios. ICC 

represented that changes to the Stress 

Testing Framework were necessary 

following recent changes to the 

Liquidity Risk Management Framework, 

as ICC operates its stress testing and 

liquidity stress testing on a unified set 

of stress testing scenarios and systems. 

ICC stated that its stress testing practices 

will continue to ensure the adequacy of 

systemic risk protections. ICC 

represented that the revised stress test 

scenarios set forth in the Stress Testing 

Framework will continue to ensure that 

ICC maintains sufficient financial 

resources to withstand a default by the 

CP family to which it has the largest 

exposure in extreme but plausible 

market conditions. The Commission 

therefore believes that the proposed 

revisions to the ICC Liquidity Risk 

Management Framework and Stress 

Testing Framework are designed to 

promote the prompt and accurate 

settlement of securities transactions, 

derivatives agreements, contracts, and 

transactions for which ICC is 

responsible, consistent with Section 

17A(b)(3)(F) of the Exchange Act. 

Furthermore, for similar reasons, the 

Commission finds that the proposed 

revisions are consistent with the 

requirements of Rule 17Ad–22(d)(11). 

Section 19(b)(2)(C)(iii) of the 

Exchange Act allows the Commission to 

approve a proposed rule change earlier 

than 30 days after the date of 

publication of the notice of the 

proposed rule change in the Federal 

Register where the Commission finds 

good cause for so doing and publishes 

the reason for the finding.17 In its filing, 

ICC requested that the Commission 

approve the proposed rule change on an 

accelerated basis for good cause shown. 

ICC represented that the amendments to 

ICC’s Liquidity Risk Management 

Framework and Stress Testing 

Framework set forth in the proposed 

rule change further ICC’s compliance 

with CFTC regulations. The 

Commission also notes that the CFTC is 

the supervisory agency for ICC under 

Section 803(8)(A)(ii) of the Payment, 

Clearing, and Settlement Supervision 

Act of 2010.18 Based on the foregoing, 

the Commission finds that good cause 

exists to approve the proposed rule 

change on an accelerated basis pursuant 

to Section 19(b)(2)(C)(iii) of the 

Exchange Act. 

IV. Conclusion 

It is therefore ordered pursuant to 

Section 19(b)(2) of the Exchange Act 

that the proposed rule change (SR–ICC– 

2017–011) be, and hereby is, approved 

on an accelerated basis.19

For the Commission by the Division of 

Trading and Markets, pursuant to delegated 

authority.20

Eduardo A. Aleman, 

Assistant Secretary. 

[FR Doc. 2017–17052 Filed 8–11–17; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–81351; File No. SR–BOX– 

2017–25] 

Self-Regulatory Organizations; BOX 

Options Exchange LLC; Notice of 

Filing and Immediate Effectiveness of 

a Proposed Rule Change To Amend 

BOX Rule 7170 (Nullification and 

Adjustment of Options Transactions 

Including Obvious Errors) 

August 8, 2017. 

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 August 3, 

2017, BOX Options Exchange LLC (the 

‘‘Exchange’’) 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 Exchange. The Commission is 

publishing this notice to solicit 

comments on the proposed rule change 

from interested persons. 


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Federal Register / Vol. 82, No. 155 / Monday, August 14, 2017 / Notices 37921 

3See Securities Exchange Act Release No. 74556 

(March 20, 2015), 80 FR 16031 (March 26, 2015) 

(SR–BATS–2014–067); see also Securities Exchange 

Act Release No. 73884 (December 18, 2014), 79 FR 

77557 (December 24, 2014) (the ‘‘Initial Filing’’). 

4See Securities Exchange Act Release No. 34– 

81084 (July 6, 2017) (granting approval of Bats BZX 

proposal), 82 FR 32216 (July 12, 2017); 82 FR 23684 

(May 23, 2017) (SR–BatsBZX–2017–035) (notice of 

filing of Bats BZX proposal). 

5Though the Exchange and other options 

exchanges considered a streaming feed, it was 

determined that it would be more feasible to 

develop and implement an on demand service and 

that such a service would satisfy the goals of the 

initiative. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

The Exchange proposes to amend 

BOX Rule 7170 (Nullification and 

Adjustment of Options Transactions 

including Obvious Errors). The text of 

the proposed rule change is available 

from the principal office of the 

Exchange, at the Commission’s Public 

Reference Room and also on the 

Exchange’s Internet Web site at http://

boxexchange.com. 

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 these statements may be examined at 

the places specified in Item IV below. 

The self-regulatory organization 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 Exchange and other options 

exchanges recently adopted a new, 

harmonized rule related to the 

adjustment and nullification of 

erroneous options transactions, 

including a specific provision related to 

coordination in connection with largescale events involving erroneous 

options transactions.3 The Exchange 

believes that the changes the options 

exchanges implemented with the new, 

harmonized rule have led to increased 

transparency and finality with respect to 

the adjustment and nullification of 

erroneous options transactions. 

However, as part of the initial initiative, 

the Exchange and other options 

exchanges deferred a few specific 

matters for further discussion. 

Specifically, as described in the Initial 

Filing, the Exchange and all other 

options exchanges have been working to 

further improve the review of 

potentially erroneous transactions as 

well as their subsequent adjustment by 

creating an objective and universal way 

to determine Theoretical Price in the 

event a reliable NBBO is not available. 

Because this initiative required 

additional exchange and industry 

discussion as well as additional time for 

development and implementation, the 

Exchange and the other options 

exchanges determined to proceed with 

the Initial Filing and to undergo a 

secondary initiative to complete any 

additional improvements to the 

applicable rule. In this filing, the 

Exchange proposes to adopt procedures 

that will lead to a more objective and 

uniform way to determine Theoretical 

Price in the event a reliable NBBO is not 

available. In addition to this change, the 

Exchange has proposed two additional 

minor changes to its rules. The 

Exchange’s proposal mirrors that of Bats 

BZX, which the Commission approved 

on July 6, 2017,4 and those that the 

other options exchanges intend to file, 

except that it omits the section of the 

proposal that pertains to trading halts 

due to the fact that IM–7080–3 already 

includes the applicable language. 

Calculation of Theoretical Price Using a 

Third Party Provider 

Under the harmonized rule, when 

reviewing a transaction as potentially 

erroneous, the Exchange needs to first 

determine the ‘‘Theoretical Price’’ of the 

option, i.e., the Exchange’s estimate of 

the correct market price for the option. 

Pursuant to Rule 7170, if the applicable 

option series is traded on at least one 

other options exchange, then the 

Theoretical Price of an option series is 

the last national best bid (‘‘NBB’’) just 

prior to the trade in question with 

respect to an erroneous sell transaction 

or the last national best offer (‘‘NBO’’) 

just prior to the trade in question with 

respect to an erroneous buy transaction 

unless one of the exceptions described 

below exists. Thus, whenever the 

Exchange has a reliable NBB or NBO, as 

applicable, just prior to the transaction, 

then the Exchange uses this NBB or 

NBO as the Theoretical Price. 

The Rule also contains various 

provisions governing specific situations 

where the NBB or NBO is not available 

or may not be reliable. Specifically, the 

Rule specifies situations in which there 

are no quotes or no valid quotes for 

comparison purposes, when the 

national best bid or offer (‘‘NBBO’’) is 

determined to be too wide to be reliable, 

and at the open of trading on each 

trading day. In each of these 

circumstances, in turn, because the NBB 

or NBO is not available or is deemed to 

be unreliable, the Exchange determines 

Theoretical Price. Under the current 

Rule, when determining Theoretical 

Price, Exchange personnel generally 

consult and refer to data such as the 

prices of related series, especially the 

closest strikes in the option in question. 

Exchange personnel may also take into 

account the price of the underlying 

security and the volatility 

characteristics of the option as well as 

historical pricing of the option and/or 

similar options. Although the Rule is 

administered by experienced personnel 

and the Exchange believes the process is 

currently appropriate, the Exchange 

recognizes that it is also subjective and 

could lead to disparate results for a 

transaction that spans multiple options 

exchanges. 

The Exchange proposes to adopt IM– 

7170–5 to specify how the Exchange 

will determine Theoretical Price when 

required by sub-paragraphs (b)(1)–(3) of 

the Rule (i.e., at the open, when there 

are no valid quotes or when there is a 

wide quote). In particular, the Exchange 

has been working with other options 

exchanges to identify and select a 

reliable third party vendor (‘‘TP 

Provider’’) that would provide 

Theoretical Price to the Exchange 

whenever one or more transactions is 

under review pursuant to Rule 7170 and 

the NBBO is unavailable or deemed 

unreliable pursuant to Rule 7170(b). The 

Exchange and other options exchanges 

have selected CBOE Livevol, LLC 

(‘‘Livevol’’) as the TP Provider, as 

described below. As further described 

below, proposed IM–7170–5 would 

codify the use of the TP Provider as well 

as limited exceptions where the 

Exchange would be able to deviate from 

the Theoretical Price given by the TP 

Provider. 

Pursuant to proposed IM–7170–5, 

when the Exchange must determine 

Theoretical Price pursuant to the subparagraphs (b)(1)–(3) of the Rule, the 

Exchange will request Theoretical Price 

from the third party vendor to which the 

Exchange and all other options 

exchanges have subscribed. Thus, as set 

forth in this proposed language, 

Theoretical Price would be provided to 

the Exchange by the TP Provider on 

request and not through a streaming 

data feed.5 This language also makes 

clear that the Exchange and all other 

options exchanges will use the same TP 

Provider. 


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6The Exchange notes that in 2015, Livevol was 

acquired by CBOE Holdings, Inc., the ultimate 

parent company of the Chicago Board Options 

Exchange (‘‘CBOE’’) and C2 Options Exchange 

(‘‘C2’’). 

7For purposes of the Rule, an Official is an 

Officer of the Exchange or such other employee 

designee of the Exchange that is trained in the 

application of Rule 7170. 

8See proposed paragraph (b) to IM–7170–5. 

9The Exchange expects any TP Provider selected 

by the Exchange and other options exchanges to act 

independently in its determination and calculation 

of Theoretical Price. With respect to Livevol 

specifically, the Exchange again notes that Livevol 

is a subsidiary of CBOE Holdings, Inc., which is 

also the ultimate parent company of multiple 

options exchanges. The Exchange expects Livevol 

to calculate Theoretical Price independent of its 

affiliated exchanges in the same way it will 

calculate Theoretical Price independent of nonaffiliated exchanges. 

10To the extent the TP Provider has been 

contacted by an Official of the Exchange, reviews 

the Theoretical Price provided but disagrees that 

there has been any error, then the Exchange would 

be bound to use the Theoretical Price provided by 

the TP Provider. 11 In the context of a Significant Market Event, the 

Exchange may determine, ‘‘in consultation with 

other options exchanges . . . that timely adjustment 

is not feasible due to the extraordinary nature of the 

situation.’’ See Rule 7170(e)(4). 

As noted above, the proposed TP 

Provider selected by the Exchange and 

other options exchanges is Livevol. The 

Exchange proposes to codify this 

selection in proposed paragraph (d) to 

IM–7170–5. As such, the Exchange 

would file a rule proposal and would 

provide notice to the options industry of 

any proposed change to the TP Provider. 

The Exchange and other options 

exchanges have selected Livevol as the 

proposed TP Provider after diligence 

into various alternatives. Livevol has, 

since 2009, been the options industry 

leader in providing equity and index 

options market data and analytics 

services.6 The Exchange believes that 

Livevol has established itself within the 

options industry as a trusted provider of 

such services and notes that it and all 

other options exchanges already 

subscribe to various Livevol services. In 

connection with this proposal, Livevol 

will develop a new tool based on its 

existing technology and services that 

will supply Theoretical Price to the 

Exchange and other options exchanges 

upon request. The Theoretical Price tool 

will leverage current market data and 

surrounding strikes to assist in a relative 

value pricing approach to generating a 

Theoretical Price. When relative value 

methods are incapable of generating a 

valid Theoretical Price, the Theoretical 

Price tool will utilize historical trade 

and quote data to calculate Theoretical 

Price. 

Because the purpose of the proposal 

is to move away from a subjective 

determination by Exchange personnel 

when the NBBO is unavailable or 

unreliable, the Exchange intends to use 

the Theoretical Price provided by the TP 

Provider in all such circumstances. 

However, the Exchange believes it is 

necessary to retain the ability to contact 

the TP Provider if it believes that the 

Theoretical Price provided is 

fundamentally incorrect and to 

determine the Theoretical Price in the 

limited circumstance of a systems issue 

experienced by the TP Provider, as 

described below. 

As proposed, to the extent an 

Official 7 of the Exchange believes that 

the Theoretical Price provided by the TP 

Provider is fundamentally incorrect and 

cannot be used consistent with the 

maintenance of a fair and orderly 

market, the Official shall contact the TP 

Provider to notify the TP Provider of the 

reason the Official believes such 

Theoretical Price is inaccurate and to 

request a review and correction of the 

calculated Theoretical Price. For 

example, if an Official received from the 

TP Provider a Theoretical Price of $80 

in a series that the Official might expect 

to be instead in the range of $8 to $10 

because of a recent corporate action in 

the underlying, the Official would 

request that the TP Provider review and 

confirm its calculation and determine 

whether it had appropriately accounted 

for the corporate action. In order to 

ensure that other options exchanges that 

may potentially be relying on the same 

Theoretical Price that, in turn, the 

Official believes to be fundamentally 

incorrect, the Exchange also proposes to 

promptly provide notice to other 

options exchanges that the TP Provider 

has been contacted to review and 

correct the calculated Theoretical Price 

at issue and to include a brief 

explanation of the reason for the 

request.8 Although not directly 

addressed by the proposed Rule, the 

Exchange expects that all other options 

exchanges once in receipt of this 

notification would await the 

determination of the TP Provider and 

would use the corrected price as soon as 

it is available. The Exchange further 

notes that it expects the TP Provider to 

cooperate with, but to be independent 

of, the Exchange and other options 

exchanges.9

The Exchange believes that the 

proposed provision to allow an Official 

to contact the TP Provider if he or she 

believes the provided Theoretical Price 

is fundamentally incorrect is necessary, 

particularly because the Exchange and 

other options exchanges will be using 

the new process for the first time. 

Although the exchanges have conducted 

thorough diligence with respect to 

Livevol as the selected TP Provider and 

would do so with any potential 

replacement TP Provider, the Exchange 

is concerned that certain scenarios 

could arise where the Theoretical Price 

generated by the TP Provider does not 

take into account relevant factors and 

would result in an unfair result for 

market participants involved in a 

transaction. The Exchange notes that if 

such situations do indeed arise, to the 

extent practicable the Exchange will 

also work with the TP Provider and 

other options exchanges to improve the 

TP Provider’s calculation of Theoretical 

Price in future situations. For instance, 

if the Exchange determines that a 

particular type of corporate action is not 

being appropriately captured by the TP 

Provider when such provider is 

generating Theoretical Price, while the 

Exchange believes that it needs the 

ability to request a review and 

correction of the Theoretical Price in 

connection with a specific review in 

order to provide a timely decision to 

market participants, the Exchange 

would share information regarding the 

specific situation with the TP Provider 

and other options exchanges in an effort 

to improve the Theoretical Price service 

for future use. The Exchange notes that 

it does not anticipate needing to rely on 

this provision frequently, if at all, but 

believes the provision is necessary 

nonetheless to best prepare for all 

potential circumstances. Further, the 

Theoretical Price used by the Exchange 

in connection with its rulings will 

always be that received from the TP 

Provider and the Exchange has not 

proposed the ability to deviate from 

such price.10

Pursuant to proposed paragraph (c) of 

IM–7170–5, an Official of the Exchange 

may determine the Theoretical Price if 

the TP Provider has experienced a 

systems issue that has rendered its 

services unavailable to accurately 

calculate Theoretical Price and such 

issue cannot be corrected in a timely 

manner. The Exchange notes that it does 

not anticipate needing to rely on this 

provision frequently, if at all, but 

believes the provision is necessary 

nonetheless to best prepare for all 

potential circumstances. Further, 

consistent with existing text in Rule 

7170(e)(4), the Exchange has not 

proposed a specific time by which the 

service must be available in order to be 

considered timely.11 The Exchange 

expects that it would await the TP 

Provider’s services becoming available 

again so long as the Exchange was able 

to obtain information regarding the 

issue and the TP Provider had a 

reasonable expectation of being able to 


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12See, e.g., Rule 6110, which relates to index 

options potentially listed and traded on the 

Exchange and disclaims liability for a reporting 

authority and their affiliates. 

resume normal operations within the 

next several hours based on 

communications with the TP Provider. 

More specifically with respect to 

Livevol, Livevol has business continuity 

and disaster recovery procedures that 

will help to ensure that the Theoretical 

Price tool remains available or, in the 

event of an outage, that service is 

restored in a timely manner. 

The Exchange also notes that if a 

wide-scale event occurred, even if such 

event did not qualify as a ‘‘Significant 

Market Event’’ pursuant to Rule 7170(e), 

and the TP Provider was unavailable or 

otherwise experiencing difficulty, the 

Exchange believes that it and other 

options exchanges would seek to 

coordinate to the extent possible. In 

particular, the Exchange and other 

options exchanges now have a process, 

administered by the Options Clearing 

Corporation, to invoke a discussion 

amongst all options exchanges in the 

event of any widespread or significant 

market events. The Exchange believes 

that this process could be used in the 

event necessary if there were an issue 

with the TP Provider. 

The Exchange also proposes to adopt 

language in paragraph (d) of IM–7170– 

5 to disclaim the liability of the 

Exchange and the TP Provider in 

connection with the proposed Rule, the 

TP Provider’s calculation of Theoretical 

Price, and the Exchange’s use of such 

Theoretical Price. Specifically, the 

proposed rule would state that neither 

the Exchange, the TP Provider, nor any 

affiliate of the TP Provider (the TP 

Provider and its affiliates are referred to 

collectively as the ‘‘TP Provider’’), 

makes any warranty, express or implied, 

as to the results to be obtained by any 

person or entity from the use of the TP 

Provider pursuant to IM–7170–5. The 

proposed rule would further state that 

the TP Provider does not guarantee the 

accuracy or completeness of the 

calculated Theoretical Price and that the 

TP Provider disclaims all warranties of 

merchantability or fitness for a 

particular purpose or use with respect to 

such Theoretical Price. Finally, the 

proposed Rule would state that neither 

the Exchange nor the TP Provider shall 

have any liability for any damages, 

claims, losses (including any indirect or 

consequential losses), expenses, or 

delays, whether direct or indirect, 

foreseen or unforeseen, suffered by any 

person arising out of any circumstance 

or occurrence relating to the use of such 

Theoretical Price or arising out of any 

errors or delays in calculating such 

Theoretical Price. This proposed 

language is modeled after existing 

language in Exchange Rules regarding 

‘‘reporting authorities’’ that calculate 

indices.12

In connection with the proposed 

change described above, the Exchange 

proposes to modify Rule 7170 to state 

that the Exchange will rely on paragraph 

(b) and IM–7170–5 when determining 

Theoretical Price. 

No Valid Quotes—Market Participant 

Quoting on Multiple Exchanges 

As described above, one of the times 

where the NBB or NBO is deemed to be 

unreliable for purposes of Theoretical 

Price is when there are no quotes or no 

valid quotes for the affected series. In 

addition to when there are no quotes, 

the Exchange does not consider the 

following to be valid quotes: (i) All 

quotes in the applicable option series 

published at a time where the last NBB 

is higher than the last NBO in such 

series (a ‘‘crossed market’’); (ii) quotes 

published by the Exchange that were 

submitted by either party to the 

transaction in question; and (iii) quotes 

published by another options exchange 

against which the Exchange has 

declared self-help. In recognition of 

today’s market structure where certain 

participants actively provide liquidity 

on multiple exchanges simultaneously, 

the Exchange proposes to add an 

additional category of invalid quotes. 

Specifically, in order to avoid a 

situation where a market participant has 

established the market at an erroneous 

price on multiple exchanges, the 

Exchange proposes to consider as 

invalid the quotes in a series published 

by another options exchange if either 

party to the transaction in question 

submitted the quotes in the series 

representing such options exchange’s 

best bid or offer. Thus, similar to being 

able to ignore for purposes of the Rule 

the quotes published by the Exchange if 

submitted by either party to the 

transaction in question, the Exchange 

would be able to ignore for purposes of 

the rule quotations on other options 

exchanges by that same market 

participant. 

In order to continue to apply the Rule 

in a timely and organized fashion, 

however, the Exchange proposes to 

initially limit the scope of this proposed 

provision in two ways. First, because 

the process will take considerable 

coordination with other options 

exchanges to confirm that the quotations 

in question on an away options 

exchange were indeed submitted by a 

party to a transaction on the Exchange, 

the Exchange proposes to limit this 

provision to apply to up to twenty-five 

(25) total options series (i.e., whether 

such series all relate to the same 

underlying security or multiple 

underlying securities). Second, the 

Exchange proposes to require the party 

that believes it established the best bid 

or offer on one or more other options 

exchanges to identify to the Exchange 

the quotes which were submitted by 

such party and published by other 

options exchanges. In other words, as 

proposed, the burden will be on the 

party seeking that the Exchange 

disregard their quotations on other 

options exchanges to identify such 

quotations. In turn, the Exchange will 

verify with such other options 

exchanges that such quotations were 

indeed submitted by such party. 

Below are examples of both the 

current rule and the rule as proposed to 

be amended. 

Example 1—Current Rule, Participant 

Erroneously Quotes on One Exchange 

Assumptions 

For purposes of this example, assume 

the following: 

• A Participant acting as a Market 

Maker on the Exchange (‘‘Market Maker 

A’’) is quoting in twenty series of 

options underlying security ABCD on 

the Exchange (and only the Exchange). 

• Market Maker A makes an error in 

calculating the market for options on 

ABCD, and publishes quotes in all 

twenty series to buy options at $1.00 

and to sell options at $1.05. 

• In fact, options on ABCD in these 

series are nearly worthless and no other 

market participant is quoting in such 

series. 

• Therefore, the NBBO in the twenty 

series at issue is $1.00 × $1.05 (with the 

Exchange representing the NBBO based 

on Market Maker A’s quotes). 

• Assume Participant A immediately 

enters sell orders and executes against 

Market Maker A’s quotes at $1.00. 

• Assume Market Maker A submits to 

the Exchange a timely request for review 

of the trades with Participant A as 

potentially erroneous transactions to 

buy. 

Result 

• Based on the Exchange’s current 

rules, the Exchange would identify 

Market Maker A as a participant to the 

trades at issue and would consider 

Market Maker A’s quotations invalid 

pursuant to Rule 7170(b)(2). 

• As there were no other valid quotes 

to use as a reference price, the Exchange 

would then determine Theoretical Price. 

• Assume the Exchange determines a 

Theoretical Price of $0.05. 


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13The Exchange notes that its proposed rule will 

not impact the proposed handling of a request for 

review where a market participant is quoting only 

on the Exchange, thus, the Exchange has not 

included a separate example for such a fact-pattern. 

14The Exchange notes that the proposed rule 

would operate the same if Market Maker A was 

quoting on more than two exchanges. The Exchange 

has limited the example to two exchanges for 

simplicity. 

Æ The execution price of $1.00 

exceeds the $0.25 minimum amount set 

forth in the Exchange’s table to 

determine whether an obvious error has 

occurred (i.e., $0.05 + $0.25 = $0.30) so 

any execution at or above this price is 

an obvious error. 

Æ Accordingly, the executions in all 

series would be adjusted by the 

Exchange to executions at $0.20 per 

contract (Theoretical Price of $0.05 plus 

$0.15) to the extent the incoming orders 

submitted by Participant A were nonCustomer orders. 

Æ The executions in all series would 

be nullified to the extent the incoming 

orders submitted by Participant A were 

Customer orders. 

Example 2—Current Rule, Participant 

Erroneously Quotes on Multiple 

Exchanges 

Assumptions 

For purposes of this example, assume 

the following: 

• A Participant acting as a Market 

Maker on the Exchange (‘‘Market Maker 

A’’) is quoting in twenty series of 

options underlying security ABCD on 

the Exchange and on a second exchange 

(‘‘Away Exchange’’). 

• Market Maker A makes an error in 

calculating the market for options on 

ABCD, and publishes quotes on both the 

Exchange and the Away Exchange in all 

twenty series to buy options at $1.00 

and to sell options at $1.05. 

• In fact, options on ABCD in these 

series are nearly worthless and no other 

market participant is quoting in such 

series. 

• Therefore, the NBBO in the twenty 

series at issue is $1.00 × $1.05 (with the 

Exchange and the Away Exchange 

representing the NBBO based on Market 

Maker A’s quotes). 

• Assume Participant A immediately 

enters sell orders and executes against 

Market Maker A’s quotes at $1.00. 

• Assume Market Maker A submits to 

the Exchange and to the Away Exchange 

timely requests for review of the trades 

with Participant A as potentially 

erroneous transactions to buy. 

Result 

• Based on the Exchange’s current 

rules, the Exchange would identify 

Market Maker A as a participant to the 

trades at issue and would consider 

Market Maker A’s quotations on the 

Exchange invalid pursuant to Rule 

7170(b)(2). The Exchange, however, 

would view the Away Exchange’s 

quotations as valid, and would thus 

determine Theoretical Price to be $1.05 

(i.e., the NBO in the case of a potentially 

erroneous buy transaction). 

• The execution price of $1.00 does 

not exceed the $0.25 minimum amount 

set forth in the Exchange’s table to 

determine whether an obvious error has 

occurred (i.e., $1.05 + $0.25 = $1.30) so 

any execution at or above this price is 

an obvious error. 

• The transactions on the Exchange 

would not be nullified or adjusted. 

• As the Exchange and all other 

options exchanges have identical rules 

with respect to the process described 

above, the transactions on the Away 

Exchange would not be nullified or 

adjusted. 

Example 3—Proposed Rule, Participant 

Erroneously Quotes on Multiple 

Exchanges 13

Assumptions 

For purposes of this example, assume 

the following: 

• A Participant acting as a Market 

Maker on the Exchange (‘‘Market Maker 

A’’) is quoting in twenty series of 

options underlying security ABCD on 

the Exchange and on a second exchange 

(‘‘Away Exchange’’).14

• Market Maker A makes an error in 

calculating the market for options on 

ABCD, and publishes quotes on both the 

Exchange and the Away Exchange in all 

twenty series to buy options at $1.00 

and to sell options at $1.05. 

• In fact, options on ABCD in these 

series are nearly worthless and no other 

market participant is quoting in such 

series. 

• Therefore, the NBBO in the twenty 

series at issue is $1.00 × $1.05 (with the 

Exchange and the Away Exchange 

representing the NBBO based on Market 

Maker A’s quotes). 

• Assume Participant A immediately 

enters sell orders and executes against 

Market Maker A’s quotes at $1.00. 

• Assume Market Maker A submits to 

the Exchange and to the Away Exchange 

timely requests for review of the trades 

with Participant A as potentially 

erroneous transactions to buy. At the 

time of submitting the requests for 

review to the Exchange and the Away 

Exchange, Market Maker A identifies to 

the Exchange the quotes on the Away 

Exchange as quotes also represented by 

Market Maker A (and to the Away 

Exchange, the quotes on the Exchange 

as quotes also represented by Market 

Maker A). 

Result 

• Based on the proposed rules, the 

Exchange would identify Market Maker 

A as a participant to the trades at issue 

and would consider Market Maker A’s 

quotations on the Exchange invalid 

pursuant to Rule 7170(b)(2). 

• The Exchange and the Away 

Exchange would also coordinate to 

confirm that the quotations identified by 

Market Maker A on the other exchange 

were indeed Market Maker A’s 

quotations. Once confirmed, each of the 

Exchange and the Away Exchange 

would also consider invalid the 

quotations published on the other 

exchange. 

• As there were no other valid quotes 

to use as a reference price, the Exchange 

would then determine Theoretical Price. 

• Assume the Exchange determines a 

Theoretical Price of $0.05. 

Æ The execution price of $1.00 

exceeds the $0.25 minimum amount set 

forth in the Exchange’s table to 

determine whether an obvious error has 

occurred (i.e., $0.05 + $0.25 = $0.30) so 

any execution at or above this price is 

an obvious error. 

Æ Accordingly, the executions in all 

series would be adjusted by the 

Exchange to executions at $0.20 per 

contract (Theoretical Price of $0.05 plus 

$0.15) to the extent the incoming orders 

submitted by Participant A were nonCustomer orders. 

Æ The executions in all series would 

be nullified to the extent the incoming 

orders submitted by Participant A were 

Customer orders. 

• As the Exchange and all other 

options exchanges would have identical 

rules with respect to the process 

described above, as other options 

exchanges intend to adopt the same rule 

if the proposed rule is approved, the 

transactions on the Away Exchange 

would also be nullified or adjusted as 

set forth above. 

• If this example was instead 

modified such that Market Maker A was 

quoting in 200 series rather than 20, the 

Exchange notes that Market Maker A 

could only request that the Exchange 

consider as invalid their quotations in 

25 of those series on other exchanges. 

As noted above, the Exchange has 

proposed to limit the proposed rule to 

25 series in order to continue to process 

requests for review in a timely and 

organized fashion in order to provide 

certainty to market participants. This is 

due to the amount of coordination that 

will be necessary in such a scenario to 

confirm that the quotations in question 

on an away options exchange were 

indeed submitted by a party to a 

transaction on the Exchange. 


sradovich on DSK3GMQ082PROD with NOTICES
Federal Register / Vol. 82, No. 155 / Monday, August 14, 2017 / Notices 37925 

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

16 15 U.S.C. 78f(b)(5). 

17 Id. 

18 Id. 

19See supra, note 12. 

20 15 U.S.C. 78f(b)(5). 

21 15 U.S.C. 78f(b)(5). 22 15 U.S.C. 78f(b)(5). 

Implementation Date 

The Exchange proposes to delay the 

operative date of this proposal to a date 

within ninety (90) days after the 

Commission approved the Bats BZX 

proposal on July 6, 2017. The Exchange 

will announce the operative date in a 

Regulatory Circular made available to its 

Participants. 

2. Statutory Basis 

The Exchange believes that the 

proposal is consistent with the 

requirements of Section 6(b) of the 

Securities Exchange Act of 1934 (the 

‘‘Act’’),15 in general, and Section 6(b)(5) 

of the Act,16 in particular, in that it is 

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 

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. In particular, the 

Exchange believes that the proposal to 

utilize a TP Provider in the event the 

NBBO is unavailable or unreliable will 

provide greater transparency and clarity 

with respect to the adjustment and 

nullification of erroneous options 

transactions. Particularly, the proposed 

changes seek to achieve consistent 

results for participants across U.S. 

options exchanges while maintaining a 

fair and orderly market, protecting 

investors and protecting the public 

interest. Thus, the Exchange believes 

that the proposal is consistent with 

Section 6(b)(5) of the Act 17 in that the 

proposed Rule will foster cooperation 

and coordination with persons engaged 

in regulating and facilitating 

transactions. 

The Exchange again reiterates that it 

has retained the standard of the current 

rule for most reviews of options 

transactions pursuant to Rule 7170, 

which is to rely on the NBBO to 

determine Theoretical Price if such 

NBBO can reasonably be relied upon. 

The proposal to use a TP Provider when 

the NBBO is unavailable or unreliable is 

consistent with Section 6(b)(5) of the 

Act 18 in that the proposed Rule will 

foster cooperation and coordination 

with persons engaged in regulating and 

facilitating transactions by further 

reducing the possibility of disparate 

results between options exchanges and 

increasing the objectivity of the 

application of Rule 7170. Further, the 

Exchange believes that the proposed 

Rule is transparent with respect to the 

limited circumstances under which the 

Exchange will request a review and 

correction of Theoretical Price from the 

TP Provider, and has sought to limit 

such circumstances as much as possible. 

The Exchange notes that under the 

current Rule, Exchange personnel are 

required to determine Theoretical Price 

in certain circumstances and yet rarely 

do so because such circumstances have 

already been significantly limited under 

the harmonized rule (for example, 

because the wide quote provision of the 

harmonized rule only applies if the 

quote was narrower and then gapped 

but does not apply if the quote had been 

persistently wide). Thus, the Exchange 

believes it will need to request 

Theoretical Price from the TP Provider 

only in very rare circumstances and in 

turn, the Exchange anticipates that the 

need to contact the TP Provider for 

additional review of the Theoretical 

Price provided by the TP Provider will 

be even rarer. Similarly, the Exchange 

believes it is unlikely that an Exchange 

Official will ever be required to 

determine Theoretical Price, as such 

circumstance would only be in the 

event of a systems issue that has 

rendered the TP Provider’s services 

unavailable and such issue cannot be 

corrected in a timely manner. 

The Exchange also believes its 

proposal to adopt language in paragraph 

(d) of IM–7170–5 to disclaim the 

liability of the Exchange and the TP 

Provider in connection with the 

proposed Rule, the TP Provider’s 

calculation of Theoretical Price, and the 

Exchange’s use of such Theoretical Price 

is consistent with the Act. As noted 

above, this proposed language is 

modeled after existing language in 

Exchange Rules regarding ‘‘reporting 

authorities’’ that calculate indices,19

and is consistent with Section 6(b)(5) of 

the Act 20 in that the proposed Rule will 

foster cooperation and coordination 

with persons engaged in regulating and 

facilitating transactions. 

As described above, the Exchange 

proposes a modification to the valid 

quotes provision to also exclude quotes 

in a series published by another options 

exchange if either party to the 

transaction in question submitted the 

orders or quotes in the series 

representing such options exchange’s 

best bid or offer. The Exchange believes 

this proposal is consistent with Section 

6(b)(5) of the Act 21 because the 

application of the rule will foster 

cooperation and coordination with 

persons engaged in regulating and 

facilitating transactions by allowing the 

Exchange to coordinate with other 

options exchanges to determine whether 

a market participant that is party to a 

potentially erroneous transaction on the 

Exchange established the market in an 

option on other options exchanges; to 

the extent this can be established, the 

Exchange believes such participant’s 

quotes should be excluded in the same 

way such quotes are excluded on the 

Exchange. The Exchange also believes it 

is reasonable to limit the scope of this 

provision to twenty-five (25) series and 

to require the party that believes it 

established the best bid or offer on one 

or more other options exchanges to 

identify to the Exchange the quotes 

which were submitted by that party and 

published by other options exchanges. 

The Exchange believes these limitations 

are consistent with Section 6(b)(5) of the 

Act 22 because they will ensure that the 

Exchange is able to continue to apply 

the Rule in a timely and organized 

fashion, thus fostering cooperation and 

coordination with persons engaged in 

regulating and facilitating transactions 

and also removing impediments to and 

perfecting the mechanism of a free and 

open market and a national market 

system. 

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 as explained 

below. 

Importantly, the Exchange does not 

believe that the proposal will impose a 

burden on intermarket competition but 

rather that it will alleviate any burden 

on competition because it is the result 

of a collaborative effort by all options 

exchanges to further harmonize and 

improve the process related to the 

adjustment and nullification of 

erroneous options transactions. The 

Exchange does not believe that the rules 

applicable to such process is an area 

where options exchanges should 

compete, but rather, that all options 

exchanges should have consistent rules 

to the extent possible. Particularly 

where a market participant trades on 

several different exchanges and an 

erroneous trade may occur on multiple 

markets nearly simultaneously, the 

Exchange believes that a participant 

should have a consistent experience 

with respect to the nullification or 


sradovich on DSK3GMQ082PROD with NOTICES
37926 Federal Register / Vol. 82, No. 155 / Monday, August 14, 2017 / Notices 

23 15 U.S.C. 78s(b)(3)(A). 

24 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, along with a brief 

description and text of the proposed rule change, 

at least five business days prior to the date of filing 

of the proposed rule change, or such shorter time 

as designated by the Commission. The Exchange 

has satisfied this requirement. 

25 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

adjustment of transactions. To that end, 

the selection and implementation of a 

TP Provider utilized by all options 

exchanges will further reduce the 

possibility that participants with 

potentially erroneous transactions that 

span multiple options exchanges are 

handled differently on such exchanges. 

Similarly, the proposed ability to 

consider quotations invalid on another 

options exchange if ultimately 

originating from a party to a potentially 

erroneous transaction on the Exchange 

represents a proposal intended to 

further foster cooperation by the options 

exchanges with respect to market 

events. The Exchange understands that 

all other options exchanges intend to 

file proposals that are substantially 

similar to this proposal. 

The Exchange does not believe that 

the proposed rule change imposes a 

burden on intramarket competition 

because the proposed provisions apply 

to all market participants equally. 

C. Self-Regulatory Organization’s 

Statement on Comments on the 

Proposed Rule Change Received From 

Members, Participants, or Others 

The Exchange has neither solicited 

nor received comments on the proposed 

rule change. 

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 after the date of 

the filing, or such shorter time as the 

Commission may designate, it has 

become effective pursuant to 19(b)(3)(A) 

of the Act 23 and Rule 19b–4(f)(6) 24

thereunder. 

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– 

BOX–2017–25 on the subject line. 

Paper Comments 

• Send paper comments in triplicate 

to Brent J. Fields, Secretary, Securities 

and Exchange Commission, 100 F Street 

NE., Washington, DC 20549–1090. 

All submissions should refer to File 

Number SR–BOX–2017–25. 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–BOX– 

2017–25, and should be submitted on or 

before September 5, 2017. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.25

Eduardo A. Aleman, 

Assistant Secretary. 

[FR Doc. 2017–17066 Filed 8–11–17; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–81353; File No. SR–MRX– 

2017–16] 

Self-Regulatory Organizations; Nasdaq 

MRX, LLC; Notice of Filing and 

Immediate Effectiveness of Proposed 

Rule Change To Amend Rule 720, 

Nullification and Adjustment of 

Options Transactions Including 

Obvious Errors 

August 8, 2017. 

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 August 3, 

2017, Nasdaq MRX, LLC (‘‘MRX’’ or 

‘‘Exchange’’) 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 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 

Rule 720, Nullification and Adjustment 

of Options Transactions including 

Obvious Errors. 

While these amendments are effective 

upon filing, the Exchange has 

designated the proposed amendments to 

be operative on a date that is within 

ninety (90) days after the Commission 

approved a similar proposal filed by 

Bats BZX on July 6, 2017. 

The text of the proposed rule change 

is available on the Exchange’s Web site 

at www.ise.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 

Exchange included statements 

concerning the purpose of and basis for 


sradovich on DSK3GMQ082PROD with NOTICES