37946 Federal Register / Vol. 82, No. 155 / Monday, August 14, 2017 / Notices 

19 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

3See Securities Exchange Act Release Nos. 77053 

(February 4, 3016), 81 FR 7163 (February 10, 2016) 

(SR–BX–2016–007); (Notice of Filing and 

Immediate Effectiveness of Proposed Rule Change 

Relating To Adopt an Options Regulatory Fee). 

4See Securities Exchange Act Release No. 78361 

(July 19, 2016), 81 FR 48485 (July 25, 2016) (SR– 

BX–2016–043). 

5See Options Trader Alert #2017–54. 

6Exchange Rules require each member to record 

the appropriate account origin code on all orders at 

the time of entry in order to allow the Exchange to 

properly prioritize and route orders and assess 

transaction fees pursuant to the Rules of the 

Exchange and report resulting transactions to OCC. 

7The Exchange uses reports from OCC to 

determine the identity of the executing clearing 

firm and ultimate clearing firm. 

8CMTA or Clearing Member Trade Assignment is 

a form of ‘‘give-up’’ whereby the position will be 

assigned to a specific clearing firm at OCC. 

information that you wish to make 

available publicly. All submissions 

should refer to File Number SR–DTC– 

2017–014, SR–FICC–2017–017, or SR– 

NSCC–2017–013 and should be 

submitted on or before September 5, 

2017. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.19

Eduardo A. Aleman, 

Assistant Secretary. 

[FR Doc. 2017–17043 Filed 8–11–17; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–81341; File No. SR–BX– 

2017–032] 

Self-Regulatory Organizations; 

NASDAQ BX, Inc.; Notice of Filing and 

Immediate Effectiveness of Proposed 

Rule Change To Revise the Rules 

Regarding the Exchange’s Options 

Regulatory Fee 

DATES: August 8, 2017. 

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 July 26, 

2017, NASDAQ BX, Inc. (‘‘BX’’ 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 revise BX 

Rules at Chapter XV, Section 5 to: (i) 

Make adjustments to the amount of its 

Options Regulatory Fee (‘‘ORF’’); and 

(ii) more closely reflect the manner in 

which BX assesses and collects its ORF. 

While the changes proposed herein 

are effective upon filing, the Exchange 

has designated the amendments [sic] 

become operative on August 1, 2017. 

The text of the proposed rule change 

is available on the Exchange’s Web site 

at http://nasdaqbx.cchwallstreet.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 

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 the 

Statutory Basis for, the Proposed Rule 

Change 

1. Purpose 

BX initially filed to establish its ORF 

in 2016.3 The Exchange has amended its 

ORF several times since the inception of 

this fee.4 At this time, the Exchange 

proposes to: (i) Amend the amount of its 

ORF; and (ii) revise BX Rules at Chapter 

XV, Section 5 to more closely reflect the 

manner in which BX assesses and 

collects its ORF. 

The Exchange supports a common 

approach for the assessment and 

collection of ORF among the various 

options exchanges that assess such a fee. 

Furthermore, the Exchange supports 

guidance from the Commission 

regarding regulatory cost structures to 

ensure equal knowledge and treatment 

among options markets assessing ORF. 

Proposal 1—Amend the Amount of the 

ORF 

The Exchange assesses an ORF of 

$0.0004 per contract side. The Exchange 

proposes to increase the ORF from 

$0.0004 per contract side to $0.0005 per 

contract side as of August 1, 2017 to 

account for a reduction in market 

volume. The Exchange’s proposed 

change to the ORF should balance the 

Exchange’s regulatory cost [sic] against 

the anticipated revenue. The Exchange 

regularly reviews its ORF to ensure that 

the ORF, in combination with its other 

regulatory fees and fines, does not 

exceed regulatory costs. The Exchange 

believes this adjustment will permit the 

Exchange to cover a material portion of 

its regulatory costs, while not exceeding 

regulatory costs. 

The Exchange notified its Participants 

of this ORF adjustment thirty (30) 

calendar days prior to the proposed 

operative date.5

Proposal 2—Reflect the Manner in 

Which BX Assesses and Collects its ORF 

Currently, BX assesses its ORF for 

each Customer option transaction that is 

either: (1) Executed by a Participant on 

BX; or (2) cleared by a BX Participant 

at The Options Clearing Corporation 

(‘‘OCC’’) in the Customer range,6 even if 

the transaction was executed by a nonmember of BX, regardless of the 

exchange on which the transaction 

occurs.7 If the OCC clearing member is 

a BX Participant, ORF is assessed and 

collected on all cleared Customer 

contracts (after adjustment for CMTA 8); 

and (2) if the OCC clearing member is 

not a BX Participant, ORF is collected 

only on the cleared Customer contracts 

executed at BX, taking into account any 

CMTA instructions which may result in 

collecting the ORF from a non-member. 

By way of example, if Broker A, a BX 

Participant, routes a Customer order to 

CBOE and the transaction executes on 

CBOE and clears in Broker A’s OCC 

Clearing account, ORF will be collected 

by BX from Broker A’s clearing account 

at OCC via direct debit. While this 

transaction was executed on a market 

other than BX, it was cleared by a BX 

Participant in the Participant’s OCC 

clearing account in the Customer range, 

therefore there is a regulatory nexus 

between BX and the transaction. If 

Broker A was not a BX Participant, then 

no ORF should be assessed and 

collected because there is no nexus; the 

transaction did not execute on BX nor 

was it cleared by a BX Participant. 

In the case where a Participant both 

executes a transaction and clears the 

transaction, the ORF is assessed to and 

collected from the Participant only 

once. In the case where a Participant 

executes a transaction and a different 

Participant clears the transaction, the 

ORF is assessed to and collected from 

the Participant who clears the 

transaction and not the Participant who 

executes the transaction. In the case 


sradovich on DSK3GMQ082PROD with NOTICES
Federal Register / Vol. 82, No. 155 / Monday, August 14, 2017 / Notices 37947 

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

10 15 U.S.C. 78f(b)(4) and (5). 

where a non-member executes a 

transaction at an away market and a 

Participant clears the transaction, the 

ORF is assessed to and collected from 

the Participant who clears the 

transaction. In the case where a 

Participant executes a transaction on BX 

and a non-member clears the 

transaction, the ORF is assessed to the 

Participant that executed the transaction 

and collected from the non-member 

who cleared the transaction. In the case 

where a Participant executes a 

transaction at an away market and a 

non-member clears the transaction, the 

ORF is not assessed to the Participant 

who executed the transaction or 

collected from the non-member who 

cleared the transaction because the 

Exchange does not have access to the 

data to make absolutely certain that ORF 

should apply. Further, the data does not 

allow the Exchange to identify the 

Participant executing the trade at an 

away market. 

ORF Revenue and Monitoring of ORF 

The Exchange monitors the amount of 

revenue collected from the ORF to 

ensure that it, in combination with other 

regulatory fees and fines, does not 

exceed regulatory costs. In determining 

whether an expense is considered a 

regulatory cost, the Exchange reviews 

all costs and makes determinations if 

there is a nexus between the expense 

and a regulatory function. For example, 

a cost related to BX’s equity platform, 

would not be considered an expense 

that is compared to ORF revenue. An 

options surveillance employee’s cost, 

however would be an expense that is 

compared to ORF revenue. The 

Exchange notes that fines collected by 

the Exchange in connection with a 

disciplinary manner offset ORF. 

The ORF is designed to recover a 

material portion of the costs to the 

Exchange of the supervision and 

regulation of its Participants, including 

performing routine surveillances, 

investigations, examinations, financial 

monitoring, and policy, rulemaking, 

interpretive, and enforcement activities. 

The Exchange believes that revenue 

generated from the ORF, when 

combined with all of the Exchange’s 

other regulatory fees, will cover a 

material portion, but not all, of the 

Exchange’s regulatory costs. The 

Exchange will continue to monitor the 

amount of revenue collected from the 

ORF to ensure that it, in combination 

with its other regulatory fees and fines, 

does not exceed regulatory costs. If the 

Exchange determines regulatory 

revenues exceed regulatory costs, the 

Exchange will adjust the ORF by 

submitting a fee change filing to the 

Commission. 

Finally, the Exchange notes that it is 

amending its rule text at Chapter XV, 

Section 5 to remove certain rule text and 

include new text to make clear the 

manner in which ORF is assessed and 

collected on BX. 

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 Sections 6(b)(4) and 6(b)(5) 

of the Act 10 in particular, in that it 

provides for the equitable allocation of 

reasonable dues, fees and other charges 

among members and issuers and other 

persons using its facility and is not 

designed to permit unfair 

discrimination between customers, 

issuers, brokers, or dealers. 

The Exchange believes the proposed 

clarifications in the Fee Schedule to the 

ORF further the objectives of Section 

6(b)(4) of the Act and are equitable and 

reasonable since they expressly describe 

the Exchange’s existing practices 

regarding the manner in which the 

Exchange assesses and collects its ORF. 

Proposal 1—Amend the Amount of the 

ORF 

The Exchange believes that increasing 

the ORF from $0.0004 per contract side 

to $0.0005 per contract side as of August 

1, 2017 is reasonable because the 

Exchange’s collection of ORF needs to 

be balanced against the amount of 

regulatory cost collected [sic] by the 

Exchange. The Exchange believes that 

the proposed adjustments noted herein 

will serve to balance the Exchange’s 

regulatory cost against the anticipated 

regulatory revenue. The Exchange 

regularly reviews its ORF to ensure that 

the ORF, in combination with its other 

regulatory fees and fines, does not 

exceed regulatory costs. 

The Exchange believes that increasing 

the ORF from $0.0004 per contract side 

to $0.0005 per contract side as of August 

1, 2017 is equitable and not unfairly 

discriminatory because this modest 

increase will serve to balance the 

Exchange’s regulatory revenue against 

the anticipated regulatory costs. The 

ORF seeks to recover the costs of 

supervising and regulating members, 

including performing routine 

surveillances, investigations, 

examinations, financial monitoring, and 

policy, rulemaking, interpretive, and 

enforcement activities. Moreover, the 

Exchange believes the ORF ensures 

fairness by assessing fees to those 

Participants that are directly based on 

the amount of Customer options 

business they conduct. Regulating 

Customer trading activity is much more 

labor intensive and requires greater 

expenditure of human and technical 

resources than regulating non-customer 

trading activity, which tends to be more 

automated and less labor-intensive. As a 

result, the costs associated with 

administering the Customer component 

of the Exchange’s overall regulatory 

program are materially higher than the 

costs associated with administering the 

non-Customer component (e.g. 

Participant proprietary transactions) of 

its regulatory program. 

The ORF is designed to recover a 

material portion of the costs of 

supervising and regulating Participants’ 

Customer options business including 

performing routine surveillances, 

investigations, examinations, financial 

monitoring, and policy, rulemaking, 

interpretive, and enforcement activities. 

The Exchange will monitor the amount 

of revenue collected from the ORF to 

ensure that it, in combination with its 

other regulatory fees and fines, does not 

exceed the Exchange’s total regulatory 

costs. The Exchange has designed the 

ORF to generate revenues that, when 

combined with all of the Exchange’s 

other regulatory fees, will be less than 

or equal to the Exchange’s regulatory 

costs, which is consistent with the 

Commission’s view that regulatory fees 

be used for regulatory purposes and not 

to support the Exchange’s business side. 

In this regard, the Exchange believes 

that the proposed amount of the fee is 

reasonable. 

Proposal 2—Reflect the Manner in 

Which BX Assesses and Collects Its ORF 

The Exchange believes it is reasonable 

and appropriate for the Exchange to 

charge the ORF for options transactions 

regardless of the exchange on which the 

transactions occur. The Exchange has a 

statutory obligation to enforce 

compliance by Participants and their 

associated persons under the Act and 

the rules of the Exchange and to surveil 

for other manipulative conduct by 

market participants (including nonmembers) trading on the Exchange. The 

Exchange cannot effectively surveil for 

such conduct without looking at and 

evaluating activity across all options 

markets. Many of the Exchange’s market 

surveillance programs require the 

Exchange to look at and evaluate 

activity across all options markets, such 

as surveillance for position limit 

violations, manipulation, front-running 

and contrary exercise advice violations/ 

expiring exercise declarations. The 

Exchange, because it lacks access to 


sradovich on DSK3GMQ082PROD with NOTICES
37948 Federal Register / Vol. 82, No. 155 / Monday, August 14, 2017 / Notices 

11COATS effectively enhances intermarket 

options surveillance by enabling the options 

exchanges to reconstruct the market promptly to 

effectively surveil certain rules. 

12 In addition to its own surveillance programs, 

the Exchange works with other SROs and exchanges 

on intermarket surveillance related issues. Through 

its participation in the Intermarket Surveillance 

Group (‘‘ISG’’), the Exchange shares information 

and coordinates inquiries and investigations with 

other exchanges designed to address potential 

intermarket manipulation and trading abuses. The 

Exchange’s participation in ISG helps it to satisfy 

the requirement that it has coordinated surveillance 

with markets on which security futures are traded 

and markets on which any security underlying 

security futures are traded to detect manipulation 

and insider trading. See Section 6(h)(3)(I) of the 

Act. ISG is an industry organization formed in 1983 

to coordinate intermarket surveillance among the 

SROs by co-operatively sharing regulatory 

information pursuant to a written agreement 

between the parties. The goal of the ISG’s 

information sharing is to coordinate regulatory 

efforts to address potential intermarket trading 

abuses and manipulations. 13 15 U.S.C. 78s(b)(3)(A)(ii). 

information on the identity of the 

entering firm for executions that occur 

on away markets, believes it is 

appropriate to assess the ORF on its 

Participant’s clearing activity, based on 

information the Exchange receives from 

OCC, including for away market 

activity. Among other reasons, doing so 

better and more accurately captures 

activity that occurs away from the 

Exchange over which the Exchange has 

a degree of regulatory responsibility. In 

so doing, the Exchange believes that 

assessing ORF on Participant clearing 

firms in certain instances equitably 

distributes the collection of ORF in a 

fair and reasonable manner. Also, the 

Exchange and the other options 

exchanges are required to populate a 

consolidated options audit trail 

(‘‘COATS’’) 11 system in order to surveil 

a Participant’s activities across 

markets.12

The Exchange believes that assessing 

the ORF to each Exchange member for 

options transactions cleared by OCC in 

the Customer range where the execution 

occurs on another exchange and is 

cleared by a BX member is an equitable 

allocation of reasonable dues, fees, and 

other charges among its members and 

issuers and other persons using its 

facilities. The ORF is collected by OCC 

on behalf of BX from Exchange clearing 

members for all Customer transactions 

they clear or from non-members for all 

Customer transactions they clear that 

were executed on BX. The Exchange 

believes that this collection practice is 

reasonable and appropriate because 

higher fees are assessed to those 

members that require more Exchange 

regulatory services based on the amount 

of Customer options business they 

conduct. 

Regulating Customer trading activity 

is more labor intensive and requires 

greater expenditure of human and 

technical resources than regulating nonCustomer trading activity. Surveillance, 

regulation and examination of nonCustomer trading activity generally 

tends to be more automated and less 

labor intensive. As a result, the costs 

associated with administering the 

Customer component of the Exchange’s 

overall regulatory program are 

anticipated to be typically higher than 

the costs associated with administering 

the non-Customer component of its 

regulatory program. The Exchange 

proposes assessing higher fees to those 

members that will require more 

Exchange regulatory services based on 

the amount of Customer options 

business they conduct. Additionally, the 

dues and fees paid by members go into 

the general funds of the Exchange, a 

portion of which is used to help pay the 

costs of regulation. The Exchange has in 

place a regulatory structure to surveil, 

conduct examinations and monitor the 

marketplace for violations of Exchange 

Rules. The ORF assists the Exchange to 

fund the cost of this regulation of the 

marketplace. 

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 ORF is 

not intended to have any impact on 

competition. Rather, it is designed to 

enable the Exchange to recover a 

material portion of the Exchange’s cost 

related to its regulatory activities. The 

Exchange is obligated to ensure that the 

amount of regulatory revenue collected 

from the ORF, in combination with its 

other regulatory fees and fines, does not 

exceed regulatory costs. 

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 

The foregoing rule change has become 

effective pursuant to Section 

19(b)(3)(A)(ii) of the Act.13

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: (i) Necessary or appropriate in 

the public interest; (ii) for the protection 

of investors; or (iii) 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 No. SR–BX– 

2017–032 on the subject line. 

Paper Comments 

• Send paper comments in triplicate 

to Secretary, Securities and Exchange 

Commission, 100 F Street NE., 

Washington, DC 20549–1090. 

All submissions should refer to File No. 

SR–BX–2017–032. 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 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; 

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 No. SR–BX–2017– 

032, and should be submitted on or 

before September 5, 2017. 


sradovich on DSK3GMQ082PROD with NOTICES
Federal Register / Vol. 82, No. 155 / Monday, August 14, 2017 / Notices 37949 

14 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

3See Securities Exchange Act Release No. 34– 

74919 (May 8, 2015); 80 FR 27766 (May 14, 2015) 

(SR–PHLX–2015–43) (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). 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.14

Eduardo A. Aleman, 

Assistant Secretary. 

[FR Doc. 2017–17046 Filed 8–11–17; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–81352; File No. SR–Phlx– 

2017–66] 

Self-Regulatory Organizations; 

NASDAQ PHLX LLC; Notice of Filing 

and Immediate Effectiveness of 

Proposed Rule Change To Amend Rule 

1092, 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 PHLX LLC (‘‘Phlx’’ 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 1092, 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 http://nasdaqphlx.cchwallstreet. 

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 

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 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. 

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 1092, 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 

Commentary .05 to specify how the 

Exchange will determine Theoretical 

Price when required by sub-paragraphs 


sradovich on DSK3GMQ082PROD with NOTICES