Federal Register / Vol. 82, No. 179 / Monday, September 18, 2017 / Notices 43601 

20 17 CFR 200.30–3(a)(12). 

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

2 15 U.S.C. 78a. 

3 17 CFR 240.19b–4. 

4See Securities Exchange Act Release Nos. 81084 

(July 6, 2017), 82 FR 32216 (July12, 2017) (‘‘BATS 

Approval Order’’); 80709 (May 17, 2017), 82 FR 

23684 (May 23, 2017) (‘‘Notice of BATS Filing’’) 

(SR–BatsBZX–2017–35). See also Securities 

Exchange Act Release No. 81348 (August 8, 2017), 

82 FR 37910 (August 14, 2017) (SR–BX–2017–038) 

(immediately effective filing based on BATS 

Approval Order). 

5See Securities Exchange Act Release No. 74921 

(May 8, 2015), 80 FR 27816 (May 14, 2015) (SR– 

NYSEMKT–2015–39) (the ‘‘Initial Filing’’). 6For example, the Exchange, along with other 

options exchanges that offer complex orders on 

their options platforms, recently filed proposals 

related to rules for handling the adjustment and 

nullification of erroneous complex order 

transactions, which proposals were approved by the 

Commission or filed on an immediately effective 

basis. See Securities Exchange Act Release Nos. 

80040 (February 14, 2017), 82 FR 11248 (February 

21, 2017) (granting approval of CBOE proposal 

related to the nullification and adjustment of 

complex orders) (SR–CBOE–2016–088); 80497 

(April 20, 2017), 82 FR 19290 (April 26, 2017) 

(notice of filing and immediate effectiveness of 

Exchange proposal related to the nullification and 

adjustment of complex orders) (SR–NYSEMKT– 

2017–22). 

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 Number SR– 

BatsEDGA–2017–23 and should be 

submitted on or before October 10, 

2017. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.20

Eduardo A. Aleman, 

Assistant Secretary. 

[FR Doc. 2017–19809 Filed 9–15–17; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–81582; File No. SR– 

NYSEAMER–2017–12] 

Self-Regulatory Organizations; NYSE 

American LLC; Notice of Filing and 

Immediate Effectiveness of Proposed 

Rule Change To Amend Rule 975NY 

and Rule 953NY 

September 12, 2017. 

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

Securities Exchange Act of 1934 (the 

‘‘Act’’) 2 and Rule 19b–4 thereunder,3

notice is hereby given that on 

September 1, 2017, NYSE American 

LLC (the ‘‘Exchange’’ or ‘‘NYSE 

American’’) filed with the Securities 

and Exchange Commission (the 

‘‘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 Substance of 

the Proposed Rule Change 

The Exchange proposes to amend 

Rule 975NY (Nullification and 

Adjustment of Options Transactions 

including Obvious Errors) and Rule 

953NY (Trading Halts and 

Suspensions). 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 purpose of this filing is to amend 

Rule 975NY, relating to the adjustment 

and nullification of erroneous 

transactions, and Rule 953NY, regarding 

trading halts and suspensions. The 

Exchange’s proposal is based on that of 

Bats BZX (‘‘BATS’’), which the 

Commission approved on July 6, 2017, 

and those that the other options 

exchanges intend to file.4

Background 

The Exchange and other options 

exchanges adopted a harmonized rule 

related to the adjustment and 

nullification of erroneous options 

transactions, including a specific 

provision related to coordination in 

connection with large-scale events 

involving erroneous options 

transactions.5 The Exchange believes 

that the changes the options exchanges 

implemented with the harmonized rule 

have led to increased transparency and 

finality with respect to the adjustment 

and nullification of erroneous options 

transactions. As part of the initial 

initiative, however, the Exchange and 

other options exchanges deferred a few 

specific matters for further discussion.6

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 an 

effort 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 additional minor changes 

to its rules. 

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 975NY, if the 


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7Though 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. 8The 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’’). 

9For 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 975NY. 

10See proposed paragraph (b) to Commentary .06. 

11The 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. 

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, 

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 identifies 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 because the NBB or NBO 

is not available or is deemed to be 

unreliable, the Exchange determines the 

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 new 

Commentary .06 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 the 

Theoretical Price to the Exchange 

whenever one or more transactions is 

under review pursuant to Rule 975NY 

and the NBBO is unavailable or deemed 

unreliable pursuant to Rule 975NY(b). 

The Exchange and other options 

exchanges have selected CBOE Livevol, 

LLC (‘‘Livevol’’) as the TP Provider, as 

described below. 

Pursuant to proposed Commentary 

.06, when the Exchange must determine 

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

Exchange will request the 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.7 This proposed 

language would also make clear that the 

Exchange and all other options 

exchanges will use the same TP 

Provider. As noted above, the proposed 

TP Provider selected by the Exchange 

and other options exchanges is Livevol. 

The Exchange proposes to establish this 

selection in proposed paragraph (d) to 

Commentary .06. 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.8 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 9 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 the Official 

believes to be 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.10 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.11


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12To 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. 

13 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 975NY(e)(4). 

14 See, e.g., Rule 914F (Limitation on Exchange 

Liability), which relates to index options potentially 

listed and traded on the Exchange and disclaims 

liability for a reporting authority and their affiliates. 

The Exchange believes that the 

proposal to allow an Exchange 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.12

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 would 

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. 

Pursuant to proposed paragraph (c) to 

Commentary .06, 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 

975NY(e)(4), the Exchange has not 

proposed a specific time by which the 

service must be available in order to be 

considered timely.13 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 

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 975NY(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 if there 

were an issue with the TP Provider. 

The Exchange also proposes language 

in paragraph (d) of Commentary .06 to 

Rule 975NY 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 Commentary .06. 

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.14

In connection with the proposed 

change described above, the Exchange 

proposes to modify Rule 975NY to state 

that the Exchange will rely on paragraph 

(b) and Commentary .06 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 a 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 


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15 In connection with proposed change, the 

Exchange proposes to re-format Rule 975NY(b)(2) to 

include sub-paragraphs (A)–(D), inclusive of the 

new rule text in proposed Rule 975NY(b)(2)(C). 

16 The Exchange notes that the proposed text of 

975NY(b)(2)(C) differs slightly from BATS Rule 

20.6(b)(2)(C), even though the substance of the 

proposed rule is the same. The Exchange believes 

its proposed rule text is easier to comprehend. 

17The 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. 

18The 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. 

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 in new paragraph 

(C) to Rule 975NY(b)(2).15 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.16

Below are examples of both the 

current rule and the rule as proposed to 

be amended. 

Example 1—Current Rule, Member 

Erroneously Quotes on One Exchange 

Assumptions 

For purposes of this example, assume 

the following: 

• A Member 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 Member 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 Member 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 975NY(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. 

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 Member A were nonCustomer orders. 

Æ The executions in all series would 

be nullified to the extent the incoming 

orders submitted by Member A were 

Customer orders. 

Example 2—Current Rule, Member 

Erroneously Quotes on Multiple 

Exchanges 

Assumptions 

For purposes of this example, assume 

the following: 

• A Member 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 Member 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 Member 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 

975NY(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, Member 

Erroneously Quotes on Multiple 

Exchanges 17

Assumptions 

• For purposes of this example, 

assume the following: 

• A Member 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’’).18

• 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. 


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19See supra note 4. 

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

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

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

• 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 Member 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 Member 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 975NY(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 Member A were nonCustomer orders. 

Æ The executions in all series would 

be nullified to the extent the incoming 

orders submitted by Member 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. 

Obvious Error Panel, Appeals—CleanUp Change 

Rule 975NY(k)(1)(B) describes the 

procedure for appealing decisions 

relating to obvious errors. The current 

rule provides, in relevant part, that a 

‘‘request for review on appeal must be 

made via facsimile or email within 

thirty (30) minutes after the party 

making the appeal is given notification 

of the initial determination being 

appealed.’’ The Exchange proposes to 

modify this rule to remove reference to 

‘‘facsimile,’’ and allow that requests for 

appeal may only be made via email. The 

Exchanges believes this proposed 

change would update the rule to reflect 

current technology and add 

transparency to the rule text. 

Trading Halts and Suspensions— 

Clarifying Change to Rule 953NY 

Rule 953NY describes the Exchange’s 

authority to declare trading halts in one 

or more options traded on the Exchange. 

Currently, Commentary .04 to Rule 

953NY states that the Exchange shall 

nullify any transaction that occurs 

during a trading halt in the affected 

option on the Exchange. The Exchange 

proposes to add rule text providing that, 

with respect to equity options 

(including options overlaying Exchange 

Traded Funds (‘‘ETFs’’)), that it shall 

nullify any transaction that occurs 

during a regulatory halt as declared by 

the primary listing market for the 

underlying security. Current 

Commentary .03 to Rule 953NY defines 

a Regulatory Halt as one ‘‘initiated by a 

regulatory authority in the primary 

market.’’ The Exchange believes this 

change is necessary to distinguish a 

declared regulatory halt, where the 

underlying security should not be 

actively trading on any venue, from an 

operational issue on the primary listing 

exchange where the security may 

continue to trade on other trading 

venues. This proposed change would 

likewise be consistent with the rule of 

other options exchanges.19

Implementation 

The Exchange will announce the 

operative date by Trader Update. The 

Exchange proposes to delay the 

operative date of this proposal to a date 

within ninety (90) days after the BATS 

Approval Order, dated July 6, 2017. The 

Exchange will announce the operative 

date in a Trader Update. 

2. Statutory Basis 

The Exchange believes that its 

proposal is consistent with Section 6(b) 

of the Securities Exchange Act of 1934 

(the ‘‘Act’’),20 in general, and furthers 

the objectives of Section 6(b)(5) of the 

Act,21 in particular, in that it is designed 

to prevent fraudulent and manipulative 

acts and practices, to promote just and 

equitable principles of trade, to remove 

impediments to and perfect the 

mechanism of a free and open market 

and a national market system, and, in 

general, to protect investors and the 

public interest. 

As described above, the Exchange and 

other options exchanges are seeking to 

further modify their harmonized rules 

related to the adjustment and 

nullification of erroneous options 

transactions. 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 22 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 975NY, 

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 


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43606 Federal Register / Vol. 82, No. 179 / Monday, September 18, 2017 / Notices 

23 Id. 

24 See supra note 14. 

25 15 U.S.C. 78f(b)(5). 

26 Id. 

27 Id. 

28Id. 

29See, e.g., BATs Approval Order, supra note 4; 

Interpretation and Policy .07 to CBOE Rule 6.3. 

3015 U.S.C. 78f(b)(8). 

the NBBO is unavailable or unreliable is 

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

Act 23 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 975NY. 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 Commentary .06 to Rule 975NY 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,24

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

the Act 25 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 26 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 27 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. 

The proposed change to Rule 

975NY(k)(1)(B), to remove reference to 

sending requests for appeal via 

facsimile, would remove impediments 

to and perfect the mechanism of a free 

and open market and a national market 

system because the proposed change 

would update the rule to reflect current 

technology. This proposed change 

would also protect investors and the 

general public because it would add 

transparency to the rule text. 

Finally, with respect to the proposed 

modification to the Exchange’s trading 

halt rule, Rule 953NY, the Exchange 

believes that this proposal is consistent 

with Section 6(b)(5) of the Act 28

because it specifically provides for 

nullification where a trading halt exists 

with respect to an underlying security 

across the industry (i.e., a regulatory 

halt) as distinguished from a situation 

where the primary exchange has 

experienced a technical issue but the 

underlying security continues to trade 

on other equities platforms. The 

Exchange notes that a similar provision 

already exists in the rules of certain 

other options exchanges, and thus, has 

been found to be consistent with the 

Act.29

B. Self-Regulatory Organization’s 

Statement on Burden on Competition 

The Exchange believes that the 

proposed rule change is consistent with 

Section (b)(8) of the Act 30 in that is does 

not impose any burden on competition 

that is 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 

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 either have 

or intend to file proposals that are 

substantially similar to this proposal. 

The Exchange does not believe that 

the proposed rule change imposes a 


sradovich on DSKBBY8HB2PROD with NOTICES
Federal Register / Vol. 82, No. 179 / Monday, September 18, 2017 / Notices 43607 

3115 U.S.C. 78s(b)(3)(A)(iii). 

3217 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. 3317 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

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 

No written comments were solicited 

or received with respect to 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 from the date on 

which it was filed, or such shorter time 

as the Commission may designate, it has 

become effective pursuant to Section 

19(b)(3)(A)(iii) of the Act 31 and 

subparagraph (f)(6) of Rule 19b–4 

thereunder.32

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 Number SR– 

NYSEAMER–2017–12 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–NYSEAMER–2017–12. 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– 

NYSEAMER–2017–12, and should be 

submitted on or before October 10, 

2017. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.33

Eduardo A. Aleman, 

Assistant Secretary. 

[FR Doc. 2017–19711 Filed 9–15–17; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–81583; File No. SR–Phlx– 

2017–72] 

Self-Regulatory Organizations; 

NASDAQ PHLX LLC; Notice of Filing 

and Immediate Effectiveness of 

Proposed Rule Change To Add a 

Missing Letter to Section IV, Part D of 

the Pricing Schedule 

September 12, 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 

September 1, 2017, NASDAQ PHLX LLC 

(‘‘Phlx’’ or ‘‘Exchange’’) filed with the 

Securities and Exchange Commission 

(‘‘SEC’’ or ‘‘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 add a 

missing letter to Section IV, Part D of 

the Pricing Schedule. 

The text of the proposed rule change 

is set forth below. Proposed new 

language is italicized. 

* * * * * 


sradovich on DSKBBY8HB2PROD with NOTICES