Federal Register / Vol. 82, No. 213 / Monday, November 6, 2017 / Notices 51461 

28The Commission notes that certain other 

proposals for the listing and trading of Managed 

Fund Shares include a representation that the 

exchange will ‘‘surveil’’ for compliance with the 

continued listing requirements. See, e.g., Securities 

Exchange Act Release No. 78005 (Jun. 7, 2016), 81 

FR 38247 (Jun. 13, 2016) (SR–BATS–2015–100). In 

the context of this representation, it is the 

Commission’s view that ‘‘monitor’’ and ‘‘surveil’’ 

both mean ongoing oversight of a fund’s compliance 

with the continued listing requirements. Therefore, 

the Commission does not view ‘‘monitor’’ as a more 

or less stringent obligation than ‘‘surveil’’ with 

respect to the continued listing requirements. 

29See supra notes 4 and 5. 

30 15 U.S.C. 78f(b)(5). 

31 15 U.S.C. 78k–1(a)(1)(C)(iii). 

32 15 U.S.C. 78s(b)(2). 

33 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

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

4 17 CFR 240.19b–4(f)(6). 

5See Securities Exchange Act Release 80040 

(February 14, 2017), 82 FR 11248 (February 21, 

2017) (Order Approving SR–CBOE–2016–088). 

6See Securities Exchange Act Release Nos. 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’’); 

81084 (July 6, 2017), 82 FR 32216 (July 12, 2017) 

(SR–BatsBZX–2017–35) (adopting subsequent 

harmonized provisions relating to the calculation of 

Theoretical Price). 

7See Securities Exchange Act Release No. 75650 

(August 7, 2015), 80 FR 48600 (August 13, 2015) 

(SR–EDGX–2015–18). 

trading prices, Closing Bid/Ask 

Midpoints, and Closing Bid/Ask 

Spreads over time. 

The Exchange represents that all 

statements and representations made in 

the filing regarding: (a) The description 

of the portfolio or reference assets, (b) 

limitations on portfolio holdings or 

reference assets, (c) dissemination and 

availability of the reference asset or IIV, 

or (d) the applicability of Exchange 

listing rules shall constitute continued 

listing requirements for listing the 

Shares on the Exchange. The issuer has 

represented to the Exchange that it will 

advise the Exchange of any failure by 

the Fund to comply with the continued 

listing requirements, and, pursuant to 

its obligations under Section 19(g)(1) of 

the Act, the Exchange will monitor for 

compliance with the continued listing 

requirements.28 If the Fund is not in 

compliance with the applicable listing 

requirements, the Exchange will 

commence delisting procedures for the 

Fund under the Nasdaq 5800 Series. 

This approval order is based on all of 

the Exchange’s representations, 

including those set forth above, in the 

Notice, and Amendments No. 1 and 2,29

and the Exchange’s description of the 

Fund. In particular, the Commission 

notes that, although the Shares will be 

available for purchase and sale on an 

intraday basis, the Shares will be 

purchased and sold at prices directly 

linked to the Fund’s next-determined 

NAV. Further, the Commission notes 

that the Fund and the Shares must 

comply with the requirements of 

Nasdaq Rule 5745 and the conditions 

set forth in this proposed rule change to 

be listed and traded on the Exchange on 

an initial and continuing basis. 

For the foregoing reasons, the 

Commission finds that the proposed 

rule change, as modified by 

Amendments No. 1 and 2, is consistent 

with Section 6(b)(5) 30 and Section 

11A(a)(1)(C)(iii)of the Act,31 and the 

rules and regulations thereunder 

applicable to a national securities 

exchange. 

IV. Conclusion 

It is therefore ordered, pursuant to 

Section 19(b)(2) of the Act,32 that the 

proposed rule change (SR–NASDAQ– 

2017–091), as modified by Amendments 

No. 1 and 2, be, and it hereby is, 

approved. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.33

Eduardo A. Aleman, 

Assistant Secretary. 

[FR Doc. 2017–24047 Filed 11–3–17; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–81992; File No. SR– 

BatsEDGX–2017–43] 

Self-Regulatory Organizations; Cboe 

EDGX Exchange, Inc.; Notice of Filing 

and Immediate Effectiveness of a 

Proposed Rule Change To Amend Rule 

20.6, Nullification and Adjustment of 

Options Transactions Including 

Obvious Errors 

October 31, 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 October 

25, 2017, Cboe EDGX Exchange, Inc. 

(‘‘EDGX’’ or the ‘‘Exchange’’) (formerly 

known as Bats EDGX Exchange, Inc.) 

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 

Exchange has designated this proposal 

as a ‘‘non-controversial’’ proposed rule 

change pursuant to Section 19(b)(3)(A) 

of the Act 3 and Rule 19b–4(f)(6) 

thereunder,4 which renders it effective 

upon filing with the Commission. 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 filed a proposal to 

amend Rule 20.6, entitled ‘‘Nullification 

and Adjustment of Options Transactions 

including Obvious Errors.’’ Rule 20.6 

relates to the adjustment and 

nullification of transactions that occur 

on the Exchange’s equity options 

platform (‘‘EDGX Options’’). 

The text of the proposed rule change 

is available at the Exchange’s Web site 

at www.bats.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 parts of such 

statements. 

A. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

1. Purpose 

Background 

The Exchange proposes to amend 

Exchange Rule 20.6 to add 

Interpretation and Policy .04 (the 

‘‘Proposed Rule’’). This filing is based 

on a proposal recently submitted by 

Cboe Exchange, Inc. (‘‘Cboe Options’’) 

and approved by the Securities and 

Exchange Commission (the 

‘‘Commission’’).5

In 2015, the U.S. options exchanges 

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.6 The Exchange 

launched an options exchange later that 

year, with the newly harmonized rule as 

part of the original rule set.7 The 

Exchange believes that the changes the 

options exchanges implemented with 

the new, harmonized rule have led to 

increased transparency and finality with 


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8See Rule 21.20(a)(5) (defining complex orders). 

9The Exchange is not proposing to adopt changes 

to the obvious error rule related to stock-option 

orders at this time because it does not currently 

accept stock-option orders. 

10See Securities Exchange Act Release No. 81891 

(October 17, 2017) (SR–BatsEDGX–2017–29) (order 

approving rules for EDGX complex order book). 

11 In order for a complex order to qualify as an 

obvious or catastrophic error at least one of the legs 

must itself qualify as an obvious or catastrophic 

error under the Current Rule. See Proposed Rule 

.04(a)–(b). 

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, the options exchanges 

continued working together to identify 

ways to improve the process related to 

the adjustment and nullification of 

erroneous options transactions as it 

relates to complex orders 8 and stockoption orders. The goal of the process 

undertaken by the options exchanges 

was to further harmonize rules related 

to the adjustment and nullification of 

erroneous options transactions. As 

described below, the Exchange believes 

that the changes the options exchanges 

proposed, and the Exchange now 

proposes, will provide transparency and 

finality with respect to the adjustment 

and nullification of erroneous complex 

order.9 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. 

The Proposed Rule is based on this 

coordinated effort and reflects 

discussions by the options exchanges 

whereby the exchanges that offer 

complex orders and/or stock-option 

orders agreed to universally adopt new 

provisions that the options exchanges 

collectively believe will improve the 

handling of erroneous options 

transactions that result from the 

execution of complex orders and stockoption orders. An exchange that does 

not offer complex orders and/or stockoption orders will not adopt these new 

provisions until such time as the 

exchange offers complex orders and/or 

stock-option orders. Although the 

Exchange was involved in the 

discussions by options exchanges to 

propose a uniform rule, the Exchange 

has not historically offered complex 

orders or stock-option orders, and thus, 

has not previously adopted rules 

applicable to such orders. The Exchange 

is filing this proposal at this time in 

anticipation of launching a complex 

order book that will accept complex 

orders in the near future.10 The 

Exchange is not proposing to adopt 

changes to the obvious error rule related 

to stock-option orders at this time, as 

the Exchange does not currently accept 

stock-option orders and does not have a 

near term expectation to accept such 

orders. 

The Exchange believes that the 

Proposed Rule supports an approach 

consistent with long-standing principles 

in the options industry under which the 

general policy is to adjust rather than 

nullify transactions. The Exchange 

acknowledges that adjustment of 

transactions is contrary to the operation 

of analogous rules applicable to the 

equities markets, where erroneous 

transactions are typically nullified 

rather than adjusted and where there is 

no distinction between the types of 

market participants involved in a 

transaction. For the reasons set forth 

below, the Exchange believes that the 

distinctions in market structure between 

equities and options markets continue 

to support these distinctions between 

the rules for handling obvious errors in 

the equities and options markets. 

Various general structural differences 

between the options and equities 

markets point toward the need for a 

different balancing of risks for options 

market participants and are reflected in 

this proposal. Option pricing is 

formulaic and is tied to the price of the 

underlying stock, the volatility of the 

underlying security and other factors. 

Because options market participants can 

generally create new open interest in 

response to trading demand, as new 

open interest is created, correlated 

trades in the underlying or related series 

are generally also executed to hedge a 

market participant’s risk. This pairing of 

open interest with hedging interest 

differentiates the options market 

specifically (and the derivatives markets 

broadly) from the cash equities markets. 

In turn, the Exchange believes that the 

hedging transactions engaged in by 

market participants necessitates 

protection of transactions through 

adjustments rather than nullifications 

when possible and otherwise 

appropriate. 

The options markets are also quote 

driven markets dependent on liquidity 

providers to an even greater extent than 

equities markets. In contrast to the 

approximately 7,000 different securities 

traded in the U.S. equities markets each 

day, there are more than 500,000 

unique, regularly quoted option series. 

Given this breadth in options series the 

options markets are more dependent on 

liquidity providers than equities 

markets; such liquidity is provided most 

commonly by registered market makers 

but also by other professional traders. 

With the number of instruments in 

which registered market makers must 

quote and the risk attendant with 

quoting so many products 

simultaneously, the Exchange believes 

that those liquidity providers should be 

afforded a greater level of protection. In 

particular, the Exchange believes that 

liquidity providers should be allowed 

protection of their trades given the fact 

that they typically engage in hedging 

activity to protect them from significant 

financial risk to encourage continued 

liquidity provision and maintenance of 

the quote-driven options markets. 

In addition to the factors described 

above, there are other fundamental 

differences between options and 

equities markets which lend themselves 

to different treatment of different classes 

of participants that are reflected in this 

proposal. For example, there is no trade 

reporting facility in the options markets. 

Thus, all transactions must occur on an 

options exchange. This leads to 

significantly greater retail customer 

participation directly on exchanges than 

in the equities markets, where a 

significant amount of retail customer 

participation never reaches the 

Exchange but is instead executed in offexchange venues such as alternative 

trading systems, broker-dealer market 

making desks and internalizers. In turn, 

because of such direct retail customer 

participation, the exchanges have taken 

steps to afford those retail customers— 

generally Priority Customers—more 

favorable treatment in some 

circumstances. 

Complex Orders 

As more fully described below, the 

Proposed Rule applies much of current 

Rule 20.6 (the ‘‘Current Rule’’) to 

complex orders.11 The Proposed Rule 

deviates from the Current Rule only to 

account for the unique qualities of 

complex orders. The Proposed Rule 

reflects the fact that complex orders can 

execute against other complex orders or 

can execute against individual simple 

orders in the leg markets. When a 

complex order executes against the leg 

markets there may be different 

counterparties on each leg of the 

complex order, and not every leg will 

necessarily be executed at an erroneous 

price. In order to apply the Current Rule 

and account for the unique 

characteristics of complex orders, 

proposed Interpretation and Policy .04 

is split into two parts—paragraphs (a) 

and (b). 

First, proposed Interpretation and 

Policy .04(a) governs the review of 

complex orders that are executed 


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12The leg market consists of quotes and/or orders 

in single options series. A complex order may be 

received by the Exchange electronically, and the 

legs of the complex order may have different 

counterparties. For example, Market-Maker 1 may 

be quoting in ABC calls and Market-Maker 2 may 

be quoting in ABC puts. A complex order to buy 

the ABC calls and puts may execute against the 

quotes of Market-Maker 1 and Market-Maker 2. 

13Because a complex order can execute against 

the leg market, the Exchange may also be notified 

of a possible obvious or catastrophic error by a 

counterparty that received an execution in an 

individual options series. If upon review of a 

potential obvious error the Exchange determines an 

individual options series was executed against the 

leg of a complex order, proposed Interpretation and 

Policy .04(a) will govern. 

14Only the execution price on the leg (or legs) 

that qualifies as an obvious or catastrophic error 

pursuant to any portion of Proposed Interpretation 

and Policy .04 will be adjusted. The execution price 

of a leg (or legs) that does not qualify as an obvious 

or catastrophic error will not be adjusted. 15See Rule 20.6(b) (defining the manner in which 

Theoretical Price is determined). 16See Rule 20.6(a)(1) (defining Customer for 

purposes of Rule 20.6 as not including a brokerdealer or Professional). 

17See Rule 20.6(c)(4)(A) (stating that any nonCustomer Obvious Error exceeding 50 contracts will 

be subject to the Size Adjustment Modifier defined 

in sub-paragraph (a)(4)). 

against individual legs (as opposed to a 

complex order that executes against 

another complex order).12 Proposed 

Interpretation and Policy .04(a) 

provides: 

If a complex order executes against 

individual legs and at least one of the legs 

qualifies as an Obvious Error under 

paragraph (c)(1) or a Catastrophic Error under 

paragraph (d)(1), then the leg(s) that is an 

Obvious or Catastrophic Error will be 

adjusted in accordance with paragraphs 

(c)(4)(A) or (d)(3), respectively, regardless of 

whether one of the parties is a Customer. 

However, any Customer order subject to this 

paragraph (a) will be nullified if the 

adjustment would result in an execution 

price higher (for buy transactions) or lower 

(for sell transactions) than the Customer’s 

limit price on the complex order or 

individual leg(s). If any leg of a complex 

order is nullified, the entire transaction is 

nullified. 

As previously noted, at least one of the 

legs of the complex order must qualify 

as an obvious or catastrophic error 

under the Current Rule in order for the 

complex order to receive obvious or 

catastrophic error relief. Thus, when the 

Exchange is notified (within the 

timeframes set forth in paragraph (c)(2) 

or (d)(2)) of a complex order that is a 

possible obvious error or catastrophic 

error, the Exchange will first review the 

individual legs of the complex order to 

determine if one or more legs qualify as 

an obvious or catastrophic error.13 If no 

leg qualifies as an obvious or 

catastrophic error, the transaction 

stands—no adjustment and no 

nullification. 

Reviewing the legs to determine 

whether one or more legs qualify as an 

obvious or catastrophic error requires 

the Exchange to follow the Current Rule. 

In accordance with paragraphs (c)(1) 

and (d)(1) of the Current Rule, the 

Exchange compares the execution price 

of each individual leg to the Theoretical 

Price of each leg (as determined by 

paragraph (b) of the Current Rule). If the 

execution price of an individual leg is 

higher or lower than the Theoretical 

Price for the series by an amount equal 

to at least the amount shown in the 

obvious error table in paragraph (c)(1) of 

the Current rule or the catastrophic error 

table in paragraph (d)(1) of the Current 

Rule, the individual leg qualifies as an 

obvious or catastrophic error, and the 

Exchange will take steps to adjust or 

nullify the transaction.14

To illustrate, consider a Customer 

submits a complex order to the 

Exchange consisting of leg 1 and leg 2— 

Leg 1 is to buy 100 ABC calls and leg 

2 is to sell 100 ABC puts. Also, consider 

that Market-Maker 1 is quoting the ABC 

calls $1.00–1.20 and Market-Maker 2 is 

quoting the ABC puts $2.00–2.20. If the 

complex order executes against the 

quotes of Market-Makers 1 and 2, the 

Customer buys the ABC calls for $1.20 

and sells the ABC puts for $2.00. As 

with the obvious/catastrophic error 

reviews for simple orders, the execution 

price of leg 1 is compared to the 

Theoretical Price 15 of Leg 1 in order to 

determine if Leg 1 is an obvious error 

under paragraph (c)(1) of the Current 

Rule or a catastrophic error under 

paragraph (d)(1) of the Current Rule. 

The same goes for Leg 2. The execution 

price of Leg 2 is compared to the 

Theoretical Price of Leg 2. If it is 

determined that one or both of the legs 

are an obvious or catastrophic error, 

then the leg (or legs) that is an obvious 

or catastrophic error will be adjusted in 

accordance with paragraphs (c)(4)(A) or 

(d)(3) of the Current Rule, regardless of 

whether one of the parties is a 

Customer.16 Although a single-legged 

execution that is deemed to be an 

obvious error under the Current Rule is 

nullified whenever a Customer is 

involved in the transaction, the 

Exchange believes adjusting execution 

prices is generally better for the 

marketplace than nullifying executions 

because liquidity providers often 

execute hedging transactions to offset 

options positions. When an options 

transaction is nullified the hedging 

position can adversely affect the 

liquidity provider. With regards to 

complex orders that execute against 

individual legs, the additional rationale 

for adjusting erroneous execution prices 

when possible is the fact that the 

counterparty on a leg that is not 

executed at an obvious or catastrophic 

error price cannot look at the execution 

price to determine whether the 

execution may later be nullified (as 

opposed to the counterparty on singlelegged order that is executed at an 

obvious error or catastrophic error 

price). 

Paragraph (c)(4)(A) of the Current 

Rule mandates that if it is determined 

that an obvious error has occurred, the 

execution price of the transaction will 

be adjusted pursuant to the table set 

forth in (c)(4)(A). Although for simple 

orders paragraph (c)(4)(A) is only 

applicable when no party to the 

transaction is a Customer, for the 

purposes of complex orders paragraph 

(a) of Interpretation and Policy .04 will 

supersede that limitation; therefore, if it 

is determined that a leg (or legs) of a 

complex order is an obvious error, the 

leg (or legs) will be adjusted pursuant to 

(c)(4)(A), regardless of whether a party 

to the transaction is a Customer. The 

Size Adjustment Modifier defined in 

subparagraph (a)(4) will similarly apply 

(regardless of whether a Customer is on 

the transaction) by virtue of the 

application of paragraph (c)(4)(A).17 The 

Exchange notes that adjusting all market 

participants is not unique or novel. 

When the Exchange determines that a 

simple order execution is a Catastrophic 

Error pursuant to the Current Rule, 

paragraph (d)(3) already provides for 

adjusting the execution price for all 

market participants, including 

Customers. 

Furthermore, as with the Current 

Rule, Proposed Interpretation and 

Policy .04(a) provides protection for 

Customer orders, stating that where at 

least one party to a complex order 

transaction is a Customer, the 

transaction will be nullified if 

adjustment would result in an execution 

price higher (for buy transactions) or 

lower (for sell transactions) than the 

Customer’s limit price on the complex 

order or individual leg(s). For example, 

assume Customer enters a complex 

order to buy leg 1 and leg 2. 

• Assume the NBBO for leg 1 is 

$0.20–1.00 and the NBBO for leg 2 is 

$0.50–1.00 and that these have been the 

NBBOs since the market opened. 

• A split-second prior to the 

execution of the complex order a 

Customer enters a simple order to sell 

the leg 1 options series at $1.30, and the 

simple order enters the Exchange’s book 

so that the BBO is $.20–$1.30. The limit 

price on the simple order is $1.30. 

• The complex order executes leg 1 

against the Exchange’s best offer of 


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18See Rule 20.6(b)(3). 

19See Rule 20.6(c)(1). 

20See Rule 20.6(c)(4)(A). 

21 If any leg of a complex order is nullified, the 

entire transaction is nullified. See Proposed 

Interpretation and Policy .04(a). 

22The simple order in this example is not an 

erroneous sell transaction because the execution 

price was not erroneously low. See Rule 20.6(a)(2). 

23See Interpretation and Policy .02 to Rule 20.6. 

24The NSM is the derived net market for a 

complex order package and is equivalent to the 

term SNBBO in Exchange Rule 21.20(a)(12). For 

example, if the NBBO of Leg 1 is $1.00–2.00 and 

the NBBO of Leg 2 is $5.00–7.00, then the NSM for 

a complex order to buy Leg 1 and buy Leg 2 is 

$6.00–9.00. The Exchange has proposed to retain 

the term NSM to retain consistency with other 

options exchanges that have already adopted 

uniform rules related to complex orders. 

25See Rule 27.2(a)(8). All options exchanges have 

the same order protection rule. 

$1.30 and leg 2 at $1.00 for a net 

execution price of $2.30. 

• However, leg 1 executed on a wide 

quote (the NBBO for leg 1 was $0.20– 

1.00 at the time of execution, which is 

wider than $0.75).18 Leg 2 was not 

executed on a wide quote (the market 

for leg 2 was $0.50–1.00); thus, leg 2 

execution price stands. 

• The Exchange determines that the 

Theoretical Price for leg 1 is $1.00, 

which was the best offer prior to the 

execution. Leg 1 qualifies as an obvious 

error because the difference between the 

Theoretical Price ($1.00) and the 

execution price ($1.30) is larger than 

$0.25.19

• According to Proposed 

Interpretation and Policy .04(a) 

Customers will also be adjusted in 

accordance with Rule 20.6(c)(4)(A), 

which for a buy transaction under $3.00 

calls for the Theoretical Price to by 

adjusted by adding $0.15 20 to the 

Theoretical Price of $1.00. Thus, adjust 

execution price for leg 1 would be 

$1.15. 

• However, adjusting the execution 

price of leg 1 to $1.15 violates the limit 

price of the Customer’s sell order on the 

simple order book for leg 1, which was 

$1.30. 

• Thus, the entire complex order 

transaction will be nullified 21 because 

the limit price of a Customer’s sell order 

would be violated by the adjustment.22

As the above example demonstrates, 

incoming complex orders may execute 

against resting simple orders in the leg 

market. If a complex order leg is deemed 

to be an obvious error, adjusting the 

execution price of the leg may violate 

the limit price of the resting order, 

which will result in nullification if the 

resting order is for a Customer. In 

contrast, Interpretation and Policy .02 to 

Rule 20.6 provides that if an adjustment 

would result in an execution price that 

is higher than an erroneous buy 

transaction or lower than an erroneous 

sell transaction the execution will not 

be adjusted or nullified.23 If the 

adjustment of a complex order would 

violate the complex order Customer’s 

limit price, the transaction will be 

nullified. 

As previously noted, paragraph (d)(3) 

of the Current Rule already mandates 

that if it is determined that a 

catastrophic error has occurred, the 

execution price of the transaction will 

be adjusted pursuant to the table set 

forth in (d)(3). For purposes of complex 

orders under Proposed Interpretation 

and Policy .04(a), if one of the legs of 

a complex orders is determined to be a 

Catastrophic Error under paragraph 

(d)(3), all market participants will be 

adjusted in accordance with the table 

set forth in (d)(3). Again, however, 

where at least one party to a complex 

order transaction is a Customer, the 

transaction will be nullified if 

adjustment would result in an execution 

price higher (for buy transactions) or 

lower (for sell transactions) than the 

Customer’s limit price on the complex 

order or individual leg(s). Again, if any 

leg of a complex order is nullified, the 

entire transaction is nullified. 

Other than honoring the limit prices 

established for Customer orders, the 

Exchange has proposed to treat 

Customers and non-Customers the same 

in the context of the complex orders that 

trade against the leg market. When 

complex orders trade against the leg 

market, it is possible that at least some 

of the legs will execute at prices that 

would not be deemed obvious or 

catastrophic errors, which gives the 

counterparty in such situations no 

indication that the execution will later 

by adjusted or nullified. The Exchange 

believes that treating Customers and 

non-Customers the same in this context 

will provide additional certainty to nonCustomers (especially Market-Makers) 

with respect to their potential exposure 

and hedging activities, including 

comfort that even if a transaction is later 

adjusted, such transaction will not be 

fully nullified. However, as noted 

above, under the Proposed Rule where 

at least one party to the transaction is a 

Customer, the trade will be nullified if 

the adjustment would result in an 

execution price higher (for buy 

transactions) or lower (for sell 

transactions) than the Customer’s limit 

price on the complex order or 

individual leg(s). The Exchange has 

retained the protection of a Customer’s 

limit price in order to avoid a situation 

where the adjustment could be to a 

price that a Customer would not have 

expected, and market professionals such 

as non-Customers would be better 

prepared to recover in such situations. 

Therefore, adjustment for nonCustomers is more appropriate. 

Second, proposed Interpretation and 

Policy .04(b) governs the review of 

complex orders that are executed 

against other complex orders. Proposed 

Interpretation and Policy .04(b) 

provides: 

If a complex order executes against another 

complex order and at least one of the legs 

qualifies as an Obvious Error under 

paragraph (c)(1) or a Catastrophic Error under 

paragraph (d)(1), then the leg(s) that is an 

Obvious or Catastrophic Error will be 

adjusted or busted in accordance with 

paragraph (c)(4) or (d)(3), respectively, so 

long as either: (i) The width of the National 

Spread Market for the complex order strategy 

just prior to the erroneous transaction was 

equal to or greater than the amount set forth 

in the wide quote table of paragraph (b)(3) or 

(ii) the net execution price of the complex 

order is higher (lower) than the offer (bid) of 

the National Spread Market for the complex 

order strategy just prior to the erroneous 

transaction by an amount equal to at least the 

amount shown in the table in paragraph 

(c)(1). If any leg of a complex order is 

nullified, the entire transaction is nullified. 

For purposes of Rule 20.6, the National 

Spread Market for a complex order strategy 

is determined by the National Best Bid/Offer 

of the individual legs of the strategy (i.e., the 

SNBBO under Rule 21.20). 

As described above in relation to 

Proposed Interpretation and Policy 

.04(a), the first step is for the Exchange 

to review (upon receipt of a timely 

notification in accordance with 

paragraphs (c)(2) or (d)(2) of the Current 

Rule) the individual legs to determine 

whether a leg or legs qualifies as an 

obvious or catastrophic error. If no leg 

qualifies as an obvious or catastrophic 

error, the transaction stands—no 

adjustment and no nullification. 

Unlike Proposed Interpretation and 

Policy .04(a), the Exchange is also 

proposing to compare the net execution 

price of the entire complex order 

package to the National Spread Market 

(‘‘NSM’’) for the complex order 

strategy.24 Complex orders are exempt 

from the order protection rules of the 

options exchanges.25 Thus, depending 

on the manner in which the systems of 

an options exchange are calibrated, a 

complex order can execute without 

regard to the prices offered in the 

complex order books or the leg markets 

of other options exchanges. In certain 

situations, reviewing the execution 

prices of the legs in a vacuum would 

make the leg appear to be an obvious or 

catastrophic error, even though the net 

execution price on the complex order is 

not an erroneous price. For example, 

assume the Exchange receives a 


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26The complex order is to buy ABC calls and sell 

ABC puts. The Exchange’s best offer for ABC puts 

is $7.50 and Exchange’s best bid for is $3.00. If the 

Customer were to buy the complex order strategy, 

the Customer would receive a debit of $4.50 (buy 

ABC calls for $7.50 minus selling ABC puts for 

$3.00). If the Customer were to sell the complex 

order strategy the Customer would receive a credit 

of $1.00 (selling the ABC calls for $5.50 minus 

buying the ABC puts for $4.50). Thus, the 

Exchange’s spread market is $1.00–4.50. 

27See Rule 20.20 [sic], Interpretation and Policy 

.04(f), which states: ‘‘The Drill-Through Price 

Protection feature is a price protection mechanism 

applicable to all complex orders under which a buy 

(sell) order will not be executed at a price that is 

higher (lower) than the SNBBO or the SNBBO at the 

time of order entry plus (minus) a buffer amount 

(the ‘‘Drill-Through Price’’). The Exchange will 

adopt a default buffer amount for the Drill-Through 

Price Protection and will publish this amount in 

publicly available specifications and/or a 

Regulatory Circular. A Member may modify the 

buffer amount applicable to Drill-Through Price 

Protections to either a larger or smaller amount than 

the Exchange default . . . .’’ 

28Rule 20.6(c)(4)(C) also requires the orders 

resulting in 200 or more Customer transactions to 

have been submitted during the course of 2 minutes 

or less. 

complex order to buy ABC calls and sell 

ABC puts. 

• If the BBO for the ABC calls is 

$5.50–7.50 and the BBO for ABC puts is 

$3.00–4.50, then the Exchange’s spread 

market is $1.00–4.50.26

• If the NBBO for the ABC calls is 

$6.00–6.50 and the NBBO for the ABC 

puts is $3.50–4.00, then the NSM is 

$2.00–3.00. 

• If the Customer buys the calls at 

$7.50 and sells the puts at $4.00, the 

complex order Customer receives a net 

execution price of $3.00 (debit), which 

is the expected net execution price as 

indicated by the NSM offer of $3.00. 

If the Exchange were to solely focus 

on the $7.50 execution price of the ABC 

calls or the $4.00 execution price of the 

ABC puts, the execution would qualify 

as an obvious or catastrophic error 

because the execution price on the legs 

was outside the NBBO, even though the 

net execution price is accurate. Thus, 

the additional review of the NSM to 

determine if the complex order was 

executed at a truly erroneous price is 

necessary. The same concern is not 

present when a complex order executes 

against the leg market under proposed 

Interpretation and Policy .04(a). The 

Exchange permits a given leg of a 

complex order to trade through the 

NBBO provided the complex order 

trades no more than a configurable 

amount outside of the NBBO.27

In order to incorporate NSM, 

proposed Interpretation and Policy 

.04(b) provides that if the Exchange 

determines that a leg or legs does 

qualify as on obvious or catastrophic 

error, the leg or legs will be adjusted or 

busted in accordance with paragraph 

(c)(4) or (d)(3) of the Current Rule, so 

long as either: (i) The width of the NSM 

for the complex order strategy just prior 

to the erroneous transaction was equal 

to or greater than the amount set forth 

in the wide quote table of paragraph 

(b)(3) of the Current Rule or (ii) the net 

execution price of the complex order is 

higher (lower) than the offer (bid) of the 

NSM for the complex order strategy just 

prior to the erroneous transaction by an 

amount equal to at least the amount 

shown in the table in paragraph (c)(1) of 

the Current Rule. 

For example, assume an individual 

leg or legs qualifies as an obvious or 

catastrophic error and the width of the 

NSM of the complex order strategy just 

prior to the erroneous transaction is 

$6.00–9.00. The complex order will 

qualify to be adjusted or busted in 

accordance with paragraph (c)(4) of the 

Current Rule because the wide quote 

table of paragraph (b)(3) of the Current 

Rule indicates that the minimum 

amount is $1.50 for a bid price between 

$5.00 to $10.00. If the NSM were instead 

$6.00–7.00 the complex order strategy 

would not qualify to be adjusted or 

busted pursuant to proposed 

Interpretation and Policy .04(b)(i) 

because the width of the NSM is $1.00, 

which is less than the required $1.50. 

However, the execution may still qualify 

to be adjusted or busted in accordance 

with paragraph (c)(4) or (d)(3) of the 

Current Rule pursuant to proposed 

Interpretation and Policy .04(b)(ii). 

Focusing on the NSM in this manner 

will ensure that the obvious/ 

catastrophic error review process 

focuses on the net execution price 

instead of the execution prices of the 

individual legs, which may have 

execution prices outside of the NBBO of 

the leg markets. 

Again, assume an individual leg or 

legs qualifies as an obvious or 

catastrophic error as described above. If 

the NSM is $6.00–7.00 (not a wide quote 

pursuant to the wide quote table in 

paragraph (b)(3) of the Current Rule) but 

the execution price of the entire 

complex order package (i.e., the net 

execution price) is higher (lower) than 

the offer (bid) of the NSM for the 

complex order strategy just prior to the 

erroneous transaction by an amount 

equal to at least the amount in the table 

in paragraph (c)(1) of the Current Rule, 

then the complex order qualifies to be 

adjusted or busted in accordance with 

paragraph (c)(4) or (d)(3) of the Current 

Rule. For example, if the NSM for the 

complex order strategy just prior to the 

erroneous transaction is $6.00–7.00 and 

the net execution price of the complex 

order transaction is $7.75, the complex 

order qualifies to be adjusted or busted 

in accordance with paragraph (c)(4) of 

the Current Rule because the execution 

price of $7.75 is more than $0.50 (i.e., 

the minimum amount according to the 

table in paragraph (c)(1) when the price 

is above $5.00 but less than $10.01) 

from the NSM offer of $7.00. Focusing 

on the NSM in this manner will ensure 

that the obvious/catastrophic error 

review process focuses on the net 

execution price instead of the execution 

prices of the individual legs, which may 

have execution prices outside of the 

NBBO of the leg markets. 

Although the Exchange believes 

adjusting execution prices is generally 

better for the marketplace than 

nullifying executions because liquidity 

providers often execute hedging 

transactions to offset options positions, 

the Exchange recognizes that complex 

orders executing against other complex 

orders is similar to simple orders 

executing against other simple orders 

because both parties are able to review 

the execution price to determine 

whether the transaction may have been 

executed at an erroneous price. Thus, 

for purposes of complex orders that 

meet the requirements of Interpretation 

and Policy .04(b), the Exchange 

proposes to apply the Current Rule and 

adjust or bust obvious errors in 

accordance with paragraph (c)(4) (as 

opposed to applying paragraph (c)(4)(A) 

as is the case under proposed 

Interpretation and Policy .04(a)) and 

catastrophic errors in accordance with 

(d)(3). 

Therefore, for purposes of complex 

orders under Proposed Interpretation 

and Policy .04(b), if one of the legs is 

determined to be an obvious error under 

paragraph (c)(1), all Customer 

transactions will be nullified, unless a 

Member submits 200 or more Customer 

transactions for review in accordance 

with (c)(4)(C) of the Current Rule.28 For 

purposes of complex orders under 

Interpretation and Policy .04(b), if one 

of the legs is determined to be a 

catastrophic error under paragraph 

(d)(3) and all of the other requirements 

of Interpretation and Policy .04(b) are 

met, all market participants will be 

adjusted in accordance with the table 

set forth in (d)(3) of the Current Rule. 

Again, however, pursuant to paragraph 

(d)(3) where at least one party to a 

complex order transaction is a 

Customer, the transaction will be 

nullified if adjustment would result in 

an execution price higher (for buy 

transactions) or lower (for sell 

transactions) than the Customer’s limit 

price on the complex order or 

individual leg(s). Also, if any leg of a 


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29 15 U.S.C. 78f(b). 

30 15 U.S.C. 78f(b)(5). 

31 15 U.S.C. 78f(b)(5). 

complex order is nullified, the entire 

transaction is nullified. 

Implementation Date 

The Exchange anticipates launching 

its complex order book on October 23, 

2017. Accordingly, the Exchange 

proposes to implement this rule 

immediately. 

2. Statutory Basis 

The Exchange believes that its 

proposal is consistent with the 

requirements of the Act and the rules 

and regulations thereunder that are 

applicable to a national securities 

exchange, and, in particular, with the 

requirements of Section 6(b) of the 

Act.29 Specifically, the proposal is 

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

Act 30 because it would promote just 

and equitable principles of trade, 

remove impediments to, and perfect the 

mechanism of, a free and open market 

and a national market system, and, in 

general, protect investors and the public 

interest. 

As described above, the Exchange and 

other options exchanges are seeking to 

adopt harmonized rules related to the 

adjustment and nullification of 

erroneous options transactions. The 

Exchange believes that the Proposed 

Rule 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. Based on 

the foregoing, the Exchange believes 

that the proposal is consistent with 

Section 6(b)(5) of the Act 31 in that the 

Proposed Rule will foster cooperation 

and coordination with persons engaged 

in regulating and facilitating 

transactions. 

The Exchange believes the various 

provisions allowing or dictating 

adjustment rather than nullification of a 

trade are necessary given the benefits of 

adjusting a trade price rather than 

nullifying the trade completely. Because 

options trades are used to hedge, or are 

hedged by, transactions in other 

markets, including securities and 

futures, many Members, and their 

customers, would rather adjust prices of 

executions rather than nullify the 

transactions and, thus, lose a hedge 

altogether. As such, the Exchange 

believes it is in the best interest of 

investors to allow for price adjustments 

as well as nullifications. 

The Exchange does not believe that 

the proposal is unfairly discriminatory, 

even though it differentiates in many 

places between Customers and nonCustomers. As with the Current Rule, 

Customers are treated differently, often 

affording them preferential treatment. 

This treatment is appropriate in light of 

the fact that Customers are not 

necessarily immersed in the day-to-day 

trading of the markets, are less likely to 

be watching trading activity in a 

particular option throughout the day, 

and may have limited funds in their 

trading accounts. At the same time, the 

Exchange reiterates that in the U.S. 

options markets generally there is 

significant retail customer participation 

that occurs directly on (and only on) 

options exchanges such as the 

Exchange. Accordingly, differentiating 

among market participants with respect 

to the adjustment and nullification of 

erroneous options transactions is not 

unfairly discriminatory because it is 

reasonable and fair to provide 

Customers with additional protections 

as compared to non-Customers. 

The Exchange believes that its 

proposal to adopt the ability to adjust a 

Customer’s execution price when a 

complex order is deemed to be an 

Obvious or Catastrophic Error is 

consistent with the Act. A complex 

order that executes against individual 

leg markets may receive an execution 

price on an individual leg that is not an 

Obvious or Catastrophic error but 

another leg of the transaction is an 

Obvious or Catastrophic Error. In such 

situations where the complex order is 

executing against at least one individual 

or firm that is not aware of the fact that 

they have executed against a complex 

order or that the complex order has been 

executed at an erroneous price, the 

Exchange believes it is more appropriate 

to adjust execution prices if possible 

because the derivative transactions are 

often hedged with other securities. 

Allowing adjustments instead of 

nullifying transactions in these limited 

situations will help to ensure that 

market participants are not left with a 

hedge that has no position to hedge 

against. 

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 that is not 

necessary or appropriate in furtherance 

of the purposes of the Act. Importantly, 

the Exchange believes the proposal will 

not impose a burden on intermarket 

competition but will rather alleviate any 

burden on competition because it is the 

result of a collaborative effort by all 

options exchanges to 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. The 

Exchange understands that all other 

options exchanges that trade complex 

orders and/or stock-option orders have 

adopted rules 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 provisions apply to all 

market participants equally within each 

participant category (i.e., Customers and 

non-Customers). With respect to 

competition between Customer and 

non-Customer market participants, the 

Exchange believes that the Proposed 

Rule acknowledges competing concerns 

and tries to strike the appropriate 

balance between such concerns. For 

instance, the Exchange believes that 

protection of Customers is important 

due to their direct participation in the 

options markets as well as the fact that 

they are not, by definition, market 

professionals. At the same time, the 

Exchange believes due to the quotedriven nature of the options markets, 

the importance of liquidity provision in 

such markets and the risk that liquidity 

providers bear when quoting a large 

breadth of products that are derivative 

of underlying securities, that the 

protection of liquidity providers and the 

practice of adjusting transactions rather 

than nullifying them is of critical 

importance. As described above, the 

Exchange will apply specific and 

objective criteria to determine whether 

an erroneous transaction has occurred 

and, if so, how to adjust or nullify a 

transaction. 

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 written comments on the 

proposed rule change. 


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Federal Register / Vol. 82, No. 213 / Monday, November 6, 2017 / Notices 51467 

32 15 U.S.C. 78s(b)(3)(A). 

33 17 CFR 240.19b–4(f)(6). As required under Rule 

19b–4(f)(6)(iii), the Exchange provided the 

Commission with written notice of its intent to file 

the proposed rule change, along with a brief 

description and the 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. 

34 17 CFR 240.19b–4(f)(6). 

35 17 CFR 240.19b–4(f)(6)(iii). 

36For purposes only of waiving the 30-day 

operative delay, the Commission has also 

considered the proposed rule’s impact on 

efficiency, competition, and capital formation. See 

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

37 17 CFR 200.30–3(a)(12). 

1This Line connects to a former line of railroad 

for which SGLR received abandonment authority in 

2004, subject to environmental, public use, trail 

use, and standard employee protective conditions. 

See Seminole Gulf Ry.—Aban. Exemption—in 

Sarasota Cty., Fla., AB 400 (Sub-No. 3X) (STB 

served Apr. 2, 2004.) That line was subsequently 

transferred to Sarasota County for interim trail use 

and rail banking and developed into a trail. 

III. Date of Effectiveness of the 

Proposed Rule Change and Timing for 

Commission Action 

Because the 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) of the Act 32 and Rule 19b– 

4(f)(6) thereunder.33

A proposed rule change filed 

pursuant to Rule 19b–4(f)(6) under the 

Act 34 normally does not become 

operative for 30 days after the date of its 

filing. However, Rule 19b–4(f)(6)(iii) 35

permits the Commission to designate a 

shorter time if such action is consistent 

with the protection of investors and the 

public interest. The Exchange has asked 

the Commission to waive the 30-day 

operative delay so that the Exchange 

may, as soon as possible, implement the 

changes proposed by this filing. The 

Exchange notes that the proposal will 

promote consistency between the 

Exchange and other options exchanges 

that accept complex orders. For this 

reason, the Commission believes the 

waiver of the operative delay is 

consistent with the protection of 

investors and the public interest. 

Accordingly, the Commission hereby 

waives the operative delay and 

designates the proposed rule change 

operative upon filing.36

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– 

BatsEDGX–2017–43 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 

Number SR–BatsEDGX–2017–43. 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. 

Persons submitting comments are 

cautioned that we do not redact or edit 

personal identifying information from 

comment submissions. You should 

submit only information that you wish 

to make available publicly. All 

submissions should refer to File 

Number SR–BatsEDGX–2017–43, and 

should be submitted on or before 

November 27, 2017. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.37

Eduardo A. Aleman, 

Assistant Secretary. 

[FR Doc. 2017–24051 Filed 11–3–17; 8:45 am] 

BILLING CODE 8011–01–P 

DEPARTMENT OF STATE 

[Public Notice 10193] 

Certification Pursuant to Section 

7041(A)(L) of the Department of State, 

Foreign Operations, and Related 

Programs Appropriations Act, 2017 

By virtue of the authority vested in 

me as Secretary of State pursuant to 

section 7041(a)(1) of the Department of 

State, Foreign Operations, and Related 

Programs Appropriations Act, 2017 

(Div. J, Pub. L. 115–31), I hereby certify 

that the Government of Egypt is 

sustaining the strategic relationship 

with the United States and meeting its 

obligations under the 1979 Egypt-Israel 

Peace Treaty. 

This determination shall be published 

in the Federal Register and, along with 

the accompanying Memorandum of 

Justification, shall be reported to 

Congress. 

Dated: October 16, 2017. 

Rex W. Tillerson, 

Secretary of State. 

[FR Doc. 2017–24091 Filed 11–3–17; 8:45 am] 

BILLING CODE 4710–31–P 

SURFACE TRANSPORTATION BOARD 

[Docket No. AB 400 (Sub-No. 6X)] 

Seminole Gulf Railway, L.P.— 

Abandonment Exemption—in Sarasota 

County, Fla. 

Seminole Gulf Railway, L.P. (SGLR) 

has filed a verified notice of exemption 

under 49 CFR pt. 1152 subpart F— 

Exempt Abandonments to abandon a 

1.71-mile segment of its line of railroad 

known as the Venice Branch, between 

milepost SW 890.29 and milepost SW 

892.00 outside of the City of Sarasota, in 

Sarasota County, Fla. (the Line).1 SGLR 

will also be abandoning a connecting 

industrial spur. The Line traverses 


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