Document ID: SEC-2016-0199-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NYSE MKT, LLC
Posted Date: 2016-02-08T05:00Z

[Federal Register Volume 81, Number 25 (Monday, February 8, 2016)]
[Notices]
[Pages 6566-6568]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-02330]

[[Page 6566]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-77014; File No. SR-NYSEMKT-2016-16]

Self-Regulatory Organizations; NYSE MKT LLC; Notice of Filing and 
Immediate Effectiveness of Proposed Rule Change Amending Certain of Its 
Rules Related to Binary Return Derivatives Contracts

February 2, 2016.
    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 January 27, 2016, NYSE MKT LLC (the ``Exchange'' or 
``NYSE MKT'') 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.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of the 
Substance of the Proposed Rule Change

    The Exchange proposes to amend certain of its rules related to 
Binary Return Derivatives contracts. The proposed rule change is 
available on the Exchange's Web site at www.nyse.com, at the principal 
office of the Exchange, and at the Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the self-regulatory organization 
included statements concerning the purpose of, and basis for, the 
proposed rule change and discussed any comments it received on the 
proposed rule change. The text of those statements may be examined at 
the places specified in Item IV below. The Exchange has prepared 
summaries, set forth in sections A, B, and C below, of the most 
significant parts of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange is proposing to amend certain of its rules related to 
Binary Return Derivatives contracts (``ByRDs''), which the Exchange 
introduced in 2007.\4\
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    \4\ See Securities Exchange Act Release No. 56251 (August 14, 
2007), 72 FR 46523 (August 20, 2007) (SR-Amex-2004-27) (Order 
approving listing of Fixed Return Options (``FROs'')); see also 
Securities Exchange Act Release No. 71957 (April 16, 2014), 79 FR 
22563 (April 22, 2014) (SR-NYSEMKT-2014-06) (Order approving name 
change from FROs to Binary Return Derivatives (ByRDs) and re-launch 
of these products, with certain modification, and amending Obvious 
Errors rules to include ByRDs). ByRDs are European-style option 
contracts on individual stocks, exchange-traded funds (``ETFs'') and 
Index-Linked Securities that have a fixed return in cash based on a 
set strike price; satisfy specified listing criteria; and may only 
be exercised at expiration pursuant to the Rules of the Options 
Clearing Corporation (the ``OCC'').
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    First, the Exchange proposes to add Rule 953ByRDs to make clear 
that the Exchange would halt or suspend trading for a ByRDs contract to 
the same extent that it halts or suspends trading under Rule 953NY in 
an option contract on the same underlying security.\5\ The current 
ByRDs rules are silent regarding the treatment of ByRDs during trading 
halts and suspensions of options contracts. The Exchange therefore 
believes that the proposed change would add clarity and transparency to 
Exchange rules and would ensure consistent treatment of ByRDs contracts 
in the event of a halt or suspension of trading in options contracts on 
the same underlying security.
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    \5\ See proposed Rule 953ByRDs (Trading Halts and Suspensions of 
Binary Return Derivatives).
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    Next, the Exchange proposes to modify Rule 903ByRDs(b) (Series of 
ByRDs Open for Trading), which currently provides that ``[n]ew 
expiration week series will be added for trading on Thursday each week, 
unless Friday is an Exchange holiday in which case new expiration 
series would be added for trading on Wednesday.'' \6\ The Exchange 
proposes to revise this rule to include instances when an Exchange 
holiday falls on a Thursday. Specifically, as revised, new series would 
be added for trading ``on Thursday each week, unless Thursday or Friday 
is an Exchange holiday in which case new expiration series would be 
added for trading on Wednesday.'' \7\ The Exchange notes that this 
proposed change would allow the Exchange to add new series during 
Thanksgiving week or anytime Christmas or New Year's falls on a 
Thursday, which increased flexibility would benefit market 
participants.
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    \6\ See Rule 903ByRDs(b).
    \7\ See proposed Rule 903ByRDs (b) (``Consecutive Week 
Expiration Series: The Exchange will list Binary Return Derivatives 
having five (5) consecutive weekly expiration series available at 
one time. Each expiration series will expire at the end of the week, 
normally a Friday, with consecutive week expirations covering the 
next five (5) calendar weeks. New expiration week series will be 
added for trading on Thursday each week, unless Thursday or Friday 
is an Exchange holiday in which case new expiration series would be 
added for trading on Wednesday'').
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    The Exchange also proposes to amend Rule 975NY (Nullification and 
Adjustment of Options Transactions including Obvious Errors) regarding 
the treatment of ByRDs in the event of a catastrophic error. Current 
Rule 975NY(d)(3)(A) provides that ``[u]pon proper notification as 
described in section (d)(2) of this Rule, any transaction in ByRDs, 
qualifying as a Catastrophic Error will automatically be adjusted by 
the Exchange to $1.02 per contract unless both parties mutually agree 
to nullify the transaction or both parties mutually agree to a 
different adjustment price. However, the Exchange proposes to modify 
this rule to clarify that any transactions in ByRDs qualifying as a 
Catastrophic Error ``that is higher or lower than the Theoretical Price 
by $.50 or more shall be deemed a Catastrophic Error, subject to the 
adjustment procedures of paragraph (d)(3) unless such adjustment would 
result in a price higher than $1.02, in which case the adjustment price 
shall be $1.02.'' \8\ Thus, as proposed, the transaction would only be 
adjusted to $1.02 if the adjustment would result in a price greater 
than $1.02. As ByRDs will either pay $0 or $100 at expiration, a single 
ByRDs contract should not have a value greater than $1.00, therefore 
the Exchange believes that any adjustment under the provisions of the 
Catastrophic Error rule should be capped at a price no higher than 
$1.02. Capping the adjustment price at $1.02 for Catastrophic Errors 
involving ByRDs options is consistent with the adjustment process for 
obvious errors involving ByRDs option, which are also capped at 
$1.02.\9\ Similarly, to ensure consistency in Exchange rules, the 
Exchange propose to strike from the definition of Catastrophic Error 
rules, the clause that states ``except for Binary Return Derivatives 
where any transaction occurring at a price greater than $1.02 shall 
qualify as a Catastrophic Error.'' \10\ The change to paragraph (d)(1) 
of the Rule would allow transactions in ByRDs to be subject to standard 
Catastrophic Error rules (i.e., transactions that are higher or lower 
than the Theoretical Price by $.50 or more shall be deemed a 
Catastrophic Error). The Exchange notes that, to date, no ByRDs 
transactions have been deemed Catastrophic Errors and the Exchange did 
not adjust any ByRDs

[[Page 6567]]

transaction per current Rule 975NY(d)(3)(A). The proposed change would 
ensure that ByRDs trades that are deemed Catastrophic Errors are 
appropriately adjusted.\11\
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    \8\ See proposed Rule 975NY(d)(3)(A).
    \9\ See Rule 975NY(c)(6).
    \10\ See proposed Rule 975NY(d)(1).
    \11\ The Exchange notes that ByRDs contracts were outside of the 
scope of the industry wide effort to harmonize Obvious and 
Catastrophic Error rules, and the proposed change therefore does not 
impact the harmonization effort. See Securities Exchange Act Release 
No. 74920 (May 8, 2015), 80 FR 27816, 27822 (May 14, 2015) (SR-
NYSEMKT-2015-39).
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    Finally, the Exchange proposes to delete extraneous text from Rule 
462(d)(10)(A), regarding margin accounts, such that the revised text 
would provide that ``[e]xcept as provided below, no ByRDs option 
carried long in a customer's account shall be considered of any value 
for the purpose of computing the margin required in the account of such 
customer.'' \12\ The Exchange believes the proposed change would 
correct an existing typographical error in Exchange rules.
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    \12\ See proposed Rule 462(d)(10)(A) (striking the extraneous 
words ``is or a customer'').
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Implementation
    The Exchange proposes to announce the implementation of the 
proposed rule change via Trader Update.
2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
Section 6(b) \13\ of the Securities Exchange Act of 1934 (the ``Act''), 
in general, and furthers the objectives of Section 6(b)(5),\14\ in 
particular, in that it is designed to promote just and equitable 
principles of trade, to foster cooperation and coordination with 
persons engaged in facilitating transactions in securities, and to 
remove impediments to and perfect the mechanism of a free and open 
market and a national market system.
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    \13\ 15 U.S.C. 78f(b).
    \14\ 15 U.S.C. 78f(b)(5).
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    Specifically, the proposed change to Rule 903ByRDs(b) to cover 
instances when an Exchange holiday falls on a Thursday would allow the 
Exchange to add new series during Thanksgiving week or anytime 
Christmas or New Year's falls on a Thursday, which increased 
flexibility would remove impediments to, and perfect the mechanism of, 
a free and open market and a national market system to the benefit of 
market participants.
    In addition, the Exchange believes that the proposed rule to make 
clear that ByRDs would be treated the same as other options contracts, 
in the event of a trading halt or suspension, would remove impediments 
to, and perfect the mechanisms of, a free and open market because it 
would add clarity and transparency to Exchange rules. Moreover, this 
proposed change would ensure consistent treatment of ByRDs contracts in 
the event of a halt or suspension of trading in options contracts on 
the same underlying security.
    The proposed change to Rule 975NY(d)(3)(A), regarding the treatment 
ByRDs transactions deemed Catastrophic Errors is designed to promote 
just and equitable principles of trade, and to remove impediments to 
and perfect the mechanism of a free and open market and a national 
market system, as the proposed change would ensure that ByRDs trades 
that are deemed Catastrophic Errors are appropriately adjusted.
    Finally, the proposed change to remove incorrect and extraneous 
rule text from Rule 462(d)(10)(A) adds clarity and transparency to 
Exchange rules and reduces potential investor confusion, which would 
remove impediments to and perfect the mechanism of a free and open 
market and a national market system.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act. The proposed change is not 
designed to address any competitive issue but rather to add clarity and 
transparency to Exchange rules, thereby reducing confusion and making 
the Exchange's rules easier to understand and navigate. The Exchange 
believes that the proposed rule change will serve to promote regulatory 
clarity and consistency, thereby reducing burdens on the marketplace 
and facilitating investor protection.

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 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 \15\ and Rule 19b-4(f)(6) thereunder.\16\
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    \15\ 15 U.S.C. 78s(b)(3)(A).
    \16\ 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.
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    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 change 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-NYSEMKT-2016-16 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-NYSEMKT-2016-16. 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

[[Page 6568]]

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-NYSEMKT-2016-16, and should 
be submitted on or before February 29, 2016.
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    \17\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\17\
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-02330 Filed 2-5-16; 8:45 am]
BILLING CODE 8011-01-P