Document ID: SEC-2018-1511-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NYSE American, LLC
Posted Date: 2018-10-01T04:00Z

[Federal Register Volume 83, Number 190 (Monday, October 1, 2018)]
[Notices]
[Pages 49449-49451]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-21233]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-84285; File No. SR-NYSEAMER-2018-44]

Self-Regulatory Organizations; NYSE American LLC; Notice of 
Filing of Proposed Rule Change To Modify Rule 961 Regarding the Give Up 
of a Clearing Member by ATP Holders and Conforming Changes to Rule 
933NY

September 25, 2018.
    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 11, 2018, 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.
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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 Substance 
of the Proposed Rule Change

    The Exchange proposes to modify Rule 961 regarding the Give Up of a 
Clearing Member by ATP Holders and proposes conforming changes to Rule 
933NY. The proposed rule change is available on the Exchange's website 
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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The purpose of this filing is to modify Rule 961 regarding the Give 
Up of a Clearing Member \4\ by ATP Holders and to make conforming 
changes to Rule 933NY.
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    \4\ Rule 900.2NY(11) defines ``Clearing Member'' as an Exchange 
ATP Holder which has been admitted to membership in the Options 
Clearing Corporation pursuant to the provisions of the Rules of the 
Options Clearing Corporation.
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Rule 961: Current Process To Give Up a Clearing Member
    In 2015, the Exchange adopted its current ``give up'' procedure for 
ATP Holders executing transactions on the Exchange.\5\ Per Rule 961, an 
ATP Holder may give up a ``Designated Give Up'' or its ``Guarantor,'' 
as defined in the Rule and described below.
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    \5\ See Securities and Exchange Act Release No. 75642 (August 7, 
2015), 80 FR 48594 (August 13, 2015) (SR-NYSEMKT-2015-55).
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    The Rule defines ``Designated Give Up'' as any Clearing Member that 
an ATP Holder (other than a Market Maker \6\) identifies to the 
Exchange, in writing, as a Clearing Member the ATP Holder requests the 
ability to give up. To designate a ``Designated Give Up,'' an ATP 
Holder must submit written notification to the Exchange. Specifically, 
the Exchange uses a standardized form (``Notification Form''). An ATP 
Holder may currently designate any Clearing Member as a Designated Give 
Up. Additionally, there is no minimum or maximum number of Designated 
Give Ups that an ATP Holder must identify. Similarly, should an ATP 
Holder no longer want the ability to give up a particular Designated 
Give Up, the ATP Holder informs the Exchange in writing.
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    \6\ For purposes of this rule, references to ``Market Maker'' 
refer to ATP Holders acting in the capacity of a Market Maker and 
include all Exchange Market Maker capacities e.g., Lead Market 
Makers. As explained below, Market Makers give up Guarantors that 
have executed a Letter of Guarantee on behalf of the Marker Maker, 
pursuant to Rule 932NY; Market Makers need not give up Designated 
Give Ups.
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    Rule 961 also requires that the Exchange notify a Clearing Member, 
in writing and as soon as practicable, of each ATP Holder that has 
identified it as a Designated Give Up. However, the Exchange will not 
accept any instructions from a Clearing Member to prohibit an ATP 
Holder from designating the Clearing Member as a Designated Give Up. 
Additionally, there is no subjective evaluation of an ATP Holder's list 
of Designated Give Ups by the Exchange. The Rule does, however, provide 
that a Designated Give Up may determine to not accept a trade on which 
its name was given up so long as it believes in good faith that it has 
a valid reason not to accept the trade.\7\
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    \7\ See Rule 961(f)(1) (setting forth procedures for rejecting a 
trade). An example of a valid reason to reject a trade may be that 
the Designated Give Up does not have a customer for that particular 
trade.
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    The Rule defines ``Guarantor'' as a Clearing Member that has issued 
a Letter of Guarantee or Letter of Authorization for the executing ATP 
Holder, pursuant to Rules of the Exchange \8\ that is in effect at the 
time of the execution of the applicable trade. An executing ATP Holder 
may give up its Guarantor without such Guarantor being a ``Designated 
Give Up.'' Additionally, Rule 924NY provides that a Letter of Guarantee 
is required to be issued and filed by each Clearing Member through 
which a Market Maker clears transactions. Accordingly, a Market Maker 
is enabled to give up only a Guarantor that had executed a Letter of 
Guarantee on its behalf pursuant to Rule 924NY; a Market Maker does not 
need to identify any Designated Give Ups. Like Designated Give Ups, 
Guarantors likewise have the ability to reject a trade.\9\
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    \8\ See Rule 924NY (Letters of Guarantees); Rule 932NY (Letters 
of Authorization).
    \9\ See Rule 961(f)(2) (providing that a Guarantor may ``change 
the give up to another Clearing Member that has agreed to be the 
give up on the subject trade, provided such Clearing Member has 
notified the Exchange and the executing ATP Holder in writing of its 
intent to accept the trade'').
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    Beginning in early 2018, certain Clearing Firms (in conjunction 
with the Securities Industry and Financial Markets Association 
(``SIFMA'')) expressed concerns related to the process by which 
executing brokers on U.S. options exchanges (the ``Exchanges'') are 
allowed to designate or `give up' a clearing firm for purposes of 
clearing particular transactions. The SIFMA-affiliated Clearing Members 
indicated that the Federal Reserve has

[[Page 49450]]

recently identified the current give-up process as a significant source 
of risk for clearing firms. SIFMA-affiliated Clearing Members 
subsequently requested that the Exchanges alleviate this risk by 
amending Exchange rules governing the give up process.\10\
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    \10\ Cboe Exchange, Inc. (``CBOE'') recently filed to amend its 
give up procedure to require CBOE Trading Permit Holders (each a 
``TPH'') to receive written authorization from a Clearing TPH 
(``CTPH'') before it may give up that CTPH. See Securities and 
Exchange Act Release No. 83872 (August 17, 2018), 83 FR 42751 
(August 23, 2018) (SR-CBOE-2018-55). The Exchange's proposal leads 
to the same result of providing Clearing Members the ability to 
control risk, but it differs in process.
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Proposed Amendment to Rules 961 and 933NY
    The Exchange proposes to amend Rule 961 to provide a means for a 
Designated Give Up to opt out of acting as the give up for certain ATP 
Holders. As proposed, Rule 961(b)(4) would be revised to provide that 
the Exchange would ``accept instruction from a Clearing Member not to 
permit an ATP Holder to designate the Clearing Member as the Designated 
Give Up.'' The Exchange further proposes to add language to Rule 
961(b)(7) to provide that ``[i]f a Clearing Member no longer wants to 
be a Designated Give Up of a particular ATP Holder, the Clearing Member 
must notify the Exchange, in a form and manner prescribed by the 
Exchange.'' In practice, a Clearing Member that has been designated as 
the Designated Give Up need only tell the Exchange that it refuses this 
designation.
    Consistent with this proposed change, the Exchange also proposes to 
amend Rule 933NY(f) regarding the responsibilities of Floor Brokers to 
maintain error accounts ``for the purposes of correcting bona fide 
errors, as provided in Rule 960.'' As proposed, the Exchange would 
specify that ``it will not be a violation of this provision if a trade 
is transferred away from an error account through the CMTA process at 
OCC.'' \11\ This additional language would enable an executing ATP 
Holder that has executed an order to CMTA that order through its own 
clearing relationship. For example, assume a Floor Broker executes a 
trade giving up Firm A (a Clearing Member that is one of its Designated 
Give Ups) and, after the execution, the Floor Broker is informed that a 
portion of the trade needs to be changed to give-up Firm B (a Clearing 
Member that is not one of the Floor Broker's Designated Give Ups). The 
proposed language would enable the Floor Broker to CMTA the trade to 
Firm B through its own clearing arrangement (i.e., error account/Letter 
of Authorization) rather than nullifying or busting the trade.
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    \11\ See proposed Rule 933NY(f).
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Implementation
    The Exchange proposes to announce the implementation date of the 
proposed rule change via Trader Notice, to be published no later than 
thirty (30) days following Commission approval. The implementation date 
will be no later than sixty (60) days following Commission approval. 
This additional time would afford the Exchange and ATP Holders the time 
to make any changes current give up designations.
2. Statutory Basis
    The proposed rule change is consistent with Section 6(b) \12\ of 
the Act, in general, and furthers the objectives of Section 
6(b)(5),\13\ in particular, in that it is designed to prevent 
fraudulent and manipulative acts and practices, to promote just and 
equitable principles of trade, to foster cooperation and coordination 
with persons engaged in facilitating transactions in securities, and to 
remove impediments to and perfect the mechanisms of a free and open 
market and a national market system.
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    \12\ 15 U.S.C. 78f(b).
    \13\ 15 U.S.C. 78f(b)(5).
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    Particularly, as discussed above, several Clearing Firms affiliated 
with SIFMA have recently expressed concerns relating to the current 
give up process that permits ATP Holders to identify any Clearing 
Members as a Designated Give Up for purposes of clearing particular 
transactions. Also, as noted above, the Clearing Members have relayed 
that the Federal Reserve has recently identified the current give-up 
process (i.e., a process that lacks authorization) as a significant 
source of risk for clearing firms. The Exchange believes the proposed 
changes to Rule 961 would help alleviate this risk by enabling Clearing 
Members to refuse to act as a Designated Give Up for certain ATP 
Holders, which would afford Clearing Members a measure of control. The 
Exchange believes its proposal addresses concerns raised by Clearing 
Members, while maintaining the basic give up process. The Exchange does 
not anticipate Clearing Members to routinely refuse the role of 
Designated Give Up, but rather to utilize this option only when there 
is a valid reason and good faith basis to do so. The Exchange notes 
that Clearing Member would still have the ability to reject trades on 
an ad hoc basis for ATP Holders for which it has not refused to be a 
Designated Give Up. Accordingly, the Exchange believes the proposed 
rule change is reasonable and continues to provide certainty that a 
Clearing Member would be responsible for a trade, which protects 
investors and the public interest.
    The Exchange also believes that the proposed change to Rule 933NY 
would protect investors because it would permit an executing ATP Holder 
to utilize its error account to CMTA an order through its own clearing 
relationship. This would preserve executions while accommodating the 
proposed rule change that could result in an executing ATP Holder not 
being permissioned to for a particular give-up.
    Thus, this proposal would foster cooperation and coordination with 
persons engaged in facilitating transactions in securities, and 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 this proposed rule change would 
impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act. The Exchange does not believe 
that the proposed rule change would impose an unnecessary burden on 
intramarket competition because it would apply equally to all similarly 
situated ATP Holders. The Exchange also notes that, should the proposed 
changes make the Exchange more attractive for trading, market 
participants trading on other exchanges can always elect to become ATP 
Holders on the Exchange to take advantage of the trading opportunities.

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

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period up to 90 days (i) as the 
Commission may designate if it finds such longer period to be 
appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will:
    (A) By order approve or disapprove the proposed rule change, or

[[Page 49451]]

    (B) institute proceedings to determine whether the proposed rule 
change should be 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 [email protected]. Please include 
File Number SR-NYSEAMER-2018-44 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-NYSEAMER-2018-44. 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 website (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 website 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 a.m. and 3 
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. 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-NYSEAMER-2018-44, and should be 
submitted on or before October 22, 2018.
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    \14\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\14\
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-21233 Filed 9-28-18; 8:45 am]
 BILLING CODE 8011-01-P