Document ID: SEC-2014-2194-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NYSE MKT LLC
Posted Date: 2014-12-30T05:00Z

[Federal Register Volume 79, Number 249 (Tuesday, December 30, 2014)]
[Notices]
[Pages 78531-78533]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-30441]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-73910; File No. SR-NYSEMKT-2014-102]

Self-Regulatory Organizations; NYSE MKT LLC; Notice of Filing and 
Immediate Effectiveness of Proposed Rule Change Amending Exchange Rules 
Regarding Trade Nullification and Price Adjustment

December 22, 2014.
    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 December 10, 2014, NYSE MKT LLC (the ``Exchange'' or ``NYSE 
MKT'') 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 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\ 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 exchange rules regarding trade 
nullification and price adjustment. The text of 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 add Rule 966NY, ``Trade Nullification 
and Price Adjustment Procedure.'' \3\ As proposed, Rule 966NY would 
allow for transactions to be nullified if both parties to the 
transaction agree to the nullification and allow the price of 
executions to be adjusted if the price adjustment is agreed to by both 
parties to the transaction and authorized by the Exchange.\4\ The 
Exchange is also proposing to make other conforming administrative 
changes to streamline the rules governing this subject with the 
Exchange's rules.
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    \3\ The Exchange notes that there are efforts by the exchanges 
to create a uniform trade nullification and adjustment rule. Should 
the uniform rule be approved and effective, the Exchange will amend 
its rules appropriately.
    \4\ The Exchange notes that, as proposed, Rule 966NY would only 
apply to trades that were executed on the Exchange and, as such, any 
orders that were either fully or partially routed to, or executed, 
on another exchange would not be subject to the proposed Rule 966NY.
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Background
    Currently, pursuant to Commentary .02 of Rule 965NY, the Exchange 
allows for parties to agree to nullify an execution. Commentary .02 of 
Rule 965NY also states that once both parties agree to the trade 
nullification, one party must ``promptly notify the Exchange for 
dissemination of cancellation information to the Options Price 
Reporting Authority.'' In addition, the Exchange currently allows for a 
mutual price adjustment for trades that meet the obvious error (or 
catastrophic error) requirements pursuant to Exchange Rule 975NY if 
those mutual agreements are done within specific timeframes.\5\ The 
Exchange is now proposing to relocate the aforementioned trade 
nullification language and add a provision to allow parties to mutually 
adjust prices of executions outside of those done in obvious error. The 
Exchange's proposal is based upon similar rules of the Chicago Board 
Options Exchange

[[Page 78532]]

(``CBOE'') and Miami International Securities Exchange, LLC 
(``MIAX'').\6\
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    \5\ See Rule 975NY(a)(3) and (7) and 975NY(d)(3).
    \6\ See CBOE Rule 6.19 and Securities Exchange Act Release No. 
72970 (September 3, 2014), 79 FR 53498 (September 9, 2014) (SR-CBOE-
2014-066) and MIAX Rule 531 and Release No. 73463 (October 29, 
2014), 79 FR 65445 (November 4, 2014) (SR-MIAX-2014-54).
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Proposed Rule 966NY
    The Exchange is proposing to add Rule 966NY, ``Trade Nullification 
and Price Adjustment Procedure,'' which would: (a) Allow for any trades 
on the Exchange to be nullified if both parties to the trade agree to 
such nullification, and (b) allow for prices of executions to be 
adjusted if the price adjustment is agreed upon by both parties to the 
trade and authorized by the Exchange.\7\
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    \7\ See note 5 supra.
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    As stated above, the Exchange currently allows for trades to be 
nullified based upon mutual agreement.\8\ With the proposed addition of 
Rule 966NY, the Exchange is only renumbering and relocating this 
provision and is not proposing a substantive change to the rule itself. 
The Exchange believes that having the provision as a standalone rule 
would make it easier for ATP Holders to locate. In addition, the 
Exchange believes this administrative change would streamline the 
provisions surrounding this notion to put in one place.
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    \8\ See Commentary .02 of Rule 965NY.
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    The Exchange is also proposing to add a provision allowing ATP 
Holders to mutually agree to adjust a price of an execution. The 
Exchange believes this provision is necessary given the benefits of 
adjusting a trade price rather than nullifying the trade completely. 
Because options trades are used to hedge transactions in other markets, 
including securities and futures, many ATP Holders, 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. In addition, the Exchange 
believes it is in the nature of a fair and orderly market to allow for 
price adjustments rather than only cancellations because an adjustment 
would result in the least amount of disruption to the overall market. 
The Exchange also notes that current Exchange rules allow for prices of 
trades to be adjusted at the consent of both parties if such 
transactions are within the current obvious error and catastrophic 
error provisions.\9\ The Exchange is now proposing to merely allow this 
practice for any trade.
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    \9\ The Exchange notes that no changes are being proposed to the 
procedures for nullification or adjustment of a trade by mutual 
agreement in the Exchanges' obvious error and catastrophic error 
rules. See note 5 supra. With the effectiveness of proposed Rule 
966NY, ATP Holders would have two options to choose from in order to 
have their trades nullified or adjusted by mutual agreement: (i) 
Request under the procedures of Rule 975NY (including the 
timeframes); or (ii) request under the procedures of Proposed Rule 
966NY which requires the authorization of the Exchange prior to the 
nullification or adjustment. The Exchange believes both provisions 
are complimentary [sic] in that they provide protections in 
different situations under procedures that are correspondingly 
appropriate based on the situation in which a nullification or an 
adjustment is requested.
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    As proposed, Rule 966NY expressly states that trades may be subject 
to nullification or price adjustment only if such trades are authorized 
by the Exchange. The Exchange notes that this process is very similar 
to the process ATP Holders follow today for trade nullification based 
upon mutual consent. As described in more detail above, Commentary .02 
of current Rule 965NY allows two parties to agree to a trade 
nullification and ``notify the Exchange for dissemination of 
cancellation information to the Options Price Reporting Authority.'' 
The Exchange is only slightly changing this procedure by expressly 
requiring Exchange authorization prior to the effectuation of such 
nullification or mutual price adjustment. The Exchange would only 
authorize a proposed nullification or adjustment if the Exchange 
received verification from both parties to the trade that a mutual 
agreement has been made.\10\ In addition, prior to an authorization for 
a mutual price adjustment, the Exchange would ensure the agreed upon 
price would have been permissible and in compliance with any applicable 
rules of the Exchange and Securities and Exchange Commission, as 
amended, at the time the original transaction was executed.\11\ 
Finally, the proposed rule would state that the format and information 
required by the Exchange for this submission would be released by the 
Exchange via Trader Update. As such, prior to Rule 966NY becoming 
operative, the Exchange would provide ATP Holders with specific 
requirements via an Exchange-issued Trader Update. The Trader Update 
would, among other things, state specific timeframes required for 
requests and the format in which the requests would be accepted by the 
Exchange.
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    \10\ Upon authorization, the Exchange will continue to report 
any price adjustment or trade nullification to the Options Price 
Reporting Authority.
    \11\ Specifically, the Exchange would ensure that the mutually-
agreed upon price would not have traded through resting interest on 
the Exchange or would have been in violation of Rule 991NY at the 
time of the initial execution.
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Administrative Changes
    Finally, the Exchange is proposing to make administrative 
conforming changes to ensure Exchange rules on the subject are 
consistent. More specifically, the Exchange is proposing to delete 
Commentary .02 of Rule 965NY. The Exchange believes that deleting 
current Commentary .02 to Exchange Rule 965NY would avoid any confusion 
with the proposed Rule 966NY.
Conclusion
    To conclude, the Exchange believes that the proposed changes are in 
furtherance of the Act because the proposed Rule 966NY will allow ATP 
Holders to agree to nullify transactions or adjust prices of 
transactions to maintain a fair and orderly market. As stated above, 
the Exchange intends to release a Trade [sic] Update to announce the 
implementation of the Rule and other specifics surrounding the 
procedures of the implementation. In addition, prior to implementation, 
the Exchange will ensure it has proper policies and procedures in place 
to correctly administer the Rule.
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 regulating, clearing, settling, processing 
information with respect to, and facilitating transactions in 
securities, 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. Additionally, the Exchange 
believes the proposed rule change is consistent with the Section 
6(b)(5) requirement that the rules of an exchange not be designed to 
permit unfair discrimination between customers, issuers, brokers, or 
dealers.
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    \12\ 15 U.S.C. 78f(b).
    \13\ 15 U.S.C. 78f(b)(5).
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    More specifically, the Exchange believes that the proposed changes 
are consistent with the Act as they are designed to promote just and 
equitable principles and protect investors and the public interest. In 
particular, the Exchange believes the proposed change to move the 
provision authorizing parties to mutually agree to nullify a

[[Page 78533]]

trade to a separate, stand-alone rule protects investors by eliminating 
confusion and making the provision more clear. Because options trades 
are used to hedge transactions in other markets, including securities 
and futures, many market participants 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. 
In addition, the Exchange believes it is in the nature of a fair and 
orderly market to allow for price adjustments rather than only 
cancellations because an adjustment would result in the least amount of 
disruption to the overall market. Further, the Exchange believes that, 
harmonizing its nullification and adjustment rules with other options 
markets would promote just and equitable principles of trade by better 
allowing the market participants to be treated similarly across 
exchanges. The Exchange also believes that the other administrative 
changes would remove impediments to and perfect the mechanism of a fair 
and orderly market as they are merely trying to create more 
transparency in the Exchange's rules. Finally, the Exchange does not 
believe that the proposed changes are unfairly discriminatory because 
they will be applied to all ATP Holders equally.

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

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act. The proposed rule change is not 
designed to address any aspect of competition, whether between the 
Exchange and its competitors, or among market participants. Instead, 
the proposed rule change is designed to adopt the nullification and 
adjustment of trades on similar terms to that of other options 
exchanges.\14\
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    \14\ See note 7 supra.
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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) 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).
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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.

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-2014-102 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-2014-102. 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-NYSEMKT-2014-102, and should 
be submitted on or before January 20, 2015.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\17\
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    \17\ 17 CFR 200.30-3(a)(12).
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Brent J. Fields,
Secretary.
[FR Doc. 2014-30441 Filed 12-29-14; 8:45 am]
BILLING CODE 8011-01-P