Document ID: SEC-2015-1118-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NYSE MKT, LLC
Posted Date: 2015-07-06T04:00Z

[Federal Register Volume 80, Number 128 (Monday, July 6, 2015)]
[Notices]
[Pages 38486-38488]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-16412]

[[Page 38486]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-75322; File No. SR-NYSEMKT-2015-17]

Self-Regulatory Organizations; NYSE MKT LLC; Order Approving 
Proposed Rule Change Amending Rule 923NY to Modify the Appointment 
Process Utilized by the Exchange

June 29, 2015.

I. Introduction

    On March 20, 2015, NYSE MKT LLC (the ``Exchange'' or ``NYSE MKT'') 
filed with the Securities and Exchange Commission (``Commission''), 
pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ a proposed rule change to 
modify the Market Maker appointment and withdrawal process used by the 
Exchange. The proposed rule change was published for comment in the 
Federal Register on April 8, 2015.\3\ On May 21, 2015, pursuant to 
Section 19(b)(2) of the Act,\4\ the Commission designated a longer 
period within which to approve the proposed rule change, disapprove the 
proposed rule change, or institute proceedings to determine whether to 
approve or disapprove the proposed rule change.\5\ The Commission 
received no comment letters on the proposed rule change. This order 
approves the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 74636 (April 2, 
2015), 80 FR 18884 (``Notice'').
    \4\ 15 U.S.C. 78s(b)(2).
    \5\ See Securities Exchange Act Release No. 75033, 80 FR 30519 
(May 28, 2015).
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II. Description of the Proposed Rule Change

    The Exchange proposes to amend Rule 923NY to modify the options 
Market Maker appointment and withdrawal process used by the Exchange. 
Under the proposal, once an Amex trading permit (``ATP'') holder has 
been approved as a Market Maker under Exchange Rule 9.21NY,\6\ the 
Market Maker would, subject to certain conditions, be permitted to 
register rather than apply for an appointment in one or more option 
classes, and would be permitted to select or withdraw option issues 
included in its appointment using an Exchange-approved electronic 
interface. The Exchange also proposes to include a Market Maker's 
available financial resources and operational capability as 
considerations in its periodic evaluation of Market Maker performance, 
which factors currently are considered when a Market Maker applies for 
an appointment.
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    \6\ See Rule 921NY (``Registration of Market Makers''). See also 
Rule 920NY(a) (defining ``Market Maker''). The Exchange is not 
proposing any changes to Rule 921NY.
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A. Background

    Currently, a registered Market Maker may seek an appointment in one 
or more option classes pursuant to Rule 923NY. Specifically, Rule 923NY 
provides that ``[o]n a form or forms prescribed by the Exchange, a 
Market Maker must apply for an appointment in one or more classes of 
option contracts.'' \7\ In addition to having the authority to appoint 
one Specialist per option class and to designate e-Specialists to 
fulfill certain obligations required of Specialists,\8\ Rule 923NY(b) 
provides that ``[t]he Exchange may appoint an unlimited number of 
Market Makers in each class unless the number of Market Makers 
appointed to a particular option class should be limited'' based on the 
Exchange's judgment.\9\ Further, current Rule 923NY(c) provides that 
``Market Makers may select from among any option issues traded on the 
Exchange for inclusion in their appointment, subject to the approval of 
the Exchange.'' \10\ In considering the approval of the appointment of 
a Market Maker in each security, ``the Exchange will consider the 
Market Maker's preference; the financial resources available to the 
Market Maker; the Market Maker's experience, expertise and past 
performance in making markets, including the Market Maker's performance 
in other securities; the Market Maker's operational capability; and the 
maintenance and enhancement of competition among Market Makers in each 
security in which they are appointed.'' \11\ Current Rule 923NY also 
states that, in order to have a trading appointment on the Exchange, 
Market Makers must have the number of ATPs required under the Amex 
Options Fee Schedule.\12\ In addition, Floor Market Makers \13\ must 
also apply for appointment to a Trading Zone \14\ on the floor, subject 
to approval by the Exchange.\15\
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    \7\ See Notice, supra note 3, at 18885.
    \8\ See Rule 900.2 NY(76) (defining ``Specialist''). Any ATP 
Holder registered as a Market Maker with the Exchange is eligible to 
be qualified as a Specialist. See id. Rule 923NY(b) also provides 
that ``[t]he Exchange may designate e-Specialists in an option class 
in accordance with Rule 927.4NY[e-Specialists].'' See Rule 923NY(b). 
The Exchange is not proposing to change Rule 923NY(b) regarding 
Specialists and e-Specialists.
    \9\ See Notice, supra note 3, at 18885.
    \10\ See id.
    \11\ See Notice, supra note 3, at 18885.
    \12\ See Notice, supra note 3, at 18885. See also NYSE Amex 
Options Fee Schedule (Section III.A., Monthly ATP Fees) (describing 
``Number Of Issues Permitted In A Market Makers Quoting Assignment'' 
based on the number of permits held and the associated costs), 
available here, https://www.nyse.com/publicdocs/nyse/markets/amex-options/NYSE_Amex_Options_Fee_Schedule.pdf.
    \13\ See Rule 900.2NY(29) (defining ``Floor Market Maker'').
    \14\ A Trading Zone refers to the areas on the Floor designated 
by the Exchange in which issues are assigned for the purposes of 
open outcry trading. See Rule 900.2NY(83).
    \15\ See Notice, supra note 3, at 18885. The current rule also 
provides that Specialists shall be appointed to the Trading Zone 
designated for their issues. See id. at 18885, n.13.
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    Under current Rule 923NY, ``Market Makers may change the option 
issues in their appointment, subject to the approval of the Exchange,'' 
provided such requests are ``made in a form and manner prescribed by 
the Exchange.'' \16\ In addition, ``Market Makers may withdraw from 
trading an option issue that is within their appointment by providing 
the Exchange with three business days' written notice of such 
withdrawal.'' \17\ If a Market Maker fails to provide the required 
notice, the Market Maker ``may be subject to formal disciplinary action 
pursuant to Section 9A of the Office Rules.'' \18\ Moreover, the 
Exchange ``may suspend or terminate any appointment of a Market Maker 
in one or more option issues under this Rule whenever, in the 
Exchanges' judgment, the interests of a fair and orderly market are 
best served by such action.'' \19\ A Market Maker may seek review of 
any action taken by the Exchange.\20\
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    \16\ See Notice, supra note 3, at 18885. In considering the 
change request, the Exchange will consider the factors set forth in 
Rule 923NY(c). See id.
    \17\ See Notice, supra note 3, at 18885.
    \18\ See id.
    \19\ See id.
    \20\ See id. Per Rule 923NY(i), Market Makers are also subject 
to a trading requirement, such that ``[a]t least 75% of the trading 
activity of a Market Maker (measured in terms of contract volume per 
quarter) must be in classes within the Market Maker's appointment 
and, in the case of Floor Market Makers, within their designated 
Trading Zone. A failure to comply with the 75% contract volume 
requirement may result in a fine pursuant to Rule 476A, however if 
aggravating circumstances are present, formal disciplinary action 
may be taken pursuant to Rule 9A.'' The Exchange is not proposing 
any changes to Rule 923NY(i).
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    The Exchange periodically evaluates whether Market Makers have 
fulfilled performance standards, relating to, among other things, 
quality of markets, competition of Market Makers, observance of ethical 
standards and administrative factors.\21\ If the Exchange finds that a 
Market Maker has not met the performance standards, the

[[Page 38487]]

Exchange may take action, including suspending, terminating or 
restricting a Market Maker's appointment or registration, after 
providing the Market Maker an opportunity to be heard.\22\
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    \21\ See Rule 923NY(j).
    \22\ See Notice, supra note 3, at 18886, n.20 (describing 
current Rule 923NY(j)(2)) (``If a Market Maker's appointment in an 
option issue or issues has been terminated pursuant to Rule 
923NY(j)), the Market Maker may not be re-appointed as a Market 
Maker in that option issue or issues for a period not to exceed 6 
months.'').
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B. Proposed Modifications

    The Exchange proposes to modify the current appointment and 
withdrawal process. Specifically, the Exchange proposes to modify Rule 
923NY(a) to provide that, rather than apply for an appointment, ``a 
Market Maker may register for an appointment in one or more classes of 
option contracts,'' in a form and manner prescribed the Exchange.\23\ 
The Exchange would continue to have authority to appoint one Specialist 
per option class and to designate e-Specialists in option classes to 
fulfill certain obligations required of Specialists.\24\ Similarly, an 
unlimited number of Market Makers could continue to be appointed to an 
options class, unless the Exchange restricts such appointments 
following Commission review and approval.\25\ The Exchange would retain 
the ability to suspend or terminate any appointment of a Market Maker 
if necessary to maintain a fair and orderly market.\26\
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    \23\ See proposed Rule 923NY(a). As discussed above, a Market 
Maker must have the designated number of ATPs set forth in the Amex 
Options Fee Schedule in order to have a trading appointment on the 
Exchange. See proposed Rule 923NY(d).
    \24\ See proposed Rule 923NY(b).
    \25\ The Exchange is proposing a conforming change to the text 
in Rule 923NY(b) to reflect the proposed changes in Rule 923NY(a), 
to provide that ``[a]n unlimited number of Market Makers may 
register in each class,'' subject to any limits imposed by the 
Exchange. See proposed Rule 923NY(b).
    \26\ See Rule 923NY(g).
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    In addition, the Exchange proposes to modify Rule 923NY(c) to 
provide that ``[a] Market Maker may select or withdraw option issues 
included in their appointment by submitting a request via an Exchange-
approved electronic interface with the Exchange on a day when the 
Exchange is open for business.'' \27\ The modified rule would provide 
that a Market Maker's requested appointment would become effective by 
no later than the following business day, whereas a Market Maker's 
request to withdraw option issues from its appointment would not become 
effective until the following business day.\28\ Thus, a Market Maker 
could be appointed to an option issue on the same day it submits a 
request to the Exchange, depending on the availability of Exchange 
resources to process the request that day, but such request, if 
properly made and received, would be effective no later than the 
following business day. A Market Maker, however, would not be able to 
withdraw an option issue from its appointment on the same day that it 
submits the request; instead, the Exchange would only process such 
requests on an overnight basis for effectiveness on the following 
business day. Also, before any changes to a Market Maker's appointment 
would become effective, the Exchange would be required to confirm that 
the Market Maker's appointment would not exceed that permitted under 
paragraph (d) of the rule, pertaining to the number of ATPs a Market 
Maker would be required to have,\29\ and also confirm receipt of the 
Market Maker's request.\30\ According to the Exchange, the confirmation 
requirement, applicable to requests for additions, changes, and 
withdrawals, is designed to ensure that the request was properly made 
and also successfully transmitted to the Exchange.\31\ Market Makers 
would be able to select issues in their appointment or make changes 
thereto pursuant to proposed Rule 923NY(c) by submitting an email to 
the Exchange, which is currently ``the Exchange-approved electronic 
interface.'' \32\
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    \27\ See proposed Rule 923NY(c).
    \28\ Id.
    \29\ Id. The Exchange proposed certain clarifying and conforming 
changes to Rule 923NY(d) to make it consistent with other changes 
discussed herein. See Notice, supra note 3, at 18886-87.
    \30\ See proposed Rule 923NY(c).
    \31\ See Notice, supra note 3, at 18886.
    \32\ The Exchange will announce by Trader Update the email 
address that Market Makers should utilize to make selections in, or 
changes to, their appointment pursuant to this Rule. See Notice, 
supra note 3, at 18886, n.27.
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    Proposed Rule 923NY(h) would provide that a Market Maker may seek 
review of any action taken by the Exchange under Rule 923NY.\33\
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    \33\ See Rule 923NY(h). See also Notice, supra note 3, at 18887.
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    Pursuant to current Rule 923NY(j), the Exchange conducts periodic 
evaluations of Market Makers to determine whether they have fulfilled 
performance standards. The Exchange proposes to modify Rule 923NY(j) to 
specify two additional factors it may consider in evaluating whether a 
Market Maker has fulfilled performance standards pursuant to Rule 
923NY(j): (1) The financial resources available to the Market Maker and 
(2) the Market Maker's operational capability.\34\ These factors are 
currently among the factors the Exchange considers when determining 
whether to approve a Market Maker's appointment.\35\ In connection with 
the other proposed changes to the Market Maker appointment process, the 
Exchange proposes that these factors instead be considered as part of 
the Exchange's periodic evaluation of a Market Maker.
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    \34\ See proposed Rule 923NY(j).
    \35\ See Notice, supra note 3, at 18887.
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    Further, the Exchange proposes to modify Rule 923NY(j)(2) to 
reflect the proposed changes to the Market Maker appointment process. 
Specifically, the Exchange proposes to change the reference to a Market 
Maker being ``re-appointed'' by the Exchange if an option issue or 
issues has been terminated pursuant to this subsection (j), and to 
instead provide that ``the Exchange may restrict the Market Maker's 
registration as a Market Maker in that option issue or issues for a 
period not to exceed 6 months.'' \36\ The Exchange would retain the 
discretion to suspend that Market Maker's appointment in the affected 
option issue(s) for a full six months, or to allow that Market Maker to 
resume that appointment earlier than the prescribed six-month period, 
based on the Exchange's evaluation of the facts and circumstances.\37\
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    \36\ See proposed Rule 923NY(j)(2) (``If a Market Maker's 
appointment in an option issue or issues has been terminated 
pursuant to this subsection (j), the Exchange may restrict the 
Market Maker's registration as a Market Maker in that option issue 
or issues for a period not to exceed 6 months.''). See also Notice, 
supra note 3, at 18887.
    \37\ See Notice, supra note 3, at 18887.
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    Finally, the Exchange proposes certain clarifying technical changes 
to Rule 923NY as well as certain conforming changes so that there is 
consistency throughout the rule text.

III. Discussion and Commission Findings

    After careful review, the Commission finds that the proposed rule 
change is consistent with the requirements of the Act \38\ and the 
rules and regulations thereunder applicable to a national securities 
exchange.\39\ In particular, the Commission finds that the proposed 
rule change is consistent with Section 6(b)(5) of the Act,\40\ which 
requires, among other things, that the Exchange's rules be 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, to remove impediments to and perfect the mechanism of a 
free and open market

[[Page 38488]]

and a national market system, and, in general, to protect investors and 
the public interest.
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    \38\ 15 U.S.C. 78f.
    \39\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. See 15 U.S.C. 78c(f).
    \40\ 15 U.S.C. 78f(b)(5).
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    The Commission believes that the proposal to permit an ATP holder 
approved as a registered Market Maker pursuant to Exchange Rule 921NY 
to register for and withdraw from options appointments, subject to the 
proposed conditions and in accordance with the other provisions of Rule 
923NY, is reasonably 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, 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. 
The Exchange states that the proposed changes regarding how Market 
Makers select and modify their appointments would provide Market Makers 
with more efficient access to the securities in which they want to make 
markets, enabling them to quickly begin disseminating competitive 
quotations in those securities which would provide additional liquidity 
and enhanced competition in those securities on the Exchange.\41\ The 
Exchange notes that the proposed rule change would enable Market Makers 
to manage their appointments with more flexibility and in a timelier 
manner, but that Market Makers still will be required to comply with 
certain obligations to maintain their status as a Market Maker, 
including that they provide continuous, two-sided quotations in their 
appointed securities.\42\ The Exchange also believes that preventing 
Market Makers from being able to withdraw an option issue from its 
appointment on the same day that it submits the request (as such 
requests, if properly made and received, are processed on an overnight 
basis for effectiveness the following business day) will serve to 
promote just and equitable principles of trade and benefit investors 
and the public interest.\43\ Further, before any changes to a Market 
Maker's appointment become effective, the Exchange will be required to 
confirm that the Market Maker's appointment will not exceed the number 
of ATPs a Market Maker is required to have and will also be required to 
confirm receipt of the Market Maker's request.\44\
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    \41\ See Notice, supra note 3, at 18887. In addition, the 
Exchange notes that other options exchanges permit market makers to 
select their appointments in a similar manner via exchange-approved 
electronic interfaces. See Notice, supra note 3, at 18886, 
n.31(citing, BATS Exchange, Inc. Rule 22.3(b) (``An Options Market 
Maker may become registered in a series by entering a registration 
request via an Exchange approved electronic interface with the 
Exchange's systems by 9:00 a.m. Eastern time. Registration shall 
become effective on the day the registration request is entered''); 
and NASDAQ Options Market Chapter VII, Section 3(b) (``An Options 
Market Maker may become registered in an option by entering a 
registration request via a Nasdaq approved electronic interface with 
Nasdaq's systems. Registration shall become effective on the day the 
registration request is entered.'').
    \42\ See Notice, supra note 3, at 18888.
    \43\ See Notice, supra note 3, at 18887.
    \44\ See text accompany notes 29-30 supra.
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    The Commission notes that the Exchange has proposed to add a Market 
Maker's available financial resources and operational capability as 
factors the Exchange may consider during its periodic evaluation of a 
Market Maker's performance, stating that these factors are important 
considerations in evaluating a Market Maker's performance, and that 
continued consideration of these factors would remove impediments to 
and perfect the mechanism of a free and open market and would benefit 
investors and the public interest.\45\ The Commission further notes 
that the Exchange will continue to have authority to suspend or 
terminate any appointment of a Market Maker in one or more option 
issues whenever, in the Exchange's judgment, the interests of a fair 
and orderly market are best served by such action.\46\ The Exchange 
will also retain the ability to restrict a Market Maker's registration 
in option issues for up to six months if a Market Maker's appointment 
in that option issue or issues has been terminated under the rule, and 
Rule 923NY will continue to give the Exchange discretion to allow the 
Market Maker to resume that appointment earlier than the prescribed 
six-month period or to maintain the suspension for the entire period. 
Finally, the Exchange is not proposing changes to the disciplinary and 
appeals process for Market Makers that do not meet minimum performance 
standards.\47\
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    \45\ See Notice, supra note 3, at 18887.
    \46\ See Rule 923NY(g). See also Notice, supra 3, at 18888, n.43 
and Rule 921NY (regarding the Exchange's ability to suspend or 
terminate a Market Maker's registration based on ``a determination 
of any substantial or continued failure by such Market Maker to 
engage in dealings in accordance with Rules 925NY or 923NY,'' which 
outline the obligations of Market Makers).
    \47\ See Notice, supra note 3, at 18887.
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    Based on the foregoing, the Commission finds the proposed rule 
change is consistent with the Act.

IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\48\ that the proposed rule change (SR-NYSEMKT-2015-17) be, and 
hereby is, approved.
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    \48\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\49\
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    \49\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2015-16412 Filed 7-2-15; 8:45 am]
 BILLING CODE 8011-01-P