Document ID: SEC-2017-1549-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NYSE American, LLC
Posted Date: 2017-09-18T04:00Z

[Federal Register Volume 82, Number 179 (Monday, September 18, 2017)]
[Notices]
[Pages 43601-43607]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-19711]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-81582; File No. SR-NYSEAMER-2017-12]

Self-Regulatory Organizations; NYSE American LLC; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change To Amend 
Rule 975NY and Rule 953NY

September 12, 2017.
    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 1, 2017, 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 amend Rule 975NY (Nullification and 
Adjustment of Options Transactions including Obvious Errors) and Rule 
953NY (Trading Halts and Suspensions). 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 purpose of this filing is to amend Rule 975NY, relating to the 
adjustment and nullification of erroneous transactions, and Rule 953NY, 
regarding trading halts and suspensions. The Exchange's proposal is 
based on that of Bats BZX (``BATS''), which the Commission approved on 
July 6, 2017, and those that the other options exchanges intend to 
file.\4\
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    \4\ See Securities Exchange Act Release Nos. 81084 (July 6, 
2017), 82 FR 32216 (July12, 2017) (``BATS Approval Order''); 80709 
(May 17, 2017), 82 FR 23684 (May 23, 2017) (``Notice of BATS 
Filing'') (SR-BatsBZX-2017-35). See also Securities Exchange Act 
Release No. 81348 (August 8, 2017), 82 FR 37910 (August 14, 2017) 
(SR-BX-2017-038) (immediately effective filing based on BATS 
Approval Order).
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Background
    The Exchange and other options exchanges adopted a harmonized rule 
related to the adjustment and nullification of erroneous options 
transactions, including a specific provision related to coordination in 
connection with large-scale events involving erroneous options 
transactions.\5\ The Exchange believes that the changes the options 
exchanges implemented with the harmonized rule have led to increased 
transparency and finality with respect to the adjustment and 
nullification of erroneous options transactions. As part of the initial 
initiative, however, the Exchange and other options exchanges deferred 
a few specific matters for further discussion.\6\ Specifically, as 
described in the Initial Filing, the Exchange and all other options 
exchanges have been working to further improve the review of 
potentially erroneous transactions as well as their subsequent 
adjustment by creating an objective and universal way to determine 
Theoretical Price in the event a reliable NBBO is not available. 
Because this initiative required additional exchange and industry 
discussion as well as additional time for development and 
implementation, the Exchange and the other options exchanges determined 
to proceed with the Initial Filing and to undergo an effort to complete 
any additional improvements to the applicable rule. In this filing, the 
Exchange proposes to adopt procedures that will lead to a more 
objective and uniform way to determine Theoretical Price in the event a 
reliable NBBO is not available. In addition to this change, the 
Exchange has proposed additional minor changes to its rules.
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    \5\ See Securities Exchange Act Release No. 74921 (May 8, 2015), 
80 FR 27816 (May 14, 2015) (SR-NYSEMKT-2015-39) (the ``Initial 
Filing'').
    \6\ For example, the Exchange, along with other options 
exchanges that offer complex orders on their options platforms, 
recently filed proposals related to rules for handling the 
adjustment and nullification of erroneous complex order 
transactions, which proposals were approved by the Commission or 
filed on an immediately effective basis. See Securities Exchange Act 
Release Nos. 80040 (February 14, 2017), 82 FR 11248 (February 21, 
2017) (granting approval of CBOE proposal related to the 
nullification and adjustment of complex orders) (SR-CBOE-2016-088); 
80497 (April 20, 2017), 82 FR 19290 (April 26, 2017) (notice of 
filing and immediate effectiveness of Exchange proposal related to 
the nullification and adjustment of complex orders) (SR-NYSEMKT-
2017-22).
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Calculation of Theoretical Price Using a Third Party Provider
    Under the harmonized rule, when reviewing a transaction as 
potentially erroneous, the Exchange needs to first determine the 
``Theoretical Price'' of the option, i.e., the Exchange's estimate of 
the correct market price for the option. Pursuant to Rule 975NY, if the

[[Page 43602]]

applicable option series is traded on at least one other options 
exchange, then the Theoretical Price of an option series is the last 
national best bid (``NBB'') just prior to the trade in question with 
respect to an erroneous sell transaction or the last national best 
offer (``NBO'') just prior to the trade in question with respect to an 
erroneous buy transaction unless one of the exceptions described below 
exists. Thus, whenever the Exchange has a reliable NBB or NBO, as 
applicable, just prior to the transaction, the Exchange uses this NBB 
or NBO as the Theoretical Price.
    The Rule also contains various provisions governing specific 
situations where the NBB or NBO is not available or may not be 
reliable. Specifically, the Rule identifies situations in which there 
are no quotes or no valid quotes for comparison purposes, when the 
national best bid or offer (``NBBO'') is determined to be too wide to 
be reliable, and at the open of trading on each trading day. In each of 
these circumstances because the NBB or NBO is not available or is 
deemed to be unreliable, the Exchange determines the Theoretical Price. 
Under the current Rule, when determining Theoretical Price, Exchange 
personnel generally consult and refer to data such as the prices of 
related series, especially the closest strikes in the option in 
question. Exchange personnel may also take into account the price of 
the underlying security and the volatility characteristics of the 
option as well as historical pricing of the option and/or similar 
options. Although the Rule is administered by experienced personnel and 
the Exchange believes the process is currently appropriate, the 
Exchange recognizes that it is also subjective and could lead to 
disparate results for a transaction that spans multiple options 
exchanges.
    The Exchange proposes new Commentary .06 to specify how the 
Exchange will determine Theoretical Price when required by sub-
paragraphs (b)(1)-(3) of the Rule (i.e., at the open, when there are no 
valid quotes or when there is a wide quote). In particular, the 
Exchange has been working with other options exchanges to identify and 
select a reliable third party vendor (``TP Provider'') that would 
provide the Theoretical Price to the Exchange whenever one or more 
transactions is under review pursuant to Rule 975NY and the NBBO is 
unavailable or deemed unreliable pursuant to Rule 975NY(b). The 
Exchange and other options exchanges have selected CBOE Livevol, LLC 
(``Livevol'') as the TP Provider, as described below.
    Pursuant to proposed Commentary .06, when the Exchange must 
determine Theoretical Price pursuant to the sub-paragraphs (b)(1)-(3) 
of the Rule, the Exchange will request the Theoretical Price from the 
third party vendor to which the Exchange and all other options 
exchanges have subscribed. Thus, as set forth in this proposed 
language, Theoretical Price would be provided to the Exchange by the TP 
Provider on request and not through a streaming data feed.\7\ This 
proposed language would also make clear that the Exchange and all other 
options exchanges will use the same TP Provider. As noted above, the 
proposed TP Provider selected by the Exchange and other options 
exchanges is Livevol. The Exchange proposes to establish this selection 
in proposed paragraph (d) to Commentary .06. As such, the Exchange 
would file a rule proposal and would provide notice to the options 
industry of any proposed change to the TP Provider. The Exchange and 
other options exchanges have selected Livevol as the proposed TP 
Provider after diligence into various alternatives. Livevol has, since 
2009, been the options industry leader in providing equity and index 
options market data and analytics services.\8\ The Exchange believes 
that Livevol has established itself within the options industry as a 
trusted provider of such services and notes that it and all other 
options exchanges already subscribe to various Livevol services. In 
connection with this proposal, Livevol will develop a new tool based on 
its existing technology and services that will supply Theoretical Price 
to the Exchange and other options exchanges upon request. The 
Theoretical Price tool will leverage current market data and 
surrounding strikes to assist in a relative value pricing approach to 
generating a Theoretical Price. When relative value methods are 
incapable of generating a valid Theoretical Price, the Theoretical 
Price tool will utilize historical trade and quote data to calculate 
Theoretical Price.
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    \7\ Though the Exchange and other options exchanges considered a 
streaming feed, it was determined that it would be more feasible to 
develop and implement an on demand service and that such a service 
would satisfy the goals of the initiative.
    \8\ The Exchange notes that in 2015, Livevol was acquired by 
CBOE Holdings, Inc., the ultimate parent company of the Chicago 
Board Options Exchange (``CBOE'') and C2 Options Exchange (``C2'').
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    Because the purpose of the proposal is to move away from a 
subjective determination by Exchange personnel when the NBBO is 
unavailable or unreliable, the Exchange intends to use the Theoretical 
Price provided by the TP Provider in all such circumstances. However, 
the Exchange believes it is necessary to retain the ability to contact 
the TP Provider if it believes that the Theoretical Price provided is 
fundamentally incorrect and to determine the Theoretical Price in the 
limited circumstance of a systems issue experienced by the TP Provider, 
as described below.
    As proposed, to the extent an Official \9\ of the Exchange believes 
that the Theoretical Price provided by the TP Provider is fundamentally 
incorrect and cannot be used consistent with the maintenance of a fair 
and orderly market, the Official shall contact the TP Provider to 
notify the TP Provider of the reason the Official believes such 
Theoretical Price is inaccurate and to request a review and correction 
of the calculated Theoretical Price. For example, if an Official 
received from the TP Provider a Theoretical Price of $80 in a series 
that the Official might expect to be instead in the range of $8 to $10 
because of a recent corporate action in the underlying, the Official 
would request that the TP Provider review and confirm its calculation 
and determine whether it had appropriately accounted for the corporate 
action. In order to ensure that other options exchanges that may 
potentially be relying on the same Theoretical Price that the Official 
believes to be incorrect, the Exchange also proposes to promptly 
provide notice to other options exchanges that the TP Provider has been 
contacted to review and correct the calculated Theoretical Price at 
issue and to include a brief explanation of the reason for the 
request.\10\ Although not directly addressed by the proposed rule, the 
Exchange expects that all other options exchanges once in receipt of 
this notification would await the determination of the TP Provider and 
would use the corrected price as soon as it is available. The Exchange 
further notes that it expects the TP Provider to cooperate with, but to 
be independent of, the Exchange and other options exchanges.\11\
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    \9\ For purposes of the Rule, an Official is an Officer of the 
Exchange or such other employee designee of the Exchange that is 
trained in the application of Rule 975NY.
    \10\ See proposed paragraph (b) to Commentary .06.
    \11\ The Exchange expects any TP Provider selected by the 
Exchange and other options exchanges to act independently in its 
determination and calculation of Theoretical Price. With respect to 
Livevol specifically, the Exchange again notes that Livevol is a 
subsidiary of CBOE Holdings, Inc., which is also the ultimate parent 
company of multiple options exchanges. The Exchange expects Livevol 
to calculate Theoretical Price independent of its affiliated 
exchanges in the same way it will calculate Theoretical Price 
independent of non-affiliated exchanges.

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[[Page 43603]]

    The Exchange believes that the proposal to allow an Exchange 
Official to contact the TP Provider if he or she believes the provided 
Theoretical Price is fundamentally incorrect is necessary, particularly 
because the Exchange and other options exchanges will be using the new 
process for the first time.\12\ Although the exchanges have conducted 
thorough diligence with respect to Livevol as the selected TP Provider 
and would do so with any potential replacement TP Provider, the 
Exchange is concerned that certain scenarios could arise where the 
Theoretical Price generated by the TP Provider does not take into 
account relevant factors and would result in an unfair result for 
market participants involved in a transaction. The Exchange notes that 
if such situations do indeed arise, to the extent practicable the 
Exchange would also work with the TP Provider and other options 
exchanges to improve the TP Provider's calculation of Theoretical Price 
in future situations. For instance, if the Exchange determines that a 
particular type of corporate action is not being appropriately captured 
by the TP Provider when such provider is generating Theoretical Price, 
while the Exchange believes that it needs the ability to request a 
review and correction of the Theoretical Price in connection with a 
specific review in order to provide a timely decision to market 
participants, the Exchange would share information regarding the 
specific situation with the TP Provider and other options exchanges in 
an effort to improve the Theoretical Price service for future use. The 
Exchange notes that it does not anticipate needing to rely on this 
provision frequently, if at all, but believes the provision is 
necessary nonetheless to best prepare for all potential circumstances.
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    \12\ To the extent the TP Provider has been contacted by an 
Official of the Exchange, reviews the Theoretical Price provided but 
disagrees that there has been any error, then the Exchange would be 
bound to use the Theoretical Price provided by the TP Provider.
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    Pursuant to proposed paragraph (c) to Commentary .06, an Official 
of the Exchange may determine the Theoretical Price if the TP Provider 
has experienced a systems issue that has rendered its services 
unavailable to accurately calculate Theoretical Price and such issue 
cannot be corrected in a timely manner. The Exchange notes that it does 
not anticipate needing to rely on this provision frequently, if at all, 
but believes the provision is necessary nonetheless to best prepare for 
all potential circumstances. Further, consistent with existing text in 
Rule 975NY(e)(4), the Exchange has not proposed a specific time by 
which the service must be available in order to be considered 
timely.\13\ The Exchange expects that it would await the TP Provider's 
services becoming available again so long as the Exchange was able to 
obtain information regarding the issue and the TP Provider had a 
reasonable expectation of being able to resume normal operations within 
the next several hours based on communications with the TP Provider. 
More specifically with respect to Livevol, Livevol has business 
continuity and disaster recovery procedures that will help to ensure 
that the Theoretical Price tool remains available or, in the event of 
an outage, that service is restored in a timely manner. The Exchange 
also notes that if a wide-scale event occurred, even if such event did 
not qualify as a ``Significant Market Event'' pursuant to Rule 
975NY(e), and the TP Provider was unavailable or otherwise experiencing 
difficulty, the Exchange believes that it and other options exchanges 
would seek to coordinate to the extent possible. In particular, the 
Exchange and other options exchanges now have a process, administered 
by the Options Clearing Corporation, to invoke a discussion amongst all 
options exchanges in the event of any widespread or significant market 
events. The Exchange believes that this process could be used if there 
were an issue with the TP Provider.
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    \13\ In the context of a Significant Market Event, the Exchange 
may determine, ``in consultation with other options exchanges . . . 
that timely adjustment is not feasible due to the extraordinary 
nature of the situation.'' See Rule 975NY(e)(4).
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    The Exchange also proposes language in paragraph (d) of Commentary 
.06 to Rule 975NY to disclaim the liability of the Exchange and the TP 
Provider in connection with the proposed rule, the TP Provider's 
calculation of Theoretical Price, and the Exchange's use of such 
Theoretical Price. Specifically, the proposed rule would state that 
neither the Exchange, the TP Provider, nor any affiliate of the TP 
Provider (the TP Provider and its affiliates are referred to 
collectively as the ``TP Provider''), makes any warranty, express or 
implied, as to the results to be obtained by any person or entity from 
the use of the TP Provider pursuant to Commentary .06. The proposed 
rule would further state that the TP Provider does not guarantee the 
accuracy or completeness of the calculated Theoretical Price and that 
the TP Provider disclaims all warranties of merchantability or fitness 
for a particular purpose or use with respect to such Theoretical Price. 
Finally, the proposed Rule would state that neither the Exchange nor 
the TP Provider shall have any liability for any damages, claims, 
losses (including any indirect or consequential losses), expenses, or 
delays, whether direct or indirect, foreseen or unforeseen, suffered by 
any person arising out of any circumstance or occurrence relating to 
the use of such Theoretical Price or arising out of any errors or 
delays in calculating such Theoretical Price. This proposed language is 
modeled after existing language in Exchange Rules regarding ``reporting 
authorities'' that calculate indices.\14\
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    \14\ See, e.g., Rule 914F (Limitation on Exchange Liability), 
which relates to index options potentially listed and traded on the 
Exchange and disclaims liability for a reporting authority and their 
affiliates.
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    In connection with the proposed change described above, the 
Exchange proposes to modify Rule 975NY to state that the Exchange will 
rely on paragraph (b) and Commentary .06 when determining Theoretical 
Price.
No Valid Quotes--Market Participant Quoting on Multiple Exchanges
    As described above, one of the times where the NBB or NBO is deemed 
to be unreliable for purposes of Theoretical Price is when there are no 
quotes or no valid quotes for the affected series. In addition to when 
there are no quotes, the Exchange does not consider the following to be 
valid quotes: (i) All quotes in the applicable option series published 
at a time where the last NBB is higher than the last NBO in such series 
(a ``crossed market''); (ii) quotes published by the Exchange that were 
submitted by either party to the transaction in question; and (iii) 
quotes published by another options exchange against which the Exchange 
has declared self-help. In recognition of today's market structure 
where certain participants actively provide liquidity on multiple 
exchanges simultaneously, the Exchange proposes to add a category of 
invalid quotes. Specifically, in order to avoid a situation where a 
market participant has established the market at an erroneous price on 
multiple exchanges, the Exchange proposes to consider as invalid the 
quotes in a series published by another options exchange if either 
party to the transaction in question submitted the quotes in the series 
representing such options exchange's best bid or offer. Thus, similar 
to being able to ignore for purposes of the Rule the quotes published 
by the Exchange if submitted by either party to the transaction in 
question, the Exchange would be able to ignore for purposes of the rule

[[Page 43604]]

quotations on other options exchanges by that same market participant.
    In order to continue to apply the Rule in a timely and organized 
fashion, however, the Exchange proposes to initially limit the scope of 
this proposed provision in two ways in new paragraph (C) to Rule 
975NY(b)(2).\15\ First, because the process will take considerable 
coordination with other options exchanges to confirm that the 
quotations in question on an away options exchange were indeed 
submitted by a party to a transaction on the Exchange, the Exchange 
proposes to limit this provision to apply to up to twenty-five (25) 
total options series (i.e., whether such series all relate to the same 
underlying security or multiple underlying securities). Second, the 
Exchange proposes to require the party that believes it established the 
best bid or offer on one or more other options exchanges to identify to 
the Exchange the quotes which were submitted by such party and 
published by other options exchanges. In other words, as proposed, the 
burden will be on the party seeking that the Exchange disregard their 
quotations on other options exchanges to identify such quotations. In 
turn, the Exchange will verify with such other options exchanges that 
such quotations were indeed submitted by such party.\16\
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    \15\ In connection with proposed change, the Exchange proposes 
to re-format Rule 975NY(b)(2) to include sub-paragraphs (A)-(D), 
inclusive of the new rule text in proposed Rule 975NY(b)(2)(C).
    \16\ The Exchange notes that the proposed text of 975NY(b)(2)(C) 
differs slightly from BATS Rule 20.6(b)(2)(C), even though the 
substance of the proposed rule is the same. The Exchange believes 
its proposed rule text is easier to comprehend.
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    Below are examples of both the current rule and the rule as 
proposed to be amended.
Example 1--Current Rule, Member Erroneously Quotes on One Exchange
Assumptions
    For purposes of this example, assume the following:
     A Member acting as a Market Maker on the Exchange 
(``Market Maker A'') is quoting in twenty series of options underlying 
security ABCD on the Exchange (and only the Exchange).
     Market Maker A makes an error in calculating the market 
for options on ABCD, and publishes quotes in all twenty series to buy 
options at $1.00 and to sell options at $1.05.
     In fact, options on ABCD in these series are nearly 
worthless and no other market participant is quoting in such series.
     Therefore, the NBBO in the twenty series at issue is $1.00 
x $1.05 (with the Exchange representing the NBBO based on Market Maker 
A's quotes).
     Assume Member A immediately enters sell orders and 
executes against Market Maker A's quotes at $1.00.
     Assume Market Maker A submits to the Exchange a timely 
request for review of the trades with Member A as potentially erroneous 
transactions to buy.
Result
     Based on the Exchange's current rules, the Exchange would 
identify Market Maker A as a participant to the trades at issue and 
would consider Market Maker A's quotations invalid pursuant to Rule 
975NY(b)(2).
     As there were no other valid quotes to use as a reference 
price, the Exchange would then determine Theoretical Price.
     Assume the Exchange determines a Theoretical Price of 
$0.05.
    [cir] The execution price of $1.00 exceeds the $0.25 minimum amount 
set forth in the Exchange's table to determine whether an obvious error 
has occurred (i.e., $0.05 + $0.25 = $0.30) so any execution at or above 
this price is an obvious error.
    [cir] Accordingly, the executions in all series would be adjusted 
by the Exchange to executions at $0.20 per contract (Theoretical Price 
of $0.05 plus $0.15) to the extent the incoming orders submitted by 
Member A were non-Customer orders.
    [cir] The executions in all series would be nullified to the extent 
the incoming orders submitted by Member A were Customer orders.
Example 2--Current Rule, Member Erroneously Quotes on Multiple 
Exchanges
Assumptions
    For purposes of this example, assume the following:
     A Member acting as a Market Maker on the Exchange 
(``Market Maker A'') is quoting in twenty series of options underlying 
security ABCD on the Exchange and on a second exchange (``Away 
Exchange'').
     Market Maker A makes an error in calculating the market 
for options on ABCD, and publishes quotes on both the Exchange and the 
Away Exchange in all twenty series to buy options at $1.00 and to sell 
options at $1.05.
     In fact, options on ABCD in these series are nearly 
worthless and no other market participant is quoting in such series.
     Therefore, the NBBO in the twenty series at issue is $1.00 
x $1.05 (with the Exchange and the Away Exchange representing the NBBO 
based on Market Maker A's quotes).
     Assume Member A immediately enters sell orders and 
executes against Market Maker A's quotes at $1.00.
     Assume Market Maker A submits to the Exchange and to the 
Away Exchange timely requests for review of the trades with Member A as 
potentially erroneous transactions to buy.
Result
     Based on the Exchange's current rules, the Exchange would 
identify Market Maker A as a participant to the trades at issue and 
would consider Market Maker A's quotations on the Exchange invalid 
pursuant to Rule 975NY(b)(2). The Exchange, however, would view the 
Away Exchange's quotations as valid, and would thus determine 
Theoretical Price to be $1.05 (i.e., the NBO in the case of a 
potentially erroneous buy transaction).
     The execution price of $1.00 does not exceed the $0.25 
minimum amount set forth in the Exchange's table to determine whether 
an obvious error has occurred (i.e., $1.05 + $0.25 = $1.30) so any 
execution at or above this price is an obvious error.
     The transactions on the Exchange would not be nullified or 
adjusted.
     As the Exchange and all other options exchanges have 
identical rules with respect to the process described above, the 
transactions on the Away Exchange would not be nullified or adjusted.
Example 3--Proposed Rule, Member Erroneously Quotes on Multiple 
Exchanges \17\
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    \17\ The Exchange notes that its proposed rule will not impact 
the proposed handling of a request for review where a market 
participant is quoting only on the Exchange, thus, the Exchange has 
not included a separate example for such a fact-pattern.
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Assumptions
     For purposes of this example, assume the following:
     A Member acting as a Market Maker on the Exchange 
(``Market Maker A'') is quoting in twenty series of options underlying 
security ABCD on the Exchange and on a second exchange (``Away 
Exchange'').\18\
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    \18\ The Exchange notes that the proposed rule would operate the 
same if Market Maker A was quoting on more than two exchanges. The 
Exchange has limited the example to two exchanges for simplicity.
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     Market Maker A makes an error in calculating the market 
for options on ABCD, and publishes quotes on both the Exchange and the 
Away Exchange in all twenty series to buy options at $1.00 and to sell 
options at $1.05.
     In fact, options on ABCD in these series are nearly 
worthless and no other market participant is quoting in such series.

[[Page 43605]]

     Therefore, the NBBO in the twenty series at issue is $1.00 
x $1.05 (with the Exchange and the Away Exchange representing the NBBO 
based on Market Maker A's quotes).
     Assume Member A immediately enters sell orders and 
executes against Market Maker A's quotes at $1.00.
     Assume Market Maker A submits to the Exchange and to the 
Away Exchange timely requests for review of the trades with Member A as 
potentially erroneous transactions to buy. At the time of submitting 
the requests for review to the Exchange and the Away Exchange, Market 
Maker A identifies to the Exchange the quotes on the Away Exchange as 
quotes also represented by Market Maker A (and to the Away Exchange, 
the quotes on the Exchange as quotes also represented by Market Maker 
A).
Result
     Based on the proposed rules, the Exchange would identify 
Market Maker A as a participant to the trades at issue and would 
consider Market Maker A's quotations on the Exchange invalid pursuant 
to Rule 975NY(b)(2).
     The Exchange and the Away Exchange would also coordinate 
to confirm that the quotations identified by Market Maker A on the 
other exchange were indeed Market Maker A's quotations. Once confirmed, 
each of the Exchange and the Away Exchange would also consider invalid 
the quotations published on the other exchange.
     As there were no other valid quotes to use as a reference 
price, the Exchange would then determine Theoretical Price.
     Assume the Exchange determines a Theoretical Price of 
$0.05.
    [cir] The execution price of $1.00 exceeds the $0.25 minimum amount 
set forth in the Exchange's table to determine whether an obvious error 
has occurred (i.e., $0.05 + $0.25 = $0.30) so any execution at or above 
this price is an obvious error.
    [cir] Accordingly, the executions in all series would be adjusted 
by the Exchange to executions at $0.20 per contract (Theoretical Price 
of $0.05 plus $0.15) to the extent the incoming orders submitted by 
Member A were non-Customer orders.
    [cir] The executions in all series would be nullified to the extent 
the incoming orders submitted by Member A were Customer orders.
     As the Exchange and all other options exchanges would have 
identical rules with respect to the process described above, as other 
options exchanges intend to adopt the same rule if the proposed rule is 
approved, the transactions on the Away Exchange would also be nullified 
or adjusted as set forth above.
     If this example was instead modified such that Market 
Maker A was quoting in 200 series rather than 20, the Exchange notes 
that Market Maker A could only request that the Exchange consider as 
invalid their quotations in 25 of those series on other exchanges. As 
noted above, the Exchange has proposed to limit the proposed rule to 25 
series in order to continue to process requests for review in a timely 
and organized fashion in order to provide certainty to market 
participants. This is due to the amount of coordination that will be 
necessary in such a scenario to confirm that the quotations in question 
on an away options exchange were indeed submitted by a party to a 
transaction on the Exchange.
Obvious Error Panel, Appeals--Clean-Up Change
    Rule 975NY(k)(1)(B) describes the procedure for appealing decisions 
relating to obvious errors. The current rule provides, in relevant 
part, that a ``request for review on appeal must be made via facsimile 
or email within thirty (30) minutes after the party making the appeal 
is given notification of the initial determination being appealed.'' 
The Exchange proposes to modify this rule to remove reference to 
``facsimile,'' and allow that requests for appeal may only be made via 
email. The Exchanges believes this proposed change would update the 
rule to reflect current technology and add transparency to the rule 
text.
Trading Halts and Suspensions--Clarifying Change to Rule 953NY
    Rule 953NY describes the Exchange's authority to declare trading 
halts in one or more options traded on the Exchange. Currently, 
Commentary .04 to Rule 953NY states that the Exchange shall nullify any 
transaction that occurs during a trading halt in the affected option on 
the Exchange. The Exchange proposes to add rule text providing that, 
with respect to equity options (including options overlaying Exchange 
Traded Funds (``ETFs'')), that it shall nullify any transaction that 
occurs during a regulatory halt as declared by the primary listing 
market for the underlying security. Current Commentary .03 to Rule 
953NY defines a Regulatory Halt as one ``initiated by a regulatory 
authority in the primary market.'' The Exchange believes this change is 
necessary to distinguish a declared regulatory halt, where the 
underlying security should not be actively trading on any venue, from 
an operational issue on the primary listing exchange where the security 
may continue to trade on other trading venues. This proposed change 
would likewise be consistent with the rule of other options 
exchanges.\19\
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    \19\ See supra note 4.
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Implementation
    The Exchange will announce the operative date by Trader Update. The 
Exchange proposes to delay the operative date of this proposal to a 
date within ninety (90) days after the BATS Approval Order, dated July 
6, 2017. The Exchange will announce the operative date in a Trader 
Update.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Securities Exchange Act of 1934 (the ``Act''),\20\ in 
general, and furthers the objectives of Section 6(b)(5) of the Act,\21\ 
in particular, in that it is designed to prevent fraudulent and 
manipulative acts and practices, to promote just and equitable 
principles of trade, 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.
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    \20\ 15 U.S.C. 78f(b).
    \21\ 15 U.S.C. 78f(b)(5).
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    As described above, the Exchange and other options exchanges are 
seeking to further modify their harmonized rules related to the 
adjustment and nullification of erroneous options transactions. The 
Exchange believes that the proposal to utilize a TP Provider in the 
event the NBBO is unavailable or unreliable 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. Thus, 
the Exchange believes that the proposal is consistent with Section 
6(b)(5) of the Act \22\ in that the proposed rule will foster 
cooperation and coordination with persons engaged in regulating and 
facilitating transactions.
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    \22\ 15 U.S.C. 78f(b)(5).
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    The Exchange again reiterates that it has retained the standard of 
the current rule for most reviews of options transactions pursuant to 
Rule 975NY, which is to rely on the NBBO to determine Theoretical Price 
if such NBBO can reasonably be relied upon. The proposal to use a TP 
Provider when

[[Page 43606]]

the NBBO is unavailable or unreliable is consistent with Section 
6(b)(5) of the Act \23\ in that the proposed rule will foster 
cooperation and coordination with persons engaged in regulating and 
facilitating transactions by further reducing the possibility of 
disparate results between options exchanges and increasing the 
objectivity of the application of Rule 975NY. Further, the Exchange 
believes that the proposed rule is transparent with respect to the 
limited circumstances under which the Exchange will request a review 
and correction of Theoretical Price from the TP Provider, and has 
sought to limit such circumstances as much as possible. The Exchange 
notes that under the current Rule, Exchange personnel are required to 
determine Theoretical Price in certain circumstances and yet rarely do 
so because such circumstances have already been significantly limited 
under the harmonized rule (for example, because the wide quote 
provision of the harmonized rule only applies if the quote was narrower 
and then gapped but does not apply if the quote had been persistently 
wide). Thus, the Exchange believes it will need to request Theoretical 
Price from the TP Provider only in very rare circumstances and in turn, 
the Exchange anticipates that the need to contact the TP Provider for 
additional review of the Theoretical Price provided by the TP Provider 
will be even rarer. Similarly, the Exchange believes it is unlikely 
that an Exchange Official will ever be required to determine 
Theoretical Price, as such circumstance would only be in the event of a 
systems issue that has rendered the TP Provider's services unavailable 
and such issue cannot be corrected in a timely manner.
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    \23\ Id.
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    The Exchange also believes its proposal to adopt language in 
paragraph (d) of Commentary .06 to Rule 975NY to disclaim the liability 
of the Exchange and the TP Provider in connection with the proposed 
rule, the TP Provider's calculation of Theoretical Price, and the 
Exchange's use of such Theoretical Price is consistent with the Act. As 
noted above, this proposed language is modeled after existing language 
in Exchange Rules regarding ``reporting authorities'' that calculate 
indices,\24\ and is consistent with Section 6(b)(5) of the Act \25\ in 
that the proposed rule will foster cooperation and coordination with 
persons engaged in regulating and facilitating transactions.
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    \24\ See supra note 14.
    \25\ 15 U.S.C. 78f(b)(5).
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    As described above, the Exchange proposes a modification to the 
valid quotes provision to also exclude quotes in a series published by 
another options exchange if either party to the transaction in question 
submitted the orders or quotes in the series representing such options 
exchange's best bid or offer. The Exchange believes this proposal is 
consistent with Section 6(b)(5) of the Act \26\ because the application 
of the rule will foster cooperation and coordination with persons 
engaged in regulating and facilitating transactions by allowing the 
Exchange to coordinate with other options exchanges to determine 
whether a market participant that is party to a potentially erroneous 
transaction on the Exchange established the market in an option on 
other options exchanges; to the extent this can be established, the 
Exchange believes such participant's quotes should be excluded in the 
same way such quotes are excluded on the Exchange. The Exchange also 
believes it is reasonable to limit the scope of this provision to 
twenty-five (25) series and to require the party that believes it 
established the best bid or offer on one or more other options 
exchanges to identify to the Exchange the quotes which were submitted 
by that party and published by other options exchanges. The Exchange 
believes these limitations are consistent with Section 6(b)(5) of the 
Act \27\ because they will ensure that the Exchange is able to continue 
to apply the Rule in a timely and organized fashion, thus fostering 
cooperation and coordination with persons engaged in regulating and 
facilitating transactions and also removing impediments to and 
perfecting the mechanism of a free and open market and a national 
market system.
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    \26\ Id.
    \27\ Id.
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    The proposed change to Rule 975NY(k)(1)(B), to remove reference to 
sending requests for appeal via facsimile, would remove impediments to 
and perfect the mechanism of a free and open market and a national 
market system because the proposed change would update the rule to 
reflect current technology. This proposed change would also protect 
investors and the general public because it would add transparency to 
the rule text.
    Finally, with respect to the proposed modification to the 
Exchange's trading halt rule, Rule 953NY, the Exchange believes that 
this proposal is consistent with Section 6(b)(5) of the Act \28\ 
because it specifically provides for nullification where a trading halt 
exists with respect to an underlying security across the industry 
(i.e., a regulatory halt) as distinguished from a situation where the 
primary exchange has experienced a technical issue but the underlying 
security continues to trade on other equities platforms. The Exchange 
notes that a similar provision already exists in the rules of certain 
other options exchanges, and thus, has been found to be consistent with 
the Act.\29\
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    \28\Id.
    \29\See, e.g., BATs Approval Order, supra note 4; Interpretation 
and Policy .07 to CBOE Rule 6.3.
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange believes that the proposed rule change is consistent 
with Section (b)(8) of the Act \30\ in that is does not impose any 
burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act as explained below.
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    \30\15 U.S.C. 78f(b)(8).
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    Importantly, the Exchange does not believe that the proposal will 
impose a burden on intermarket competition but rather that it will 
alleviate any burden on competition because it is the result of a 
collaborative effort by all options exchanges to further 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. To that 
end, the selection and implementation of a TP Provider utilized by all 
options exchanges will further reduce the possibility that participants 
with potentially erroneous transactions that span multiple options 
exchanges are handled differently on such exchanges. Similarly, the 
proposed ability to consider quotations invalid on another options 
exchange if ultimately originating from a party to a potentially 
erroneous transaction on the Exchange represents a proposal intended to 
further foster cooperation by the options exchanges with respect to 
market events. The Exchange understands that all other options 
exchanges either have or intend to file proposals that are 
substantially similar to this proposal.
    The Exchange does not believe that the proposed rule change imposes 
a

[[Page 43607]]

burden on intramarket competition because the proposed provisions apply 
to all market participants equally.

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)(iii) of the Act \31\ and 
subparagraph (f)(6) of Rule 19b-4 thereunder.\32\
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    \31\15 U.S.C. 78s(b)(3)(A)(iii).
    \32\17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file the proposed rule change, along 
with a brief description and 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. 
The Exchange has satisfied this requirement.
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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: (i) 
Necessary or appropriate in the public interest; (ii) for the 
protection of investors; or (iii) 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-NYSEAMER-2017-12 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-NYSEAMER-2017-12. 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-NYSEAMER-2017-12, and should 
be submitted on or before October 10, 2017.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\33\
Eduardo A. Aleman,
Assistant Secretary.
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    \33\17 CFR 200.30-3(a)(12).
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[FR Doc. 2017-19711 Filed 9-15-17; 8:45 am]
 BILLING CODE 8011-01-P