Document ID: SEC-2014-2119-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NYSE MKT LLC
Posted Date: 2014-12-17T05:00Z

[Federal Register Volume 79, Number 242 (Wednesday, December 17, 2014)]
[Notices]
[Pages 75215-75217]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-29495]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-73817; File No. SR-NYSEMKT-2014-81]

Self-Regulatory Organizations; NYSE MKT LLC; Notice of Filing of 
Amendment No. 1 and Order Granting Accelerated Approval of a Proposed 
Rule Change, as Modified by Amendment No. 1 Thereto, Amending Rule 
902.1NY To Authorize the Exchange To Share Any User-Designated Risk 
Settings in Exchange Systems with the Clearing Member that Clears 
Transactions on Behalf of the User

December 11, 2014.

I. Introduction

    On September 19, 2014, NYSE MKT LLC, (``NYSE MKT'' or ``Exchange'') 
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 
amend Rule 902.1NY to authorize the Exchange to share any User-
designated risk settings in Exchange systems with the Clearing Member 
\3\ that clears transactions on behalf of the User.\4\ The proposed 
rule change was published for comment in the Federal Register on 
October 7, 2014.\5\ On November 19, 2014, the Exchange submitted 
Amendment No. 1 to the proposed rule change.\6\ On November 21, 2014, 
pursuant to Section 19(b)(2) of the Exchange Act,\7\ 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 disapprove the proposed rule change.\8\ The 
Commission received one comment on the proposal.\9\ The Commission is 
publishing this notice to solicit comments from interested persons on 
Amendment No. 1 to the proposed rule change and is approving the 
proposed rule change, as modified by Amendment No. 1 thereto, on an 
accelerated basis.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Exchange Rule 900.2NY (11) defining ``Clearing Member'' 
as ``an Exchange ATP Holder which has been admitted to membership in 
the Options Clearing Corporation pursuant to the provisions of the 
Rules of the Options Clearing Corporation.''
    \4\ See Exchange Rule 900.2NY (87) defining ``User'' as ``any 
ATP Holder that is authorized to obtain access to the System 
pursuant to Rule 902.1NY.''
    \5\ See Securities Exchange Act Release No. 73280 (October 1, 
2014), 79 FR 60553 (``Notice'').
    \6\ In Amendment No. 1, the Exchange provided additional 
justification for why the Exchange believes the proposed rule change 
is consistent with the Act. In Amendment No. 1, the Exchange states, 
among other things, that the Exchange believes that sharing a User's 
risk settings directly with its Clearing Member could reduce the 
administrative burden on Users to provide that information to their 
Clearing Members themselves and notes that any User could become a 
Clearing Member, which would allow the User to avoid sharing its 
risk settings with any third party. Amendment No. 1 has been placed 
in the public comment file for SR-NYSEMKT-2014-81 at http://www.sec.gov/comments/sr-nysemkt-2014-81/nysemkt201481-2.pdf (See 
letter to Kevin M. O'Neill, Deputy Secretary, Commission, from 
Martha Redding, Chief Counsel and Assistant Corporate Secretary, New 
York Stock Exchange, dated November 20, 2014) and is also available 
on the Exchange's Web site.
    \7\ 15 U.S.C. 78s(b)(2).
    \8\ See Securities Exchange Act Release No. 34-73669, 79 FR 
70903 (November 28, 2014). The Commission designated January 5, 2014 
as the date by which it should approve, disapprove, or institute 
proceedings to determine whether to disapprove the proposed rule 
change.
    \9\ See Letter from Dr. Lee Jackson, Esq., dated October 1, 
2014. This commenter's letter was incoherent and irrelevant to the 
proposed rule change.
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II. Description of the Proposal

    The Exchange proposes to amend Exchange Rule 902.1NY (Admission to 
the System) to state that the Exchange may share any User-designated 
risk settings in the Exchange's System \10\ with the Clearing Member 
that clears transactions on behalf of the User.\11\
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    \10\ According to the Exchange, ``System'' refers to the 
Exchange System facility. See Notice, supra note 5, at 60554. See 
also Exchange Rule 900.1NY.
    \11\ See proposed Exchange Rule 902.1NY.
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    The Exchange states that while not all Users are Clearing Members, 
all Users require a Clearing Member's consent to clear transactions on 
their behalf in order to conduct business on the Exchange.\12\ The 
Exchange states that

[[Page 75216]]

each User that transacts through a Clearing Member on the Exchange 
executes a Clearing Letter of Consent, which codifies the relationship 
between each User and Clearing Member and provides the Exchange with 
notice of which Clearing Members have relationships with which 
Users.\13\ The Exchange states that the Clearing Member that guarantees 
the User's transactions on the Exchange has a financial interest in 
understanding the risk tolerance of the User, and that the proposal 
would provide the Exchange with authority to directly provide Clearing 
Members with information that may otherwise be available to such 
Clearing Members by virtue of their relationship with the respective 
Users.\14\
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    \12\ See Amendment No. 1.
    \13\ See Notice, supra note 5, at 60554. See also NYSE Amex 
Options ATP Application, Section 8 (Clearing Letter of Consent), 
available at: https://www.nyse.com/publicdocs/nyse/markets/amex-options/ATP_Application.pdf..
    \14\ See Notice, supra note 5, at 60554.
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    The Exchange states that the User-designated risk settings that the 
Exchange may share with a User's Clearing Member under the proposal are 
set forth in Exchange Rule 928NY (Risk Limitation Mechanism).\15\ The 
Exchange states that it may adopt additional rules providing for User-
enabled risk settings other than those provided in Exchange Rule 928NY 
that could be shared with a User's Clearing Member under the proposal, 
and the Exchange would announce these additional risk settings via 
Trader Update.\16\
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    \15\ Id. According to the Exchange, pursuant to Rule 928NY(b)-
(d), Users may set certain risk control thresholds in the Risk 
Limitation Mechanism, which are designed to mitigate the potential 
risks of multiple executions against a User's trading interest. Id.
    \16\ See id. at n.9.
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III. Discussion and Commission Findings

    After careful review, the Commission finds that the proposed rule 
change is consistent with the requirements of the Act and the rules and 
regulations thereunder applicable to a national securities 
exchange.\17\ In particular, the Commission finds that the proposed 
rule change is consistent with Section 6(b)(5) of the Act,\18\ which 
requires, among other things, that the rules of a national securities 
exchange be 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, and Section 6(b)(8) of the Act,\19\ which requires 
that the rules of the exchange do not impose any burden on competition 
not necessary or appropriate in furtherance of the purposes of the Act.
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    \17\ In approving this proposal, the Commission has considered 
the proposed rule's impact on efficiency, competition, and capital 
formation. See 15 U.S.C. 78c(f).
    \18\ 15 U.S.C. 78f(b)(5).
    \19\ 15 U.S.C. 78f(b)(8).
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    The proposed rule change will allow the Exchange to directly 
provide a User's designated risk settings to the Clearing Member that 
clears trades on behalf of the User. The Exchange states that because a 
Clearing Member that executes a Clearing Letter of Consent on behalf of 
a User guarantees all transactions of that User, and therefore bears 
the risk associated with those transactions, it is appropriate for the 
Clearing Member to have knowledge of what risk settings the User may 
utilize within the Exchange's systems.\20\ The Exchange states that the 
proposal will permit Clearing Members, who have a financial interest in 
the risk settings of Users with whom the Clearing Member has entered 
into a Clearing Letter of Consent, to better monitor and manage the 
potential risks assumed by Users, thereby providing Clearing Members 
with greater control and flexibility over setting their own risk 
tolerance and exposure and aiding Clearing Members in complying with 
the Act.\21\ The Exchange further states that, to the extent a Clearing 
Member might reasonably require a User to provide access to its risk 
settings as a prerequisite to continuing to clear trades on the User's 
behalf, the Exchange's proposal to share those risk settings directly 
reduces the administrative burden on Users and ensures that Clearing 
Members are receiving information that is up-to-date and conforms to 
the settings active in Exchange systems.\22\
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    \20\ See Notice, supra note 5, at 60554.
    \21\ Id. See also Amendment No. 1.
    \22\ See Amendment No. 1.
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    The Exchange also states that it does not believe that the proposed 
rule change will impose any burden on competition that is not necessary 
or appropriate in furtherance of the purposes of the Act.\23\ According 
to the Exchange, the proposed rule change is not designed to address 
any competitive issues and does not pose an undue burden on non-
Clearing Members because, unlike Clearing Members, non-Clearing Members 
do not guarantee the execution of the User transactions on the 
Exchange.\24\ The Exchange notes further that the proposal is 
structured to offer the same enhancement to all Clearing Members, 
regardless of size, and would not impose a competitive burden on any 
participant.\25\ In addition, the Exchange states that any User that 
does not wish to share its designated risk settings with its Clearing 
Member could avoid sharing such settings by becoming a clearing member 
of the Options Clearing Corporation.\26\
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    \23\ See Notice, supra note 5, at 60554.
    \24\ Id.
    \25\ Id.
    \26\ See Amendment No. 1.
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    Accordingly, the Commission finds that the proposal to allow the 
Exchange to directly provide a User's designated risk settings to the 
Clearing Member that clears trades on behalf of the User, guarantees 
all transactions of that User, and therefore bears the risk associated 
with those transactions, is consistent with the Act.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether Amendment No. 1 
to 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-2014-81 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.

All submissions should refer to File Number SR-NYSEMKT-2014-81. 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

[[Page 75217]]

Reference Room, 100 F Street NE., Washington, DC 20549-1090, 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-2014-81, and should be submitted 
on or before January 7, 2015.

V. Accelerated Approval of Proposed Rule Change, As Modified by 
Amendment No. 1

    As discussed above, the Exchange submitted Amendment No. 1 to 
provide further justification as to why the Exchange believes the 
proposed rule change is consistent with the Act. The Exchange states in 
Amendment No. 1, among other things, that to the extent a Clearing 
Member might reasonably require a User to provide access to its risk 
settings as a prerequisite to continuing to clear trades on the User's 
behalf, the Exchange's proposal to share those risk settings directly 
reduces the administrative burden on Users and ensures that Clearing 
Members are receiving information that is up-to-date and conforms to 
the settings active in Exchange systems. The Exchange further notes in 
Amendment No. 1 that any User may become a Clearing Member, which would 
enable that User to avoid sharing risk settings with any third party. 
The Commission believes that Amendment No. 1 does not materially affect 
the substance of the proposed rule change or raise any novel or unique 
regulatory issues. Accordingly, the Commission finds good cause, 
pursuant to Section 19(b)(2) of the Act,\27\ for approving the proposed 
rule change, as modified by Amendment No. 1, on an accelerated basis.
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    \27\ 15 U.S.C. 78s(b)(2).
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VI. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\28\ that the proposed rule change (SR-NYSEMKT-2014-81), as 
modified by Amendment No. 1 thereto, be and it hereby is, approved on 
an accelerated basis.
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    \28\ Id.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\29\
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    \29\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-29495 Filed 12-16-14; 8:45 am]
BILLING CODE 8011-01-P