[Federal Register Volume 83, Number 18 (Friday, January 26, 2018)]
[Notices]
[Pages 3804-3807]
[FR Doc No: 2018-01359]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-82544; File No. SR-NSCC-2017-019]

Self-Regulatory Organizations; National Securities Clearing
Corporation; Order Approving Proposed Rule Change To Enhance the
Process for Submitting and Accepting ETF Creations and Redemptions

January 19, 2018.
    On November 28, 2017, National Securities Clearing Corporation
(``NSCC'') filed with the Securities and Exchange Commission
(``Commission'') proposed rule change SR-NSCC-2017-019, pursuant to
Section 19(b)(1) of the Securities Exchange Act of 1934 (``Act'') \1\
and Rule 19b-4 thereunder.\2\ The proposed rule change was published
for comment in the Federal Register on December 7, 2017.\3\ The
Commission did not receive any comment letters on the proposed rule
change. For the reasons discussed below, the Commission 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. 82193 (December 1,
2017), 82 FR 57791 (December 7, 2017) (SR-NSCC-2017-019)
(``Notice'').
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I. Description of the Proposed Rule Change

    This proposed rule change would modify NSCC's Rules & Procedures
(``Rules'') \4\ to add two new time frames during which exchange traded
fund (``ETF'') agents may submit creation and redemption instructions,
including as-of instructions, reversals, and corrections (``ETF
Instructions'') \5\ to NSCC on behalf of ETF sponsors and ETF
authorized participants.\6\ The existing time frame during which ETF
agents can submit ETF Instructions to NSCC extends from 2:00 p.m. to
8:00 p.m. (the ``Primary Cycle'').\7\ The two proposed time frames
would extend from 12:30 a.m. to 2:00 p.m. (the ``Intraday Cycle'') and
from 9:00 p.m. to 11:30 p.m. (the ``Supplemental Cycle'').\8\
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    \4\ Available at http://www.dtcc.com/en/legal/rules-and-procedures.
    \5\ An as-of instruction is an instruction that is submitted
with a trade date as of an earlier date. As-of reversal instructions
and as-of corrections are types of as-of instructions. An as-of
reversal instruction is an instruction that is submitted with a
trade date as of an earlier date that reverses an instruction that
was already processed by NSCC. Reversals and corrections are
submitted on the same business day as the incorrect instruction,
whereas as-of reversal instructions and as-of correction
instructions are submitted on a business day after the date on which
the incorrect instruction was submitted (but they would have the
same trade date as the incorrect instruction). Notice, 82 FR at
57792.
    \6\ ETF sponsors are issuers of ETFs. ETF authorized
participants are (1) broker/dealers that have authorized participant
agreements with ETF sponsors, and/or (2) broker/dealers that are
NSCC members with an established ETF trading relationship with an
ETF agent that is representing the ETF. See Rule 2, supra note 4.
    \7\ All times referenced herein are Eastern Standard Time.
    \8\ Notice, 82 FR at 57792-94.
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    The two proposed cycles would enable ETF agents to submit ETF
Instructions to NSCC later in the day, or earlier on the following day
than currently possible, in order to make corrections to prior
submissions.\9\ The ability to make such new submission would help to
avoid a situation where the NSCC member (``Member'') would need to post
margin \10\ to cover exposures from the prior erroneous submission.\11\
Specifically, the proposed Intraday Cycle would enable NSCC to receive,
on an intraday basis, (1) ETF Instructions that are marked as-of a
prior trade date,\12\ and (2) ETF Instructions for same-day settlement
until the designated cut-off time of 11:30 a.m.\13\ Meanwhile, the
proposed Supplemental Cycle would enable ETF agents to submit ETF
Instructions later than the Primary Cycle cut-off of 8:00 p.m.\14\
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    \9\ Id. at 57793.
    \10\ Rules, supra note 4. One way that NSCC mitigates its risk
exposure to its Members is through a number of risk-based component
charges (such as margin) that are calculated and assessed on Members
daily. Each of the component charges collectively constitutes a
Member's daily required deposit (``Required Deposit''). The
objective of the Required Deposit is to mitigate potential losses to
NSCC associated with liquidation of the Member's portfolio in the
event that NSCC ceases to act for a Member (hereinafter referred to
as a ``Default''). The aggregate of all Members' Required Deposits
constitutes the Clearing Fund, which NSCC would be able to access
should a defaulting Member's own Required Deposit be insufficient to
satisfy losses to NSCC caused by the liquidation of that Member's
portfolio.
    \11\ Notice, 82 FR at 57793.
    \12\ Id.
    \13\ Id.
    \14\ Id. at 57792.
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    In connection with the two proposed cycles, NSCC also proposes to
revise the standardized input files, which are submitted by ETF agents
to NSCC, and the output files, which are sent by NSCC to ETF agents and
ETF authorized participants, to include additional information, such as
a reversal/correction indicator and transaction time.\15\
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    \15\ Id. at 57794.
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    NSCC also proposes an ``automated threshold value reasonability
check.'' This check would hold any ETF Instructions in a ``pending''
status if such instructions exceed certain thresholds established by
NSCC when compared to the most recent closing price.\16\
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    \16\ Id. at 57795-96.
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    Finally, NSCC proposes a technical correction to the Rules to
clarify that next-day settling ETF Instructions are no longer processed
differently than other ETF Instructions when submitted to NSCC.\17\
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    \17\ Id. at 57794-95.
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A. Current ETF Submission Processes

    According to NSCC, ETF sponsors have processes outside of NSCC that
allow the sponsors to create or redeem ETF shares with ETF authorized
participants intraday. The details of the creations or redemptions are
then recorded by ETF agents.\18\ The processes conducted outside of
NSCC are not uniformly automated and may involve manual data entry that
the ETF agent eventually submits to NSCC using the standardized ETF
create-and-redeem input file.\19\
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    \18\ Id. at 57791.
    \19\ Id.
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    Currently, the Primary Cycle is the only time in which ETF agents
can submit the input file to NSCC.\20\ However, according to NSCC, a
risk exists that the manually entered data may contain errors that
could result in incorrectly valued transactions.\21\ NSCC states that
any errors in the manually entered data contained in the input file may
result in NSCC recording ETF Instructions that may be materially
different than the value upon which the ETF sponsor and ETF authorized
participant agreed.\22\ Nevertheless, NSCC uses that information when
calculating both the ETF agent's and the ETF authorized participant's
daily

Required Deposit.\23\ If the input file contained incorrect
information, then the applicable Member's Required Deposit may reflect
the error.\24\ ETF agents currently do not have an opportunity to
submit correcting ETF Instructions to NSCC until the next Primary
Cycle, which is after the deadline for Members to satisfy their
Required Deposit.\25\
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    \20\ Id. at 57792.
    \21\ Id. at 57791-92.
    \22\ Id. at 57792.
    \23\ Id.
    \24\ Id.
    \25\ Id.
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B. Proposed New Cycles

    NSCC proposes to add two new cycles during which ETF agents may
submit ETF Instructions to NSCC: The Intraday Cycle and the
Supplemental Cycle.\26\ These proposed cycles would enable ETF agents
to submit (1) creation and redemption instructions that would either
reverse or correct creation and redemption instructions previously
processed by NSCC that day (i.e., reversals and corrections), or (2)
as-of instructions (e.g., as-of reversal instructions and as-of
correction instructions) intended to correct as-of instructions
processed by NSCC on an earlier day. In either case, ETF agents would
have an opportunity to submit the applicable ETF Instruction prior to
the 10:00 a.m. deadline for satisfying any Required Deposit.\27\
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    \26\ Id. at 57792-94.
    \27\ Id. at 57797.
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    NSCC would continue to maintain its current deadline of 8:00 p.m.
for the submission of the input files during the Primary Cycle on trade
date (``T'').\28\ Any late ETF Instructions that are submitted to NSCC
between 8:00 p.m. and 9:00 p.m. would be held until 9:00 p.m. and then
processed at 9:00 p.m. during the Supplemental Cycle.\29\ The
Supplemental Cycle would remove the need for manual extensions to the
existing deadline of 8:00 p.m. for the Primary Cycle because ETF
Instructions received by NSCC after 8:00 p.m. would be held and
processed during the Supplemental Cycle, which would begin at 9:00
p.m.\30\
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    \28\ NSCC states that maintaining the current 8:00 p.m. deadline
will help ensure that the existing end of day reconciliation
processes conducted by ETF agents and ETF authorized participants
continue to be conducted timely, and will also help prevent
unnecessary delays to the end of day reconciliation processes. Id.
at 57793.
    \29\ Id.
    \30\ Id.
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    The proposed Intraday Cycle would enable NSCC to receive, on an
intraday basis, ETF Instructions that are marked as-of a prior trade
date.\31\ Furthermore, ETF agents would be able to submit ETF
Instructions (corrections or otherwise) to NSCC for same-day settlement
during the Intraday Cycle until the designated cut-off time of 11:30
a.m.\32\ However, ETF agents would not be able to submit ETF
Instructions to NSCC for same-day settlement during the Primary Cycle
because NSCC lacks the functionality to process such same-day
transactions.\33\ Upon implementation of the two proposed cycles, NSCC
would be able to receive ETF Instructions in the standardized input
file from 12:30 a.m. to 11:30 p.m. each business day.\34\
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    \31\ Id.
    \32\ The cut-off time of 11:30 a.m. would align the deadline for
same-day settling creation and redemption instructions with the
11:30 a.m. deadline for other same-day settling non-ETF activity.
For example, same-day settling corporate bond trades and
transactions in municipal securities are subject to the 11:30 a.m.
deadline. NSCC believes aligning these deadlines would streamline
the processing of same-day settling items for NSCC and its Members.
Id.
    \33\ NSCC would reject ETF Instructions submitted for same-day
settlement during the Primary Cycle instead of assigning such ETF
Instructions a new settlement date. Id. Currently, ETF agents are
able to settle same-day transactions outside of NSCC, and this
proposal would preserve that ability. Id.
    \34\ Id.
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    According to NSCC, ETF agents currently submit ETF Instructions to
NSCC using a standardized electronic input file.\35\ NSCC states that
adding the Intraday Cycle and Supplemental Cycle would require some
coding changes to the existing standardized input file and the output
files distributed by NSCC to ETF agents and ETF authorized
participants.\36\ Specifically, NSCC proposes to add additional
information to the input file, such as the reversal/correction
indicator and transaction time.\37\ NSCC would also revise the format
of the input file to accommodate the additional information.\38\
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    \35\ Id. at 57792-94.
    \36\ Id. at 57793-94.
    \37\ Id. at 57792-94.
    \38\ Id. at 57793-94.
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    As a result of these changes, ETF agents, ETF sponsors, and any
third party service providers they may use would be required to make
coding changes to their systems to submit the standardized input file
during any of the cycles.\39\ Although ETF agents would not be required
to submit input files during all of the cycles, they would still be
required to make coding changes to their systems because one
standardized input file would be submitted to NSCC.\40\ The additional
information that would be included in the output files, such as the
reversal/correction indicator and transaction time, would either be
appended to the output files or would appear in fields in the output
files that are currently reserved and do not contain any
information.\41\
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    \39\ Id.
    \40\ Id.
    \41\ Id. at 57794.
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    ETF agents would be responsible for communicating these changes to
their clients (i.e., ETF sponsors) or any third party service providers
that they utilize.\42\ NSCC would continue to distribute all existing
output files during the Primary Cycle and would also distribute output
files during the two proposed cycles.\43\
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    \42\ Id.
    \43\ Id.
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C. Automated Threshold Value Reasonability Check

    NSCC proposes an ``automated threshold value reasonability check''
that would hold in a ``pending'' status certain potentially mis-valued
ETF Instructions (whether due to mistakes in manual entry or otherwise)
that exceed certain thresholds established by NSCC.\44\
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    \44\ Id. at 57795-96.
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    The automated threshold value reasonability check would apply to
all submissions of ETF Instructions.\45\ NSCC would perform automated
threshold value reasonability checks using the most recently available
closing price from the primary listing marketplace compared to the per-
share value for every individual ETF Instruction submitted.\46\ NSCC
would mark and assign a pended status to an ETF Instruction in which
the per-share values exceed established thresholds compared to the most
recently available closing price.\47\ NSCC would automatically notify
the ETF agent of a pended ETF Instruction via email and through the
output files.\48\ NSCC would also notify NSCC's internal operations of
the pended ETF Instruction.\49\ The ETF Instruction would remain in a
pended status while awaiting confirmation for reinstatement (or
rejection) by the submitting ETF agent.\50\
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    \45\ Id.
    \46\ Id.
    \47\ Id.
    \48\ Id.
    \49\ Id.
    \50\ Id.
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    A submitting ETF agent could authorize NSCC to process a pended ETF
Instruction by affirmatively confirming the ETF Instruction.\51\ The
ETF Instruction would then be processed as long as NSCC received the
confirmation by the end of the Supplemental Cycle.\52\ If the
submitting ETF agent does not respond by the specified time or responds
that the ETF Instruction should be rejected, then

NSCC would reject the ETF Instruction.\53\
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    \51\ Id.
    \52\ Id.
    \53\ Id.
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    NSCC proposes to establish the following threshold values
initially:
     For ETFs with a Current Market Price equal to or greater
than $3.00: The ETF contract value (i.e., the calculated effective
price per share) is greater than or equal to a 98 percent variance from
the market closing price from the trade date provided on the order; and
     for ETFs with a Current Market Price less than $3.00: The
ETF contract value (i.e., the calculated effective price per share) is
greater than or equal to a 98 percent variance from the market closing
price from the trade date provided on the order.\54\
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    \54\ Id. at 57796.
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    NSCC believes that setting the initial threshold value at 98
percent would capture overvalued and undervalued ETF Instructions while
not being an excessively narrow control.\55\ NSCC would retain the
flexibility and discretion to adjust the price range and the threshold
values described above.\56\ NSCC may consider market conditions and
feedback from Members and internal NSCC stakeholders (i.e., product
management, risk management, and operations management) when
considering threshold adjustments.\57\
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    \55\ Id.
    \56\ Id.
    \57\ Id.
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    NSCC believes that threshold adjustments might be warranted under
specific scenarios: (1) If requested by Members and/or internal NSCC
stakeholders, or (2) in response to a future market event.\58\ In the
first scenario, NSCC could make threshold adjustments upon the request
of Members and/or internal NSCC stakeholders to set thresholds closer
to an ETF's closing market price than the initial setting.\59\ Such
threshold adjustments may prevent unnecessary reversals and margining
on orders that contain errors because the threshold check would be
triggered at smaller value differences.\60\ Internal NSCC stakeholders
would discuss the necessity of a threshold adjustment, with the final
decision left to NSCC product management.\61\
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    \58\ Id.
    \59\ Id.
    \60\ Id.
    \61\ Id.
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    In the second scenario, NSCC could make threshold adjustments in
response to a future market event that results in a significant number
of ETFs trading at market prices below the initial price range setting
of $3.00.\62\ NSCC would notify Members of any adjustment via Important
Notice.\63\ NSCC expects that changes to either setting would be
rare.\64\
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    \62\ Id.
    \63\ Id.
    \64\ Id.
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D. Technical Correction

    NSCC proposes to make a technical correction to clarify how NSCC
processes next-day settling instructions.\65\ Since implementation of
NSCC's accelerated trade guaranty,\66\ NSCC no longer processes next-
day settling instructions differently than other instructions when
submitted to NSCC.\67\ As such, next-day settling index receipts (with
a Settlement Date of T+1) are no longer treated differently than
regular-way instructions (i.e., those with a Settlement Date of
T+2).\68\ The proposed correction would remove repetitive language
regarding such instructions.\69\
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    \65\ Id. at 57794-95.
    \66\ See Securities Exchange Act Release No. 79598 (December 19,
2016), 81 FR 94462 (December 23, 2016) (SR-NSCC-2016-005). NSCC's
accelerated trade guaranty, among other things, accelerated NSCC's
trade guaranty from midnight of trade date plus one day (``T+1'') to
the point of trade comparison and validation for bilateral
submissions or to the point of trade validation for locked-in
submissions.
    \67\ Id.
    \68\ Id.
    \69\ Notice, 82 FR at 57794-95.
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II. Discussion and Commission Findings

    Section 19(b)(2)(C) of the Act \70\ directs the Commission to
approve a proposed rule change of a self-regulatory organization if it
finds that such proposed rule change is consistent with the
requirements of the Act and rules and regulations thereunder applicable
to such organization. The Commission believes the proposal is
consistent with Act, specifically Section 17A(b)(3)(F) of the Act and
Rules 17Ad-22(e)(6) and (21) under the Act.\71\
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    \70\ 15 U.S.C. 78s(b)(2)(C).
    \71\ 15 U.S.C. 78q-1(b)(3)(F); 17 CFR 240.17Ad-22(e)(6) and
(21).
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    Section 17A(b)(3)(F) of the Act requires, in part, that the Rules
be designed to promote the prompt and accurate clearance and settlement
of securities transactions.\72\ As discussed above, under NSCC's
current processes, ETF agents may submit ETF Instructions to NSCC only
during the Primary Cycle. Therefore, in the event that an ETF
Instruction was incorrectly entered, the ETF agent must wait until the
Primary Cycle on the following day to submit a new ETF Instruction to
correct the error. In the meantime, the erroneous instruction might
affect the amount of an ETF agent's and/or the ETF authorized
participant's Required Deposit. This situation occurs because Required
Deposits are updated daily at 7:05 a.m., with any outstanding deposits
due to NSCC by 10:00 a.m., before the next Primary Cycle.
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    \72\ 15 U.S.C. 78q-1(b)(3)(F).
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    To help address this issue, NSCC proposes to add two new cycles
(i.e., the Intraday Cycle and Supplemental Cycle, as described above)
during the day, thereby expanding the time frame within which ETF
agents may submit ETF Instructions to NSCC. The proposed cycles would
enable ETF agents to submit new ETF Instructions to correct previously
submitted ETF Instructions that were incorrect before the next Required
Deposits were due. As such, the proposal would provide ETF agents with
an opportunity to address erroneous ETF Instructions before needing to
satisfy their next Required Deposit. Accordingly, the proposed Intraday
Cycle and Supplemental Cycle would help ensure that Members' Required
Deposits more closely reflect the risk presented by their intended
transactions. Therefore, the Commission finds the proposed addition of
the Intraday and Supplemental Cycles would help promote the prompt and
accurate clearance and settlement of securities transactions,
consistent with Section 17A(b)(3)(F) of the Act.\73\
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    \73\ Id.
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    The Intraday Cycle also would enable NSCC to receive same-day
settling ETF Instructions (corrections or otherwise), which NSCC cannot
do under its current processes. Consequently, the proposed change would
allow such same-day settling ETF Instructions to receive the benefits
of NSCC processing. These same-day settling instructions would also
allow netting reversals and corrections with other primary and
secondary market activity. Due to the increased opportunities described
above for accurate same-day settling ETF Instructions, the Commission
finds that NSCC's proposed change to add the Intraday Cycle would help
promote the prompt and accurate clearance and settlement of securities
transactions, consistent with Section 17A(b)(3)(F) of the Act.\74\
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    \74\ Id.
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    The Commission also finds that NSCC's proposal to implement the
automated threshold value reasonability check would promote the prompt
and accurate clearance and settlement of securities transactions,
consistent with Section 17A(b)(3)(F) of the Act.\75\ As describe above,
the automated threshold value reasonability check would hold

certain potentially erroneous ETF Instructions (whether due to mistakes
in manual entry or otherwise) in a pending status until confirmed by
the submitting ETF agent. Holding potentially erroneous ETF
Instructions in a ``pending'' status would help minimize the potential
impact of erroneous ETF Instructions on Members' Required Deposits by
preventing such ETF Instructions from being processed without
confirmation from the submitting ETF agent. Thus, the automated
threshold value reasonability check would help to ensure that Members
are subject to Required Deposits that more closely reflect the Members'
intended trading activity and not erroneously entered information
because Members would be required to confirm that the entered
information is in fact correct. Therefore, the Commission finds that
the proposed change to add the automated threshold value reasonability
check would help promote the prompt and accurate clearance and
settlement of securities transactions, consistent with Section
17A(b)(3)(F) of the Act.\76\
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    \75\ Id.
    \76\ Id.
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    Finally, the Commission finds that NSCC's proposal to remove the
repetitive language regarding next-day settling creates and redeems
would promote the prompt and accurate clearance and settlement of
securities transactions, consistent with Section 17A(b)(3)(F) of the
Act.\77\ Removing such repetitive language would help make the Rules
more accurate and clear. Maintaining accurate and clear Rules would
enable Members and other stakeholders to better understand their
respective rights and obligations regarding NSCC's clearance and
settlement of securities transactions. Accordingly, the Commission
finds that the proposed change to remove repetitive language from the
Rules would promote the prompt and accurate clearance and settlement of
securities transactions, consistent with the requirements of Section
17A(b)(3)(F) of the Act.\78\
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    \77\ Id.
    \78\ Id.
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    Rule 17Ad-22(e)(6)(i) under the Act requires NSCC to cover its
credit exposures to its Members by establishing a risk-based margin
system that, at a minimum considers, and produces margin levels
commensurate with, the risks and particular attributes of each relevant
product, portfolio, and market.\79\ As described above, ETF agents
submit ETF Instructions to NSCC using a standardized input file, which
involves manual data entry that poses an inherent risk of communicating
potentially erroneous information. The proposed Intraday Cycle and
Supplemental Cycle would enable ETF agents to submit new ETF
Instructions to correct previously submitted ETF Instructions before
Members need to satisfy their next Required Deposit. Similarly, the
automated threshold value reasonability check would help minimize the
potential impact of erroneous ETF Instructions on Members' Required
Deposits by preventing such ETF Instructions from being processed
absent confirmation from the submitting ETF agent. Thus, the proposed
cycles and automated threshold value reasonability check are ETF-
specific proposals designed to better produce margin levels
commensurate with the risk and particular attributes of ETFs.
Accordingly, the Commission finds that the proposed cycles and
automated threshold value reasonability check would enhance NSCC's
risk-based margin system in a manner that considers the risks and
particular attributes specific to ETFs, consistent with Rule 17Ad-
22(e)(6)(i).\80\
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    \79\ 17 CFR 240.17Ad-22(e)(6)(i).
    \80\ Id.
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    Rule 17Ad-22(e)(21) under the Act requires NSCC to be efficient and
effective in meeting the requirements of its Members and the markets it
serves, and regularly review the efficiency and effectiveness of its
(1) clearing and settlement arrangements, (2) operating structure,
including risk management policies, procedures, and systems, and (3)
use of technology and communication procedures.\81\ As stated above,
the proposed cycles would enable ETF agents to submit new ETF
Instructions to correct previously submitted ETF Instructions before
Members need to satisfy their next Required Deposit. Similarly, the
automated threshold value reasonability check would help minimize the
potential impact of erroneous ETF Instructions on Members' Required
Deposits by preventing such ETF Instructions from being processed
absent confirmation from the submitting ETF agent. The Intraday Cycle
also would enable NSCC to receive same-day settling ETF Instructions
(corrections or otherwise), and thereby allow such same-day settling
ETF Instructions to receive the benefits of NSCC processing. The
proposed cycles and automated threshold reasonability check constitute
changes designed to improve the efficiency and effectiveness of NSCC's
ETF clearance and settlement arrangements, NSCC's related operating
structure, and NSCC's communications with ETF agents and authorized
participants via the input and output reports. The proposal would
enhance the efficiency and effectiveness of NSCC's provision of ETF-
related services by (1) enabling ETF agents to correct previously
submitted errors before additional Required Deposits are required, (2)
preventing potentially erroneous ETF Instructions from being processing
until confirmed, and (3) enabling same-day settling ETF Instructions to
receive the benefits of NSCC processing. Accordingly, the Commission
finds that the proposal would enhance NSCC's efficiency and
effectiveness in meeting the requirements of its Members, as well as
the efficiency and effectiveness of NSCC's ETF-related clearing and
settlement arrangements, operating structure, and communication
procedures, consistent with Rule 17Ad-22(e)(21).\82\
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    \81\ 17 CFR 240.17Ad-22(e)(21).
    \82\ Id.
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III. Conclusion

    On the basis of the foregoing, the Commission finds that the
proposal is consistent with the requirements of the Act, in particular
the requirements of Section 17A of the Act \83\ and the rules and
regulations thereunder.
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    \83\ 15 U.S.C. 78q-1.
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    It is therefore ordered, pursuant to Section 19(b)(2) of the Act,
that proposed rule change SR-NSCC-2017-019 be, and hereby is,
approved.\84\
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    \84\ In approving the proposed rule change, the Commission
considered the proposals' impact on efficiency, competition, and
capital formation. 15 U.S.C. 78c(f).

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\85\
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    \85\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-01359 Filed 1-25-18; 8:45 am]
 BILLING CODE 8011-01-P


[Federal Register Volume 80, Number 38 (Thursday, February 26, 2015)]
[Notices]
[Pages 10551-10553]
[FR Doc No: 2015-03959]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-74336; File No. SR-NASDAQ-2015-016]

Self-Regulatory Organizations; The NASDAQ Stock Market LLC;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To
Amend Chapter V, Regulation of Trading on NOM, To Extend the Pilot
Program Under Section 3(d)(iv)

February 20, 2015.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given
that, on February 19, 2015, The NASDAQ Stock Market LLC (``Nasdaq'' or
``Exchange'') filed with the Securities and Exchange Commission
(``SEC'' or ``Commission'') the proposed rule change as described in
Items I and II below, which Items have been prepared by the Exchange.
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 Chapter V, Regulation of Trading on
NOM, to extend the pilot program under Section 3(d)(iv), which provides
for how the Exchange treats obvious and catastrophic options errors in
response to the Plan to Address Extraordinary Market Volatility
Pursuant to Rule 608 of Regulation NMS under the Act (the ``Limit Up-
Limit Down Plan'' or the ``Plan'').\3\ The Exchange proposes to extend
the pilot period until October 23, 2015.
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    \3\ Securities Exchange Act Release No. 69341 (April 8, 2013),
78 FR 21996 (April 12, 2013) (SR-NASDAQ-2013-048).
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    The text of the proposed rule change is available on the Exchange's
Web site at http://nasdaq.cchwallstreet.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 Exchange 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 these 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 aspects of such
statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change

1. Purpose
    In April 2013, the Commission approved a proposal, on a one year
pilot basis, to adopt Chapter V, Section 3(d)(iv) to provide for how
the Exchange will treat obvious and catastrophic options errors in
response to the Plan, which is applicable to all NMS stocks, as defined
in Regulation NMS Rule 600(b)(47).\4\ The Plan is designed to prevent
trades in individual NMS stocks from occurring outside of specified
Price Bands.\5\ The requirements of the Plan are coupled with Trading
Pauses to accommodate more fundamental price moves (as opposed to
erroneous trades or momentary gaps in liquidity).
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    \4\ The Plan was extended until February 20, 2015. The Plan was
initially approved for a one-year pilot period, which began on April
8, 2013. Securities Exchange Act Release No. 71649 (March 5, 2014),
79 FR 13696 (March 11, 2014).
    \5\ Unless otherwise specified, capitalized terms used in this
rule filing are based on the defined terms of the Plan.
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    The Exchange extended the operation of Chapter V, Section 3(d)(iv),
which provides that trades are not subject to an obvious error or
catastrophic error review pursuant to Chapter V, Sections 6(b) or 6(f)
during a Limit State or

Straddle State in 2014.\6\ The Exchange now proposes to extend the
pilot program for an additional pilot period ending October 23, 2015.
The Exchange believes conducting an obvious error or catastrophic error
review is impracticable given the lack of a reliable National Best Bid/
Offer (``NBBO'') in the options market during Limit States and Straddle
States, and that the resulting actions (i.e., nullified trades or
adjusted prices) may not be appropriate given market conditions. Under
the pilot, limit orders that are filled during a Limit State or
Straddle State have certainty of execution in a manner that promotes
just and equitable principles of trade, and removes impediments to, and
perfects the mechanism of a free and open market and a national market
system. Moreover, given that options prices during brief Limit States
or Straddle States may deviate substantially from those available
shortly following the Limit State or Straddle State, the Exchange
believes giving market participants time to re-evaluate a transaction
would create an unreasonable adverse selection opportunity that would
discourage participants from providing liquidity during Limit States or
Straddle States. On balance, the Exchange believes that removing the
potential inequity of nullifying or adjusting executions occurring
during Limit States or Straddle States outweighs any potential benefits
from applying those provisions during such unusual market conditions.
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    \6\ Securities Exchange Act Release No. 71902 (April 8, 2014),
79 FR 20946 (April 14, 2014) (SR-NASDAQ-2014-033).
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    The Exchange believes the benefits to market participants from the
pilot program should continue on a pilot basis to coincide with the
operation of the Limit Up-Limit Down Plan. The Exchange believes that
continuing the pilot will protect against any unanticipated
consequences and permit the industry to gain further experience
operating the Plan.
    The Exchange will conduct an analysis concerning the elimination of
obvious and catastrophic error provisions during Limit States and
Straddle States and agrees to provide the Commission with relevant data
to assess the impact of this proposed rule change. As part of its
analysis, the Exchange will: (1) Evaluate the options market quality
during Limit States and Straddle States; (2) assess the character of
incoming order flow and transactions during Limit States and Straddle
States; and (3) review any complaints from members and their customers
concerning executions during Limit States and Straddle States.
Additionally, the Exchange agrees to provide to the Commission data
requested to evaluate the impact of the elimination of the obvious and
catastrophic error provisions, including data relevant to assessing the
various analyses noted above. By May 29, 2015, the Exchange shall
provide to the Commission and the public assessments relating to the
impact of the operation of the obvious error rules during Limit and
Straddle States as follows: \7\
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    \7\ The Exchange submitted a pilot report on September 30, 2014.
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    1. Evaluate the statistical and economic impact of Limit and
Straddle States on liquidity and market quality in the options markets.
    2. Assess whether the lack of obvious error rules in effect during
the Straddle and Limit States are problematic.
    Each month the Exchange shall provide to the Commission and the
public a dataset containing the data for each Straddle and Limit State
in optionable stocks that had at least one trade on the Exchange during
a Straddle or Limit State. For each of those options affected, each
data record should contain the following information:
     Stock symbol, option symbol, time at the start of the
Straddle or Limit State, an indicator for whether it is a Straddle or
Limit State,
     For activity on the Exchange:
     Executed volume, time-weighted quoted bid-ask spread,
time-weighted average quoted depth at the bid, time-weighted average
quoted depth at the offer,
     high execution price, low execution price,
     number of trades for which a request for review for error
was received during Straddle and Limit States,
     an indicator variable for whether those options outlined
above have a price change exceeding 30% during the underlying stock's
Limit or Straddle State compared to the last available option price as
reported by OPRA before the start of the Limit or Straddle State (1 if
observe 30% and 0 otherwise). Another indicator variable for whether
the option price within five minutes of the underlying stock leaving
the Limit or Straddle State (or halt if applicable) is 30% away from
the price before the start of the Limit or Straddle State.\8\
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    \8\ The Exchange agreed to provide similar data in the original
proposal. See Securities Exchange Act Release No. 69341 (April 8,
2013), 78 FR 21996 (April 12, 2013) (SR-NASDAQ-2013-048) at notes 4
and 11. However, that data included two additional filters
pertaining to the top 10 options and an in-the-money amount, which
no longer apply. The Exchange provided historical data in the new
form pursuant to this proposed rule change, going back to the
beginning of the original pilot period.
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2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with
the provisions of Section 6 of the Act,\9\ in general, and with Section
6(b)(5) of the Act,\10\ in particular, which requires that the rules of
an exchange be designed to promote just and equitable principles of
trade, remove impediments to and perfect the mechanism of a free and
open market and a national market system, and protect investors and the
public interest, because it should continue to provide certainty about
how errors involving options orders and trades will be handled during
periods of extraordinary volatility in the underlying security. The
Exchange believes that it continues to be necessary and appropriate in
the interest of promoting fair and orderly markets to exclude
transactions executed during a Limit State or Straddle State from
certain aspects of Chapter V, Section 6.
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    \9\ 15 U.S.C. 78f.
    \10\ 15 U.S.C. 78f(b)(5).
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    Although the Limit Up-Limit Down Plan is operational, the Exchange
believes that maintaining the pilot will help the industry gain further
experience operating the Plan as well as the pilot provisions.
    Based on the foregoing, the Exchange believes the benefits to
market participants should continue on a pilot basis to coincide with
the operation of the Limit Up-Limit Down Plan.

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

    The Exchange does not believe that the proposed rule change will
result in any burden on competition that is not necessary or
appropriate in furtherance of the purposes of the Act, as amended.
Specifically, the proposal does not impose an intra-market burden on
competition, because it will apply to all members. Nor will the
proposal impose a burden on competition among the options exchanges,
because, in addition to the vigorous competition for order flow among
the options exchanges, the proposal addresses a regulatory situation
common to all options exchanges. To the extent that market participants
disagree with the particular approach taken by the Exchange herein,
market participants can easily and readily direct order flow to
competing venues. The Exchange believes this proposal will not impose a
burden on competition and will help provide certainty during periods of
extraordinary volatility in an NMS stock.

C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others

    No written comments were either solicited or received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action

    Because the 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 if consistent with the protection of investors
and the public interest, the proposed rule change has become effective
pursuant to Section 19(b)(3)(A) of the Act \11\ and Rule 19b-
4(f)(6)(iii) thereunder.\12\
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    \11\ 15 U.S.C. 78s(b)(3)(A).
    \12\ 17 CFR 240.19b-4(f)(6)(iii). As required under Rule 19b-
4(f)(6)(iii), the Exchange provided the Commission with written
notice of its intent to file the proposed rule change, along with a
brief description and the 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.
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    The Exchange has asked the Commission to waive the 30-day operative
delay so that the proposal may become operative immediately upon
filing. The Commission believes that waiving the 30-day operative delay
is consistent with the protection of investors and the public interest,
as it will allow the obvious error pilot program to continue
uninterrupted while the industry gains further experience operating
under the Plan, and avoid any investor confusion that could result from
a temporary interruption in the pilot program. For this reason, the
Commission designates the proposed rule change to be operative upon
filing.\13\
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    \13\ For purposes only of waiving the 30-day operative delay,
the Commission has also considered the proposed rule's impact on
efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
---------------------------------------------------------------------------

    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. 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<EMAIL_ADDRESS>Please include
File Number SR-NASDAQ-2015-016 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-NASDAQ-2015-016. 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-NASDAQ-2015-016, and should
be submitted on or before March 19, 2015.

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\14\
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    \14\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2015-03959 Filed 2-25-15; 8:45 am]
BILLING CODE 8011-01-P


[Federal Register Volume 83, Number 75 (Wednesday, April 18, 2018)]
[Notices]
[Page 17167]
[FR Doc No: 2018-08076]

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DEPARTMENT OF ENERGY

Federal Energy Regulatory Commission

Combined Notice of Filings

    Take notice that the Commission has received the following Natural
Gas Pipeline Rate and Refund Report filings:

Filings Instituting Proceedings

    Docket Numbers: RP18-697-000.
    Applicants: Gulf Crossing Pipeline Company LLC.
    Description: Sec.  4(d) Rate Filing: Cap Rel Neg Rate Agmt
(Newfield 18 to Sequent 1970) to be effective 4/11/2018.
    Filed Date: 4/11/18.
    Accession Number: 20180411-5094.
    Comments Due: 5 p.m. ET 4/23/18.

    Docket Numbers: RP18-698-000.
    Applicants: Algonquin Gas Transmission, LLC.
    Description: Sec.  4(d) Rate Filing: AGT Apr2018 Non-conforming
Agreements Cleanup to be effective 5/12/2018.
    Filed Date: 4/12/18.
    Accession Number: 20180412-5031.
    Comments Due: 5 p.m. ET 4/24/18.

    The filings are accessible in the Commission's eLibrary system by
clicking on the links or querying the docket number.
    Any person desiring to intervene or protest in any of the above
proceedings must file in accordance with Rules 211 and 214 of the
Commission's Regulations (18 CFR 385.211 and 385.214) on or before 5:00
p.m. Eastern time on the specified comment date. Protests may be
considered, but intervention is necessary to become a party to the
proceeding.
    eFiling is encouraged. More detailed information relating to filing
requirements, interventions, protests, service, and qualifying
facilities filings can be found at: http://www.ferc.gov/docs-filing/efiling/filing-req.pdf. For other information, call<PHONE_NUMBER>
(toll free). For TTY, call<PHONE_NUMBER>.

    Dated: April 12, 2018.
Nathaniel J. Davis, Sr.,
Deputy Secretary.
[FR Doc. 2018-08076 Filed 4-17-18; 8:45 am]
 BILLING CODE 6717-01-P