[Federal Register Volume 81, Number 248 (Tuesday, December 27, 2016)]
[Notices]
[Pages 95219-95225]
[FR Doc No: 2016-31102]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-79610; File No. SR-CBOE-2016-090]

Self-Regulatory Organizations; Chicago Board Options Exchange,
Incorporated; Notice of Filing and Immediate Effectiveness of a
Proposed Rule Change Relating to Compression of S&P 500(R) Index
Options Positions

December 20, 2016.
    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 December 15, 2016, Chicago Board Options Exchange, Incorporated
(``CBOE'' or the ``Exchange'') filed with the Securities and Exchange
Commission (``Commission'') the proposed rule change as described in
Items I and II below, which Items have been prepared by the 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 Substance
of the Proposed Rule Change

    The Exchange proposes to adopt Rule 6.56 regarding ``compression
forums.'' The text of the proposed rule change is available on the
Exchange's Web site (http://www.cboe.com/AboutCBOE/CBOELegalRegulatoryHome.aspx), at the Exchange's Office of the
Secretary, 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 the
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to adopt Rule 6.56 (Compression Forums) to
describe the Exchange's ``compression forum'' process. Under proposed
Rule 6.56, the Exchange would facilitate closing-only transactions in
series of S&P 500(R) Index (``SPX'') options on the final three trading
days of each calendar month as described below.
Background
    The Exchange's proposal is intended to provide a procedure for
Trading Permit Holders (``TPHs'') to efficiently reduce open positions
in series of SPX options at the end of each calendar month in order to
mitigate the effects of capital constraints on market participants and
help ensure continued depth of liquidity in the SPX options market.
    SEC Rule 15c3-1 (Net Capital Requirements for Brokers or Dealers)
(``Net Capital Rules'') requires that every registered broker-dealer
maintain certain specified minimum levels of capital.\3\ The Net
Capital Rules are designed to protect securities customers,
counterparties, and creditors by requiring that broker-dealers have
sufficient liquid resources on hand, at all times, to meet their
financial obligations. Notably, hedged positions, including offsetting
futures and options contract positions, result in certain net capital
requirement reductions under the Net Capital Rules.\4\
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    \3\ 17 CFR 240.15c3-1.
    \4\ In addition, the Net Capital Rules permit various offsets
under which a percentage of an option position's gain at any one
valuation point is allowed to offset another position's loss at the
same valuation point (e.g. vertical spreads).
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    All Options Clearing Corporation (``OCC'') clearing members are
subject to the Net Capital Rules. However, a subset of clearing members
are subsidiaries of U.S. bank holding companies, which, due to their
affiliations with their parent U.S. bank holding companies, must comply
with additional bank regulatory capital requirements pursuant to
rulemaking required under the Dodd-Frank Wall Street Reform and
Consumer Protection Act.\5\ Pursuant to this mandate, the Board of
Governors of the Federal Reserve System, the Office of the Comptroller
of the Currency, and the Federal Deposit Insurance Corporation

have approved a comprehensive regulatory capital framework for
subsidiaries of U.S. bank holding company clearing firms.\6\ Generally,
these rules impose higher minimum capital requirements, more
restrictive capital eligibility standards, and higher asset risk
weights than were previously mandated for clearing members that are
subsidiaries of U.S. bank holding companies under the Net Capital
Rules. Furthermore, the new rules do not permit deductions for hedged
securities or offsetting options positions.\7\ Rather, capital charges
under these standards are based on the aggregate notional value of
short positions regardless of offsets. As a result, Clearing Trading
Permit Holders (``CTPHs'') generally must hold substantially more bank
regulatory capital than would otherwise be required under the Net
Capital Rules. The impact of these regulatory capital rules are
compounded in the SPX options market due to the large notional value of
SPX contracts.
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    \5\ H.R. 4173 (amending section 3(a) of the Act) (15 U.S.C.
78c(a))).
    \6\ 12 CFR 50; 79 FR 61440 (Liquidity Coverage Ratio: Liquidity
Risk Measurement Standards).
    \7\ Many options strategies, including relatively simple
strategies often used by retail customers and more sophisticated
strategies used by market-makers and institutions, are risk-limited
strategies or options spread strategies that employ offsets or
hedges to achieve certain investment outcomes. Such strategies
typically involve the purchase and sale of multiple options (and may
be coupled with purchases or sales of the underlying assets),
executed simultaneously as part of the same strategy. In many cases,
the potential market exposure of these strategies is limited and
defined. Whereas regulatory capital requirements have historically
reflected the risk-limited nature of carrying offsetting positions,
these positions may now be subject to large regulatory capital
requirements. Various factors, including administration costs;
transaction fees; and limited market demand or counterparty
interest, however, discourage market participants from closing these
positions even though many market participants likely would prefer
to close the positions rather than carry them to expiration.
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    The Exchange believes that these regulatory capital requirements
could impede efficient use of capital and undermine the critical
liquidity role that Market-Makers play in the SPX options market by
limiting the amount of capital CTPHs can allocate to clearing member
transactions. Specifically, the rules may cause CTPHs to impose
stricter position limits on their clearing members. These stricter
position limits may impact the liquidity Market-Makers might supply in
the SPX market, and this impact may be compounded when a CTPH has
multiple Market-Maker client accounts, each having largely risk-neutral
portfolio holdings.\8\
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    \8\ Several TPHs have indicated to the Exchange that these rules
could hamper their ability to provide consistent liquidity in the
SPX options market unless they reduce their positions in SPX by the
end of the year.
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    The Exchange believes that permitting TPHs to reduce open interest
in offsetting SPX options positions would have a beneficial effect on
the bank regulatory capital requirements of CTPHs' parent companies
without adversely affecting the quality of the SPX options market.
Accordingly, the Exchange seeks to codify a process in the rules to
encourage the compression of open interest in SPX at the end of each
calendar month. The Exchange believes that periodic reductions in open
interest would likely contribute additional liquidity and continued
competitiveness to the SPX market. In addition, the Exchange believes
that the proposed rule change will promote more efficient capital
deployment in light of the regulatory capital requirements rules and
help ensure depth of liquidity in the SPX options market.
Proposal
    Currently, TPHs seeking to reduce open interest in SPX options for
regulatory capital purposes could simply trade out of positions at the
end of each month as they would trade any open positions. However, the
Exchange believes that wide-scale reduction of open interest in SPX
options in such a manner is burdensome. First, the range of positions
held by different TPHs in SPX varies greatly. In some cases, a TPH may
hold positions in thousands of series of SPX. With no way of
efficiently determining whether opposite (long/short) open interest is
present in the trading crowd or whether there is counterparty interest
for a particular closing transaction across multiple series, in order
to close a position, a TPH would need to represent an order and wait
for a response, if any. Second, given that there are more than 10,000
series of SPX held by numerous TPHs, attempting to close positions
during normal trading is inefficient and sometimes ineffective.
Accordingly, the Exchange proposes to adopt a procedure to facilitate
these types of transactions on the Exchange in proposed Rule 6.56. The
Exchange believes that its proposal would allow TPHs seeking to close
positions in SPX options to more easily identify counterparty interest
and efficiently conduct closing transactions in SPX options on the
Exchange without interfering with normal SPX trading.
    In general, the process described in proposed Rule 6.56 would
permit TPHs to submit lists of open positions to the Exchange that they
wish to close against opposing (long/short) positions of other TPHs,
which the Exchange would then aggregate into a single list that would
allow TPHs to more easily identify those positions with counterparty
interest on the Exchange. The Exchange would then provide a forum in
the SPX trading crowd during which TPHs could conduct closing-only
transactions in series of SPX options.
    The procedure for conducting a compression forum would be set forth
in paragraph (a) to proposed Rule 6.56. Under paragraph (a)(1), prior
to the close of Regular Trading Hours on the fourth to last business
day of each calendar month, in a manner and format determined by the
Exchange, a TPH could provide the Exchange with a list of open SPX
options positions with either a required capital charge equal to the
minimum capital charge pursuant to the risk-based haircut (``RBH'')
calculator in OCC's rules \9\ or comprised of option series with a
delta of ten \10\ (i.e.

0.1 or -0.1) or less that it would like to close during the compression
forum for that calendar month (``compression-list positions'').
Compression-list positions may consist of multi-legged positions in
series of SPX options, which satisfy the conditions set forth in this
paragraph of the proposed rule. The Exchange proposes to limit
compression-list positions to those positions, the closing of which the
Exchange believes would have the greatest impact on bank regulatory
capital requirements and which also have little economic risk
associated with them.\11\ The Exchange believes compression of these
positions would improve market liquidity by freeing capital currently
tied up in positions for which there is a minimal chance that a
significant loss would occur.\12\
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    \9\ Under OCC rules, the required capital charge is equal to
either the minimum capital charge or an amount equal to the largest
potential loss pursuant to OCC's RBH calculator. The RBH methodology
may be used to calculate theoretically based capital charges as set
forth within the SEC net capital rule http://apps.theocc.com/pmc/pmc.do. For example, a Market-Maker has the following eight-leg
position: Long 1000 Jan 1000 SPX calls, short 1000 Jan 2000 SPX
calls, short 842 Jan 2500 SPX calls, short 89 Jan 2600 SPX calls,
long 200 Jan 700 puts, short 200 Jan 750 SPX puts, short 1000 Jan
1000 SPX puts, and long 1000 Jan 2000 SPX puts. Under OCC rules, the
minimum capital charge for this position is $128,435. Using the RBH
calculator, there is no potential loss that is greater than this
amount; in fact, under each of the 10 equidistant theoretical
valuation points of the underlying index, this strategy would net a
profit. Therefore, the clearing firm incurs a charge of $128,435.
However, as the RBH calculator values demonstrate, this is
essentially a riskless position for which there is a minimal chance
that a theoretical loss of $128,435 could ever occur. Therefore,
this position is eligible for submission to the Exchange as a
compression-list position, because the OCC theoretical minimum
capital charge is larger than any potential loss that may result
within the range of an 8% decrease to a 6% increase in the
underlying index value. Alternatively, a Market-Maker has the
following five-leg strategy position: Short 892 Jan 1400 SPX calls,
short 80 Jan 1500 SPX calls, long 200 Jan 1950 SPX puts, short 200
Jan 2000 SPX puts, and long 165 Jan 2100 SPX puts. Under OCC rules,
the minimum capital charge for this position is $38,425. Using the
RBH calculator, an increase in the underlying index value of 6%
could cause this position to lose $12,801,718 (which is the highest
potential loss under each of the 10 equidistant theoretical
valuation points of the underlying index). Because this potential
loss is larger than the theoretical minimum charge, the actual
capital requirement is this amount of $12,801,718. This position is
therefore not eligible for submission to the Exchange as a
compression-list position, as there is a risk of a potential large
loss on this position.
    \10\ Delta is the ratio comparing the change in the price of the
underlying asset to the corresponding change in the price of a
derivative. For example, if a stock option has a delta value of
0.65, this means that if the underlying stock increases in price by
$1, the option will rise by $0.65, all else equal. Delta values can
be positive or negative depending on the type of option. For
example, the delta for a call option always ranges from 0 to 1,
because as the underlying asset increases in price, call options
increase in price. Put option deltas always range from -1 to 0
because as the underlying security increases, the value of put
options decrease. For example, if a put option has a delta of -0.33,
if the price of the underlying asset increases by $1, the price of
the put option will decrease by $0.33. Generally speaking, an at-
the-money option usually has a delta of approximately 0.5 or -0.5.
    \11\ As further discussed below, positions on this list as well
as other open SPX positions may be closed during a compression
forum.
    \12\ This definition of compression-list positions is similar to
the transaction fee rebate described in SR-CBOE-2015-117, which was
adopted for reasons similar to those underlying this proposal. See
Securities Exchange Act Release No. 76842 (January 6, 2016), 81 FR
1455 (January 12, 2016) (Notice of Filing and Immediate
Effectiveness of a Proposed Rule To Amend the Fees Schedule) (SR-
CBOE-2015-117).
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    Under paragraph (a)(1) to proposed Rule 6.56, TPHs may also permit
their CTPHs or the Clearing Corporation to submit a list of these
positions to the Exchange on their behalf.\13\ The Exchange recognizes
that a CTPH or OCC may more easily identify all of the positions that
are held across a TPH firm as well as those that will have the largest
impact with respect to regulatory capital reductions. The Exchange
believes that such assistance would help to facilitate the compression
forum process further.
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    \13\ The Exchange notes that while CTPHs may request that their
clients holding the out-of-the-money and riskless positions permit
the CTPHs to attempt to close these positions out, firms are not
required to do so (i.e., these transactions are voluntary and within
the discretion of the CTPHs' clients).
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    Under paragraph (a)(2) of proposed Rule 6.56, prior to the open of
Regular Trading Hours on the third to last business day of each
calendar month, the Exchange would make available \14\ to all TPHs an
aggregate two-sided (long/short) list of compression-list positions for
which open interest has been submitted to the Exchange on both sides
pursuant to paragraph (a)(1), including the aggregate size of open
interest on each side of each series (``compression-list positions
file'').\15\ This aggregate two-sided list may also include multi-
legged positions of SPX options with opposite open interest submitted
to the Exchange according to the parameters described in paragraph
(a)(1) to proposed Rule 6.56. This would allow the Exchange to identify
multi-leg strategy orders with opposing interest of particular TPHs in
the various series of the strategy (e.g. vertical spreads, calendar
spreads, butterflies, iron condors). The Exchange believes that a list
containing such multi-leg or complex positions may help facilitate a
more efficient forum by facilitating closing transactions in multiple
series at a time.
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    \14\ The Exchange expects to publish this list on its Web site.
    \15\ This list would not identify which TPH holds these
positions.
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    Under paragraph (a)(3) to proposed Rule 6.56, in addition to making
the compression-list positions file available to all TPHs, the Exchange
would electronically send the compression-list positions file to the
TPHs that submitted compression-list positions to the Exchange pursuant
to paragraph (a)(1), including a list of those TPHs that contributed to
the compression-list positions file. The list will not include the name
of any TPH that requests its name be excluded from this list. Pursuant
to paragraph (a)(3), TPHs would be identified as having contributed to
the list only and would not be identified as holding any specific
position. The Exchange believes this process to identify TPHs that seek
to close compression-list positions in advance of a compression forum
will increase opportunities for TPHs to ultimately close compression-
list positions during a compression forum while, at the same time,
providing the opportunity for anonymity. TPHs that do not want to be
listed as having contributed compression-list positions may inform the
Exchange and will not be included in the listed TPHs.
    Under paragraph (a)(4) of proposed Rule 6.56, the Exchange would
conduct an open outcry ``compression forum'' in which all TPHs may
participate \16\ on each of the last three business days of every
calendar month at a location on the trading floor determined by the
Exchange. Compression forums would be held for four (4) hours during
Regular Trading Hours on each of the last three business days of every
calendar month, or three (3) hours if any of those days is an
abbreviated trading day (such as the day before a holiday), at times
determined by the Exchange. All such notices would be provided to TPHs
reasonably in advance of any forum as announced via Regulatory Circular
in accordance with paragraph (d) to proposed Rule 6.56 discussed below.
The Exchange believes that multiple hours across multiple trading days
will allow TPHs to close as many positions as possible during this
process without interfering with normal SPX trading. In some cases, an
appropriate counterparty may not be present in the crowd at [sic]
particular time on a particular day when a TPH with an opposite
position represents the position in the crowd. In other cases, a TPH
may wish to break up a complex order into single legs after trying
unsuccessfully to close the multi-leg positions or may have residual
positions that could not be closed in full. Additionally, news may be
reported causing a high amount of activity preventing TPHs for [sic]
participating in the forum at certain times. The Exchange believes that
the three-day format will provide TPHs sufficient time to close these
positions in a forum without interfering with normal trading.
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    \16\ As compression forums will be conducted in open outcry,
TPHs that may participate include Floor Brokers and Market-Makers
with SPX appointments.
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    Under paragraph (b) of proposed Rule 6.56, trades executed during
compression forums would be subject to trading rules applicable to
trading in SPX during Regular Trading Hours, including manner of bids
and offers and allocation and priority rules, except: (1) Only closing
transactions in SPX options (including compression-list positions) may
be executed during a compression forum; and (2) the minimum increment
for all series will be $0.01 during a compression forum. In other
words, although trades executed during a compression forum may only be
closing transactions and may be in penny increments within a specified
timeframe and at a specific location on the trading floor, trades
executing during a compression forum will occur in the same manner as
all other open outcry SPX trades, including in accordance with
systemization requirements under Rule 6.24, and order allocation and
priority rules under Rule 6.45B(b). The purpose of the compression
forum would simply be to facilitate closing transactions in series of
SPX options so that TPHs would have the opportunity to free up capital
and eliminate riskless and low delta positions that they may otherwise
hold until expiration.
    Notably, TPHs would not be required to submit a list of positions
to the Exchange pursuant to paragraph (a)(1) in order to participate in
a compression forum, and positions SPX series other

than compression-list positions may be closed during a compression
forum, as long as it involves only closing transactions. The
compression forums will be limited to closing only transactions,
because if opening transactions were permitted during a compression
forum, it would defeat the purpose of the proposed rule, which is to
encourage the closing of positions that are creating high bank
regulatory capital requirements, often with positions that are of low
economic benefit and risk and could otherwise be offset. Similarly, the
minimum increment for series traded during a compression forum will be
$0.01 to further encourage closing of these positions. Because many
series the Exchange expects to trade during the compression forum will
be out-of-the-money, and essentially worthless, TPHs may not otherwise
close positions in these series if a higher minimum increment causes
the price to be too much higher than the option's value.
    Under paragraph (c) to proposed Rule 6.56, and as noted above in
the example, TPHs would be permitted to communicate with other TPHs to
determine: A TPH's open single-legged or multi-legged SPX positions
and/or (2) whether a TPH anticipates participating in a compression
forum at a particular date and time. During these communications, TPHs
may not discuss the price of a potential transaction involving these
positions during a compression forum. Trades executed during a
compression forum pursuant to proposed Rule 6.56 and otherwise in
compliance with the Rules would not be deemed prearranged trades in
violation of the Rules.\17\ The purpose of the compression forum
process is to facilitate closing transactions in series of SPX options
between counterparties holding opposite open positions. The proposed
rule is intended to help counterparties find one another so they can
more efficiently trade out of open positions at the end of each
calendar month. Communications between one another as to what positions
they hold and when they will be available to potentially trade out of
such positions will provide this efficiency and increase opportunities
for TPHs to close these positions. Without communications regarding
these logistics, it would be left to chance whether TPH with opposite
positions would be present to close those positions during a
compression forum, making it more difficult to close these positions.
As long as communications are limited to which positions are held and
timing of participation in a compression forum and do not include
discussions of other elements of a potential trade, such as the price,
the Exchange would not deem such communications to form the basis of a
prearranged trade. The Exchange notes again all orders placed during a
compression forum must be represented in the crowd and executed against
the best responsive bid or offer, as they would during normal trading.
Additionally, as noted above, all TPHs that are able to trade SPX on
the trading floor may participate in a compression forum in accordance
with the proposed procedure. TPHs participating in a compression forum
must continue to comply with all other trading rules.
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    \17\ Under Section 9(a)(1) of the Act, it shall be unlawful for
any member of a national securities exchange, for the purpose of
creating a false or misleading appearance of active trading in any
security registered on a national securities exchange or a false or
misleading appearance with respect to the market for any such
security, (A) to effect any transaction in such security which
involves no change in the beneficial ownership thereof, or (B) to
enter an order or orders for the purchase of such security with the
knowledge that an order or orders of substantially the same size, at
substantially the same time, and at substantially the same price,
for the sale of any such security, has been or will be entered by or
for the same or different parties. Prearranged trading could result
in also result in [sic] a violation of CBOE Rule 4.1, which
prohibits conduct inconsistent with just and equitable principles of
trade, Rule 6.45A or 6.45B which addresses the priority of bids and
offers, and/or Rule 10b-5 of the Act, which prohibits any act,
practice or course of business which operates or would operate as a
fraud or deceit upon any person, in connection with the purchase or
sale of any security, respectively. See Regulatory Circular RG16-190
(Prearranged Trades) (December 6, 2016).
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    Finally, paragraph (d) to proposed Rule 6.56 states the Exchange
will announce to TPHs determinations it makes pursuant to the proposed
rule via Regulatory Circular with reasonable notice.
    The following is an example of how the compression forum process
would work under paragraph (a) of proposed Rule 6.56. On December 20,
2016, the Exchange issues a regulatory circular stating a compression
forum will be held on December 28 and 29 between 10:00 a.m. and 2:00
p.m. each day, and on December 30 between 9:00 a.m. and 12:00 p.m. The
circular and [sic] invites all TPHs to submit a password protected .CSV
file containing SPX positions with either a required capital charge
equal to the minimum capital charge under Clearing Corporation rules
risk-based haircut calculator and/or positions in series of SPX options
with a delta of ten (10) or less via email with appropriate security
measures containing the following fields: MARKET PARTICIPANT; SYMBOL,
EXPIRATION DATE, STRIKE, CALL/PUT (either call or put), and SIZE
(negative size denoting short size). The circular notes that all
submissions must be received by the Exchange no later than December 27,
2016 at 3:15 p.m. Additionally, the circular notes a TPH should state
in its email to CBOE if it does not want its name with the other
submitting TPHs. Additionally, each submitting TPH must designate a
point person.
    Prior to 3:15 p.m. on December 27, 2016, the Exchange receives the
following .CSV files: XYZ closing postions.csv; ABC closing trades.csv;
and 123 compression.csv.\18\
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    \18\ For purposes of this example, it is assumed that all the
positions submitted to the Exchange by XYZ Trading, ABC Trading, and
123 Trading are either positions with a delta of ten or less or
positions with a required capital charge equal to the minimum
capital charge under the risk-based haircut calculator in the
Clearing Corporation rules.

----------------------------------------------------------------------------------------------------------------
                                                        Expiration
       Market participant               Symbol             date           Strike       Call/put        Size
----------------------------------------------------------------------------------------------------------------
XYZ TRADING....................  SPXW                     12/30/2016            1500  C                     -125
XYZ TRADING....................  SPXW                     12/30/2016            1505  P                       25
XYZ TRADING....................  SPX                       1/20/2017            1610  P                      -75
XYZ TRADING....................  SPX                       1/20/2017            1700  P                     -166
XYZ TRADING....................  SPXW                       1/8/2016            1800  C                      250
XYZ TRADING....................  SPXW                       1/8/2016            1850  C                      500
XYZ TRADING....................  SPXW                       1/8/2016            1900  C                      250
XYZ TRADING....................  SPXW                     12/30/2016            2350  C                     -652
XYZ TRADING....................  SPXW                     12/30/2016            2460  C                    -1425
----------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------
                                                        Expiration
       Market participant               Symbol             date           Strike       Call/put        Size
----------------------------------------------------------------------------------------------------------------
ABC TRADING....................  SPXW                     12/30/2016            1500  C                      -76
ABC TRADING....................  SPXW                     12/30/2016            1505  P                     -105
ABC TRADING....................  SPX                       2/17/2017            1850  P                     -166
ABC TRADING....................  SPXW                     12/30/2016            2350  C                      -62
ABC TRADING....................  SPXW                     12/30/2016            2460  C                      322
ABC TRADING....................  SPX                       2/17/2017            2500  P                      -50
----------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------
                                                        Expiration
       Market participant               Symbol             date           Strike       Call/put        Size
----------------------------------------------------------------------------------------------------------------
123 TRADING....................  SPXW                     12/30/2016            1500  C                       50
123 TRADING....................  SPX                       1/20/2017            1610  P                     -105
123 TRADING....................  SPXW                       1/8/2016            1800  C                     -200
123 TRADING....................  SPXW                       1/8/2016            1850  P                     -400
123 TRADING....................  SPX                       2/17/2017            1850  C                     -107
123 TRADING....................  SPXW                       1/8/2016            1900  C                     -200
123 TRADING....................  SPXW                     12/30/2016            2350  P                      -62
123 TRADING....................  SPXW                     12/30/2016            2460  C                       25
123 TRADING....................  SPXW                     12/30/2017            2500  P                     -300
----------------------------------------------------------------------------------------------------------------

    The email identify the following point people: XYZ Trading Firm--
John Smith; ABC Trading Firm--Jane Doe; and 123 Trading Company--Sam
Jones. No TPH requests to remain anonymous.
    The Exchange then aggregates the closing positions and publishes
the aggregated position data on its Web site for series of SPX options
with two-sided compression-list positions submitted to the Exchange.
Additionally, it distributes the list, as well as the TPHs that
submitted individual position lists, to those TPHs:

----------------------------------------------------------------------------------------------------------------
             Symbol                Expiration date       Strike        Call/put      Long size      Short size
----------------------------------------------------------------------------------------------------------------
SPXW...........................  12/30/2016........            1500  C                        50            -201
SPXW...........................  12/30/2016........            1505  P                        25            -105
SPXW...........................  1/8/2016..........            1800  C                       250            -200
SPXW...........................  1/8/2016..........            1850  P                       500            -400
SPXW...........................  1/8/2016..........            1900  C                       250            -200
SPXW...........................  12/30/2016........            2350  P                         0             -62
SPXW...........................  12/30/2016........            2460  C                       347           -1425
----------------------------------------------------

      Market participants          Designated lead
----------------------------------------------------
XYZ TRADING....................  John Smith
ABC TRADING....................  Jane Doe
123 TRADING....................  Sam Jones
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    Following the dissemination of the .CSV file, TPHs discuss the
positions included in the disseminated .CSV file with the designated
leads in order to determine when each intended to participate in an
upcoming compression forum. Each TPH coordinates with another TPH that
holds an opposite position when they will be present at one of the
upcoming compression forums. During the compression forums held on
December 28 through 30, these three TPHs conducted the following
trades: \19\
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    \19\ This example assumes: (1) No customer orders are on the
book at the same or better price of the compression forum
transaction; (2) if two TPHs respond to an order represented in the
compression forum, they do so at the same price and time and, thus,
the order is allocated equally among them; and (3) no other TPHs
enter the compression forum to attempt to participate in the trades.
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    1. 123 Trading sells 25 SPXW 12/30/16 1500 C to each of ABC Trading
and XYZ Trading.
    2. XYZ Trading sells 25 SPXW 12/30/16 1505 P to ABC Trading.
    3. XYZ Trading sells 200 butterflies consisting of 200 SPXW 1/8/
2016 1800 C, 400 SPXW 1/8/2016 1850 C, and 200 SPXW 1/8/16 1900 C to
123 Trading.
    4. 123 Trading sells 12 SPXW 12/30/2016 2460 C to each of ABC
Trading and XYZ Trading (and the parties determine which of ABC Trading
and XYZ Trading receive the extra contract).
2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with
the Act and the rules and regulations thereunder applicable to the
Exchange and, in particular, the requirements of Section 6(b) of the
Act.\20\ Specifically, the Exchange believes the proposed rule change
is consistent with the Section 6(b)(5) \21\ requirements that the rules
of an exchange be designed to prevent fraudulent and manipulative acts
and practices, to promote just and equitable principles of trade, to
foster cooperation and coordination with persons engaged in regulating,
clearing, settling, processing information with respect to, and
facilitating transactions in securities, to remove impediments to and
perfect the mechanism of a free and open market and a national market
system, and, in general, to protect investors and the public interest.
Additionally, the Exchange believes the proposed rule change is
consistent with

the Section 6(b)(5) \22\ requirement that the rules of an exchange not
be designed to permit unfair discrimination between customers, issuers,
brokers, or dealers.
---------------------------------------------------------------------------

    \20\ 15 U.S.C. 78f(b).
    \21\ 15 U.S.C. 78f(b)(5).
    \22\ Id.
---------------------------------------------------------------------------

    In particular, the Exchange believes the proposed rule change is
reasonable, equitable, and does not unfairly discriminate against any
market participants. The Exchange notes that all TPHs with open SPX
positions may participate in a compression forum in accordance with the
proposed procedure. Other market participants with open SPX positions
may participate through CBOE floor brokers, as they would for any other
SPX trading. Participation in compression forums, as well as advanced
submission of compression-list positions, is optional, and TPHs may
continue to attempt to trade open SPX positions during normal trading.
    The Exchange believes it is reasonable, equitable and not unfairly
discriminatory to limit compression-list positions to certain riskless
and low delta positions and trading in compression forums to closing
only transactions because these types of positions and transactions
will result in large bank regulatory capital requirements impacts for
CTPHs even though there is minimal chance for large losses to occur.
The Exchange notes that if opening transactions were permitted during a
compression forum, it would defeat the purpose of the proposed rule,
which is to encourage the closing of positions that are creating high
bank regulatory capital requirements, often with positions that are of
low economic benefit and risk and could otherwise be offset. The
Exchange notes that there are other circumstances involving liquidity
concerns in which the Exchange limits transactions in particular
securities to closing only transactions. For example, the Exchange
[sic] transactions in restricted option classes to [sic] closing only
(subject to certain exceptions).\23\ Additionally, cabinet trades are
limited to closing only (subject to certain exceptions).\24\ Similarly,
the minimum increment for series traded during a compression forum will
be $0.01 to further encourage closing of these positions. Because many
series the Exchange expects to trade during the compression forum will
be out-of-the-money, and essentially worthless, TPHs may not otherwise
close positions in these series if a higher minimum increment causes
the price to be too much higher than the option's value.
---------------------------------------------------------------------------

    \23\ See Rule 5.4.
    \24\ See Rule 6.54.
---------------------------------------------------------------------------

    In addition, the Exchange believes it's reasonable, equitable and
not unfairly discriminatory to limit the compression forum process to
SPX options (including SPXW and SPXPM) because SPX has a substantially
higher notional value than other options classes. As such, open
interest in SPX has a much greater effect on a bank's regulatory
capital requirements. Compressing out-of-the-money and riskless SPX
option positions therefore has a greater impact on reducing a bank
regulatory capital requirement.
    Furthermore, the Exchange believes that its proposal is consistent
with the Act in that it seeks to mitigate the potentially negative
effects of the bank capital requirements on liquidity in the SPX
options market. As described above, the Exchange believes that the new
regulatory capital requirements could potentially impede efficient use
of capital and undermine the critical liquidity role that Market-Makers
play in the SPX options market by limiting the amount of capital CTPHs
an [sic] allocate to clearing member transactions. Specifically, the
rules may cause CTPHs to impose stricter position limits on their
clearing members. In turn, this could force Market-Makers to reduce the
size of their quotes in SPX and result in reduced liquidity in the
market. The Exchange believes that permitting TPHs to reduce open
interest in offsetting SPX options positions would likely contribute to
the availability of liquidity in the SPX options market and help ensure
that the SPX options market retains its competitive balance. The
Exchange believes that the proposed rule would serve to protect
investors by helping to ensure consistent continued depth of liquidity
in the SPX options market.
    The Exchange also believes the proposed rule change is consistent
with the Act, because the proposed procedure is consistent with its
current rules. The proposed rule would direct that all trading during
compression forums be conducted in accordance with normal SPX trading
rules and thus, all transactions that would occur during compression
forums would occur in the same manner as transactions during normal SPX
trading, except transactions must be closing only and may be in penny
increments. This process is narrowly tailored for a for [sic] the
specific purpose of facilitating the closing of positions in the SPX
options market, which the Exchange believes will serve to protect
investors by helping to ensure continued depth of liquidity in the SPX
options market. The Exchange also notes the proposed provisions
regarding the position lists are optional procedures to help facilitate
compression transactions. Submission of lists of positions for
compression is completely voluntary, open to all TPHs, and non-binding,
in that submission of a list does not require a TPH to trade any
position or even represent any position in a trading crowd.
Furthermore, the list of positions will be made available to all market
participants and contain very limited information regarding open
interest in positions in SPX. The list will not advantage or
disadvantage any TPH, but rather simply alert TPHs to certain SPX
positions that other TPHs are interested in closing at the end of each
calendar month.

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

    The Exchange does not believe that the proposed rule change will
impose any burden on intramarket competition that is not necessary or
appropriate in furtherance of the Act because it applies to all market
participants in the same manner with positions that meet the eligible
criteria. The proposed change would encourage the closing of positions
that needlessly result in burdensome capital requirements, which, once
closed, would alleviate the capital requirement constraints on TPHs and
improve overall market liquidity by freeing capital currently tied up
in certain unwanted SPX positions. The Exchange does not believe that
the proposed rule changes will impose any burden on intermarket
competition that is not necessary or appropriate in furtherance of the
purposes of the Act because the proposed rule change applies only to
the trading of SPX options, which are exclusively-listed on CBOE. To
the extent that the proposed changes make the Exchange a more
attractive marketplace for market participants at other exchanges, such
market participants are welcome to become CBOE market participants.
Furthermore, as stated in Item 3(b) above, submission of lists of
positions for compression is completely voluntary, open to all TPHs,
and non-binding, in that submission of a list does not require a TPH to
trade any position or even represent any position in a trading crowd.
Lists of positions will be made available to all TPHs and contain very
limited information regarding open interest in positions in SPX. The
list will simply alert TPHs to certain SPX positions that other TPHs
are interested in closing at the end of each calendar month.

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

    The Exchange neither solicited nor received written comments on the
proposed rule change.

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

    The Exchange has filed the proposed rule change pursuant to Section
19(b)(3)(A)(iii) of the Act \25\ and Rule 19b-4(f)(6) thereunder.\26\
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 prior to
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 and Rule 19b-
4(f)(6)(iii) thereunder.
---------------------------------------------------------------------------

    \25\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \26\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii)
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.
---------------------------------------------------------------------------

    The Exchange has asked the Commission to waive the 30-day operative
delay to allow the compression forum process to begin in December 2016
and trading to take place on the final three days of trading in 2016.
The Exchange stated that it is requesting this waiver because it
believes that bank capital requirements will have substantial adverse
consequences on some CTPHs if TPHs are not able to sufficiently reduce
their open interest in SPX by the end of the year. The Exchange
understands that bank-imposed capital limits for TPHs, measured at the
end of the year and based on the aggregate notional value of short
positions regardless of offsets, may impact CTPHs and the firms for
which they clear depending on the open interest they hold. CBOE
believes, as it explained above, that the impact of these rules
uniquely affects the SPX options market due to the large notional value
of SPX contracts. In response, CTPHs may impose stricter position
limits on the firms for which they clear and, to the extent they do so,
it may effectively limit the amount of liquidity that some TPHs,
notably Market-Makers, will be able to provide in SPX options. The
Exchange believes that it is in the best interest of investors to use
this new compression forum process to help foster continued liquidity
in the SPX options market by allowing firms to free up capital by
finding opportunities to trade out of relatively worthless positions.
    The Commission believes that waiving the 30-day operative delay is
consistent with the protection of investors and the public interest
because this waiver will enable the Exchange to hold compression forums
for SPX options prior to the end of the year, thereby helping to
facilitate transactions and remove impediments to year-end trading in
SPX options, through a limited process designed to protect investors
and the public interest. The Commission notes that CBOE's compression
forum rule is limited in its application, involves no material changes
to how trading is conducted on the Exchange, creates a process in which
participation is voluntary and open to all, and is provided as a means
to help Market Makers and other market participants, as well as their
clearing brokers, avoid the need to limit their activities as a result
of out-of-the-money positions on SPX options that such firms wish to
exit. For this reason, the Commission hereby waives the 30-day
operative delay requirement and designates the proposed rule change as
operative upon filing.\27\
---------------------------------------------------------------------------

    \27\ For purposes only of waiving the 30-day operative delay,
the Commission has 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 such 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 under
Section 19(b)(2)(B) \28\ of the Act to determine whether the proposed
rule change should be approved or disapproved.
---------------------------------------------------------------------------

    \28\ 15 U.S.C. 78s(b)(2)(B).
---------------------------------------------------------------------------

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-CBOE-2016-090 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-CBOE-2016-090. 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-CBOE-2016-090, and should be
submitted on or before January 17, 2017.
---------------------------------------------------------------------------

    \29\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\29\
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2016-31102 Filed 12-23-16; 8:45 am]
 BILLING CODE 8011-01-P


[Federal Register Volume 76, Number 159 (Wednesday, August 17, 2011)]
[Notices]
[Pages 51079-51082]
[FR Doc No: 2011-20907]

-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-65106; File No. SR-Phlx-2011-114]

Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of
Filing and Immediate Effectiveness of Proposed Rule Change To Amend the
Clearly Erroneous Rule in Light of Changes to the Single Stock Trading
Pause Process

August 11, 2011.
    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 August 8, 2011, NASDAQ OMX PHLX LLC (``PHLX''), filed with the
Securities and Exchange Commission (``Commission'') the proposed rule
change as described in Items I and II, below, which Items have been
prepared by PHLX. The Commission is publishing this notice to solicit
comments on the proposed rule change from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of the
Substance of the Proposed Rule Change

    PHLX proposes to amend Rule 3312, governing clearly erroneous
executions on the NASDAQ OMX PSX system, so that the rule will continue
to operate in the same manner after changes to the single stock trading
pause process are effective.
    The text of the proposed rule change is available from PHLX's Web
site at http://nasdaqomxphlx.cchwallstreet.com/NASDAQOMXPHLX/Filings/,
at PHLX's principal office, 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, PHLX 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. PHLX 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
Background
    The Exchanges \3\ and FINRA, in consultation with the Commission,
have made changes to their respective rules in a concerted effort to
strengthen the markets after the severe market disruption that occurred
on May 6, 2010. One such effort by the Exchanges and FINRA was to adopt
a uniform trading pause process during periods of

extraordinary market volatility as a pilot in S&P 500 Index stocks
(``Pause Pilot''), approved by the Commission on June 10, 2010.\4\ On
September 10, 2010, the Commission approved the Exchanges' and FINRA's
proposals to add the securities included in the Russell 1000 Index and
specified ETPs to the Pause Pilot.\5\ On September 10, 2010, the
Commission also approved changes proposed by the Exchanges to amend
certain of their respective rules to set forth clearer standards and
curtail their discretion with respect to breaking erroneous trades.\6\
The changes, among other things, provided uniform treatment of clearly
erroneous execution reviews in the event of transactions that result in
the issuance of an individual stock trading pause pursuant to the Pause
Pilot on the listing market and those that occur up to the time the
trading pause message is received by the other markets from the single
plan processor responsible for consolidation and dissemination of
information for the security (``Latency Trades'').
---------------------------------------------------------------------------

    \3\ For purposes of this filing, the term ``Exchanges'' refers
collectively to BATS Exchange, Inc., BATS Y-Exchange, Inc., NASDAQ
OMX BX, Inc., Chicago Board Options Exchange, Inc., Chicago Stock
Exchange, Inc., EDGA Exchange, Inc., EDGX Exchange, Inc.,
International Securities Exchange LLC, The NASDAQ Stock Market LLC,
New York Stock Exchange LLC, NYSE Amex LLC, NYSE Arca, Inc.,
National Stock Exchange, Inc., and NASDAX [sic] OMX PHLX LLC.
    \4\ Securities Exchange Act Release Nos. 62252 (June 10, 2010),
75 FR 34186 (June 16, 2010) (File Nos. SR-BATS-2010-014; SR-EDGA-
2010-01; SR-EDGX-2010-01; SR-BX-2010-037; SR-ISE-2010-48; SR-NYSE-
2010-39; SR-NYSEAmex- 2010-46; SR-NYSEArca-2010-41; SR-NASDAQ- 2010-
061; SR-CHX-2010-10; SR-NSX-2010-05; and SR-CBOE-2010-047); 62251
(June 10, 2010), 75 FR 34183 (June 16, 2010) (SR-FINRA-2010- 025).
    \5\ See e.g., Securities Exchange Act Release Nos. 62884
(September 10, 2010), 75 FR 56618 (September 16, 2010) (File Nos.
SR-BATS-2010-018; SR-BX-2010-044; SR-CBOE-2010-065; SR-CHX-2010-14;
SR-EDGA-2010-05; SR-EDGX-2010-05; SR-ISE-2010-66; SR-NASDAQ-2010-
079; SR-NYSE-2010-49; SR-NYSEAmex-2010-63; SR-NYSEArca-2010-61; and
SR-NSX-2010-08); and Securities Exchange Act Release No. 62883
(September 10, 2010), 75 FR 56608 (September 16, 2010) (SR-FINRA-
2010-033).
    \6\ Securities Exchange Act Release No. 62886 (September 16
[sic], 2010), 75 FR 56613 (September 16, 2010) (File Nos. SR-BATS-
2010-016; SR-BX-2010-040; SR-CBOE-2010-056; SR-CHX-2010-13; SR-EDGA-
2010-03; SR-EDGX-2010-03; SR-ISE-2010-62; SR-NASDAQ-2010-076; SR-
NSX-2010-07; SR-NYSE-2010-47; SR-NYSEAmex-2010-60; and SR-NYSEArca-
2010-58).
---------------------------------------------------------------------------

    As part of the changes to the clearly erroneous process under Rule
3312, PHLX replaced existing Rule 3312(a)(2)(C)(iv) with all new text
to provide clarity in the clearly erroneous process when a Pause Pilot
trading pause is triggered. Pursuant to Rule 3312(a)(2)(C)(iv), Latency
Trades will be broken by the exchange if they exceed the applicable
percentage from the Reference Price, as noted in the table found under
Rule 3312(a)(2)(C)(i).\7\ The Reference Price, for purposes of Rule
3312(a)(2)(C)(iv), is the price that triggered a trading pause pursuant
to the Pause Pilot (the ``Trading Pause Trigger Price''). As such,
Latency Trades that occur on PHLX would be broken by the exchange
pursuant to Rule 3312(a)(2)(C)(iv) if the transaction occurred at
either three, five or ten percent above the Trading Pause Trigger
Price.\8\
---------------------------------------------------------------------------

    \7\ Pursuant to Rule 3312(a)(2)(C)(i), a security with a
Reference Price of greater than zero and up to and including $25 is
subject to a 10% threshold; a security with a Reference Price of
greater than $25 and up to and including $50 is subject to a 5%
threshold; and a security with a Reference Price of greater than $50
is subject to a 3% threshold.
    \8\ Rule 3312(a)(2)(C)(iv).
---------------------------------------------------------------------------

    On June 23, 2011, the Commission approved a joint proposal to
expand the respective Pause Pilot rules of the Exchanges and FINRA to
include all remaining NMS stocks (``Phase III Securities'').\9\ The new
pilot rules, which will be implemented on August 8, 2011, not only
expand the application of the Pause Pilot, but also apply larger
percentage moves that trigger a pause to the Phase III Securities.
Specifically, the rules of the listing markets were amended so that a
pause in a Phase III Security with a closing price on the previous
trading day of $1 or more is triggered by a 30 percent price move
within a five minute period. A pause in a Phase III Security with
closing price on the previous trading day of less than $1 is triggered
by a 50 percent price move within a five minute period. If no prior day
closing price is available, the last sale reported to the Consolidated
Tape on the previous trading day is used.
---------------------------------------------------------------------------

    \9\ Securities Exchange Act Release No. 64735 (June 23, 2011),
76 FR 38243 (June 29, 2011) (File Nos. SR-BATS-2011-016; SR-BYX-
2011-011; SR-BX-2011-025; SR-CBOE-2011-049; SR-CHX-2011-09; SR-EDGA-
2011-15; SR-EDGX-2011-14; SR-FINRA-2011-023; SR-ISE-2011-028; SR-
NASDAQ-2011-067; SR-NYSE-2011-21; SR-NYSEAmex-2011-32; SR-NYSEArca-
2011-26; SR-NSX-2011-06; SR-Phlx-2011-64).
---------------------------------------------------------------------------

The Issue
    The recently-approved changes to the Pause Pilot will have the
unintended effect of removing the Phase III Securities from the normal
clearly erroneous process and potentially result in unfair outcomes in
the face of severe volatility in such securities. Phase III Securities
are currently subject to the clearly erroneous process under Rules
3312(a)(2)(C)(i)-(iii), which apply to all securities except the
current Pause Pilot securities subject to a pause. For purposes of
transactions in securities not involving Pause Pilot securities, or
transactions involving Pause Pilot securities that occur when there is
not a pause pursuant to the Pause Pilot, the Reference Price is the
consolidated last sale price immediately prior to the execution(s)
under review, subject to certain exceptions.\10\ As noted above, the
Trading Pause Trigger Price is used as the Reference Price when a Pause
Pilot pause is in effect. As a consequence, under the current rules a
Latency Trade is subject to the clearly erroneous thresholds based on
the Trading Pause Trigger Price, which represents a ten percent or
greater move in the transacted price of the security in a five minute
period.
---------------------------------------------------------------------------

    \10\ Id.
---------------------------------------------------------------------------

    Under the new Pause Pilot rules, a Latency Trade in a Phase III
Security occurs only after either a 30 or 50 percent (or greater) move
in the transacted price of the security in a five minute period. As a
result, a member firm that trades in a Phase III Security that triggers
a clearly erroneous threshold of three, five or ten percent from the
Reference Price, yet falls below the Pause Pilot trigger of either 30
or 50 percent, would be able to avail themselves of a clearly erroneous
review. A similarly situated member firm that transacts in the same
security as a Latency Trade at a price equal to or greater than the
Phase III Security thresholds, yet less than the clearly erroneous
thresholds under Rule 3312(a)(2)(C)(i), would not be able to avail
themselves of the clearly erroneous process. Another member firm that
transacts in the same security as a Latency Trade that exceeds three,
five or ten percent from the Trading Pause Trigger Price would
automatically receive clearly erroneous relief. PHLX believes that this
would be an inequitable result and an arbitrary application of the
clearly erroneous process. Specifically, PHLX believes that, since the
30 and 50 percent triggers of the Pause Pilot are substantially greater
than the 10 percent threshold of the original Pause Pilot, the Phase
III Securities should remain under the current clearly erroneous
process of Rules 3312(a)(2)(C)(i)-(iii).
    Applying the clearly erroneous process under Rules
3312(a)(2)(C)(i)-(iii) to the Phase III Securities would allow PHLX to
review all transactions that exceed the normal clearly erroneous
thresholds and Reference Price, and, importantly, avoid arbitrary
selection of ``winners'' and ``losers'' in the face of severe volatile
moves in a security of 30 or 50 percent over a five minute period. For
example, A [sic] member firm that trades in a Phase III Security that
triggers a clearly erroneous threshold of three, five or ten percent,
yet falls below the Pause Pilot trigger threshold trading at 29 percent
from the prior day's closing price, would be potentially entitled to a
clearly erroneous break pursuant Rule 3312(a)(2)(C)(i). Should trading
in that same stock trigger a trading pause at a

price of 30 or 50 percent greater than the prior day's close, the
member firm would not be entitled to a clearly erroneous trade break
unless that trade exceeded three, five or ten percent beyond the price
that triggered the pause. This scenario causes an inequity among a
group of member firms that have transactions in the Phase III
Securities falling between the three, five and ten percent thresholds
from the Reference Price under the normal Rule 3312(a)(2)(C)(i) clearly
erroneous process and the Pause Pilot clearly erroneous triggers of
three, five or ten percent away from the Trading Pause Trigger Price.
Such member firms would not be provided relief under the clearly
erroneous rules merely due to the imposition of a Pause Pilot halt,
notwithstanding that other member firms with transactions that occur at
the same rolling five minute percentage difference. PHLX believes a
better outcome is to afford all members transacting in Phase III
Securities the opportunity of having such trades reviewed.
Summary
    The expansion of the Pause Pilot to the Phase III Securities will
have the unintended consequence of setting the point at which a clearly
erroneous transaction occurs once a Pause Pilot pause is initiated far
beyond the triggers applied prior to the expansion, which will, in
turn, prevent certain market participants from availing themselves of
the clearly erroneous rules, notwithstanding that other similarly
situated participants are able to do so. PHLX believes that this would
be an arbitrary application of the clearly erroneous process in a
manner that is unfair and not consistent with the spirit and purpose of
the rule. Accordingly, PHLX is proposing to amend Rules
3312(a)(2)(C)(i)-(iv) to specify that Rule 3312(a)(2)(C)(iv) applies
only to the current securities of Pause Pilot, and not to Phase III
Securities.\11\
---------------------------------------------------------------------------

    \11\ PHLX notes that the Exchanges are filing similar proposals
to make the changes proposed herein.
---------------------------------------------------------------------------

2. Statutory Basis
    The statutory basis for the proposed rule change is Section 6(b)(5)
of the Securities Exchange Act of 1934 (the ``Act''),\12\ which
requires the rules of an exchange 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. The proposed rule change
also is designed to support the principles of Section 11A(a)(1)\13\ of
the Act in that it seeks to assure fair competition among brokers and
dealers and among exchange markets. PHLX believes that the proposed
rule meets these requirements in that it promotes transparency and
uniformity across markets concerning decisions to break erroneous
trades, yet also ensures fair application of the process so that
similarly situated member firms are provided the same opportunity of a
clearly erroneous review. PHLX notes that the changes proposed herein
will in no way interfere with the operation of the Pause Pilot process,
as amended.
---------------------------------------------------------------------------

    \12\ 15 U.S.C. 78f(b)(5).
    \13\ 15 U.S.C. 78k-1(a)(1).
---------------------------------------------------------------------------

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

    PHLX 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.

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

    Written comments were neither solicited nor received.

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

    Because the foregoing proposed rule change does not: (i)
Significantly affect the protection of investors or the public
interest; (ii) impose any significant burden on competition; and (iii)
become operative for 30 days from the date on which it was filed, or
such shorter time as the Commission may designate, it has become
effective pursuant to Section 19(b)(3)(A) of the Act \14\ and Rule 19b-
4(f)(6)(iii) thereunder.\15\ 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 because such waiver will allow the
clearly erroneous rules to continue to operate as they did prior to the
effectiveness of the Pause Pilot expansion to Phase III Securities so
that similarly situated member firms are provided the same opportunity
of a clearly erroneous review. Accordingly, the Commission waives the
30-day operative delay requirement and designates the proposed rule
change as operative upon filing with the Commission.\16\
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    \14\ 15 U.S.C. 78s(b)(3)(A).
    \15\ 17 CFR 240.19b-4(f)(6)(iii). In addition, Rule 19b-
4(f)(6)(iii) requires that a self-regulatory organization submit to
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 filing of the
proposed rule change, or such shorter time as designated by the
Commission. The Commission notes that the Exchange has satisfied
this requirement.
    \16\ For purposes only of waiving the 30-day operative delay,
the Commission has considered the proposed rule's impact on
efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
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    At any time within 60 days of the filing of the proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an e-mail to<EMAIL_ADDRESS>Please include
File Number SR-Phlx-2011-114 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-Phlx-2011-114. This file
number should be included on the subject line if e-mail 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
a.m. and 3 p.m. Copies of such filing also will be available for
inspection and copying at the principal office of PHLX. 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 publicly available. All
submissions should refer to File Number SR-Phlx-2011-114 and should be
submitted on or before September 7, 2011.

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\17\
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    \17\ 17 CFR 200.30-3(a)(12).
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Elizabeth M. Murphy,
Secretary.
[FR Doc. 2011-20907 Filed 8-16-11; 8:45 am]
BILLING CODE 8011-01-P


[Federal Register Volume 80, Number 142 (Friday, July 24, 2015)]
[Rules and Regulations]
[Pages 43952-43954]
[FR Doc No: 2015-18201]

=======================================================================
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DEPARTMENT OF HOMELAND SECURITY

Coast Guard

33 CFR Part 165

[Docket No. USCG-2015-0618]
RIN 1625-AA00

Safety Zone; Red Bull GRC Air Show, Detroit River, Detroit, MI

AGENCY: Coast Guard, DHS.

ACTION: Temporary final rule.

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SUMMARY: The Coast Guard is establishing a temporary safety zone on the
waters of the Detroit River in the vicinity of Detroit, MI. This zone
is intended to restrict and control the movement of vessels in a
portion of the Detroit River. This zone is necessary to protect
spectators and vessels from the hazards associated with an air show.

DATES: This rule is effective from 1:30 p.m. on July 25, 2015 until
4:30 p.m. on July 26, 2015. It will be enforced from 1:30 p.m. to 4:30
p.m. each day on July 25 and 26, 2015.

ADDRESSES: Documents indicated in this preamble as being available in
the docket are part of docket USCG-2015-0618 and are available online
by going to www.regulations.gov, type the docket number in the
``SEARCH'' box and click ``SEARCH.'' Click on Open Docket Folder on the
line associated with this rulemaking. They are also available for
inspection or copying at the Docket Management Facility (M-30), U.S.
Department of Transportation, West Building Ground floor, Room W12-140,
1200 New Jersey Avenue SE., Washington DC 20590, between 9 a.m. and 5
p.m., Monday through Friday, except Federal holidays.

FOR FURTHER INFORMATION CONTACT: If you have questions on this
temporary final rule, contact or email PO1 Todd Manow, Prevention
Department, Sector Detroit, Coast Guard; telephone<PHONE_NUMBER>, or
email<EMAIL_ADDRESS>If you have questions on viewing the
docket, call Cheryl Collins, Program Manager, Docket Operations,
telephone<PHONE_NUMBER>.

SUPPLEMENTARY INFORMATION:

Table of Acronyms

DHS Department of Homeland Security
FR Federal Register
NAD 83 North American Datum of 1983

A. Regulatory History and Information

    The Coast Guard is issuing this temporary final rule without prior
notice and opportunity to comment pursuant to authority under section
4(a) of the Administrative Procedure Act (APA) (5 U.S.C. 553(b)). This
provision authorizes an agency to issue a rule without prior notice and
opportunity to comment when the agency, for good cause, finds that
those procedures are ``impracticable, unnecessary, or contrary to the
public interest.'' Under 5 U.S.C. 553(b)(B), the Coast Guard finds that
good cause exists for not publishing a notice of proposed rulemaking
(NPRM) with respect to this rule because doing so would be
impracticable and contrary to the public interest. The final details of
this event were not known to the Coast Guard until there was
insufficient time remaining before the event to publish an NPRM. Thus,
delaying the effective date of this rule to wait for a comment period
to run would be both impracticable and contrary to the public interest
because it would inhibit the Coast Guard's ability to protect workers,
the surrounding public, and vessels from the hazards associated with
the maritime air show.
    Under 5 U.S.C. 553(d)(3), the Coast Guard finds that good cause
exists for making this temporary rule effective less than 30 days after
publication in the Federal Register. For the same reasons discussed in
the preceding paragraph, waiting for a 30 day notice period to run
would be impracticable and contrary to the public interest.

B. Basis and Purpose

    The legal basis for the rule is the Coast Guard's authority to
establish regulated navigation areas and limited access areas: 33
U.S.C. 1231; 33 CFR 1.05-1 and 160.5; Department of Homeland Security
Delegation No. 0170.1.
    The Coast Guard was informed that on July 25, 2015, and July 26,
2015, an air show will take place on the Detroit River in the vicinity
of Detroit, MI. The Captain of the Port Detroit has determined that the
air show may pose a significant risk to public safety and property.

C. Discussion of Rule

    With the aforementioned hazards in mind, the Captain of the Port
Detroit has determined a temporary safety zone is necessary to ensure
the safety of spectators and vessels during the Red Bull GRC air show.
This safety zone will encompass U.S. navigable waters of the Detroit
River from the Belle Isle Bridge to position: 42[deg]19'58.60'' N.,
083[deg]0'38.47'' W. (NAD 83).
    Entry into, transiting, or anchoring within this safety zone is
prohibited unless authorized by the Captain of the Port Detroit or his
on-scene representative. The Captain of the Port or his on-scene
representative may be contacted via VHF Channel 16.

D. Regulatory Analyses

    We developed this rule after considering numerous statutes and
executive orders related to rulemaking. Below we summarize our analyses
based on these statutes and executive orders.

1. Regulatory Planning and Review

    This rule is not a significant regulatory action under section 3(f)
of Executive Order 12866, Regulatory Planning and Review, as
supplemented by Executive Order 13563, Improving Regulation and
Regulatory Review, and does not require an assessment of potential
costs and benefits under section 6(a)(3) of Order 12866 or under
section 1 of Executive Order 13563. The Office of Management and Budget
has not reviewed it under those Orders.
    We conclude that this rule is not a significant regulatory action
because we anticipate that it will have minimal impact on the economy,
will not interfere with other agencies, will not adversely alter the
budget of any grant or loan recipients, and will not raise any novel
legal or policy issues. The safety zone created by this rule will be
relatively small and enforced for a relatively short time. Under
certain conditions, moreover, vessels may still transit through the
safety zone when permitted by the Captain of the Port or his on-scene
representative.

2. Impact on Small Entities

    Under the Regulatory Flexibility Act of 1980 (RFA), 5 U.S.C. 601-
612, as amended, we have considered the potential impact of regulations
on small entities during rulemaking. The Coast Guard certifies under 5
U.S.C. 605(b) that this rule will not have a significant economic
impact on a substantial number of small entities.
    This rule will affect the following entities, some of which might
be small entities: The owners or operators of vessels intending to
transit or anchor in a portion of the Detroit River from 1:30 p.m. to
4:30 p.m. on July 25, 2015 and July 26, 2015.
    This safety zone will not have a significant economic impact on a
substantial number of small entities for the reasons cited in the
Regulatory Planning and Review section. Additionally, before the
enforcement of the zone, the Captain of the Port will issue a local
Broadcast Notice to Mariners so vessel owners and operators can plan
accordingly.

3. Assistance for Small Entities

    Under section 213(a) of the Small Business Regulatory Enforcement
Fairness Act of 1996 (Pub. L. 104-121), we want to assist small
entities in understanding this rule so that they can better evaluate
its effects on them. If the rule would affect your small business,
organization, or governmental jurisdiction and you have questions
concerning its provisions or options for compliance, please contact the
person listed in the FOR FURTHER INFORMATION CONTACT section.
    Small businesses may send comments on the actions of Federal
employees who enforce, or otherwise determine compliance with, Federal
regulations to the Small Business and Agriculture Regulatory
Enforcement Ombudsman and the Regional Small Business Regulatory
Fairness Boards. The Ombudsman evaluates these actions annually and
rates each agency's responsiveness to small business. If you wish to
comment on actions by employees of the Coast Guard, call 1-888-REG-FAIR
(1-888-734-3247). The Coast Guard will not retaliate against entities
that question or complain about this rule or any policy or action of
the Coast Guard.

4. Collection of Information

    This rule will not call for a new collection of information under
the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520).

5. Federalism

    A rule has implications for federalism under Executive Order 13132,
Federalism, if it has a substantial direct effect on the States, on the
relationship between the national government and the States, or on the
distribution of power and responsibilities among the various levels of
government. We have analyzed this rule under that order and determined
that this rule does not have implications for federalism.

6. Protest Activities

    The Coast Guard respects the First Amendment rights of protesters.
Protesters are asked to contact the person listed in the FOR FURTHER
INFORMATION CONTACT section to coordinate protest activities so that
your message can be received without jeopardizing the safety or
security of people, places, or vessels.

7. Unfunded Mandates Reform Act

    The Unfunded Mandates Reform Act of 1995 (2 U.S.C. 1531-1538)
requires Federal agencies to assess the effects of their discretionary
regulatory actions. In particular, the Act addresses actions that may
result in the expenditure by a State, local, or tribal government, in
the aggregate, or by the private sector of $100,000,000 (adjusted for
inflation) or more in any one year. Though this rule will not result in
such an expenditure, we do discuss the effects of this rule elsewhere
in this preamble.

8. Taking of Private Property

    This rule will not cause a taking of private property or otherwise
have taking implications under Executive Order 12630, Governmental
Actions and Interference with Constitutionally Protected Property
Rights.

9. Civil Justice Reform

    This rule meets applicable standards in sections 3(a) and 3(b)(2)
of Executive Order 12988, Civil Justice Reform, to minimize litigation,
eliminate ambiguity, and reduce burden.

10. Protection of Children

    We have analyzed this rule under Executive Order 13045, Protection
of Children from Environmental Health Risks and Safety Risks. This rule
is not an economically significant rule and does not create an
environmental risk to health or risk to safety that may
disproportionately affect children.

11. Indian Tribal Governments

    This rule does not have tribal implications under Executive Order
13175, Consultation and Coordination with Indian Tribal Governments,
because it does not have a substantial direct effect on one or more
Indian tribes, on the relationship between the Federal Government and
Indian tribes, or on the distribution of power and responsibilities
between the Federal Government and Indian tribes.

12. Energy Effects

    This action is not a ``significant energy action'' under Executive
Order 13211, Actions Concerning Regulations That Significantly Affect
Energy Supply, Distribution, or Use.

13. Technical Standards

    This rule does not use technical standards. Therefore, we did not
consider the use of voluntary consensus standards.

14. Environment

    We have analyzed this rule under Department of Homeland Security
Management Directive 023-01 and Commandant Instruction M16475.lD, which
guide the Coast Guard in complying with the National Environmental
Policy Act of 1969 (NEPA) (42 U.S.C. 4321-4370f), and have determined
that this action is one of a category of actions that does not
individually or cumulatively have a significant effect on the human
environment. This rule involves the establishment of a safety zone and
is therefore categorically excluded from further review under paragraph
34(g) of Figure 2-1 of the Commandant Instruction. An environmental
analysis checklist supporting this determination and a Categorical
Exclusion Determination are available in the docket where indicated
under ADDRESSES. We seek any comments or information that may lead to
the discovery of a significant environmental impact from this rule.

List of Subjects in 33 CFR Part 165

    Harbors, Marine safety, Navigation (water), Reporting and
recordkeeping requirements, Security measures, Waterways.

    For the reasons discussed in the preamble, the Coast Guard amends
33 CFR part 165 as follows:

PART 165--REGULATED NAVIGATION AREAS AND LIMITED ACCESS AREAS

0
1. The authority citation for part 165 continues to read as follows:

    Authority:  33 U.S.C. 1231; 50 U.S.C. 191; 33 CFR 1.05-1, 6.04-
1, 6.04-6, and 160.5; Department of Homeland Security Delegation No.
0170.1.

0
2. Add Sec.  165.T09-0618 to read as follows:

Sec.  165.T09-0618  Safety Zone; Red Bull GRC Detroit, Detroit River,
Detroit, MI.

    (a) Location. The following area is a temporary safety zone: U.S.
navigable waters of the Detroit River from the Belle Isle Bridge to
position: 42[deg]19'58.60'' N., 083[deg]0'38.47'' W. (NAD 83).
    (b) Enforcement periods. The safety zone described in paragraph (a)
of this section will be enforced from 1:30 p.m. through 4:30 p.m. each
day on July 25 and 26, 2015.
    (c) Regulations. (1) In accordance with the general regulations in
Sec.  165.23, entry into, transiting, or anchoring within this safety
zone is prohibited unless authorized by the Captain of the Port Detroit
or his on-scene representative.
    (2) The safety zone is closed to all vessel traffic, except as may
be permitted by the Captain of the Port Detroit or his on-scene
representative.
    (3) The ``on-scene representative'' of the Captain of the Port
Detroit is any Coast Guard commissioned, warrant or petty officer or a
Federal, State, or local law enforcement officer designated by or
assisting the Captain of the Port Detroit to act on his behalf.
    (4) Vessel operators desiring to enter or operate within the safety
zone shall contact the Captain of the Port Detroit or his on-scene
representative to obtain permission to do so. The Captain of the Port
Detroit or his on-scene representative may be contacted via VHF Channel
16 or at<PHONE_NUMBER>. Vessel operators given permission to enter or
operate in the safety zone must comply with all directions given to
them by the Captain of the Port Detroit or his on-scene representative.

    Dated: July 13, 2015.
Scott B. Lemasters,
Captain, U.S. Coast Guard, Captain of the Port Detroit.
[FR Doc. 2015-18201 Filed 7-23-15; 8:45 am]
 BILLING CODE 9110-04-P