
[Federal Register Volume 79, Number 8 (Monday, January 13, 2014)]
[Notices]
[Pages 2224-2229]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-00337]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-71252; File No. SR-NYSEMKT-2013-106]


Self-Regulatory Organizations; NYSE MKT LLC; Notice of Filing and 
Immediate Effectiveness of Proposed Rule Change Amending NYSE Rule 
928NY To Expand the Scope of the Existing Risk Limitation Mechanism To 
Address Multiple, Successive Triggers of the Risk Limitation Mechanism

January 7, 2014.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby 
given that on December 26, 2013, NYSE MKT LLC (the ``Exchange'' or 
``NYSE MKT'') filed with the Securities and Exchange Commission (the 
``Commission'') the proposed rule change as described in Items I, II, 
and III below, which Items have been prepared by the self-regulatory 
organization. The Commission is publishing this notice to solicit 
comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C.78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend NYSE Rule 928NY to expand the scope 
of the existing Risk Limitation Mechanism to address multiple, 
successive triggers of the Risk Limitation Mechanism. The text of the 
proposed rule change is available on the Exchange's Web site at 
www.nyse.com, at the principal office of the Exchange, and at the 
Commission's Public Reference Room.

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

    In its filing with the Commission, the self-regulatory organization 
included statements concerning the purpose of, and basis for, the 
proposed rule change and discussed any comments it received on the 
proposed rule change. The text of those statements may be examined at 
the places specified in Item IV below. The Exchange has prepared 
summaries, set forth in sections A, B, and C below, of the most 
significant parts of such statements.

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

1. Purpose
    The Exchange proposes to amend NYSE Rule 928NY to expand the scope 
of the existing Risk Limitation Mechanism to address multiple, 
successive triggers of the Risk Limitation Mechanism.
Overview
    The Exchange has in place a risk-limitation system that is designed 
to help Market Makers and non-Market Maker ATP Holders (collectively, 
referred to herein as ``dealers'') better manage risk during periods of 
increased and significant trading activity. The three existing Risk 
Limitation Mechanisms (described below) are designed to mitigate the 
potential risks of multiple executions against a dealer's trading 
interest that, in today's highly automated and electronic trading 
environment, can occur simultaneously across multiple series and 
multiple option classes. In operation, under current Rule 928NY, when a 
dealer has triggered a Risk Limitation Mechanism in a given option 
class (by breaching preset thresholds), the Exchange will cancel all 
resting quotes and/or certain orders and will reject all subsequent 
quotes and/or certain orders in the affected option class (underlying 
symbol) until the dealer submits a message to the Exchange requesting 
to re-enable the entry of quotes or certain orders. This temporary 
suspension from

[[Page 2225]]

the market in the affected option classes (specifically as relates to 
quoting or certain orders) is meant to operate as a safety valve that 
forces dealers to re-evaluate their positions before requesting to re-
enter the market.
    As discussed below, the Exchange believes that the majority of 
dealers that avail themselves of the Risk Limitation Mechanism utilize 
automated, system-generated messages to request that the Exchange re-
enable the entry of their quotes or certain orders after triggering the 
Risk Limitation Mechanism. Provided the dealer does not experience 
multiple triggers of the Risk Limitation Mechanism in rapid succession, 
the Exchange believes the automated re-enable message is sufficient.
    The goal of the current proposal is to address circumstances where 
a dealer experiences multiple, successive triggers of the Risk 
Limitation Mechanism, which the Exchange believes would be indicative 
of the dealer experiencing a bona fide problem (i.e., a potential 
system error). Thus, when a dealer experiences multiple, successive 
triggers of the Risk Limitation Mechanism, the Exchange proposes a two-
pronged remedial response. First, the Exchange would cancel all of the 
dealer's quotes or Applicable Orders (defined below)--as opposed to 
cancelling only those quotes or certain orders in the option class 
(underlying symbol) in which the dealer triggered the Risk Limitation 
Mechanisms. Second, the Exchange would require that the dealer make 
non-automated contact with the Exchange to re-enable the submission of 
the dealer's quotes or Applicable Orders.\4\
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    \4\ The Exchange will include as part of a Trader Update 
appropriate contact information to be used by dealers when 
requesting to re-enable the entry of quotes and orders.
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    The Exchange believes that the proposed enhancement to current Rule 
928NY would help maintain a fair and orderly market because it would 
suspend all of the dealers' quoting or trading in certain orders 
following multiple, successive triggers of the Risk Limitation 
Mechanism and would require non-automated contact with the Exchange 
before this suspension is lifted. The proposed modifications would 
therefore encourage increased attention by dealers to their risk 
tolerance and related controls. The Exchange is also proposing these 
modifications in response to requests from its clients and believes the 
changes will assist these clients in better managing their risks.
Existing Risk Limitation Mechanism
    The Exchange first adopted a risk-limitation system, as embodied in 
Rule 928NY, to manage risk during periods of increased and significant 
trading activity.\5\ The prior version of the Rule provided only a 
Transaction-Based Risk Limitation Mechanism that applied solely to 
Market Maker quotes.
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    \5\ See Securities Exchange Act Release No. 59472 (February 27, 
2009), 74 FR 9843 (March 6, 2009) (SRNYSEALTR-2008-14).
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    In 2012, in response to an increasingly automated and electronic 
trading environment, the Exchange adopted the risk protections afforded 
under current Rule 928NY (Risk Limitation Mechanism).\6\ Current Rule 
928NY expanded upon the earlier version by extending the transaction-
based limitation mechanism to orders from Market Makers as well as to 
orders from non-Market Maker ATP Holders (``non-Market Makers'') \7\ 
and providing for two additional risk limitation mechanisms--a volume-
based mechanism and a percentage-based mechanism (collectively, the 
``Risk Limitation Mechanisms''). In addition to applying to all Market 
Maker quotes, the existing Risk Limitation Mechanisms apply to dealers' 
orders submitted via ArcaDirect and those designated as one of two 
``post no preference'' order types--specifically, PNP and PNP-Blind, 
which account for upwards of ninety-five percent of order flow to the 
Exchange (collectively, the ``Applicable Orders'').\8\ Each Risk 
Limitation Mechanism is designed to measure a dealer's risk exposure 
within a time period specified by the Exchange, based on either the 
number of trades executed by the dealer (the ``Transaction-Based Risk 
Limitation Mechanism''); the number of contacts entered by the dealer 
(the ``Volume-Based Transaction-Based Risk Limitation Mechanism''); or 
the percentage of a dealer's quoted size that gets traded (the 
``Percentage-Based Risk Limitation Mechanism'').
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    \6\ See Securities Exchange Act Release No. 34-67713 (August 22, 
2012), 77 FR 167 (August 28, 2012) (SR-NYSEMKT-2012-39). The Risk 
Limitation Mechanisms as set forth in current Rule 928NY (and the 
proposal described herein) are only applicable to electronic trading 
on the Exchange.
    \7\ The Exchange specified within Rule 928NY(a) that non-Market 
Maker ATP Holders would be referred to as ``non-Market Makers'' for 
purposes of Rule 928NY.
    \8\ See paragraphs (p) and (x) of Rule 900.3 (Orders Defined), 
respectively. The Exchange notes that the rule is currently silent 
as to the source and order types that are subject to the Risk 
Limitation Mechanisms. The Exchange therefore proposes to modify 
Commentary .07 to Rule 928NY to identify the source and the order 
types to which the existing (and modified) Risk Limitation 
Mechanisms apply and would announce via Trader Update any changes to 
these source(s) or order types. Similarly, for the sake of clarity, 
the Exchange proposes to replace ``order'' with ``Applicable Order'' 
in existing paragraphs (b), (c), (d) and (e) to Rule 928NY, and 
elsewhere in the rule as necessary.
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    Per current Rule 928NY(a), the Exchange utilizes Trade Counters, 
based on trading permit identification (or ``TPID''), to determine when 
a Risk Limitation Mechanism has been triggered. The dealer selects from 
within a range specified by the Exchange individual risk parameters 
that, if breached, will trigger the selected Risk Limitation 
Mechanism.\9\
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    \9\ Per current Commentary .03 to Rule 928NY, the Exchange will 
not (i) specify a minimum setting of less than one or a maximum 
setting of more than 100 for the Transaction-Based Risk Limitation 
Mechanism; (ii) specify a minimum setting of less than 20 or a 
maximum setting of more than 5,000 for the Volume-Based Risk 
Limitation Mechanism; or (iii) specify a minimum setting of less 
than 100 or a maximum setting of more than 2,000 for the Percentage-
Based Risk Limitation Mechanism. The Exchange proposes to amend 
Commentary .03 to Rule 928NY to reflect that any changes to these 
settings would be announced to dealers via Trader Update, rather 
than Regulatory Bulletin.
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    Per Commentary .08 to the Rule, while the existing Risk Limitation 
Mechanisms apply to quotes and Applicable Orders from Market Makers and 
non-Market Makers, use of this risk-limitation feature is mandated only 
for Market Makers' quotes.\10\ Thus, Market Makers are required to 
activate one of the three Risk Limitation Mechanisms at all times for 
their quotes for each class in their appointment. However, the existing 
Risk Limitation Mechanisms are entirely voluntary for Applicable Orders 
submitted by Market Makers and non-Market Makers. With respect to the 
Applicable Orders, Market Makers and non-Market Makers have the option 
of availing themselves of one of the three Risk Limitation Mechanisms 
for some or all of the option classes in which they trade/provide 
quotes.\11\ A Market Maker may activate one Risk Limitation Mechanism 
for its quotes and a different Risk Limitation Mechanism for its

[[Page 2226]]

Applicable Orders, even if both are activated for the same class.
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    \10\ When first implemented, Rule 928NY was entitled ``Market 
Maker Risk Limitation Mechanism-OX'', and applied solely to--and was 
mandated for--Market Maker quotes. However, when the rule was 
revised in 2012, and the risk-limitation functionality was expanded 
to cover Applicable Orders as well as quotes, the changes to the 
title of the rule and the accompanying rule text did not make 
entirely clear that the Risk Limitation Mechanism is required for 
all Market Maker quotes. Thus, as proposed, new Commentary .04 will 
state that use of the Risk Limitation Mechanism is mandated only for 
Market Maker quotes and is otherwise optional.
    \11\ With respect to Applicable Orders submitted by dealers, the 
Exchange has included in current Rule 928NY the concept of a 
``specified class'' to indicate the option class(es) for which a 
Risk Limitation Mechanism is activated; if a dealer does not 
identify any ``specified class,'' none of the Risk Limitation 
Mechanisms will be activated.
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    Per current Rule 928NY (e), and Commentary .01 to the Rule, once a 
dealer's specified risk exposure is exceeded within the time period 
specified by the Exchange (as tracked by the Trade Counter), the Risk 
Limitation Mechanism is triggered and the System automatically cancels 
electronic Applicable Orders or quotes by generating a ``bulk cancel'' 
message.\12\ Per Commentary .01, the bulk cancel message is processed 
in time priority with any other quote, order or other message received 
by the System.\13\ Thus, any quotes or orders that match with a Market 
Maker's quote or with a dealers' [sic] Applicable Orders that were 
received by the System prior to the receipt of the bulk cancel message 
would be automatically executed. Similarly, quotes or orders received 
by the System after receipt of the bulk cancel message would not be 
executed against the cancelled quotes or Applicable Orders. In this 
regard, Rule 6.40--in its current form and as proposed--would not 
relieve dealers of their ``firm quote'' obligations under Rule 602 of 
Regulation NMS \14\ or Rule 970NY. Furthermore, the proposed rule 
change would not relieve Market Makers of their quoting obligations 
under the Exchange's Rules.\15\
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    \12\ See Rule 928NY(b)(1)-(3); (c) (1)-(3); and (d) (1)-(3).
    \13\ As previously noted, for the sake of clarity, the Exchange 
proposes to revise the rule text to utilize ``Applicable Order'' 
rather than ``order'' where necessary.
    \14\ 17 CFR 242.602.
    \15\ See, e.g., Rule 925NY.
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    A dealer that has been suspended from quoting or submitting 
Applicable Orders in the affected class, pursuant to current Rule 
928NY(e), may only re-enter the market by submitting a message to the 
Exchange requesting re-entry and, until such message is submitted, any 
subsequent quotes or Applicable Orders will be rejected by the 
Exchange.\16\ The intended purpose of this forced suspension from 
quoting and from certain trading in the affected class is to afford the 
dealer an opportunity to evaluate its positions before opting to re-
enter the market.
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    \16\ See Rule 928NY(e), and Commentary .01.
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    In practice, the Exchange has received responses to bulk cancel 
messages from dealers requesting to re-enter the market within as few 
as two milliseconds. This rapid response time leads the Exchange to 
conclude that the messages being submitted in response to the bulk 
cancel messages are automated, system-generated messages. The effect of 
this apparent automation is that dealers that are effectively kicked 
out of the market (for their quotes or Applicable Orders) in the 
affected class for triggering the Risk Limitation Mechanism can re-
enter the market within milliseconds. The Exchange believes that an 
automated response is sufficient, provided the dealer does not 
experience multiple triggers of the Risk Limitation Mechanism in rapid 
succession.
    Under current Rule 928NY there is no mechanism for addressing 
multiple, successive triggers of the Risk Limitation Mechanisms within 
a time period specified by the Exchange, which could be particularly 
problematic for dealers if the markets turns in an unexpected 
direction.
Proposed Changes to Risk Limitation Mechanism
    The Exchange proposes to modify Rule 928NY to address circumstances 
where a dealer experiences multiple, successive triggers of the Risk 
Limitation Mechanism. The Exchange proposes a two-pronged remedial 
response. First, the Exchange would cancel all of the dealer's quotes 
or Applicable Orders (defined below)--as opposed to cancelling only 
those quotes or certain orders in the option class (underlying symbol) 
in which the dealer triggered the Risk Limitation Mechanism. Second, 
the Exchange would require that the dealer make non-automated contact 
with the Exchange to re-enable the submission of the dealer's quotes or 
certain orders
    Proposed Rule 928NY(a)(2) would provide for a ``trigger counter'' 
that (similar to the Trade Counter, which serves as the basis for 
determining whether a Risk Limitation Mechanism has been triggered) 
would track the number of times that a dealer has triggered any of the 
Risk Limitation Mechanisms pursuant to current Rule 928NY(b), (c), or 
(d).\17\
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    \17\ This proposed addition would require that current Rule 
929NY (a) be renamed from ``Trade Counter'' to ``Counters,'' and 
renumbered such that ``Trade Counter'' would be numbered as proposed 
Rule 928NY(a)(1). The Exchange also proposes to amend paragraph (a) 
to refer to ``Applicable Orders,'' as referenced in Commentary .07 
to the Rule (instead of ``orders'') to make clear which orders are 
subject to the Risk Limitation Mechanisms.
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    Proposed Rule 928NY(f) outlines the actions that the System would 
take if the trigger counter indicates that any of the Risk Limitation 
Mechanisms have been triggered in excess of the number of times 
specified by the dealer (within a parameter set by the Exchange, as 
noted below) within the time period specified by the Exchange. In 
short, once a dealer has exceeded the number of triggers of the Risk 
Limitation Mechanisms, pursuant to paragraph (f) of Rule 928NY, all 
Applicable Orders or quotes by a Market Maker or all Applicable Orders 
by a non-Maker Maker would be cancelled.
    Specifically, per proposed Rule 928NY(f)(1), if the Risk Limitation 
Mechanism is triggered pursuant to paragraph (b)(1), (c)(1) or (d)(1) 
to this Rule, the System would automatically cancel all of the non-
Market Maker's Applicable Orders, regardless of which specified class 
caused the underlying trigger of the Risk Limitation Mechanism. Per 
proposed Rule 928NY(f)(2), if the Risk Limitation Mechanism is 
triggered pursuant to paragraph (b)(2), (c)(2) or (d)(2) to this Rule, 
the System would automatically cancel all of the Market Maker's 
Applicable Orders, regardless of which specified class caused the 
underlying trigger of the Risk Limitation Mechanism. And, per proposed 
Rule 928NY(f)(3), if the Risk Limitation Mechanism is triggered 
pursuant to paragraph (b)(3), (c)(3) or (d)(3) to this Rule, the System 
would automatically cancel all of the Market Maker's quotes, regardless 
of which appointed class caused the underlying trigger of the Risk 
Limitation Mechanism.
    The difference between the existing Risk Limitation Mechanism 
versus the proposed enhancement is the cancellation of all of a 
dealer's Applicable Orders or quotes upon breach of proposed paragraph 
(f) to Rule 928NY. Thus, if a dealer triggers a Risk Limitation 
Mechanism, pursuant to paragraph (e) of current Rule 928NY, only the 
dealer's quotes or Applicable Orders in the option class that triggered 
the Risk Limitation Mechanism would be cancelled by the Exchange; 
whereas if a dealer breaches proposed paragraph (f) of Rule 928NY, by 
engaging in multiple triggers of the Risk Limitation Mechanism in a 
time period specified by the Exchange, all of that dealer's Applicable 
Orders or quotes in any option class(es) submitted that day would be 
cancelled--not just the Applicable Orders or quotes in the option 
class(es) that led to the most recent trigger of the Risk Limitation 
Mechanism.\18\ The Exchange believes

[[Page 2227]]

that this modification--to temporarily suspend quoting or Applicable 
Orders in all classes actively traded by the dealer--would strengthen 
the efficacy of the existing Risk Limitation Mechanisms by providing 
dealers with increased sensitivity in setting risk tolerance and 
controls.
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    \18\ The cancellation will only apply to those quotes or 
Applicable Orders submitted by the dealer that trading day. With 
respect to the cancellation of all Applicable Orders, pursuant to 
proposed paragraph (f) to Rule 928NY, this would include a 
cancellation of Applicable Orders in option classes for which the 
dealer may not have opted to utilize a Risk Limitation Mechanism. 
Thus, even though dealers are not required to subject all option 
classes traded to this risk-limitation feature, a breach of proposed 
paragraph 928NY(f) would affect all Applicable Orders in all option 
classes traded that day.
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    Pursuant to proposed Commentary .01 to Rule 928NY, upon breaching 
proposed paragraph (f) of Rule 928NY, the System would automatically 
cancel electronic Applicable Orders or quotes by generating a ``bulk 
cancel'' message--just as the system currently does in the event of a 
breach of the Risk Limitation Mechanism (i.e., current paragraph (e) of 
Rule 928NY).\19\ In addition to the bulk cancel message, the System 
would generate an alert message providing notice that the dealer has 
exceeded the number of triggers of the Risk Limitation Mechanisms, 
pursuant to paragraph (f) of Rule 928NY.
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    \19\ Relatedly, the Exchange also proposes to amend Commentary 
.08 to Rule 928NY regarding the cancellation of Applicable Orders to 
make it pertinent to paragraph (f), in addition to its current 
application to paragraph (e) to Rule 928NY.
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    The Exchange also proposes to amend current Commentary .02 to Rule 
928NY to reflect that the Exchange would (and does) accept automated 
messages from dealers requesting the re-enabling of quotes or 
Applicable Orders, following a breach of paragraph (e). The Exchange 
believes that this proposed change would add transparency to the 
functioning of the Exchange and the types of messages it would accept 
when a Risk Limitation Mechanism is triggered pursuant to paragraph (e) 
of the Rule.
    The Exchange proposes to further amend current Commentary .02 to 
Rule 928NY to require that, upon a dealer's breach of proposed 
paragraph (f) to current Rule 928NY, the dealer would have to make non-
automated contact with the Exchange to enable the entry of all new 
Applicable Orders or quotes, which had been cancelled pursuant to 
proposed paragraph (f).\20\ The Exchange believes that requiring this 
additional, non-automated contact will strengthen the efficacy of the 
existing Risk Limitation Mechanisms by providing dealers with increased 
sensitivity in setting risk tolerance and controls.
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    \20\ Specifically, proposed Commentary .03 to Rule 928NY 
provides that ``[i]f any of the Risk Limitation Mechanisms are 
triggered pursuant to paragraphs (f)(1) or (f)(2) of Rule 928NY, any 
Applicable Orders sent by the non-Market Maker or Market Maker, 
respectively, in any class, shall be rejected until the non-Market 
Maker or Market Maker makes non-automated contact with the Exchange 
to enable the entry of new Applicable Orders. If any of the Risk 
Limitation Mechanisms are triggered pursuant to Rule 928NY(f)(3), 
any quotes sent by the Market Maker, in any class, shall be rejected 
until the Market Maker makes non-automated contact with the Exchange 
to enable the entry of new quotes.''
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    Pursuant to proposed Commentary .03 to Rule 928NY, the Exchange 
would specify via Trader Update the applicable range within which 
dealers could select the number of times the Risk Limitation Mechanism 
could be triggered before breaching proposed paragraph (f) to Rule 
928NY, but this setting would not be less than a minimum of one and a 
maximum of 100. The Exchange believes that setting the parameters 
within this broad range would provide dealers with ample flexibility in 
setting their tolerance for risk. Those dealers with a lower risk 
tolerance or those that may be prone to multiple, successive triggers 
of the Risk Limitation Mechanisms in shorter periods of time, may opt 
to select a number of triggers on the lower end of the range, thereby 
optimizing the protection afforded by this proposed rule change, while 
those dealers with a higher risk tolerance or that are less likely to 
experience multiple, successive triggers of the Risk Limitation 
Mechanism, may select the maximum allowable triggers to decrease the 
protections afforded by the proposed rule change. Moreover, while the 
Exchange retains discretion with respect to the levels at which it 
could adjust these settings, the Exchange would not be permitted to 
adjust the settings below the minimum or maximum proposed, which, the 
Exchange believes would reasonably ensure that the settings are at all 
times within a reasonable range.
    Consistent with current Commentary .03 to Rule 928NY, the 
applicable time period within which dealers would select the number of 
triggers before breaching proposed paragraph (f) to Rule 928NY would 
not be less 100 milliseconds, unless otherwise announced by the 
Exchange. The Exchange believes that specifying the applicable minimum, 
maximum and/or default settings via Trader Update, including any 
changes thereto in the future designed to ensure that the mechanisms 
work as intended, would be consistent with the manner in which the 
Exchange has communicated any changes to the existing Risk Limitation 
Mechanism settings and is consistent with the manner in which the 
Commission currently permits option exchanges to communicate settings 
or parameters for various exchange mechanisms to their members other 
than through the rule filing process, i.e., via notices, bulletins or 
circulars.\21\
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    \21\ See, e.g., Securities Exchange Act Release No. 34-70037 
(July 25, 2013); 78 FR 147 (July 31, 2013) (SR-NYSEMKT-2013-62) 
(Rule 967NY, which applies a trade collar mechanism to prevent the 
immediate execution of certain incoming orders outside of a 
specified parameter (referred to as a ``Trading Collar'') and 
provides that changes to the Trading Collar may be announced by 
Trader Update. See also BOX Options Exchange LLC (``BOX'') Rule 
8140, which provides that, related to BOX's Quote Removal Mechanism 
Upon Technical Disconnect, BOX Market Makers will be notified of the 
value that ``n'' seconds represents via Regulatory Circular. See 
also Securities Exchange Act Release No. 58140 (July 10, 2008), 73 
FR 41384 (July 18, 2008) (SR-BSE-2008-40), in which the Commission 
noted that ``n'' seconds would be configurable by BOX and any 
subsequent re-configurations will be announced to Market Makers via 
Regulatory Circular. See also Interpretation and Policy .05 to 
Chicago Board Options Exchange (``CBOE'') Rule 6.74A, which provides 
that any determinations made by CBOE regarding CBOE's Automated 
Improvement Mechanism, such as eligible classes, order size 
parameters and the minimum price increment for certain responses, 
shall be communicated in a Regulatory Circular. See also CBOE Rule 
6.13(b)(i)(C)(2)(a), which provides that CBOE may establish certain 
maximum order size eligibility requirements with respect to 
automatic executions and announce such determinations via Regulatory 
Circular.
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    The Exchange also proposes at this time to make a procedural change 
for making announcements regarding functionality associated with the 
Risk Limitation Mechanism. Presently the Exchange issues Regulatory 
Bulletins when making such announcements. Going forward, the Exchange 
proposes to issue a Trader Update in lieu of a Regulatory Bulletin. 
Regulatory Bulletins generally contain information regarding legal and 
regulatory matters while Trader Updates deal with issues such as 
trading, systems changes and real-time market announcements. The 
Exchange believes that it is more appropriate to make announcements 
regarding the Risk Limitation Mechanism via Trader Update. Trader 
Updates, like Regulatory Bulletins, are electronically distributed to 
all ATP Holders and are posted on the Exchange's Web site. Accordingly, 
the Exchange proposes amended current Commentaries .03 and .07 to Rule 
928NY by replacing references to ``Regulatory Bulletin'' with ``Trader 
Update.'' Should the Exchange make a change to the Risk Limitation 
Mechanism settings, for example to accommodate changes in market 
conditions or the technology needs and considerations of dealers, the 
Exchange would issue a Trader Update at least one trading day in 
advance of the settings becoming effective, which would give dealers 
notice and opportunity to make any necessary adjustments to their risk 
settings.
    Pursuant to proposed Commentary .04 to Rule 928NY, those dealers 
that utilize any of the Risk Limitation Mechanisms would be 
automatically subject to proposed paragraph (f) to Rule 928NY. Thus, 
while the Risk Limitation

[[Page 2228]]

Mechanism is optional for each dealer's Applicable Orders, once a 
dealer avails itself of the Risk Limitation Mechanism for some of the 
option classes in which it trades, all of the option classes in which 
that dealer trades would be subject to the proposed rule change.\22\
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    \22\ Market Makers are required to utilize the Risk Limitation 
Mechanism for all of their quotes and therefore all quotes would be 
subject to the proposed change.
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    Pursuant to proposed Commentary .06 to Rule 928NY, absent a breach 
pursuant to Rule 928NY(f), the trigger counter (which would serve as 
the basis for determining a breach of proposed paragraph (f)) would be 
automatically reset and would commence a new count for dealers (1) when 
a time period specified by the Exchange elapses; or (2) following any 
intraday update to configurable thresholds, as provided in Commentary 
.03 to this Rule 928NY. Per proposed Commentary .06 to Rule 928NY, in 
the event of a breach pursuant to proposed Rule 928NY(f), the trigger 
counter would be reset and would commence a new count when the affected 
dealer makes non-automated contact with the Exchange to enable the 
entry of new Applicable Orders or quotes, as provided in proposed 
Commentary .02 to Rule 928NY.
    The Exchange believes that the proposed change to current Rule 
928NY will enhance the existing Risk Limitation Mechanisms and enable 
the Exchange to aid in mitigating the potential risks of multiple 
executions against a dealer's trading interest that, in today's highly 
automated and electronic trading environment, can occur simultaneously 
across multiple series and multiple option classes.
Implementation
    The Exchange will announce the implementation date of the proposed 
rule change by Trader Update to be published no later than 60 days 
following the effective date of this filing. The implementation date 
will be no later than 60 days following the issuance of the Trader 
Update.
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''), in general, and 
furthers the objectives of Section 6(b)(5) \23\ which requires the 
rules of an exchange to prevent fraudulent and manipulative acts and 
practices, to promote just and equitable principles of trade, to remove 
impediments to and perfect the mechanism of a free and open market and 
a national market system and, in general, to protect investors and the 
public interest.
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    \23\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes that the proposed rule change removes 
impediments to and perfects the mechanism of a free and open market by 
providing dealers with greater control and flexibility over setting 
their risk tolerance and more protection over risk exposure, if the 
market moves in an unexpected direction.
    Specifically, the Exchange believes that cancelling all quotes or 
Applicable Orders and requiring dealers to make non-automated contact 
with the Exchange following multiple, successive triggers of the Risk 
Limitation Mechanism allows dealers to be sensitive to the rapid 
trading that occurs in today's highly automated and electronic trading 
environment. This increased sensitivity will enable dealers to avoid 
transacting against their interests and will help to ensure that 
executions will not occur at erroneous prices, thereby removing 
impediments to and promoting a fair and orderly market.
    Moreover, the Exchange believes that the proposal is consistent 
with the protection of investors and the public interests because it 
will permit dealers to better manage the potential risks of multiple 
executions against a dealer's proprietary interest that, in today's 
highly automated and electronic trading environment, can occur 
simultaneously across multiple series and multiple option classes. 
Consistent with the ability to better manage risk, the Exchange 
anticipates that the proposed enhancement to the existing Risk 
Limitation Mechanism could likewise enhance the Exchange's overall 
market quality as a result of narrowed quote widths and increased 
liquidity for series traded on the Exchange, which would benefit 
investors and the public interest. As with the intent of the existing 
Risk Limitation Mechanism, the Exchange believes that the proposed 
modifications to Rule 928NY would further assist dealers in providing 
aggressive quotes and increased liquidity, thus improving overall 
market quality on the Exchange for the benefit of all investors and the 
public.

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 competition that is not necessary or appropriate 
in furtherance of the purposes of the Act. The Exchange is proposing a 
market enhancement that would provide dealers with greater control and 
flexibility over setting their risk tolerance and more protection over 
risk exposure, if the market moves in an unexpected direction. The 
Exchange believes the proposal would provide market participants with 
additional protection from erroneous executions. The proposal is 
structured to offer the same enhancement to all dealers, regardless of 
size, and would not impose a competitive burden on any participant. The 
Exchange does not believe that the proposed enhancement to the existing 
risk limitation mechanism would impose a burden on competing options 
exchanges. Rather, the availability of this mechanism may foster more 
competition. Specifically, the Exchange notes that it operates in a 
highly competitive market in which market participants can readily 
favor competing venues. When an exchange offers enhanced functionality 
that distinguishes it from the competition and participants find it 
useful, it has been the Exchange's experience that competing exchanges 
will move to adopt similar functionality. Thus, the Exchange believes 
that this type of competition amongst exchanges is beneficial to the 
market place as a whole as it can result in enhanced processes, 
functionality, and technologies.

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

    No written comments were solicited or received with respect to the 
proposed rule change.

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

    The Exchange has filed the proposed rule change pursuant to Section 
19(b)(3)(A)(iii) of the Act \24\ and Rule 19b-4(f)(6) thereunder.\25\ 
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.
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    \24\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \25\ 17 CFR 240.19b-4(f)(6).
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    At any time within 60 days of the filing of such proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if

[[Page 2229]]

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) \26\ of the Act to determine whether the proposed 
rule change should be approved or disapproved.
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    \26\ 15 U.S.C. 78s(b)(2)(B).
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IV. Solicitation of Comments

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

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-NYSEMKT-2013-106 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-NYSEMKT-2013-106. 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 the filing also will be available 
for inspection and copying at the principal office of the Exchange. All 
comments received will be posted without change; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File Number SR-NYSEMKT-2013-106 and should 
be submitted on or before February 3, 2014.
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    \27\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\27\
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-00337 Filed 1-10-14; 8:45 am]
BILLING CODE 8011-01-P


