
[Federal Register Volume 80, Number 156 (Thursday, August 13, 2015)]
[Notices]
[Pages 48577-48583]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-19871]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-75641; File No. SR-NYSEArca-2015-65]


Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change Amending Rule 6.15 
To Establish Exchange Rules Governing the Give Up of a Clearing Member 
by Options Trading Permit Holders and OTP Firms and Conforming Changes 
to Rules 6.66 and 6.79

August 7, 2015.
    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 July 27, 2015, NYSE Arca, Inc. (the ``Exchange'' or 
``NYSE Arca'') filed with the Securities and Exchange Commission (the 
``Commission'') the proposed rule change as described in Items I and II 
below, which Items have been prepared by the self-regulatory 
organization. The Commission is publishing this notice to solicit 
comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C.78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend Rule 6.15 to establish Exchange 
rules governing the give up of a Clearing Member by Options Trading 
Permit Holders and OTP Firms and proposes conforming changes to Rules 
6.66 and 6.79. 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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to amend Rule 6.15 to establish Exchange 
rules governing the ``give up'' of a Clearing Member \4\ by Options 
Trading Permit Holders and OTP Firms (each an ``OTP,'' collectively, 
``OTPs''). In addition, the Exchange proposes changes to Rules 6.66 and 
6.79 to reflect proposed amendments to Rule 6.15. The Exchange believes 
that this proposal to include the give-up process in Exchange rules 
would result in the fair and reasonable use of resources by both the 
Exchange and OTPs. In addition, the proposed change would align the 
Exchange with competing options

[[Page 48578]]

exchanges that have recently adopted rules consistent with this 
proposal.\5\
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    \4\ Rule 6.1(3) defines ``Clearing Member'' as an Exchange OTP 
Firm or OTP Holder which has been admitted to membership in the 
Options Clearing Corporation pursuant to the provisions of the Rules 
of the Options Clearing Corporation.
    \5\ See Securities and Exchange Act Release No. 72668 (July 24, 
2014), 79 FR 44229 (July 30, 2014) (SR-CBOE-2014-048) (order 
approving proposed rule change relating to the ``give up'' process, 
the process by which a Trading Permit Holder ``gives up'' or selects 
and indicates the Clearing Trading Permit Holder responsible for the 
clearance of an Exchange transaction). See also Securities Exchange 
Act Release No. 72325 (June 5, 2014), 79 FR 33614 (June 11, 2014) 
(Notice). The Exchange notes that this proposal is a copycat filing, 
which is substantially similar in all material respects to the give-
up process approved on CBOE, except as noted herein. See infra n. 13 
(regarding rule text in amended Rule 6.15(f) explicitly describing 
procedures for Guarantors to reject a trade).
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    By way of background, to enter transactions on the Exchange, an OTP 
must either be a Clearing Member or must have a Clearing Member agree 
to accept financial responsibility for all of its transactions. 
Specifically, Rule 6.15 provides that every Clearing Member will be 
responsible for the clearance of Exchange option transactions of each 
OTP that gives up the Clearing Member's name in an Exchange option 
transaction, provided the clearing member has authorized such member or 
member organization to give up its name with respect to Exchange option 
transactions. Similarly, Rule 6.79 provides, in relevant part, that 
every Clearing Member will be responsible for the clearance of Exchange 
transactions of each OTP that gives up the Clearing Member's name 
pursuant to a Letter of Authorization, Letter of Guarantee, or other 
authorization given by the Clearing Member to the executing OTP. In 
addition, Rule 6.66(a) (Order Identification) provides that for each 
transaction in which an OTP participates, the OTP must give up the name 
of the Clearing Member through whom the transaction will be cleared. 
The Exchange has determined that it would be beneficial to amend Rule 
6.15 and specify in detail the give-up process and to modify Rules 6.66 
and 6.79, as described below. The Exchange believes the proposed 
changes would result in a more comprehensive streamlined give up 
process.
Designated Give Ups and Guarantors
    The Exchange proposes to amend current Rule 6.15 by replacing the 
current rule text \6\ with details regarding the give up procedure for 
OTPs executing transactions on the Exchange, and to re-title this rule 
``Give Up of a Clearing Member.'' \7\ As amended, Rule 6.15 would 
provide that an OTP may only give up a ``Designated Give Up'' or its 
``Guarantor,'' as those roles would be defined in the Rule.
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    \6\ See Rule 6.15 (Responsibility of Clearing OTP Holders and 
OTP Firms for Exchange Option Transactions) (``Every OTP Holder and 
OTP Firm which is a clearing member of the Options Clearing 
Corporation shall be responsible for the clearance of the Exchange 
option transactions of such OTP Holder and OTP Firm and of each OTP 
Holder and OTP Firm which gives up the name of such clearing member 
in an Exchange option transaction, provided the clearing member has 
authorized such OTP Holder and OTP Firm to give up its name with 
respect to Exchange option transactions.'').
    \7\ As discussed below, proposed paragraph (h) of amended Rule 
6.15 addresses and clarifies the financial responsibility of 
Clearing Members, and, as such, the Exchange believes the original 
rule text is rendered unnecessary.
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    Specifically, amended Rule 6.15 would introduce and define the term 
``Designated Give Up'' as any Clearing Member that an OTP (other than a 
Market Maker) \8\ identifies to the Exchange, in writing, as a Clearing 
Member the OTP requests the ability to give up. To designate a 
``Designated Give Up,'' an OTP must submit written notification to the 
Exchange, in a form and manner prescribed by the Exchange 
(``Notification Form''). A copy of the proposed Notification Form is 
included with this filing in Exhibit 3. Similarly, should an OTP no 
longer want the ability to give up a particular Designated Give Up, as 
proposed, the OTP would have to submit written notification to the 
Exchange, in a form and manner prescribed by the Exchange.
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    \8\ For purposes of this rule, references to ``Market Maker'' 
refer to OTPs acting in the capacity of a Market Maker and include 
all Exchange Market Maker capacities e.g., Lead Market Makers. As 
explained below, Market Makers give up Guarantors that have executed 
a Letter of Guarantee on behalf of the Marker Maker, pursuant to 
Rule 6.36; Market Makers need not give up Designated Give Ups.
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    The Exchange notes that, as proposed, an OTP may designate any 
Clearing Member as a Designated Give Up. Additionally, there would be 
no minimum or maximum number of Designated Give Ups that an OTP must 
identify. The Exchange would notify a Clearing Member, in writing and 
as soon as practicable, of each OTP that has identified it as a 
Designated Give Up. The Exchange, however, would not accept any 
instructions, and would not give effect to any previous instructions, 
from a Clearing Member not to permit an OTP to designate the Clearing 
Member as a Designated Give Up. Further, the Exchange notes that there 
is no subjective evaluation of an OTP's list of proposed Designated 
Give Ups by the Exchange. Rather, the Exchange proposes to process each 
list as submitted and ensure that the Clearing Members identified as 
Designated Give Ups are in fact current Clearing Members, as well as 
confirm that the Notification Forms are complete (e.g., contain 
appropriate signatures) and that the Options Clearing Corporation 
(``OCC'') numbers listed for each Clearing Member are accurate.
    As amended, Rule 6.15 would also define the term ``Guarantor'' as a 
Clearing Member that has issued a Letter of Guarantee or Letter of 
Authorization for the executing OTP, pursuant to Rules of the Exchange 
\9\ that is in effect at the time of the execution of the applicable 
trade. An executing OTP may give up its Guarantor without such 
Guarantor being a ``Designated Give Up.'' The Exchange notes that Rule 
6.36 provides that a Letter of Guarantee is required to be issued and 
filed by each Clearing Member through which a Market Maker clears 
transactions. Accordingly, a Market Maker would only be enabled to give 
up a Guarantor that had executed a Letter of Guarantee on its behalf 
pursuant to Rule 6.36. Thus, Market Makers would not identify any 
Designated Give Ups.
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    \9\ See Rule 6.36 (Letters of Guarantee); Rule 6.45 (Letters of 
Authorization).
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    As noted above, amended Rule 6.15 would provide that an OTP may 
give up only (i) the name of a Clearing Member that has previously been 
identified and processed by the Exchange as a Designated Give Up for 
that OTP, if not a Market Maker or (ii) its Guarantor.\10\ This 
proposed requirement would be enforced by the Exchange's trading 
systems. Specifically, the Exchange has configured its trading systems 
to only accept orders from an OTP that identifies a Designated Give Up 
or Guarantor for that OTP and would reject any order entered by an OTP 
that designates a give up that is not at the time a Designated Give Up 
or Guarantor of the OTP.\11\ The Exchange notes that it would notify an 
OTP in writing when an identified Designated Give Up becomes 
``effective'' (i.e., when a Clearing Member that has been identified by 
the OTP as a Designated Give Up has been enabled by the Exchange's 
trading systems to be given up). A Guarantor for an OTP, by virtue of 
having an effective Letter of Authorization or Letter of Guarantee on 
file with the Exchange, would be enabled to be given up for that OTP 
without any further action by the OTP. The Exchange notes that this 
configuration (i.e., the trading system accepting only orders that 
identify a Designated Give Up or Guarantor) is intended to help reduce 
``keypunch errors'' and prevent OTPs from mistakenly giving up the name 
of a

[[Page 48579]]

Clearing Member that it does not have the ability to give up a trade.
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    \10\ As described below, amended Rule 6.15(f) provides that a 
Designated Give Up or Guarantor may, under certain circumstances, 
reject a trade on which it is given up and another Clearing Member 
may agree to accept the subject trade.
    \11\ See id.
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Acceptance of a Trade
    The Exchange proposes in paragraph (e) of amended Rule 6.15 that a 
Designated Give Up and a Guarantor may, in certain circumstances, 
determine not to accept a trade on which its name was given up. If a 
Designated Give Up or Guarantor determines not to accept a trade, the 
proposed Rule would provide that it may reject the trade in accordance 
with the procedures described more fully below under ``Procedures to 
Reject a Trade.''
    As proposed, a Designated Give Up may determine to not accept a 
trade on which its name was given up so long as it believes in good 
faith that it has a valid reason not to accept the trade and follows 
the procedures to reject a trade in proposed paragraph (f) of the 
amended Rule.\12\
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    \12\ An example of a valid reason to reject a trade may be that 
the Designated Give Up does not have a customer for that particular 
trade.
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    The Exchange also proposes to provide that a Guarantor may opt to 
not accept (and thereby reject) a non-Market Maker trade on which its 
name was given up, provided that the following steps are completed: (i) 
Another Clearing Member agrees to be the give up on the trade; (ii) 
that other Clearing Member has notified both the Exchange and executing 
OTP in writing of its intent to accept the trade; and (iii) the 
procedures in Rule 6.15(f) are followed. In addition, the give up must 
be changed to the Clearing Member that has agreed to accept the trade 
in accordance with the procedures in paragraph (f) of Rule 6.15. A 
Guarantor may not reject a trade given up by a Market Maker.
    The Exchange notes that only a Designated Give Up or Guarantor 
whose name was initially given up on a trade is permitted to reject the 
trade, subject to the conditions noted above. The Clearing Member or 
Guarantor that becomes the give up on a rejected trade may not also 
reject the trade.
Procedures To Reject a Trade
    The Exchange proposes to include in amended Rule 6.15 procedures 
that must be followed and completed in order for a Designated Give Up 
or Guarantor \13\ to reject a trade. Specifically, a Designated Give Up 
can only change the give up to (1) another Clearing Member that has 
agreed to be the give up on the subject trade (``New Clearing 
Member''), provided the New Clearing Member has notified the Exchange 
and the executing OTP in writing of its intent to accept the trade in a 
form and manner prescribed by the Exchange (``Give-Up Change Form for 
Accepting Clearing Member''); \14\ or (2) a Guarantor for the executing 
OTP, provided the Designated Give Up has notified the Guarantor in 
writing that it is changing the give up on the trade to the 
Guarantor.\15\ Further, as proposed, a Guarantor, can only reject a 
non-Market Maker trade \16\ for which its name was the initial give up 
by an OTP and change the give up to another Clearing Member that has 
agreed to be the give up on the subject trade, provided the New 
Clearing Member has notified the Exchange and the executing OTP in 
writing of its intent to accept the trade (i.e., by filling out a Give-
Up Change Form for Accepting Clearing Member). A Guarantor that becomes 
the give up on a trade as a result of the Designated Give Up rejecting 
the trade is prohibited from not accepting the trade/rejecting the 
trade. This prohibition would provide finality to the trade and ensure 
that the trade is not repeatedly reassigned from one Clearing Member to 
another.
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    \13\ The Exchange notes that amended Rule 6.15(f) contains rule 
text explicitly describing procedures for Guarantors to reject a 
trade that is not contained in the rule text approved in SR-CBOE-
2014-048. See supra n. 5. The Exchange, however, believes that this 
additional description serves only to clarify, as opposed to alter, 
the procedure approved in SR-CBOE-2014-048.
    \14\ A copy of the proposed Give-Up Change Form for Accepting 
Clearing Member is included with this filing in Exhibit 3. Also, as 
noted above, a New Clearing Member cannot later reject the trade. 
Requiring the New Clearing Member to provide notice to the Exchange 
of its intent to accept the trade and prohibiting the New Clearing 
Member from later rejecting the trade would provide finality to the 
trade and ensure that the trade is not repeatedly reassigned from 
one Clearing Member to another.
    \15\ The Guarantor would not need to notify the Exchange of its 
intent to accept the trade.
    \16\ A Guarantor of an OTP that is a Market Maker may not reject 
a trade for which its name was given up in relation to such Market 
Maker.
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    As proposed, a Guarantor may only reject a non-Market Maker trade 
for which its name was the initial give up by an OTP, if another 
Clearing Member has agreed to be the give up on the trade and has 
notified the Exchange and executing OTP in writing of its intent to 
accept the trade. If a Guarantor of an OTP decides to reject a trade on 
the trade date, it must follow the same procedures to change the give 
up as would be followed by a Designated Give Up. The ability to make 
any changes, either by the Designated Give Up or Guarantor, to the give 
up pursuant to this procedure would end at the Trade Date Cutoff Time.
    Finally, once the give up on a trade has been changed, the 
Designated Give Up or Guarantor making the change must immediately 
thereafter notify, in writing, the Exchange, the parties to the trade, 
and the Clearing Member given up, of the change.
Rejection on Trade Date
    As proposed, a trade may only be rejected on (i) the trade date or 
(ii) the business day following the trade date (``T+1'') (except that 
transactions in expiring options series on the last trading day prior 
to expiration may not be rejected on T+1).
    If, on the trade date, a Designated Give Up decides to reject a 
trade, or another Clearing Member agrees to be the give up on a trade 
for which a Guarantor's name was given up, the Exchange proposes that 
the rejecting Designated Give Up or Guarantor must notify, in writing, 
the executing OTP or its designated agent, as soon as possible and 
attempt to resolve the disputed give up. This requirement puts the 
executing OTP on notice that the give up on the trade may be changed 
and provides the executing OTP and Designated Give Up or Guarantor an 
opportunity to resolve the dispute. The Exchange notes that a 
Designated Give Up or Guarantor may request from the Exchange the 
contact information of the executing OTP or its designated agent for 
any trade it intends to reject.
    Following notification to the executing OTP on the trade date, a 
Designated Give Up or Guarantor may request the ability from the 
Exchange to change the give up on the trade, in a form and manner 
prescribed by the Exchange (``Give-Up Change Form''). A copy of the 
proposed Give-Up Change Form is included with this filing in Exhibit 3. 
Provided that the Exchange is able to process the request prior to the 
trade input cutoff time established by the OCC (or the applicable later 
time if the Exchange receives and is able to process a request to 
extend its time of final trade submission to the OCC) (``Trade Date 
Cutoff Time''), the Exchange would provide the Designated Give Up or 
Guarantor the ability to make the change to the give up on the trade to 
either (1) another Clearing Member or, as applicable, (2) the executing 
OTP's Guarantor.
Rejection on T+1
    The Exchange acknowledges that some clearing firms may not 
reconcile their trades until after the Trade Date Cutoff Time. A 
clearing firm, therefore, may not realize that a valid reason exists to 
not accept a particular trade until after the close of the trading day 
or until the following morning. Accordingly, the Exchange proposes to 
establish a

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procedure for a Designated Give Up or Guarantor of an OTP that is not a 
Market Maker to reject a trade on the following trade day 
(``T+1'').\17\ The Exchange notes that a separate procedure must be 
established for T+1 changes because to effectively change the give up 
on a trade on T+1 an offsetting reversal must occur--as opposed to 
merely identifying a different Clearing Member on the trade.
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    \17\ The Exchange proposes that no changes to the give up on 
trades in expiring options series that take place on the last 
trading day prior to their expiration may take place on T+1. Rather, 
a Designated Give Up or Guarantor may only reject these transactions 
on the trade date until the Trade Date Cutoff Time in accordance 
with the trade date procedures described above.
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    Consistent with amended Rule 6.15(f), a Designated Give Up or 
Guarantor \18\ that wishes to reject a trade on T+1 would have to 
notify the executing OTP, in writing, to try to attempt and resolve the 
dispute. In addition, a Designated Give Up or Guarantor may contact the 
Exchange and request the ability to reject the trade on T+1. Provided 
that the Exchange is receives the request prior to 12:00 p.m. (ET) on 
T+1 (``T+1 Cutoff Time''), the Exchange would provide the Designated 
Give Up or Guarantor the ability to enter trade records into the 
Exchange's systems that would effect a transfer of the trade to another 
Clearing Member. As noted above, if a New Clearing Member agrees to the 
give up on a trade, it would be required to inform the Exchange of its 
acceptance via the Give-Up Change Form for Accepting Clearing Members. 
A Guarantor that becomes the new give up on T+1 would not need to 
notify the Exchange of its intent to accept the trade, nor would it 
need to submit any notification or form. The Designated Give Up 
however, would be required to provide written notice to the Guarantor 
that it will be making this change on T+1. The Exchange notes that the 
ability for either a Designated Give Up or Guarantor to make these 
changes would end at the T+1 Cutoff Time and would provide finality and 
certainty as to which Clearing Member will be the give up on the 
subject trade.
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    \18\ The Exchange again notes that, as proposed, only a 
Guarantor whose name was initially given up is permitted to reject a 
trade (i.e., a Guarantor cannot reject a trade on T+1 for which it 
has become the give up as a result of a Designated Give Up not 
accepting the trade).
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    In addition, once any change to the give up has been made, the 
Designated Give Up or Guarantor making the change would be required to 
immediately thereafter notify, in writing, the Exchange, the parties to 
the trade and the Clearing Member given up, of the change.
    As discussed above, the Exchange proposes to allow OTPs that are 
not Market Makers to identify any Clearing Member as a Designated Give 
Up. The Exchange's proposal does not permit a Clearing Member to 
provide the Exchange instructions to prohibit a particular OTP from 
giving up the Clearing Member's name. This limitation prevents the 
Exchange from being placed in the position of arbiter among a Clearing 
Member, an OTP and a customer. The Exchange recognizes, however, that 
OTPs should not be given the ability to give up any Clearing Member 
without also providing a method of recourse to those Clearing Members 
which, for the prescribed reasons discussed above,\19\ should not be 
obligated to clear certain trades for which they are given up. 
Accordingly, the Exchange is proposing to provide Designated Give Ups 
and Guarantors the ability to reject a trade, provided each has a good 
faith basis for doing so. Ultimately, however, the trade must clear 
with a clearing firm and there must be finality to the trade. The 
Exchange believes that the executing OTP's Guarantor, absent a Clearing 
Member that agrees to accept the trade, should become the give up on 
any trade which a Designated Give Up determines to reject in accordance 
with these proposed rule provisions, because the Guarantor, by virtue 
of having issued a Letter of Guarantee or Letter of Authorization, has 
already accepted financial responsibility for all Exchange transactions 
made by the executing OTP. The Exchange, however, does not want to 
prevent a Clearing Member that agrees to accept the trade from being 
able to do so, and accordingly, the Exchange also provides that a New 
Clearing Member may become the give up on a trade in accordance with 
the procedure discussed above.
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    \19\ See supra n. 12.
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Other Give Up Changes
    The Exchange proposes to modify the text of Rule 6.66(a), related 
to the give up requirement for OTPs, to simply cross reference amended 
Rule 6.15 given the detailed give up process proposed by the Exchange 
in that Rule.
    The Exchange also proposes in paragraph (g) of amended Rule 6.15 
three scenarios in which a give up on a transaction may be changed 
without Exchange involvement. First, if an executing OTP has the 
ability through an Exchange system to do so, it could change the give 
up on a trade to another Designated Give Up or its Guarantor. The 
Exchange notes that OTPs often make these changes when, for example, 
there is a keypunch error (i.e., an error that involves the erroneous 
entry of an intended clearing firm's OCC clearing number). The ability 
of the executing OTP to make any such change would end at the Trade 
Date Cutoff Time.\20\
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    \20\ After that time, the OTP would no longer have the ability 
to make this type of change, as the trade will have been submitted 
to OCC.
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    Next, the modified rule would provide that, if a Designated Give Up 
has the ability to do so, it may change the give up on a transaction 
for which it was given up to (i) another Clearing Member affiliated 
with the Designated Give Up or (ii) a Clearing Member for which the 
Designated Give Up is a back office agent. The ability to make such a 
change would end at the Trade Date Cutoff Time. The procedures to 
reject a trade, as set forth in proposed subparagraph (f) of Rule 6.15 
and described above, would not apply in these instances. The Exchange 
notes that often Clearing Members themselves have the ability to change 
a give up on a trade for which it was given up to another Clearing 
Member affiliate or Clearing Member for which the Designated Give Up is 
a back office agent. Therefore, Exchange involvement in these instances 
is not necessary.
    In addition, the proposed rule provides that if both a Designated 
Give Up or Guarantor and a Clearing Member have the ability through an 
Exchange system to do so, the Designated Give Up or Guarantor and 
Clearing Member may each enter trade records into the Exchange's 
systems on T+1 that would effect a transfer of the trade in a non-
expired option series from that Designated Give Up to that Clearing 
Member. Likewise, if a Guarantor of an OTP trade (that is not a Market 
Maker trade) and a Clearing Member have the ability through an Exchange 
system to do so, the Guarantor and Clearing Member may each enter trade 
records into the Exchange's systems on T+1 that would effect a transfer 
of the trade in a non-expired option series from that Guarantor to that 
Clearing Member. The Designated Give Up or Guarantor could not make any 
such change after the T+1 Cutoff Time. The Exchange notes that a 
Designated Give Up (or Guarantor) must notify, in writing, the Exchange 
and all the parties to the trade, of any such change made pursuant to 
this provision. This notification alerts the parties and the Exchange 
that a change to the give up has been made. Finally, the Designated 
Give Up (or Guarantor) would be responsible for monitoring the trade 
and ensuring that the other Clearing Member has entered its side of the 
transaction timely and correctly. If

[[Page 48581]]

either a Designated Give Up (or Guarantor) or Clearing Member cannot 
themselves enter trade records into the Exchange's systems to effect a 
transfer of the trade from one to the other, the Designated Give Up (or 
Guarantor) may request the ability from the Exchange to enter both 
sides of the transaction in accordance with amended Rule 6.15 and 
pursuant to the procedures set forth in subparagraph (f)(3) of that 
Rule.
Responsibility
    The Exchange proposes in paragraph (h) of amended Rule 6.15 to 
state that a Clearing Member would be financially responsible for all 
trades for which it is the give up at the Applicable Cutoff Time (for 
purposes of the proposed rule, the ``Applicable Cutoff Time'' shall 
refer to the T+1 Cutoff Time for non-expiring option series and to the 
Trade Date Cutoff Time for expiring option series). The Exchange notes, 
however, that nothing in the proposed rule shall preclude a different 
party from being responsible for the trade outside of the Rules of the 
Exchange pursuant to OCC Rules, any agreement between the applicable 
parties, other applicable rules and regulations, arbitration, court 
proceedings or otherwise.\21\ Moreover, in processing a request to 
provide a Designated Give Up the ability to change a give up on a 
trade, the Exchange would not consider or validate whether the 
Designated Give Up has satisfied the requirements of this Rule in 
relation to having a good faith belief that it has a valid reason not 
to accept a trade or having notified the executing OTP and attempting 
to resolve the disputed give up prior to changing the give up. Rather, 
upon request, the Exchange would always provide a Designated Give Up or 
Guarantor the ability to change the give up or to reject a trade 
pursuant to the proposed Rule so long as the Designated Give Up or 
Guarantor, and New Clearing Member, if applicable, have provided a 
completed set of give up Change Forms within the prescribed time 
period.
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    \21\ See proposed Commentary .01 to Rule 6.15 (``Nothing herein 
will be deemed to preclude the clearance of Exchange transactions by 
a non-OTP Holder or non-OTP Firm pursuant to the By-Laws of the 
Options Clearing Corporation so long as a Clearing Member who is a 
OTP Holder or OTP Firm is also designated as having responsibility 
under these Rules for the clearance and comparison of such 
transactions.'').
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    The Exchange notes that given the inherent time constraints in 
making a change to a give up on a transaction, the Exchange would not 
be able to adequately consider the above-mentioned requirements and 
make a determination within the prescribed period of time. Rather, the 
Exchange would examine trades for which a give up was changed pursuant 
to subparagraphs (e) and (f) after the fact to ensure compliance with 
the requirements set forth in amended Rule 6.15. Particularly, the 
Exchange notes that the give up Change Forms that Designated Give Ups, 
Guarantors and New Clearing Members must submit, would help to ensure 
that the Exchange obtains, in a uniform format, the information that it 
needs to monitor and regulate this Rule and these give up changes in 
particular. This information, for example, would better allow the 
Exchange to determine whether the Designated Give Up had a valid reason 
to reject the trade, as well as assist the Exchange in cross checking 
and confirming that what the Designated Give Up or Guarantor said it 
was going to do is what it actually did (e.g., check that the New 
Clearing Member identified in the give up Change Form was the Clearing 
Member that actually was identified on the trade as the give up). 
Additionally, the proposed Rule does not preclude these factors from 
being considered in a different forum (e.g., court or arbitration), nor 
does it preclude any Clearing Member that violates any provision of 
amended Rule 6.15 from being subject to discipline in accordance with 
Exchange rules.
    Finally, the Exchange proposes to eliminate language in Rule 6.79 
that addresses the financial responsibility of transactions clearing 
through Clearing Members. Under the proposal, financial responsibility 
would be addressed and clarified in amended Rule 6.15, and as such, the 
Exchange believes this language in Rule 6.79 is unnecessary.\22\
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    \22\ The Exchange also proposes to capitalize the two references 
to ``clearing member'' in this rule to signify the defined term, 
which the Exchange believes would add clarity and consistency to 
Exchange rules.
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Implementation
    The Exchange proposes to announce the implementation of the 
proposed rule change via Trader Update, to be published no later than 
thirty (30) days following the effectiveness of this proposal. The 
implementation date will be no sooner than fourteen (14) day and no 
later than thirty (30) days following publication of the Trader Update. 
This additional time would afford the Exchange and OTPs the time to 
submit and process the forms required under the proposed rule.
2. Statutory Basis
    The Exchange believes that the proposed change is consistent with 
Section 6(b) of the Act,\23\ in general, and furthers the objectives of 
Section 6(b)(5),\24\ in particular, in that it is designed 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 facilitation transactions 
in securities, to remove impediments to, and perfect the mechanism of a 
free and open market 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) \25\ requirement that the 
rules of an exchange not be designed to permit unfair discrimination 
between customers, issuers, brokers, or dealers.
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    \23\ 15 U.S.C. 78f(b).
    \24\ 15 U.S.C. 78f(b)(5).
    \25\ Id.
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    First, detailing in the rules how OTPs would give up Clearing 
Members and how Clearing Members may ``reject'' a trade provides 
transparency and operational certainty. The Exchange believes 
additional transparency removes a potential impediment to, and would 
contribute to perfecting, the mechanism for a free and open market and 
a national market system, and, in general, would protect investors and 
the public interest. Moreover, the Exchange notes that amended Rule 
6.15 requires OTPs to adhere to a standardized process to ensure a 
seamless administration of the Rule. For example, all notifications 
relating to a change in give up must be made in writing. The Exchange 
believes that these requirements will aid the Exchange's efforts to 
monitor and regulate OTPs and Clearing Members as they relate to 
amended Rule 6.15 and changes in give ups, thereby protecting investors 
and the public interest.
    Additionally, the Exchange believes that its proposed give up rule 
strikes the right balance between the various views and interests of 
market participants. For example, although the rule allows OTPs that 
are not Market Makers to identify any Clearing Member as a Designated 
Give Up, it also provides that OTPs would receive notice of any OTP 
that has designated it as a Designated Give Up and provides for a 
procedure for a Clearing Member to ``reject'' a trade in accordance 
with the Rules, both on the trade date and T+1.
    The Exchange recognizes that OTPs should not be given the ability 
to give up any Clearing Members without also providing a method of 
recourse to those Clearing Members which, for the prescribed reasons 
discussed above, should not be obligated to clear certain

[[Page 48582]]

trades for which they are given up. The Exchange believes that 
providing Designated Give Ups the ability to reject a trade within a 
reasonable amount of time is consistent with the Act as, pursuant to 
the proposed rule, the Designated Give Ups may only do so if they have 
a valid reason and because ultimately, the trade can always be assigned 
to the Guarantor of the executing OTP if a New Clearing Firm is not 
willing to step in and accept the trade. A trade must clear with a 
clearing firm and there must be finality to the trade. Absent a New 
Clearing Member that agrees to accept the trade, the Exchange believes 
that the executing OTP's Guarantor should become the give up on any 
trade that a Designated Give Up determines to reject, in accordance 
with the proposed rule provisions, because the Guarantor, by virtue of 
having issued a Letter of Guarantee or Letter of Authorization, has 
already accepted financial responsibility for all Exchange transactions 
made by the executing OTP. Therefore, Rule 6.15, as modified, is 
reasonable and provides certainty that a Clearing Member will always be 
responsible for a trade, which protects investors and the public 
interest.
    The Exchange notes that amended Rule 6.15 does not preclude a 
different party than the party given up from being responsible for the 
trade outside of the Rules of the Exchange, pursuant to OCC Rules, any 
agreement between the applicable parties, other applicable rules and 
regulations, arbitration, court proceedings or otherwise. The Exchange 
acknowledges that it would not consider whether the Designated Give Up 
has satisfied the requirements of this Rule in relation to having a 
good faith belief that it has a valid reason not to accept a trade or 
having notified the executing OTP and attempting to resolve the 
disputed give up prior to changing the give up, due to inherent time 
restrictions. However, the Exchange believes investor and public 
interest are still protected as the Exchange will still examine trades 
for which a give up was changed pursuant to subparagraphs (e) and (f) 
of amended Rule 6.15 after the fact to ensure compliance with the 
requirements set forth in the Rule. As noted above, the implementation 
of a standardized process and the requirement that certain notices be 
in writing would assist monitoring any give up changes and enforcing 
amended Rule 6.15.
    Further, the Exchange notes that the Rule does not preclude these 
factors from being considered in a different forum (e.g., court or 
arbitration) nor does it preclude any OTP or Clearing Member that 
violates any provision of amended Rule 6.15 from being subject to 
discipline by the Exchange.
    Finally, the Exchange believes that making non-substantive, 
technical corrections to the rule text (i.e., capitalizing the defined 
term ``clearing member'') would add clarity and consistency to Exchange 
rules to the benefit of investors and the general public.

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

    The Exchange does not believe that this proposed rule change would 
impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act. The Exchange does not believe 
that the proposed rule change would impose an unnecessary burden on 
intramarket competition because it would apply equally to all similarly 
situated OTPs. The Exchange also notes that, should the proposed 
changes make the Exchange more attractive for trading, market 
participants trading on other exchanges can always elect to become OTPs 
on the Exchange to take advantage of the trading opportunities. In 
addition, as noted above, the Exchange believes the proposed rule 
change is pro-competitive and would allow the Exchange to compete more 
effectively with other options exchanges that have already adopted 
changes to their give up process that are substantially identical to 
the changes proposed by this filing.\26\
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    \26\ See supra n. 5.
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C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

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

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

    Because the 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, the proposed rule change has become effective 
pursuant to Section 19(b)(3)(A) of the Act \27\ and Rule 19b-4(f)(6) 
thereunder.\28\
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    \27\ 15 U.S.C. 78s(b)(3)(A).
    \28\ 17 CFR 240.19b-4(f)(6). As required under Rule 19b-
4(f)(6)(iii), the Exchange provided the Commission with written 
notice of its intent to file the proposed rule change, along with a 
brief description and the text of the proposed rule change, at least 
five business days prior to the date of filing of the proposed rule 
change, or such shorter time as designated by the Commission.
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    A proposed rule change filed under Rule 19b-4(f)(6) \29\ normally 
does not become operative prior to 30 days after the date of the 
filing. However, pursuant to Rule 19b4(f)(6)(iii),\30\ the Commission 
may designate a shorter time if such action is consistent with the 
protection of investors and the public interest. 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 waiver of the operative delay is consistent with the protection of 
investors and the public interest because the proposal is substantially 
similar to that of another exchange that has been approved by the 
Commission.\31\ Waiver of the 30-day operative delay will allow the 
Exchange to implement the proposed rule change, which is designed to 
bring greater operational certainty and efficiency to the give up 
process, in accordance with the implementation schedule outlined above. 
Therefore, the Commission designates the proposed rule change to be 
operative upon filing.\32\
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    \29\ 17 CFR 240.19b-4(f)(6).
    \30\ 17 CFR 240.19b-4(f)(6)(iii).
    \31\ See supra n. 5.
    \32\ 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 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) \33\ of the Act to determine whether the proposed 
rule change should be approved or disapproved.
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    \33\ 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

[[Page 48583]]

     Send an email to rule-comments@sec.gov. Please include 
File Number SR-NYSEArca-2015-65 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-NYSEArca-2015-65. 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 will also 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-NYSEArca-2015-65 and should 
be submitted on or before September 3, 2015.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\34\
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    \34\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2015-19871 Filed 8-12-15; 8:45 am]
BILLING CODE 8011-01-P


