
[Federal Register Volume 82, Number 55 (Thursday, March 23, 2017)]
[Notices]
[Pages 14936-14938]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-05743]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-80272; File No. SR-NYSEMKT-2017-13]


Self-Regulatory Organizations; NYSE MKT LLC; Notice of Filing of 
Proposed Rule Change Amending Rule 968NY To Make Permanent a Program 
That Allows Transactions To Take Place at a Price That Is Below $1 per 
Option Contract

March 17, 2017.
    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 March 2, 2017, 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 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 968NY to make permanent a 
program that allows transactions to take place at a price that is below 
$1 per option contract. 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 968NY to make permanent a 
program that allows transactions to take place at a price that is below 
$1 per option contract.\4\ The program is currently subject to a pilot 
that is scheduled to expire on July 5, 2017.\5\
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    \4\ See Commentary .01 to Rule 968NY.
    \5\ See Securities Exchange Act Release No. 79564 (December 15, 
2016), 81 FR 93716 (December 21, 2016) (SR-NYSEMKT-2016-116). The 
Exchange initially adopted the program in 2010. See Securities 
Exchange Act Release No. 63475 (December 8, 2010), 75 FR 77932 
(December 14, 2010) (SR-NYSE Amex-2010-114).
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    An ``accommodation'' or ``cabinet'' trade refers to trades in 
listed options on the Exchange that are worthless and typically not 
actively traded. Trading is generally conducted in accordance with 
Exchange Rules, except as provided in Exchange Rule 968NY, 
Accommodation Transactions (Cabinet Trades), which sets forth specific 
procedures for engaging in cabinet trades.
    Rule 968NY currently provides that cabinet transactions at a price 
of $1 per option contract to occur via open outcry in any options 
series open for trading on the Exchange, except option classes 
participating in the Penny Pilot Program.\6\ Rule 968NY provides that 
bids and offers (whether opening or closing a position) at a price of 
$1 per option contract may be represented in the trading crowd by a 
Floor Broker or by a Market Maker or be provided in response to a 
request by a Trading Official, a Floor Broker or a Market Maker, but 
must yield priority to all resting orders in the Cabinet (those orders 
held by the Trading Official, and which resting cabinet orders may be 
closing only). If the buyer and the seller yield to resting cabinet 
orders, opening cabinet bids can trade with opening cabinet offers at 
$1 per option contract.
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    \6\ The $1 cabinet trading procedures are not available in Penny 
Pilot Program classes because in those classes an option series can 
trade in a standard increment as low as $0.01 per share (or $1.00 
per option contract with a 100 share multiplier).
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    The Exchange has amended the cabinet procedures to allow 
transactions to take place in open outcry at a price of at least $0 but 
less than $1 per option

[[Page 14937]]

contract. This amendment expires on July 5, 2017. These lower-priced 
transactions are permitted to be traded pursuant to the same procedures 
applicable to $1 cabinet trades, except that (i) bids and offers for 
opening transactions are permitted only to accommodate closing 
transactions, and (ii) transactions in option classes participating in 
the Penny Pilot Program are permitted. The Exchange believes that 
allowing a price of at least $0 but less than $1 better accommodates 
the closing of options positions in series that are worthless or not 
actively traded, particularly when there has been a significant move in 
the price of the underlying security, resulting in a large number of 
series being out-of-the-money. For example, a market participant might 
have a long position in a put series with a strike price of $30 and the 
underlying stock might be trading at $100. In such an instance, there 
is likely no market to close-out the position, even at the $1 cabinet 
price.
    As with other accommodation liquidations under Rule 968NY, 
transactions at prices less than $1 are not disseminated to the public 
on the consolidated tape. In addition, as with other accommodation 
liquidations under Rule 968NY, the transactions are exempt from the 
Consolidated Options Audit Trail (``COATS'') requirements of Exchange 
Rule 955NY, Order Format and System Entry Requirements. However, the 
Exchange maintains quotation, order and transaction information for 
such transactions in the same format as the COATS data is maintained. 
In this regard, all transactions for less than $1 must be reported to 
the Exchange following the close of each business day.
    The Exchange notes that while the level of liquidation trades are 
not meaningful, such trades serve an essential purpose in that they 
allow market participants to close out options positions that are 
worthless or not actively trading. To illustrate, in 2016, there were a 
total of 222 Cabinet trades. Of these, 148 trades comprising 112,257 
contracts were executed at a price of $0.01, while the remaining 74 
trades comprising 165,868 contracts were executed for a premium of less 
than $0.01. The Exchange believes this level of trading demonstrates 
the benefit of the current program to market participants.
    In support of making the program permanent, the Exchange represents 
that there are no operational issues in processing and clearing Cabinet 
trades in penny and sub-penny increments. Each Cabinet trade is input 
manually into the clearing system, and is then submitted for settlement 
at the Options Clearing Corporation. Additionally, ATP Holders have not 
raised any concerns with the processing of Cabinet trades.
2. Statutory Basis
    The Exchange believes that this proposed rule change is consistent 
with Section 6(b) \7\ of the Securities Exchange Act of 1934 (the 
``Act''), in general, and furthers the objectives of Section 6(b)(5) 
\8\ of the Act in particular, in that it is designed to promote just 
and equitable principles of trade, to prevent fraudulent and 
manipulative acts, to remove impediments to and to perfect the 
mechanism for a free and open market and a national market system, and, 
in general, to protect investors and the public interest. The Exchange 
believes that liquidation trades promote competition and afford market 
participants the opportunity to close out their options positions. The 
Exchange believes that permanently approving the rules that allow for 
liquidations at a price less than $1 per option contract would better 
facilitate the closing of options positions that are worthless or not 
actively trading, especially in Penny Pilot issues where cabinet trades 
are not otherwise permitted.
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    \7\ 15 U.S.C. 78f(b).
    \8\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes that approving the program on a permanent 
basis is also consistent with the Act. With respect to the level of 
liquidation trades transacted on the Exchange, the Exchange believes 
that the data gathered provides meaningful support to make the program 
permanent.

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 believes that 
approving the program on a permanent basis will not impact competition, 
as it will continue to facilitate ATP Holders the ability to close 
positions in worthless or not actively traded series.

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

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period up to 90 days (i) as the 
Commission may designate if it finds such longer period to be 
appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will:
    (A) By order approve or disapprove such proposed rule change, or
    (B) institute proceedings to determine whether the proposed rule 
change should be disapproved.

IV. Solicitation of Comments

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

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-NYSEMKT-2017-13 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-NYSEMKT-2017-13. 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

[[Page 14938]]

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-2017-13 and should 
be submitted on or before April 13, 2017.
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    \9\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\9\
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-05743 Filed 3-22-17; 8:45 am]
 BILLING CODE 8011-01-P


