[Federal Register Volume 82, Number 208 (Monday, October 30, 2017)]
[Notices]
[Pages 50205-50207]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-23475]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-81928; File No. SR-NYSEAMER-2017-23]


Self-Regulatory Organizations; NYSE American LLC; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change To Modify 
Rule 964.2NY Regarding the Participation Entitlement Formula for 
Specialists and e-Specialists

October 24, 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 October 10, 2017, NYSE American LLC (the ``Exchange'' or 
``NYSE American'') 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 modify Rule 964.2NY regarding the 
participation entitlement formula for Specialists and e-Specialists. 
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 purpose of the filing is to modify Rule 964.2NY regarding the 
participation entitlement of Specialists and e-Specialists.\4\
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    \4\ A Specialist is ``an individual or entity that has been 
deemed qualified by the Exchange for the purpose of making 
transactions on the Exchange in accordance with the provisions of 
Rule 920NY [Market Makers], and who meets the qualification 
requirements of Rule 927NY(b) [Specialists]. Each Specialist must be 
registered with the Exchange as a Market Maker. Any ATP Holder 
registered as a Market Maker with the Exchange is eligible to be 
qualified as a Specialist. See Rule 900.2NY(76). Rule 923NY(b) also 
provides that ``[t]he Exchange may designate e-Specialists in an 
option class in accordance with Rule 927.4NY [e-Specialists].'' See 
Rule 923NY(b).
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    Rule 964NY sets forth the priority for the allocation of incoming 
orders to resting interest at a particular price in the System,\5\ 
which includes the allocation to the Specialist Pool.\6\ Rule 964.2NY 
sets forth the participant entitlement formula applicable to the 
Specialist Pool and provides that, on a quarterly basis, the Exchange 
will determine a Primary Specialist from among the Specialists e-
Specialists [sic] in each option class.
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    \5\ The term ``System'' refers to the Exchange's electronic 
order delivery, execution and reporting system through which orders 
and quotes for listed options are consolidated for execution and/or 
display. See Rule 900.2NY (48) (defining ``Exchange System'' or 
``System'').
    \6\ The Specialist Pool refers to the aggregated size of the 
best bid and best offer, in a given series, amongst the Specialist 
and e-Specialists that match in price. See Rule 900.2NY(75).
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    Generally, the Specialist Pool is entitled to 40% of the remaining 
balance of an order after any orders on behalf of Customers in the 
Consolidated Book are satisfied.\7\ Rule 964.2NY(b)(3)(A) provides that 
Specialists and e-Specialists quoting at the NBBO will share in the 
Specialist Pool participation entitlement on a size pro rata basis and 
provides that the Primary Specialist's size pro rata participation will 
receive additional weighting, as determined by the Exchange and 
announced by Trader Update (the ``Additional Weighting''). Pursuant to 
the current Rule, this Additional Weighting afforded to the Primary 
Specialist is capped at 66\2/3\% if there is only one e-Specialist, and 
at 50% if there are two or more e-Specialists (the ``Cap'').\8\
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    \7\ See Rule 964.2NY(b)(2).
    \8\ See Rule 964.2NY(b)(3)(A).
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    Currently, the Exchange applies the Additional Weighting as 
follows: When an inbound order is allocated against the Specialist 
Pool, the Primary Specialist's quoted size is treated as if it were 
double (i.e., two (2) times the number of contracts being quoted) and 
this doubled size is then used in the calculation (as shown in the 
examples below) to determine the allocation to both the Primary 
Specialist as well as the other participants in the Specialist Pool.\9\ 
When there is only one e-Specialist and both the Specialist and e-
Specialist are quoting the same size, this Additional Weighting will 
not be greater than 66\2/3\%. When there is more than one e-Specialist 
and the Specialist and e-Specialists are all quoting the same size, 
this Additional Weighting will not be greater than 50%.
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    \9\ The Exchange may modify how it calculates the Additional 
Weighting, which calculation would be announced by Trader Update. 
See Rule 964.2NY(b)(3)(A). See, e.g., September 27, 2012 Trader 
Update, available here, https://www.nyse.com/publicdocs/nyse/notifications/trader-update/NYSE%20AMEX%20OPTIONS%20Trader%20Update%20Primary%20Specialist%20Implementation%209-27-12%20FINALtw.pdf; and December 21, 2012 Trader 
Update, available here, https://www.nyse.com/publicdocs/nyse/notifications/trader-update/NYSE%20AMEX%20OPTIONS%20Trader%20Update%20Primary%20Specialist%20Implementation%20010213%20%20%20.pdf.
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    Because current Rule 964.2NY(b)(3)(A) does not specify the 
circumstances under which the Primary Specialist's allocation in the 
Specialist Pool is subject to the Cap, the Exchange proposes to make 
clear that the Cap only applies if ``all participants in the Specialist 
Pool are quoting the same size.'' \10\ When all participants in the 
Specialist Pool are not quoting the same size, the Primary Specialist 
may receive up to the entirety of the Specialist Pool's participation 
allocation. However, for this scenario to occur, the Primary 
Specialist's quoted size would need to be disproportionately larger 
than the other participants in the Specialist Pool such that the 
allocation to which the other participant(s) in the Specialist Pool is 
entitled is less than one contract (i.e., a fractional share). For 
example, if the Primary Specialist is quoting 300 contracts and the 
other eSpecialist in

[[Page 50206]]

the Specialist Pool is quoting 1 contract [sic].
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    \10\ See proposed Rule 964.2NY(b)(3)(A) (providing, in part, 
that the ``Primary Specialist's size pro-rata participation in the 
Specialist Pool will receive additional weighting, as determined by 
the Exchange, and announced via Trader Update; provided, however, 
that if all participants in the Specialist Pool are quoting the same 
size, this additional weighting will be no greater than 66\2/3\% if 
there is only one e-Specialist, and no greater than 50% if there are 
two or more e-Specialists''). The Exchange also proposes to 
capitalize the ``s'' in the defined term ``e-Specialist.'' See id.
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    Pursuant to Rule 964.2NY(b)(1)(iv), each participant in the 
Specialist Pool would ``be allocated a number of contracts equal to the 
greater of their share in the Specialist Pool guaranteed participation 
or their `size pro rata' allocation as provided in Rule 964NY(b)(3), 
but in either case, no greater than the size of the Specialist's 
disseminated size.'' \11\ Thus, it may be possible that the Primary 
Specialist receives its allocation based on its share of the Specialist 
Pool, while other participants in the Pool receive a pro rata 
allocation, because the latter allocation is more favorable to that 
participant (i.e., provides a ``greater share'') to that participant. 
In this regard, because the Exchange maximizes the allocation to each 
participant in the Specialist Pool, certain non-Specialist participants 
(at the same price) may be allocated fewer contracts than their pro 
rata share.\12\
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    \11\ See Rule 964.2NY(b)(1)(iv).
    \12\ See generally Rule 964NY(b).
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    Below are examples of how the Exchange applies the Additional 
Weighting in circumstances where the Specialist Pool participation 
guarantee entitles each participant to a more favorable allocation than 
size pro rata: \13\
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    \13\ The Exchange notes that when a participant in the 
Specialist Pool would fare better based on its pro rata share, 
rather than its share of the Specialist Pool guaranteed 
participation, the pro rata share allocation will be applied. See 
Rule 964.2NY(b)(1)(iv).

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    Example 1 to illustrate application of 66\2/3\% cap:

Primary Specialist quoting 60 contracts
Only one other participant in the Specialist Pool also quoting 60 
contracts
Other non-customer interest resting on the Consolidated Book for 500 
contracts
An inbound order arrives for 200 contracts

    Allocation Results:

The Specialist Pool is entitled to a 40% allocation of the inbound 
order (80 contracts).
The Primary Specialist is entitled to an allocation of (2 x 60)/[60 + 
(2 x 60)] = 66\2/3\% of the 80 contracts allocated to the Specialist 
Pool. The Primary Specialist will receive 53 contracts.
The other participant in the Specialist Pool is entitled to an 
allocation of 60/[60 + (2 x 60)] = 33 \1/3\% of the 80 contracts 
allocated to the Specialist Pool. The e-Specialist will receive 27 
contracts.

    Example 2 to illustrate application of 50% cap:

Primary Specialist quoting 60 contracts
Two other participants in the Specialist Pool each quoting 60 contracts
Other non-customer interest resting on the Consolidated Book for 500 
contracts
An inbound order arrives for 200 contracts

    Allocation Results:

The Specialist Pool is entitled to a 40% allocation of the inbound 
order (80 contracts).
The Primary Specialist is entitled to an allocation of (2 x 60)/[60 + 
60 + (2 x 60)] = 50% of the 80 contracts allocated to the Specialist 
Pool. The Primary Specialist will receive 40 contracts.
Each other participant in the Specialist Pool is entitled to an 
allocation of 60/[60 + 60 + (2 x 60)] = 25% of the 80 contracts 
allocated to the Specialist Pool. Each other participant in the 
Specialist Pool will receive 20 contracts.

    Example 3 to illustrate allocation (i.e., no cap) when all are not 
quoting the same size:

Primary Specialist quoting 60 contracts
Only one other participant in the Specialist Pool also quoting 30 
contracts
Other non-customer interest resting on the Consolidated Book for 500 
contracts
An inbound order arrives for 200 contracts

    Allocation Results:

The Specialist Pool is entitled to a 40% allocation of the inbound 
order (80 contracts).
The Primary Specialist is entitled to an allocation of (2 x 60)/[30 + 
(2 x 60)] = 80% of the 80 contracts allocated to the Specialist Pool. 
The Primary Specialist is entitled to 64 contracts, which exceeds the 
size of their quote. Rule 964.2NY(b)(1)(iv), the Primary Specialist 
will receive no more than 60 contracts, so their allocation does not 
exceed their quoted size.
The other participant in the Specialist Pool is entitled to an 
allocation of 30/[30 + (2 x 60)] = 20% of the 80 contracts allocated to 
the Specialist Pool. The other participant in the Specialist Pool is 
entitled to 16 contracts and will receive 20 contracts, which represent 
the remaining of the Specialist Pool allocation. In this case, the 
other participant in the Specialist Pool is granted the balance of its 
share in the Specialist Pool guaranteed participation, as it is greater 
than the contracts to which it is entitled per Rule 964.2NY(1)(iv) 
[sic].

    Example 4 to illustrate allocating each Specialist the ``greater 
of'' their share in either the Specialist Pool or size pro rata:

Primary Specialist quoting 90 contracts
Other participant in the Specialist Pool quoting 200 contracts
Market Maker quoting 200 contracts
An inbound order arrives for 100 contracts

    Allocation Results:

The Specialist Pool is entitled to a 40% allocation of the inbound 
order (40 contracts).
The Primary Specialist is entitled to an allocation of (2 x 90)/[200 + 
(2 x 90)] = 47.37% of the 40 contracts allocated to the Specialist Pool 
(19 contracts).
The Primary Specialist pro rata allocation would be 90/(200 + 200 + 90) 
= 18.37% of the 100 contracts of the inbound order (18 contracts). 
Since the 19-contract Specialist Pool allocation is greater than the 
18-contract pro rata allocation, the Primary Specialist will receive 19 
contracts.
The other participant in the Specialist Pool is entitled to an 
allocation of 200/[200 + (2 x 90)] = 52.63% of the 40 contracts 
allocated to the Specialist Pool (21 contracts).
The other participant in the Specialist Pool would also be entitled to 
a pro rata allocation 200/(200 + 200) = 50% of the remaining 81 
contracts of the inbound order (41 contracts). Since the 41-contract 
pro rata allocation of the balance is greater than the 21-contract 
Specialist Pool allocation, the other participant in the Specialist 
Pool will receive 41 contracts, pursuant to Rule 964.2NY(1)(iv) [sic].
The Market Maker will receive the remaining 40 contracts.
* * * * *
    The Exchange believes the proposed change, which does not alter 
current functionality, would provide additional specificity regarding 
how orders are allocated and the circumstances under which the Cap 
would apply to the Primary Specialist allocation, which adds clarity 
and transparency to Exchange rules to the benefit of all market 
participants.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with the 
requirements of the Securities Exchange Act of 1934 (the ``Act'') and 
the rules and regulations thereunder that are applicable to a national 
securities exchange, and, in particular, with the requirements of 
Section 6(b) of the Act.\14\ In particular, the proposal is

[[Page 50207]]

consistent with Section 6(b)(5) of the Act \15\ because it is designed 
promote [sic] just and equitable principles of trade, [sic] foster 
cooperation and coordination with persons engaged in facilitating 
transactions in securities, and to remove impediments to, and perfect 
the mechanisms [sic] of, [sic] a free and open market and a national 
market system.
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    \14\ 15 U.S.C. 78f(b).
    \15\ 15 U.S.C. 78f(b)(5).
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    The proposed rule change would promote just and equitable 
principles of trade as it is intended to provide additional specificity 
regarding the circumstances under which the Primary Specialist's 
allocation would be subject to a Cap, which adds clarity and 
transparency to Exchange rules regarding order allocation. The Exchange 
believes that the proposed change promotes just and equitable 
principles of trade, fosters cooperation and coordination among persons 
engaged in facilitating securities transactions, and removes 
impediments to and perfects the mechanism of a free and open market by 
ensuring that members, regulators and the public can more easily 
navigate and better understand the Exchange's rulebook.

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 not necessary or appropriate in 
furtherance of the purposes of the Act. The proposed rule change is not 
designed to address any competitive issues. Rather, the proposed change 
is designed to provide ATP Holders and the investing public with 
additional specificity and transparency regarding the circumstances 
under which the Primary Specialist's allocation would be subject to a 
Cap, which in turn adds clarity and transparency to Exchange rules.

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 foregoing proposed rule change does not: (i) 
Significantly affect the protection of investors or the public 
interest; (ii) impose any significant burden on competition; and (iii) 
become operative for 30 days from the date on which it was filed, or 
such shorter time as the Commission may designate, it has become 
effective pursuant to Section 19(b)(3)(A)(iii) of the Act \16\ and 
subparagraph (f)(6) of Rule 19b-4 thereunder.\17\
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    \16\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \17\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file the proposed rule change, along 
with a brief description and text of the proposed rule change, at 
least five business days prior to the date of filing of the proposed 
rule change, or such shorter time as designated by the Commission. 
The Exchange has satisfied this requirement.
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    A proposed rule change filed pursuant to Rule 19b-4(f)(6) under the 
Act \18\ normally does not become operative for 30 days after the date 
of its filing. However, Rule 19b-4(f)(6)(iii) \19\ permits the 
Commission to 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 waiving the 30-day operative delay is 
consistent with the protection of investors and the public interest as 
it will allow the Exchange to immediately provide greater clarity to 
market participants concerning order allocation on the Exchange. 
Accordingly, the Commission hereby waives the operative delay and 
designates the proposal operative upon filing.\20\
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    \18\ 17 CFR 240.19b-4(f)(6).
    \19\ 17 CFR 240.19b-4(f)(6)(iii).
    \20\ For purposes only of waiving the 30-day operative delay, 
the Commission has also considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is: (i) 
Necessary or appropriate in the public interest; (ii) for the 
protection of investors; or (iii) otherwise in furtherance of the 
purposes of the Act. If the Commission takes such action, the 
Commission shall institute proceedings to determine whether the 
proposed rule should be approved or disapproved.

IV. Solicitation of Comments

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

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-NYSEAMER-2017-23 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-NYSEAMER-2017-23. 
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. Persons 
submitting comments are cautioned that we do not redact or edit 
personal identifying information from comment submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File Number SR-NYSEAMER-2017-23 and should 
be submitted on or before November 20, 2017.
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    \21\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\21\
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-23475 Filed 10-27-17; 8:45 am]
 BILLING CODE 8011-01-P


