Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Relating to Professionals Order Counting, 44349-44353 [2016-16027]
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Federal Register / Vol. 81, No. 130 / Thursday, July 7, 2016 / Notices
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–78200; File No. SR–
NASDAQ–2016–091]
Self-Regulatory Organizations; The
NASDAQ Stock Market LLC; Notice of
Filing and Immediate Effectiveness of
Proposed Rule Change Relating to
Professionals Order Counting
June 30, 2016.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on June 17,
2016, The NASDAQ Stock Market LLC
(‘‘Nasdaq’’ or ‘‘Exchange’’) filed with the
Securities and Exchange Commission
(‘‘SEC’’ or ‘‘Commission’’) the proposed
rule change as described in Items I and
II, below, which Items have been
prepared by the Exchange. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to amend the
NASDAQ Options Market LLC (‘‘NOM’’)
Rules at Chapter I, Section 1, entitled
‘‘Definitions,’’ to add specificity to the
definition of a Professional with respect
to the manner in which the volume
threshold will be calculated by the
Exchange.
The text of the proposed rule change
is available on the Exchange’s Web site
at https://nasdaq.cchwallstreet.com, at
the principal office of the Exchange, and
at the Commission’s Public Reference
Room.
srobinson on DSK5SPTVN1PROD with NOTICES
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange included statements
concerning the purpose of and basis for
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. The
Exchange has prepared summaries, set
forth in sections A, B, and C below, of
the most significant aspects of such
statements.
1 15
2 17
U.S.C. 78s(b)(1).
CFR 240.19b–4.
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1. Purpose
The Exchange proposes to amend the
definition of ‘‘Professional’’ at Chapter I,
Section 1(49) to specify the manner in
which the Exchange calculates orders to
determine if an order should be treated
as Professional.
Background
The definition of the term
Professional at Chapter I, Section 1(48),
currently states, ‘‘any person or entity
that (i) is not a broker or dealer in
securities, and (ii) places more than 390
orders in listed options per day on
average during a calendar month for its
own beneficial account(s).’’ In order to
properly represent orders entered on the
Exchange Participants are required to
indicate whether Public Customer 3
orders are ‘‘Professional’’ orders.’’ 4 To
comply with this requirement,
Participants are required to review their
Public Customers’ activity on at least a
quarterly basis to determine whether
orders that are not for the account of a
broker-dealer should be represented as
Public Customer orders or Professional
orders.5
The Exchange accepts orders routed
from other markets that are marked
Professional. The designation of
Professional or Professional order does
not result in any different treatment of
such orders for purposes of Exchange
rules concerning away market
protection. That is, all non-broker or
dealer orders, including those that meet
the definition of Professional orders, are
treated equally for purposes of Exchange
away market protection rules.6 The
Exchange continues to believe that
identifying Professional accounts based
3 The term ‘‘Public Customer’’ means a person
that is not a broker or dealer in securities. See
Chapter I, Section 1(49).
4 The Exchange utilizes a special order origin
code for Professional orders.
5 Orders for any Public Customer that had an
average of more than 390 orders per day during any
month of a calendar quarter must be represented as
Professional orders for the next calendar quarter.
Members are required to conduct a quarterly review
and make any appropriate changes to the way in
which they are representing orders within five days
after the end of each calendar quarter. While
members are only required to review their accounts
on a quarterly basis, if during a quarter the
Exchange identifies a Public Customer for which
orders are being represented as Public Customer
orders but that has averaged more than 390 orders
per day during a month, the Exchange will notify
the member and the member will be required to
change the manner in which it is representing the
Public Customer’s orders within five days.
6 See Exchange Rules at Chapter VI, Section 11,
Chapter XII, Sections 2 and 3.
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44349
upon the average number of orders
entered in qualified accounts is an
appropriately objective approach to
reasonably distinguish such persons and
entities from retail investors or market
participants.
Proposal
The Exchange proposes to count each
order entered by a Professional toward
the number of orders, regardless of the
options exchange to which the order
was routed in determining Professional
orders.7
Cancel and Replace
A cancel and replace order is a type
of order that replaces a prior order. The
Exchange believes that the second order
(the replacement order) should be
counted as a new order. With respect to
‘‘single-strike algorithms,’’ which are a
series of cancel and replace orders in an
individual strike which track the NBBO,
these orders shall be counted as new
orders.8 The Exchange believes that
because the Public Customer is
specifically instructing the executing
broker in the ‘‘single-strike algorithm’’
scenario to cancel and replace these
orders. This type of activity is akin to
market making in a Public Customer
account and should be counted, as a
new order.
Parent/Child Orders
An order that converts into multiple
subordinate orders to achieve an
execution strategy 9 shall be counted as
one order per side and series, even if the
order is routed away. An order that
cancels and replaces a resulting
subordinate order and results in
multiple sides/series shall be counted as
a new order on each side and series. For
purposes of counting Public Customer
orders, the manner in which the Public
Customer submitted the order and
whether the order was on the same side
and series will determine if the order
will count as one order. If one Public
Customer order on the same side and
series is subsequently broken-up by a
broker into multiple orders for purposes
of execution or routed away, this order
will count as one order. The Exchange
believes that the proposed amendment
will provide more certainty to market
participants in determining the manner
in which the Exchange will compute the
7 All order types count toward the 390 orders on
average per day.
8 Cancel messages do not count as an order.
9 An order which is placed for the beneficial
account(s) of a person or entity that is not a broker
or dealer in securities that is broken into multiple
parts by a broker or dealer or by an algorithm
housed at a broker or dealer or by an algorithm
licensed from a broker or dealer. Strategies include
volatility orders, for example.
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number of orders in listed options per
day on average during a calendar month
for its own beneficial account(s) to
determine the Professional designation.
In order to make clear when orders
will count as new orders, the Exchange
offers the following scenarios as
examples.
• The Exchange proposes to count
multiple orders that were submitted by
the member as separate orders as
multiple orders.
• The Exchange proposes to count a
single order submitted by a member,
which was automatically executed in
multiple parts by the trading system, as
one order, because the member did not
intervene to create multiple orders.
Another example is where an order was
entered in the trading system and only
partially filled, the order would count as
one order. The subsequent fills, which
could be multiple executions, would not
count as additional orders in
determining the 390 limit. The manner
in which the order is ultimately
executed, as one order or multiple
orders, should not itself determine
whether the activity is that of a
Professional; also the member did not
intervene in that circumstance.
• The Exchange proposes to not count
an order which reprices, for example
because of a locked and crossed market,
as a new order because the member did
not intervene.
• The Exchange proposes to count
orders, which result in multiple orders
due to cancel and replacement orders,
as new orders. This is because in this
situation the member did intervene to
create the subsequent orders.
• The Exchange proposes to count an
order submitted by the Public Customer
as a single order, on the same side and
series, as a single order despite the fact
that a broker broke-up the order into
multiple orders for purposes of
execution.
The Exchange notes that other options
exchanges have issued notices which
describe the manner in which those
Exchanges believe thresholds should be
computed for determining if an order
qualifies as a Professional order.10 The
Exchange believes that there is industry
confusion as to which orders count
toward the 390 contract threshold. The
Exchange’s proposal is intended to
provide clarity and to continue to
promote consistency in the treatment of
orders as Professional orders.
Below are some examples of the
calculation of Professional orders.
Example #1:
A Public Customer has an order to
buy 100 calls at a volatility level of 35.
The order then generates a child order
resulting in a 1.00 bid for 100 options
which is sent to exchange A. After the
underlying stock price ticks up 2 cents
the child order is then adjusted to
reflect a 35 level volatility which in this
case (50 delta) results in a 1.01 bid sent
to Exchange A replacing the current
1.00 bid.
In determining the number of orders
that attribute to the 390 order count, in
this case, because the child order is
being canceled and replaced in the
‘‘same series’’ this would only count as
one (1) order for purposes of
Professional designation calculation.
Example #2:
A Public Customer has an order to
buy 20k Vega at a 35 volatility level in
symbol XYZ. The order then generates
50 child orders across different strikes.
Throughout the day those 50 orders are
adjusted as the stock moves resulting in
the replacement of child orders to the
tune of 5 times per order (50 x 5
cancels) resulting in 250 total orders
generated to Exchange A.
In determining the number of orders
that attribute to the 390 order count, in
this case, because the child orders
generated are across multiple series it
would be necessary to count all 250
orders.
In addition to the above examples, the
Exchange provides the below chart to
demonstrate the manner in which it will
count orders.
Single strike activity
Singular
Multiple
Public Customer order posted to 1 SRO Order Book .............................................................................................
Public Customer order posted to Multiple SRO Order Books simultaneously .......................................................
Cancel/Replace Activity ...........................................................................................................................................
Cancel/Replace Activity tracking NBBO ..................................................................................................................
x
x
........................
........................
........................
........................
x
x
srobinson on DSK5SPTVN1PROD with NOTICES
Singular—counts as a single order
towards the 390 count
Multiple—each order applies towards
the 390 count
The Exchange proposes to implement
this rule on July 1, 2016 to provide
market participants with advance notice
for their quarterly calculations. The
Exchange will issue an Options Trader
Alert in advance to inform market
participants of such date.
2. Statutory Basis
The Exchange believes that its
proposal is consistent with Section 6(b)
of the Act 11 in general, and furthers the
objectives of Section 6(b)(5) of the Act 12
in particular, in that it is designed to
promote just and equitable principles of
trade, to remove impediments to and
10 See NYSE Arca, Inc.’s and NYSE MKT LLC’s
Joint Regulatory Bulletin (RBO–15–03 and RBO–
15–06, respectively) dated September 9, 2015;
CBOE’s Regulatory Circulator (RG10–126) dated
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perfect the mechanism of a free and
open market and a national market
system, and, in general to protect
investors and the public interest, by
promoting the consistent application of
its rules by further defining the manner
in which the Exchange will compute the
number of orders in listed options per
day on average during a calendar month
for its own beneficial account(s) for
purposes of determining the
Professional designation. Furthermore,
the Exchange believes that specifying
the manner in which the 390 threshold
will be calculated within its Rules will
provide members with certainty and
provide them with insight as they
conduct their own quarterly reviews for
purposes of designating orders.
December 1, 2010; and the International Securities
Exchange LLC’s Regulatory Information Circular
(2009–179) dated June 23, 2009.
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The Exchange believes that counting
all orders toward the number of orders,
regardless of the options exchange to
which the order was routed, will
promote the consistent application of its
rules by making clear that all order
types shall be counted as well as all
orders for the purpose of determining
whether the definition of Professional
has been met.
Cancel and Replace
With respect to determining the
Professional designation, a cancel and
replace order that replaces a prior order
shall be counted as a second order. An
order that is filled partially or in its
entirety or is a replacement order that is
automatically canceled or reduced by
the number of contracts that were
11 15
12 15
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U.S.C. 78f(b).
U.S.C. 78f(b)(5).
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executed will not count as second order
because it was not replaced.13 The
Exchange believes that counting the
replacement order as a second order is
consistent with Exchange Rules because
the replacement order is viewed as a
new order with its own unique
identifier.
The Exchange believes that counting
cancel and replace orders with ‘‘singlestrike algorithms,’’ which are a series of
cancel and replace orders in an
individual strike which track the NBBO,
as new orders is consistent with the Act
because the Public Customer is
specifically instructing the executing
broker in the ‘‘single-strike algorithm’’
scenario to cancel and replace these
orders. Tracking the NBBO 14 is akin to
market making on the Exchange in a
Public Customer account and should be
counted as new orders. The Exchange
believes that the Public Customers order
designation should be reserved for retail
Public Customers.
srobinson on DSK5SPTVN1PROD with NOTICES
Parent/Child Orders
The Exchange’s adoption of the
Professional order was to treat orders in
listed options per day on average during
a calendar month in his or her own
beneficial account differently from
Public Customer orders for purposes of
pricing.15 For this reason, the Exchange
is adopting rules concerning the
computation of orders which convert
into multiple subordinate orders for the
purpose of determining the Professional
designation. The Exchange’s proposal to
count multiple subordinate orders that
achieve an execution strategy as one
order per side and series and count an
order that cancels and replaces a
resulting subordinate order and results
in multiple sides/series as a new order
is consistent with the Act, because the
Exchange is distinguishing where the
member is actively entering orders that
result in multiple orders and canceling
and replacing orders that result in
multiple orders versus where the
13 See Exchange Rules at Chapter VI, Section
1(e)(1). Cancel-replacement order shall mean a
single message for the immediate cancellation of a
previously received order and the replacement of
that order with a new order with new terms and
conditions. If the previously placed order is already
filled partially or in its entirety, the replacement
order is automatically canceled or reduced by the
number of contracts that were executed. The
replacement order will not retain the priority of the
cancelled order except when the replacement order
reduces the size of the order and all other terms and
conditions are retained.
14 Tracking the NBBO shall mean any parent
order that consumes any self-regulatory
organization order book data feed, or the OPRA
feed, to generate automated child orders, and move
with, or follow the Bid or Offer of the series in
question.
15 See NOM Rules at Chapter VI, Section 10 and
Chapter XV, Section 2.
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member had no control of the resulting
executions. Allowing orders on the
same side of the market to be counted
as a single order is consistent with the
original intent of the Professional order
designation. The same side of market
distinction protects retail Public
Customers. This practice is typically the
type of transaction Public Customers
execute versus a Professional trader.
Multiple related orders resulting from a
large order filled in part, or an order
which is cancelled and replaced several
times are considered part of a related
order. The Exchange does not desire to
count large orders filled in part as
multiple orders because the member did
not intervene in the outcome of the
execution. An order that results in
several separate and unrelated orders
would be counted as multiple orders
because the member intervened in this
circumstance.
The Exchange believes that the
proposed amendment will provide more
certainty to market participants in
determining the computation of the
number of orders in listed options per
day on average during a calendar month
for its own beneficial account(s) to
determine the Professional designation.
The Exchange notes that other options
exchanges have issued notices
describing the manner in which they
believe that Professional order should
be counted when determining if an
order qualifies as a Professional order.16
The Exchange believes that there is
confusion as to which orders count
toward the 390 contract threshold. The
Exchange proposes to provide clarity to
its Rules with specific guidance as to
the computation of Professional orders,
which it believes will promote
consistency in the treatment of orders as
Professional orders. The Exchange
believes that this proposed guidance
will promote consistency and permit the
proper calculation of options orders to
prevent members with high volume
from receiving benefits reserved for
Public Customer orders. The
Professional designation focuses
specifically on the number of orders
generated.
NOM’s System executes order based
on Price-Time priority, however, a
marketplace advantage afforded to
Public Customer orders on the Exchange
is that members are generally not
assessed transaction fees for the
16 See NYSE Arca, Inc.’s and NYSE MKT LLC’s
Joint Regulatory Bulletin (RBO–15–03 and RBO–
15–06, respectively) dated September 9, 2015; The
Chicago Board Options Exchange, Incorporated’s
Regulatory Circulator (RG10–126) dated December
1, 2010; and the International Securities Exchange
LLC’s Regulatory Information Circular (2009–179)
dated June 23, 2009.
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44351
execution of Public Customer orders.
The purpose of these marketplace
advantages is to attract retail order flow
to the Exchange by leveling the playing
field for retail investors over market
Professionals.17 The Exchange believes
that permitting certain types of orders to
be counted as a single order and other
types of orders to be counted as
multiple orders is consistent with the
original intent of the Professional
designation which was to continue to
provide Public Customer accounts with
marketplace advantages and distinguish
those accounts non-Professional retail
investors from the Professionals
accounts some non-broker-dealer
individuals and entities have access to
information and technology that enables
them to Professionally trade listed
options in the same manner as a broker
or dealer in securities.18
Finally, the proposed guidance is
being issued to stem confusion as to the
manner in which options exchanges
compute the Professional order volume.
The Exchange’s Rules may be similar to
notices issued by NYSE Arca, Inc, NYSE
MKT LLC (‘‘NYSE MKT’’) and
International Securities Exchange LLC
(‘‘ISE’’).
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 because the
Exchange will uniformly apply the rules
to calculate volume on all members in
determining Professional orders. The
designation of Professional orders
would not result in any different
treatment of such orders for purposes of
the Exchange’s Rules concerning order
protection or routing to away exchanges.
Also, SIFMA supports the guidance
issued by NYSE Arca and NYSE MKT.
The guidance is being issued to stem
confusion as to the manner in which
options exchanges compute the
Professional order volume.
The Exchange is adopting similar
counting methods the Exchange believes
is currently being utilized by NYSE
17 Market Professionals have access to
sophisticated trading systems that contain
functionality not available to Public Customers,
including things such as continuously updated
pricing models based upon real-time streaming
data, access to multiple markets simultaneously and
order and risk management tools.
18 For example, some broker-dealers provided
their Professional customers with multi-screened
trading stations equipped with trading technology
that allows the trader to monitor and place orders
on all six options exchanges simultaneously. These
trading stations also provide compliance filters,
order managements tools, the ability to place orders
in the underlying securities, and market data feeds.
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Federal Register / Vol. 81, No. 130 / Thursday, July 7, 2016 / Notices
MKT, NYSE ARCA and ISE related to
designation of Professional orders.
Counting All Orders
The Exchange believes that counting
all orders entered by a Professional
toward the number of orders, regardless
of the options exchange to which the
order was routed, does not create an
undue burden on intra-market
competition because this proposed rule
change will be consistently applied to
all members in determining Professional
orders.
Cancel and Replace
The Exchange believes that its
application of cancel and replace orders
does not create an undue burden on
intra-market competition because this
application is consistent with Exchange
Rules, where the replacement order is
viewed as a new order. This treatment
is consistent with the manner in which
this order type is applied today within
the Order Book.
srobinson on DSK5SPTVN1PROD with NOTICES
Parent/Child Orders
The Exchange’s treatment of
subordinate orders does not create an
undue burden on intra-market
competition because allowing orders on
the same side of the market to be
counted as a single order is consistent
with the original intent of the
Professional order designation which is
to count distinct orders and focus on the
number of orders generated.
The Exchange does not believe that
the proposed rule change will impose
an undue burden on inter-market
competition because other exchanges
have announced the intent to adopt
similar guidance.19 The Exchange
believes that disparate rules regarding
Professional order designation, and a
lack of uniform application of such
rules, does not promote the best
regulation and may, in fact, encourage
regulatory arbitrage. The Exchange
believes that it is therefore prudent and
necessary to conform its rules to that of
other options exchanges for purposes of
calculating the threshold volume of
orders to be designated as a
Professional. This is particularly true
where the Exchange’s third-party
routing broker-dealers are members of
several exchanges that have rules
requiring Professional order
designations.
19 See
supra note 16.
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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 either
solicited or received.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule
change does not: (i) Significantly affect
the protection of investors or the public
interest; (ii) impose any significant
burden on competition; and (iii) become
operative for 30 days from the date on
which it was filed, or such shorter time
as the Commission may designate, it has
become effective pursuant to Section
19(b)(3)(A)(iii) of the Act 20 and
subparagraph (f)(6) of Rule 19b–4
thereunder.21 A proposed rule change
filed under Rule 19b–4(f)(6) normally
does not become operative prior to 30
days after the date of filing.22 Rule 19b–
4(f)(6)(iii), however, permits the
Commission to designate a shorter time
if such action is consistent with the
protection of investors and the public
interest.23
The Exchange has requested that the
Commission waive the 30-day operative
delay. The Commission notes that it has
considered a substantially similar
proposed rule change filed by CBOE and
PHLX which it approved after a notice
and comment period.24 This proposed
rule change does not raise any new or
novel issues from those considered in
the CBOE and PHLX proposals. Based
on the foregoing, the Commission
believes that it is consistent with the
protection of investors and the public
interest to waive the 30-day operative
date so that the proposal may take effect
upon filing.25
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
U.S.C. 78s(b)(3)(a)(iii).
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 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.
22 17 CFR 240.19b–4(f)(6)(iii).
23 Id.
24 See Securities Exchange Act Release Nos.
77450 (March 25, 2016) (Order Approving SR–
CBOE–2016–005); 77449 (March 25, 2016), 81 FR
18665, (March 31, 2016) (Order Approving SR–
Phlx–2016–10).
25 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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20 15
21 17
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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) of the Act 26 to
determine whether the proposed rule
change 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 (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File No. SR–
NASDAQ–2016–091 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 No.
SR–NASDAQ–2016–091. 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 (https://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
26 15
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Federal Register / Vol. 81, No. 130 / Thursday, July 7, 2016 / Notices
information that you wish to make
available publicly. All submissions
should refer to File No. SR–NASDAQ–
2016–091 and should be submitted on
or before July 28, 2016.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.27
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016–16027 Filed 7–6–16; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–78221; File No. SR–
BatsEDGX–2016–28]
Self-Regulatory Organizations; Bats
EDGX Exchange, Inc.; Notice of Filing
and Immediate Effectiveness of a
Proposed Rule Change To Add
Interpretation and Policy .01 to Rule
16.1 To Specify the Calculation
Methodology for Counting
Professional Orders
July 1, 2016.
srobinson on DSK5SPTVN1PROD with NOTICES
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (the
‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on June 30,
2016, Bats EDGX Exchange, Inc. (the
‘‘Exchange’’ or ‘‘EDGX’’) filed with the
Securities and Exchange Commission
(‘‘Commission’’) the proposed rule
change as described in Items I and II
below, which Items have been prepared
by the Exchange. The Exchange has
designated this proposal as a ‘‘noncontroversial’’ proposed rule change
pursuant to Section 19(b)(3)(A) of the
Act 3 and Rule 19b–4(f)(6)(iii)
thereunder,4 which renders it effective
upon filing with the Commission. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to add
Interpretation and Policy .01 to Rule
16.1 to specify the manner in which the
Exchange calculates average daily order
submissions for purposes of counting
Professional orders, as further described
below.
The text of the proposed rule change
is available at the Exchange’s Web site
at www.batstrading.com, at the
27 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 15 U.S.C. 78s(b)(3)(A).
4 17 CFR 240.19b–4(f)(6)(iii).
1 15
VerDate Sep<11>2014
17:23 Jul 06, 2016
Jkt 238001
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
Exchange included statements
concerning the purpose of and basis for
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. The
Exchange has prepared summaries, set
forth in Sections A, B, and C below, of
the most significant 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 add
Interpretation and Policy .01 to Rule
16.1 to specify the methodology for
counting average daily order
submissions in listed options to
determine whether a person or entity
meets the definition of a Professional
(‘‘Professional order counting’’). The
proposed rule change is designed to
harmonize Professional order counting
with the recently adopted rules of
competing options exchanges—
specifically the Chicago Board of
Options Exchange, Inc. (‘‘CBOE’’) and
NASDAQ OMX PHLX LLC (‘‘PHLX’’).5
Rule 16.1(a)(46) defines a Professional
‘‘as any person or entity that (A) is not
a broker or dealer in securities; and (B)
places more than 390 orders in listed
options per day on average during a
calendar month for its own beneficial
account(s).’’ In adopting Rule
16.1(a)(46), the Exchange believed that
identifying Professional accounts based
upon the average number of orders
entered in qualified accounts is an
appropriate, objective approach that
will reasonably distinguish such
5 See Securities Exchange Act Release Nos. 77450
(March 25, 2016), 81 FR 18668, (March 31, 2016)
(SR–CBOE–2016–005); 77449 (March 25, 2016), 81
FR 18665, (March 31, 2016) (SR–Phlx–2016–10)
(approval orders). The Exchange notes that it
recently issued guidance regarding Professional
order counting. See e.g., Bats BZX Exchange, Inc.
and Bats EDGX Exchange Inc., Regulatory Circular
(RC–2015–012, respectively) dated December 21,
2015. This proposal codifies that guidance in a
manner that is consistent with CBOE and PHLX’s
approved rules. The Exchange notes that various
other options exchanges refer to Professionals as
‘‘Professional Customers.’’ The Exchange has
proposed to continue to use the term Professional,
as is currently the case in Exchange rules.
PO 00000
Frm 00096
Fmt 4703
Sfmt 4703
44353
persons and entities from nonprofessional, retail investors or market
participants. In order to properly
represent orders entered on the
Exchange, Options Members are
required to indicate whether Customer
orders are ‘‘Professional’’ orders.6 To
comply with this requirement, Options
Members are required to review their
Customers’ activity on at least a
quarterly basis to determine whether
orders that are not for the account of a
broker-dealer should be represented as
Customer orders or Professional orders.7
The advent of new multi-leg spread
products and the proliferation of the use
of complex orders and algorithmic
execution strategies by both
institutional and retail market
participants has raised questions as to
what should be counted as an ‘‘order’’
for Professional order counting
purposes. The proposed changes would
specifically address the counting of
multi-leg spread products, algorithm
generated orders, and complex orders
for purposes of determining Professional
status. In addition, the proposal is
intended to provide guidance regarding
the methodology used by the Exchange
when calculating average daily orders
for Professional order counting
purposes.8
As proposed, the rule would provide
that an order would count as one order
for Professional counting purposes,
unless one of the exceptions
enumerated in the proposed rule
stipulates otherwise (each an
‘‘Exception’’). The first Exception relates
to the treatment of complex orders for
purposes of computing orders for
Professional order counting purposes.
Specifically, the proposed rule provides
that a complex order of eight (8) option
legs or less would count as one order,
whereas a complex order comprised of
nine (9) option legs or more counts as
6 See e.g., Rule 18.2(a)(6) (Conduct and
Compliance with the Rules) (requiring that accurate
information is input into the System, including but
not limited to, the Options Member’s capacity).
7 Orders for any customer that had an average of
more than 390 orders per day during any month of
a calendar quarter must be represented as
Professional orders for the next calendar quarter.
Option Members would be required to conduct a
quarterly review and make any appropriate changes
to the way in which they are representing orders
within five business days after the end of each
calendar quarter. While Option Members only
would be required to review their accounts on a
quarterly basis, if during a quarter the Exchange
identifies a customer for which orders are being
represented as Customer orders but that has
averaged more than 390 orders per day during a
month, the Exchange would notify the Option
Member would be required to change the manner
in which it is representing the customer’s orders
within five business days.
8 This proposal is consistent with CBOE and
PHLX’s approved rules. See supra note 5.
E:\FR\FM\07JYN1.SGM
07JYN1
Agencies
[Federal Register Volume 81, Number 130 (Thursday, July 7, 2016)]
[Notices]
[Pages 44349-44353]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-16027]
[[Page 44349]]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-78200; File No. SR-NASDAQ-2016-091]
Self-Regulatory Organizations; The NASDAQ Stock Market LLC;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change
Relating to Professionals Order Counting
June 30, 2016.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on June 17, 2016, The NASDAQ Stock Market LLC (``Nasdaq'' or
``Exchange'') filed with the Securities and Exchange Commission
(``SEC'' or ``Commission'') the proposed rule change as described in
Items I and II, below, which Items have been prepared by the Exchange.
The Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to amend the NASDAQ Options Market LLC
(``NOM'') Rules at Chapter I, Section 1, entitled ``Definitions,'' to
add specificity to the definition of a Professional with respect to the
manner in which the volume threshold will be calculated by the
Exchange.
The text of the proposed rule change is available on the Exchange's
Web site at https://nasdaq.cchwallstreet.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 Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to amend the definition of ``Professional''
at Chapter I, Section 1(49) to specify the manner in which the Exchange
calculates orders to determine if an order should be treated as
Professional.
Background
The definition of the term Professional at Chapter I, Section
1(48), currently states, ``any person or entity that (i) is not a
broker or dealer in securities, and (ii) places more than 390 orders in
listed options per day on average during a calendar month for its own
beneficial account(s).'' In order to properly represent orders entered
on the Exchange Participants are required to indicate whether Public
Customer \3\ orders are ``Professional'' orders.'' \4\ To comply with
this requirement, Participants are required to review their Public
Customers' activity on at least a quarterly basis to determine whether
orders that are not for the account of a broker-dealer should be
represented as Public Customer orders or Professional orders.\5\
---------------------------------------------------------------------------
\3\ The term ``Public Customer'' means a person that is not a
broker or dealer in securities. See Chapter I, Section 1(49).
\4\ The Exchange utilizes a special order origin code for
Professional orders.
\5\ Orders for any Public Customer that had an average of more
than 390 orders per day during any month of a calendar quarter must
be represented as Professional orders for the next calendar quarter.
Members are required to conduct a quarterly review and make any
appropriate changes to the way in which they are representing orders
within five days after the end of each calendar quarter. While
members are only required to review their accounts on a quarterly
basis, if during a quarter the Exchange identifies a Public Customer
for which orders are being represented as Public Customer orders but
that has averaged more than 390 orders per day during a month, the
Exchange will notify the member and the member will be required to
change the manner in which it is representing the Public Customer's
orders within five days.
---------------------------------------------------------------------------
The Exchange accepts orders routed from other markets that are
marked Professional. The designation of Professional or Professional
order does not result in any different treatment of such orders for
purposes of Exchange rules concerning away market protection. That is,
all non-broker or dealer orders, including those that meet the
definition of Professional orders, are treated equally for purposes of
Exchange away market protection rules.\6\ The Exchange continues to
believe that identifying Professional accounts based upon the average
number of orders entered in qualified accounts is an appropriately
objective approach to reasonably distinguish such persons and entities
from retail investors or market participants.
---------------------------------------------------------------------------
\6\ See Exchange Rules at Chapter VI, Section 11, Chapter XII,
Sections 2 and 3.
---------------------------------------------------------------------------
Proposal
The Exchange proposes to count each order entered by a Professional
toward the number of orders, regardless of the options exchange to
which the order was routed in determining Professional orders.\7\
---------------------------------------------------------------------------
\7\ All order types count toward the 390 orders on average per
day.
---------------------------------------------------------------------------
Cancel and Replace
A cancel and replace order is a type of order that replaces a prior
order. The Exchange believes that the second order (the replacement
order) should be counted as a new order. With respect to ``single-
strike algorithms,'' which are a series of cancel and replace orders in
an individual strike which track the NBBO, these orders shall be
counted as new orders.\8\ The Exchange believes that because the Public
Customer is specifically instructing the executing broker in the
``single-strike algorithm'' scenario to cancel and replace these
orders. This type of activity is akin to market making in a Public
Customer account and should be counted, as a new order.
---------------------------------------------------------------------------
\8\ Cancel messages do not count as an order.
---------------------------------------------------------------------------
Parent/Child Orders
An order that converts into multiple subordinate orders to achieve
an execution strategy \9\ shall be counted as one order per side and
series, even if the order is routed away. An order that cancels and
replaces a resulting subordinate order and results in multiple sides/
series shall be counted as a new order on each side and series. For
purposes of counting Public Customer orders, the manner in which the
Public Customer submitted the order and whether the order was on the
same side and series will determine if the order will count as one
order. If one Public Customer order on the same side and series is
subsequently broken-up by a broker into multiple orders for purposes of
execution or routed away, this order will count as one order. The
Exchange believes that the proposed amendment will provide more
certainty to market participants in determining the manner in which the
Exchange will compute the
[[Page 44350]]
number of orders in listed options per day on average during a calendar
month for its own beneficial account(s) to determine the Professional
designation.
---------------------------------------------------------------------------
\9\ An order which is placed for the beneficial account(s) of a
person or entity that is not a broker or dealer in securities that
is broken into multiple parts by a broker or dealer or by an
algorithm housed at a broker or dealer or by an algorithm licensed
from a broker or dealer. Strategies include volatility orders, for
example.
---------------------------------------------------------------------------
In order to make clear when orders will count as new orders, the
Exchange offers the following scenarios as examples.
The Exchange proposes to count multiple orders that were
submitted by the member as separate orders as multiple orders.
The Exchange proposes to count a single order submitted by
a member, which was automatically executed in multiple parts by the
trading system, as one order, because the member did not intervene to
create multiple orders. Another example is where an order was entered
in the trading system and only partially filled, the order would count
as one order. The subsequent fills, which could be multiple executions,
would not count as additional orders in determining the 390 limit. The
manner in which the order is ultimately executed, as one order or
multiple orders, should not itself determine whether the activity is
that of a Professional; also the member did not intervene in that
circumstance.
The Exchange proposes to not count an order which
reprices, for example because of a locked and crossed market, as a new
order because the member did not intervene.
The Exchange proposes to count orders, which result in
multiple orders due to cancel and replacement orders, as new orders.
This is because in this situation the member did intervene to create
the subsequent orders.
The Exchange proposes to count an order submitted by the
Public Customer as a single order, on the same side and series, as a
single order despite the fact that a broker broke-up the order into
multiple orders for purposes of execution.
The Exchange notes that other options exchanges have issued notices
which describe the manner in which those Exchanges believe thresholds
should be computed for determining if an order qualifies as a
Professional order.\10\ The Exchange believes that there is industry
confusion as to which orders count toward the 390 contract threshold.
The Exchange's proposal is intended to provide clarity and to continue
to promote consistency in the treatment of orders as Professional
orders.
---------------------------------------------------------------------------
\10\ See NYSE Arca, Inc.'s and NYSE MKT LLC's Joint Regulatory
Bulletin (RBO-15-03 and RBO-15-06, respectively) dated September 9,
2015; CBOE's Regulatory Circulator (RG10-126) dated December 1,
2010; and the International Securities Exchange LLC's Regulatory
Information Circular (2009-179) dated June 23, 2009.
---------------------------------------------------------------------------
Below are some examples of the calculation of Professional orders.
Example #1:
A Public Customer has an order to buy 100 calls at a volatility
level of 35. The order then generates a child order resulting in a 1.00
bid for 100 options which is sent to exchange A. After the underlying
stock price ticks up 2 cents the child order is then adjusted to
reflect a 35 level volatility which in this case (50 delta) results in
a 1.01 bid sent to Exchange A replacing the current 1.00 bid.
In determining the number of orders that attribute to the 390 order
count, in this case, because the child order is being canceled and
replaced in the ``same series'' this would only count as one (1) order
for purposes of Professional designation calculation.
Example #2:
A Public Customer has an order to buy 20k Vega at a 35 volatility
level in symbol XYZ. The order then generates 50 child orders across
different strikes. Throughout the day those 50 orders are adjusted as
the stock moves resulting in the replacement of child orders to the
tune of 5 times per order (50 x 5 cancels) resulting in 250 total
orders generated to Exchange A.
In determining the number of orders that attribute to the 390 order
count, in this case, because the child orders generated are across
multiple series it would be necessary to count all 250 orders.
In addition to the above examples, the Exchange provides the below
chart to demonstrate the manner in which it will count orders.
------------------------------------------------------------------------
Single strike activity Singular Multiple
------------------------------------------------------------------------
Public Customer order posted to 1 SRO x ...............
Order Book...........................
Public Customer order posted to x ...............
Multiple SRO Order Books
simultaneously.......................
Cancel/Replace Activity............... ............... x
Cancel/Replace Activity tracking NBBO. ............... x
------------------------------------------------------------------------
Singular--counts as a single order towards the 390 count
Multiple--each order applies towards the 390 count
The Exchange proposes to implement this rule on July 1, 2016 to
provide market participants with advance notice for their quarterly
calculations. The Exchange will issue an Options Trader Alert in
advance to inform market participants of such date.
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act \11\ in general, and furthers the objectives of Section
6(b)(5) of the Act \12\ in particular, in that it is designed 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, by promoting the consistent application of its rules by
further defining the manner in which the Exchange will compute the
number of orders in listed options per day on average during a calendar
month for its own beneficial account(s) for purposes of determining the
Professional designation. Furthermore, the Exchange believes that
specifying the manner in which the 390 threshold will be calculated
within its Rules will provide members with certainty and provide them
with insight as they conduct their own quarterly reviews for purposes
of designating orders.
---------------------------------------------------------------------------
\11\ 15 U.S.C. 78f(b).
\12\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
The Exchange believes that counting all orders toward the number of
orders, regardless of the options exchange to which the order was
routed, will promote the consistent application of its rules by making
clear that all order types shall be counted as well as all orders for
the purpose of determining whether the definition of Professional has
been met.
Cancel and Replace
With respect to determining the Professional designation, a cancel
and replace order that replaces a prior order shall be counted as a
second order. An order that is filled partially or in its entirety or
is a replacement order that is automatically canceled or reduced by the
number of contracts that were
[[Page 44351]]
executed will not count as second order because it was not
replaced.\13\ The Exchange believes that counting the replacement order
as a second order is consistent with Exchange Rules because the
replacement order is viewed as a new order with its own unique
identifier.
---------------------------------------------------------------------------
\13\ See Exchange Rules at Chapter VI, Section 1(e)(1). Cancel-
replacement order shall mean a single message for the immediate
cancellation of a previously received order and the replacement of
that order with a new order with new terms and conditions. If the
previously placed order is already filled partially or in its
entirety, the replacement order is automatically canceled or reduced
by the number of contracts that were executed. The replacement order
will not retain the priority of the cancelled order except when the
replacement order reduces the size of the order and all other terms
and conditions are retained.
---------------------------------------------------------------------------
The Exchange believes that counting cancel and replace orders with
``single-strike algorithms,'' which are a series of cancel and replace
orders in an individual strike which track the NBBO, as new orders is
consistent with the Act because the Public Customer is specifically
instructing the executing broker in the ``single-strike algorithm''
scenario to cancel and replace these orders. Tracking the NBBO \14\ is
akin to market making on the Exchange in a Public Customer account and
should be counted as new orders. The Exchange believes that the Public
Customers order designation should be reserved for retail Public
Customers.
---------------------------------------------------------------------------
\14\ Tracking the NBBO shall mean any parent order that consumes
any self-regulatory organization order book data feed, or the OPRA
feed, to generate automated child orders, and move with, or follow
the Bid or Offer of the series in question.
---------------------------------------------------------------------------
Parent/Child Orders
The Exchange's adoption of the Professional order was to treat
orders in listed options per day on average during a calendar month in
his or her own beneficial account differently from Public Customer
orders for purposes of pricing.\15\ For this reason, the Exchange is
adopting rules concerning the computation of orders which convert into
multiple subordinate orders for the purpose of determining the
Professional designation. The Exchange's proposal to count multiple
subordinate orders that achieve an execution strategy as one order per
side and series and count an order that cancels and replaces a
resulting subordinate order and results in multiple sides/series as a
new order is consistent with the Act, because the Exchange is
distinguishing where the member is actively entering orders that result
in multiple orders and canceling and replacing orders that result in
multiple orders versus where the member had no control of the resulting
executions. Allowing orders on the same side of the market to be
counted as a single order is consistent with the original intent of the
Professional order designation. The same side of market distinction
protects retail Public Customers. This practice is typically the type
of transaction Public Customers execute versus a Professional trader.
Multiple related orders resulting from a large order filled in part, or
an order which is cancelled and replaced several times are considered
part of a related order. The Exchange does not desire to count large
orders filled in part as multiple orders because the member did not
intervene in the outcome of the execution. An order that results in
several separate and unrelated orders would be counted as multiple
orders because the member intervened in this circumstance.
---------------------------------------------------------------------------
\15\ See NOM Rules at Chapter VI, Section 10 and Chapter XV,
Section 2.
---------------------------------------------------------------------------
The Exchange believes that the proposed amendment will provide more
certainty to market participants in determining the computation of the
number of orders in listed options per day on average during a calendar
month for its own beneficial account(s) to determine the Professional
designation. The Exchange notes that other options exchanges have
issued notices describing the manner in which they believe that
Professional order should be counted when determining if an order
qualifies as a Professional order.\16\ The Exchange believes that there
is confusion as to which orders count toward the 390 contract
threshold. The Exchange proposes to provide clarity to its Rules with
specific guidance as to the computation of Professional orders, which
it believes will promote consistency in the treatment of orders as
Professional orders. The Exchange believes that this proposed guidance
will promote consistency and permit the proper calculation of options
orders to prevent members with high volume from receiving benefits
reserved for Public Customer orders. The Professional designation
focuses specifically on the number of orders generated.
---------------------------------------------------------------------------
\16\ See NYSE Arca, Inc.'s and NYSE MKT LLC's Joint Regulatory
Bulletin (RBO-15-03 and RBO-15-06, respectively) dated September 9,
2015; The Chicago Board Options Exchange, Incorporated's Regulatory
Circulator (RG10-126) dated December 1, 2010; and the International
Securities Exchange LLC's Regulatory Information Circular (2009-179)
dated June 23, 2009.
---------------------------------------------------------------------------
NOM's System executes order based on Price-Time priority, however,
a marketplace advantage afforded to Public Customer orders on the
Exchange is that members are generally not assessed transaction fees
for the execution of Public Customer orders. The purpose of these
marketplace advantages is to attract retail order flow to the Exchange
by leveling the playing field for retail investors over market
Professionals.\17\ The Exchange believes that permitting certain types
of orders to be counted as a single order and other types of orders to
be counted as multiple orders is consistent with the original intent of
the Professional designation which was to continue to provide Public
Customer accounts with marketplace advantages and distinguish those
accounts non-Professional retail investors from the Professionals
accounts some non-broker-dealer individuals and entities have access to
information and technology that enables them to Professionally trade
listed options in the same manner as a broker or dealer in
securities.\18\
---------------------------------------------------------------------------
\17\ Market Professionals have access to sophisticated trading
systems that contain functionality not available to Public
Customers, including things such as continuously updated pricing
models based upon real-time streaming data, access to multiple
markets simultaneously and order and risk management tools.
\18\ For example, some broker-dealers provided their
Professional customers with multi-screened trading stations equipped
with trading technology that allows the trader to monitor and place
orders on all six options exchanges simultaneously. These trading
stations also provide compliance filters, order managements tools,
the ability to place orders in the underlying securities, and market
data feeds.
---------------------------------------------------------------------------
Finally, the proposed guidance is being issued to stem confusion as
to the manner in which options exchanges compute the Professional order
volume. The Exchange's Rules may be similar to notices issued by NYSE
Arca, Inc, NYSE MKT LLC (``NYSE MKT'') and International Securities
Exchange LLC (``ISE'').
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 because the Exchange will
uniformly apply the rules to calculate volume on all members in
determining Professional orders. The designation of Professional orders
would not result in any different treatment of such orders for purposes
of the Exchange's Rules concerning order protection or routing to away
exchanges. Also, SIFMA supports the guidance issued by NYSE Arca and
NYSE MKT. The guidance is being issued to stem confusion as to the
manner in which options exchanges compute the Professional order
volume.
The Exchange is adopting similar counting methods the Exchange
believes is currently being utilized by NYSE
[[Page 44352]]
MKT, NYSE ARCA and ISE related to designation of Professional orders.
Counting All Orders
The Exchange believes that counting all orders entered by a
Professional toward the number of orders, regardless of the options
exchange to which the order was routed, does not create an undue burden
on intra-market competition because this proposed rule change will be
consistently applied to all members in determining Professional orders.
Cancel and Replace
The Exchange believes that its application of cancel and replace
orders does not create an undue burden on intra-market competition
because this application is consistent with Exchange Rules, where the
replacement order is viewed as a new order. This treatment is
consistent with the manner in which this order type is applied today
within the Order Book.
Parent/Child Orders
The Exchange's treatment of subordinate orders does not create an
undue burden on intra-market competition because allowing orders on the
same side of the market to be counted as a single order is consistent
with the original intent of the Professional order designation which is
to count distinct orders and focus on the number of orders generated.
The Exchange does not believe that the proposed rule change will
impose an undue burden on inter-market competition because other
exchanges have announced the intent to adopt similar guidance.\19\ The
Exchange believes that disparate rules regarding Professional order
designation, and a lack of uniform application of such rules, does not
promote the best regulation and may, in fact, encourage regulatory
arbitrage. The Exchange believes that it is therefore prudent and
necessary to conform its rules to that of other options exchanges for
purposes of calculating the threshold volume of orders to be designated
as a Professional. This is particularly true where the Exchange's
third-party routing broker-dealers are members of several exchanges
that have rules requiring Professional order designations.
---------------------------------------------------------------------------
\19\ See supra note 16.
---------------------------------------------------------------------------
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants or Others
No written comments were either solicited or received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule change does not: (i)
Significantly affect the protection of investors or the public
interest; (ii) impose any significant burden on competition; and (iii)
become operative for 30 days from the date on which it was filed, or
such shorter time as the Commission may designate, it has become
effective pursuant to Section 19(b)(3)(A)(iii) of the Act \20\ and
subparagraph (f)(6) of Rule 19b-4 thereunder.\21\ A proposed rule
change filed under Rule 19b-4(f)(6) normally does not become operative
prior to 30 days after the date of filing.\22\ Rule 19b-4(f)(6)(iii),
however, permits the Commission to designate a shorter time if such
action is consistent with the protection of investors and the public
interest.\23\
---------------------------------------------------------------------------
\20\ 15 U.S.C. 78s(b)(3)(a)(iii).
\21\ 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 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.
\22\ 17 CFR 240.19b-4(f)(6)(iii).
\23\ Id.
---------------------------------------------------------------------------
The Exchange has requested that the Commission waive the 30-day
operative delay. The Commission notes that it has considered a
substantially similar proposed rule change filed by CBOE and PHLX which
it approved after a notice and comment period.\24\ This proposed rule
change does not raise any new or novel issues from those considered in
the CBOE and PHLX proposals. Based on the foregoing, the Commission
believes that it is consistent with the protection of investors and the
public interest to waive the 30-day operative date so that the proposal
may take effect upon filing.\25\
---------------------------------------------------------------------------
\24\ See Securities Exchange Act Release Nos. 77450 (March 25,
2016) (Order Approving SR-CBOE-2016-005); 77449 (March 25, 2016), 81
FR 18665, (March 31, 2016) (Order Approving SR-Phlx-2016-10).
\25\ 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) of the Act \26\ 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 (https://www.sec.gov/rules/sro.shtml); or
Send an email to rule-comments@sec.gov. Please include
File No. SR-NASDAQ-2016-091 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 No. SR-NASDAQ-2016-091. 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 (https://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
[[Page 44353]]
information that you wish to make available publicly. All submissions
should refer to File No. SR-NASDAQ-2016-091 and should be submitted on
or before July 28, 2016.
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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\
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-16027 Filed 7-6-16; 8:45 am]
BILLING CODE 8011-01-P