Self-Regulatory Organizations; NASDAQ BX, Inc.; Notice of Filing of Proposed Rule Change To Amend the PRISM Price Improvement Auction in BX Chapter VI, Section 9 and To Make Pilot Program Permanent, 89167-89171 [2016-29463]
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Federal Register / Vol. 81, No. 237 / Friday, December 9, 2016 / Notices
operative prior to 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) of the Act and Rule
19b–4(f)(6) thereunder.9
A proposed rule change filed
pursuant to Rule 19b–4(f)(6) under the
Act 10 normally does not become
operative for 30 days after the date of its
filing. However, Rule 19b–4(f)(6)(iii) 11
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. According to the Exchange, the
proposal would delete an obsolete rule
that corresponded to rules that have
been deleted by the Affiliated
Exchanges. The Commission believes
that waiving the 30-day operative delay
is consistent with the protection of
investors and the public interest.
Therefore, the Commission hereby
waives the 30-day operative delay and
designates the proposed rule change to
be operative upon filing with the
Commission.12
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 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
to determine whether the proposed rule
change should be approved or
disapproved.
IV. Solicitation of Comments
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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:
9 17 CFR 240.19b–4(f)(6). As required under Rule
19b–4(f)(6)(iii), the Exchange provided the
Commission with written notice of its intent to file
the proposed rule change, along with a brief
description and the text of the proposed rule
change, at least five business days prior to the date
of filing of the proposed rule change, or such
shorter time as designated by the Commission.
10 17 CFR 240.19b–4(f)(6).
11 17 CFR 240.19b–4(f)(6)(iii).
12 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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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 Number SR–
NYSEArca–2016–154 on the subject
line.
Paper Comments
• Send paper comments in triplicate
to Brent J. Fields, Secretary, Securities
and Exchange Commission, 100 F Street
NE., Washington, DC 20549–1090.
All submissions should refer to File
Number SR–NYSEArca–2016–154. 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 the
filing also will be available for
inspection and copying at the principal
office of the Exchange. All comments
received will be posted without change;
the Commission does not edit personal
identifying information from
submissions. You should submit only
information that you wish to make
available publicly. All submissions
should refer to File Number SR–
NYSEArca–2016–154 and should be
submitted on or before December 30,
2016.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.13
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2016–29464 Filed 12–8–16; 8:45 am]
BILLING CODE 8011–01–P
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89167
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–79465; File No. SR–BX–
2016–063]
Self-Regulatory Organizations;
NASDAQ BX, Inc.; Notice of Filing of
Proposed Rule Change To Amend the
PRISM Price Improvement Auction in
BX Chapter VI, Section 9 and To Make
Pilot Program Permanent
December 5, 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 November
21, 2016, NASDAQ BX, Inc. (‘‘BX’’ or
‘‘Exchange’’) filed with the Securities
and Exchange Commission (‘‘SEC’’ or
‘‘Commission’’) the proposed rule
change as described in Items I, II, and
III, 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 BX
rules at Chapter VI, Section 9,
concerning a price-improvement
mechanism known as ‘‘PRISM.’’ Parts of
PRISM are currently operating on a pilot
basis (‘‘Pilot’’), which was approved by
the Commission in 2015,3 and which is
set to expire on January 18, 2017.4 In
this proposal, the Exchange proposes to
make the Pilot permanent, and also
proposes to change the requirements for
providing price improvement for PRISM
Orders of less than 50 option contracts.
The text of the proposed rule change
is available on the Exchange’s Web site
at https://nasdaqbx.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
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 See Securities Exchange Release No. 76301
(October 29, 2015), 80 FR 68347 (November 4, 2015)
(SR–BX–2015–032) (‘‘PRISM Approval Order’’).
4 See Securities Exchange Act Release No. 78249
(July 7, 2016), 81 FR 45334 (July 13, 2016) (SR–BX–
2016–038).
2 17
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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 purpose of this proposed rule
change is to make permanent certain
pilots within Chapter VI, Section 9,
entitled ‘‘Price Improvement Auction
(‘‘PRISM’’). In addition, BX proposes to
modify the requirements for PRISM
auctions involving less than 50
contracts where the National Best Bid
and Offer (‘‘NBBO’’) is only $0.01 wide.
Background
The Exchange adopted PRISM in
November 2015 as a price-improvement
mechanism on the Exchange.5 This
mechanism permits a Participant (an
‘‘Initiating Participant’’) to
electronically submit for execution an
order it represents as agent on behalf of
a Public Customer,6 Professional
customer, broker dealer, or any other
entity (‘‘PRISM Order’’) against
principal interest or against any other
order it represents as agent (an
‘‘Initiating Order’’), provided it submits
the PRISM Order for electronic
execution into the PRISM Auction
(‘‘Auction’’) pursuant to the Chapter VI,
Section 9.7 All options traded on the
Exchange are eligible for PRISM.
Pilot Program
Three components of PRISM were
approved by the Commission on a pilot
basis: (1) The early conclusion of the
PRISM Auction; 8 (2) the provision that
an unrelated market or marketable limit
order (against the BX BBO) on the
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5 See
PRISM Approval Order, supra note 3.
6 A Public Customer order does not include a
Professional order, and therefore a Professional
would not be entitled to Public Customer priority
as described herein. A Public Customer means a
person that is not a broker or dealer in securities.
See BX Options Rules at Chapter I, Section 1(a)(50).
A Public Customer order does not include a
Professional order for purposes of BX Rule at
Chapter VI, Section 10(1)(C)(1)(a), which governs
allocation priority. A ‘‘Professional’’ means 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). A
Participant or a Public Customer may, without
limitation, be a Professional. All Professional orders
shall be appropriately marked by Participants. See
BX Rules at Chapter I, Section 1(a)(49).
7 BX will only conduct an auction for Simple
Orders.
8 See Chapter VI, Section 9(ii)(B)(4).
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opposite side of the market from the
PRISM Order received during the
Auction will not cause the Auction to
end early and will execute against
interest outside of the Auction; 9 and (3)
no minimum size requirement of orders.
The provisions were approved for a
pilot period that currently expires on
January 18, 2017 (‘‘Pilot’’).10 The
Exchange now seeks to have the Pilot
approved on a permanent basis. In
addition, the Exchange proposes to
modify the scope of PRISM so that
PRISM Orders for less than 50 option
contracts will be required to receive
price improvement of at least one
minimum price improvement increment
over the NBBO if the NBBO is only
$0.01 wide. For orders of 50 contracts or
more, or if the difference in the NBBO
is greater than $0.01, the requirements
for price improvement remain the same.
During the pilot period the Exchange
has been required to submit, and has
been submitting, certain data
periodically as required by the
Commission, to provide supporting
evidence that, among other things, there
is meaningful competition for all size
orders, there is significant price
improvement available through PRISM,
and that there is an active and liquid
market functioning on the Exchange
outside of the Auction mechanism.
Specifically, the Exchange has
submitted the following data as
specified in its approval order: 11
(1) The number of contracts (of orders
of 50 contracts or greater) entered into
the PRISM;
(2) The number of contracts (of orders
of fewer than 50 contracts) entered into
the PRISM;
(3) The number of orders of 50
contracts or greater entered into the
PRISM; and
(4) The number of orders of fewer
than 50 contracts entered into the
PRISM.
Price Improvement for Orders Under 50
Contracts
Currently, a PRISM Auction may be
initiated if one of the following
conditions are met. If the PRISM Order
is for the account of a Public Customer,
the Initiating Participant must stop the
entire PRISM Order at a price that is
equal to or better than the National Best
Bid/Offer (‘‘NBBO’’) on the opposite
side of the market from the PRISM
Order, provided that such price must be
at least one minimum trading increment
specified in Chapter VI, Section 5 better
than any limit order on the limit order
9 See
Chapter VI, Section 9(ii)(D).
PRISM Approval Order, supra note 3.
book on the same side of the market as
the PRISM Order.12 If the PRISM Order
is for the account of a broker dealer or
any other person or entity that is not a
Public Customer, the Initiating
Participant must stop the entire PRISM
Order at a price that is the better of: (i)
the BX BBO price improved by at least
the Minimum Increment on the same
side of the market as the PRISM Order,
or (ii) the PRISM Order’s limit price (if
the order is a limit order), provided in
either case that such price is at or better
than the NBBO.13
BX proposes to amend the PRISM
auction to require at least $0.01 price
improvement for a PRISM Order if that
order is for less than 50 contracts and
if the difference between the NBBO is
$0.01. Accordingly, BX is proposing to
amend the Auction Eligibility
Requirements to require that, if the
PRISM Order is for less than 50 option
contracts, and if the difference between
the NBBO is $0.01, the Initiating
Participant must stop the entire PRISM
Order at one minimum price
improvement increment better than the
NBBO on the opposite side of the
market from the PRISM Order, and
better than any limit order on the limit
order book on the same side of the
market as the PRISM Order. This
requirement will apply regardless of
whether the PRISM Order is for the
account of a Public Customer, or where
the PRISM Order is for the account of
a broker dealer or any other person or
entity that is not a Public Customer.
The Exchange will retain the current
requirements for auction eligibility
where the PRISM Order is for the
account of a Public Customer and such
order is for 50 option contracts or more,
or if the difference between the NBBO
is greater than $0.01. The Exchange will
also retain the current requirements for
auction eligibility where the PRISM
Order is for the account of a broker
dealer or any other person or entity that
is not a Public Customer and such order
is for 50 option contracts or more, or if
the difference between the NBBO is
greater than $0.01. Accordingly, the
Exchange is amending the Auction
Eligibility Requirements to state that, if
the PRISM Order is for the account of
a Public Customer and such order is for
50 option contracts or more or if the
difference between the NBBO is greater
than $0.01, the Initiating Participant
must stop the entire PRISM Order at a
price that is equal to or better than the
National Best Bid/Offer (‘‘NBBO’’) on
the opposite side of the market from the
PRISM Order, provided that such price
10 See
12 See
11 Id.
13 See
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Chapter VI, Section 9(i)(A).
Chapter VI, Section 9(i)(B).
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must be at least one minimum trading
increment specified in Chapter VI,
Section 5 (‘‘Minimum Increment’’)
better than any limit order on the limit
order book on the same side of the
market as the PRISM Order.
Similarly, the Exchange is amending
the Auction Eligibility Requirements to
state that, if the PRISM Order is for the
account of a broker dealer or any other
person or entity that is not a Public
Customer and such order is for 50
option contracts or more, or if the
difference between the NBBO is greater
than $0.01, the Initiating Participant
must stop the entire PRISM Order at a
price that is the better of: (i) The BX
BBO price improved by at least the
Minimum Increment on the same side of
the market as the PRISM Order, or (ii)
the PRISM Order’s limit price (if the
order is a limit order), provided in
either case that such price is at or better
than the NBBO.14
The Exchange also proposes to add
language to Chapter VI, Section 9(i) to
clarify that, if any of the auction
eligibility criteria are not met, the
PRISM Order will be rejected. The
Exchange will also add language to
Chapter VI, Section 9(i) to clarify the
treatment of paired Public Customer-toPublic Customer orders pursuant to
subparagraph (vi) as a result of these
proposed changes. Specifically,
Exchange will allow a PRISM Order to
trade on either the bid or offer, pursuant
to subparagraph (vi), if the NBBO is
$0.01 wide, provided (1) the execution
price is equal to or within the NBBO, (2)
there is no resting customer at the
execution price, and (3) $0.01 is the
Minimum Price Variation (MPV) of the
option. The Exchange also proposes to
add language that it will continue to
reject a PRISM Order to buy (sell) if the
NBBO is only $0.01 wide and the
Agency order is stopped on the bid
14 In implementing this change, the system will
reject a simple PRISM Order to buy if the NBBO is
only $0.01 wide and the Agency order is stopped
on the offer provided the order is not customer to
customer. The system will reject a simple PRISM
Order to sell if the NBBO is only $0.01 wide and
the Agency order is stopped on the bid provided the
order is not customer to customer. The system will
still allow a customer to customer PRISM Order to
trade on either the bid or offer, if the NBBO is $0.01
wide, provided (1) the execution price is equal to
or within the NBBO; (2) there is no resting customer
at the execution price, and (3) $0.01 is the
Minimum Price Variation (MPV) of the option. The
system will continue to reject a simple PRISM
Order to buy if the NBBO is only $0.01 wide and
the Agency order is stopped on the bid if there is
a resting order on the bid. The system will continue
to reject a simple PRISM Order to sell if the NBBO
is only $0.01 wide and the Agency order is stopped
on the offer if there is a resting order on the offer.
The system will provide an explicit reject reason if
the system rejects a PRISM Order because the
NBBO is only $0.01 wide and the PRISM order did
not improve the contra side NBBO.
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(offer) if there is a resting order on the
bid (offer). These requirements are
unchanged from the Exchange’s current
handling practices of paired Public
Customer-to-Public Customer PRISM
Orders per subparagraph (vi), and the
Exchange’s current practice of rejecting
PRISM Orders to buy (sell) if the NBBO
is only $0.01 wide and the Agency order
is stopped on the bid (offer) if there is
a resting order on the bid (offer).
The Exchange believes that these
changes to PRISM may provide
additional opportunities for PRISM
Orders of under 50 option contracts to
receive price improvement over the
NBBO where the difference in the
NBBO is $0.01 and therefore encourage
the increased submission of orders of
under 50 option contracts. The
Exchange notes that the statistics for the
current pilot, which include, among
other things, price improvement for
orders of less than 50 option contracts
under the current auction eligibility
requirements, show relatively small
amounts of price improvement for such
orders. BX believes that the proposed
requirements will therefore increase the
price improvement that orders of under
50 option contracts may receive in
PRISM. The Exchange also notes that
NASDAQ PHLX LLC operates a similar
price improvement mechanism, Price
Improvement XL, also known as PIXL,
which has been operating for a longer
period of time and has therefore
generated more pilot data.15 Given the
similarly between the two mechanisms,
the Exchange expects that PRISM, if
operated on a pilot basis over a longer
period of time, would generate data that
is comparable to PIXL.
No Minimum Size Requirement
Chapter VI, Section 9(vii) provides
that, as part of the current Pilot, there
will be no minimum size requirement
for orders to be eligible for the
Auction.16 The Exchange proposed the
no-minimum size requirement for
PRISM auctions because it believed that
there is meaningful competition in
PRISM auctions for all size orders, there
are opportunities for significant price
improvement for orders executed
through PRISM, and that there is an
active and liquid market functioning on
15 See Securities Exchange Act Release No. 63027
(October 1, 2010), 75 FR 62160 (October 7, 2010)
(SR–Phlx–2010–108).
16 The Rule also requires the Exchange to submit
certain data, periodically as required by the
Commission, to provide supporting evidence that,
among other things, there is meaningful
competition for all size orders and that there is an
active and liquid market functioning on the
Exchange outside of the Auction mechanism. Any
raw data which is submitted to the Commission
will be provided on a confidential basis.
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89169
the Exchange outside of PRISM. The
Exchange proposed to gather data over
the course of the Pilot to support this
position. Specifically, the Exchange
proposed to gather data relating to (1)
the number of contracts (of orders of 50
contracts or greater) entered into the
PRISM; (2) the number of contracts (of
orders of fewer than 50 contracts)
entered into the PRISM; (3) the number
of orders of 50 contracts or greater
entered into the PRISM; and (4) the
number of orders of fewer than 50
contracts entered into the PRISM.17
The Exchange believes that the data
gathered since the approval of the Pilot
establishes that there is liquidity and
competition both within PRISM and
outside of PRISM, and that there are
opportunities for significant price
improvement within PRISM. In the
period between January and June 2016,
PRISM auctions executed 1.39 million
contracts, which represents 8.3% of
total BX contract volume. The average
daily number of contracts traded on
PRISM increased from 9,045 contracts
per day in January 2016 to 9,070
contracts per day in June 2016. The
percent of BX volume traded in PRISM
auctions increased from 6.4% in January
2016 to 7.2% in June 2016. The percent
of consolidated volume traded in PRISM
remained approximately 10 basis points.
The mean number of unique
participants in PRISM auctions was 4.8
and median was 4.0. The distribution of
auctions and contracts traded by
number of unique participants were
similar, with a single participant in
about 19% of auctions and 26% of
volume.
The Exchange has also gathered
information about activity in orders for
less than 50 and 50 contracts or greater
for PRISM auctions between January
and June 2016. For auctions occurring
during that period, 87.8% of auctions
were for orders for less than 50
contracts, a percentage that remained
stable over that time period. Auctions
for orders of less than 50 contracts
accounted for 30.0% of the contract
volume traded in PRISM. Auctions of 50
contracts or more made up 12.2% of all
PRISM auctions and accounted for
70.0% of contracts traded in PRISM.
With respect to price improvement,
60.5% of PRISM auctions between
January and June 2016 executed at a
price that was better than the NBBO at
the time the auction began.18 The equal17 See Securities Exchange Act Release No. 75827
(September 3, 2015), 80 FR 54607 (September 10,
2015) (SR–BX–2015–032).
18 29.6% of PRISM auction began when BX best
bid or offer was at the NBBO. 74.5% of auctions
that began when the BX BBO was at the NBBO
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weighted average amount of price
improvement per contract for PRISM
auctions was 3.5%, with the monthly
average amount of price improvement
ranging from 1.9% and 5.2% between
January and June 2016. For auctions of
less than 50 contracts, 64.7% received
price improvement, while 30.5% of
auctions for 50 contracts or more
received price improvement.19 The
equal-weighted average price
improvement was 3.7% for auctions of
less than 50 contracts and 1.9% for
auctions of 50 contracts or more.
Average price improvement was 4.4%
when BX BBO was at the NBBO and
3.1% when BX BBO was not at the
NBBO.
BX believes that the data gathered
during the Pilot period indicates that
there is meaningful competition in
PRISM auctions for all size orders, there
is an active and liquid market
functioning on the Exchange outside of
the auction mechanism, and that there
are opportunities for price improvement
for orders executed through PRISM. The
Exchange therefore believes that it
appropriate to approve the no minimum
size requirement on a permanent basis.
Early Conclusion of the PRISM Auction
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Chapter VI, Section 9(ii)(B)(4)
provides that the PRISM Auction shall
conclude at the earlier of (1) the end of
the Auction period; (2) any time the BX
BBO crosses the PRISM Order stop price
on the same side of the market as the
PRISM Order; or (3) any time there is a
trading halt on the Exchange in the
affected series.20 The latter two
conditions are operating as part of the
current Pilot.
As with the no minimum size
requirement, the Exchange has gathered
data on these latter two conditions.
Between January and June 2016, one
received price improvement. 54.6% of auctions that
began when the BX BBO was not at the NBBO
received price improvement.
19 56.5% of contracts in auctions for less than 50
contracts received price improvement, while 25.8%
of contracts in auctions of for 50 contracts or more
received price improvement.
20 If the situations described in either of the two
latter conditions occur, the entire PRISM Order will
be executed at: (1) In the case of the BX BBO
crossing the PRISM Order stop price, the best
response price(s) or, if the stop price is the best
price in the Auction, at the stop price, unless the
best response price is equal to or better than the
price of a limit order resting on the Order Book on
the same side of the market as the PRISM Order,
in which case the PRISM Order will be executed
against that response, but at a price that is at least
the Minimum Increment better than the price of
such limit order at the time of the conclusion of the
Auction; or (2) in the case of a trading halt on the
Exchange in the affected series, the stop price, in
which case the PRISM Order will be executed
solely against the Initiating Order. Any unexecuted
PAN responses will be cancelled.
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auction terminated early because the BX
BBO crossed the PRISM Order stop
price. No auctions terminated early
because of halts. The number of
auctions that terminated early was less
than 1/100th of 1% of all PRISM
auctions over the period. The auctions
that terminated early were less than 1/
100th of 1% of contracts traded in
PRISM auctions.
The Exchange believes that it is
appropriate to terminate an auction
when either of these conditions occur.21
Based on the data gathered during the
pilot, the Exchange does not anticipate
that either of these conditions will occur
with significant frequency, or will
otherwise disrupt the functioning of
PRISM auctions. The Exchange
therefore believes it is appropriate to
approve this aspect of the Pilot on a
permanent basis.
Unrelated Market or Marketable Limit
Order
Chapter VI, Section 9(ii)(D) provides
that an unrelated market or marketable
limit order (against the BX BBO) on the
opposite side of the market from the
PRISM Order received during the
Auction will not cause the Auction to
end early and will execute against
interest outside of the Auction. If
contracts remain from such unrelated
order at the time the auction ends, they
will be considered for participation in
the order allocation process described
elsewhere in the Rule.
This provision is based on a similar
provision in the Price Improvement XL
(‘‘PIXL’’) mechanism on NASDAQ
PHLX LLC (‘‘Phlx’’).22 In approving this
feature on PIXL, also on a pilot basis,
the Commission found that ‘‘allowing
the PIXL auction to continue for the full
auction period despite receipt of
unrelated orders outside the Auction
would allow the auction to run its full
course and, in so doing, will provide a
full opportunity for price improvement
to the PIXL Order. Further, the
unrelated order would be available to
participate in the PIXL order
allocation.’’ 23 Given that this provision
is based on the corresponding PIXL
provision, the Exchange believes that a
similar rationale applies here. The
Exchange also does not believe that this
provision has had a significant impact
on either the unrelated order or the
21 The Exchange notes that trading on the
Exchange in any option contract will be halted
whenever trading in the underlying security has
been paused or halted by the primary listing
market. See BX Rules at Chapter V, Section 3.
22 See Phlx Rule 1080(n)(ii)(D).
23 See Securities Exchange Act Release No. 63027
(October 1, 2010), 75 FR 62160 (October 7, 2010)
(SR–PHLX–2010–108).
PO 00000
Frm 00129
Fmt 4703
Sfmt 4703
PRISM auction process. The Exchange
therefore believes it is appropriate to
approve this aspect of the Pilot on a
permanent basis.
2. Statutory Basis
The Exchange believes that the
proposed rule change is consistent with
the provisions of Section 6 of the Act,24
in general and with Section 6(b)(5) of
the Act,25 in that it is designed to
promote just and equitable principles of
trade, to foster cooperation and
coordination with persons engaged in
regulating, clearing, settling, processing
information with respect to, and
facilitating transactions in securities, 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; and is not designed to
permit unfair discrimination between
customers, issuers, brokers, or dealers,
or to regulate by virtue of any authority
conferred by the Act matters not related
to the purposes of the Act or the
administration of the Exchange.
The Exchange believes that the
proposed rule change is also consistent
with Section 6(b)(8) of the Act 26 in that
it does not impose any burden on
competition not necessary or
appropriate in furtherance of the
purposes of the Act.
Specifically, the Exchange believes
that PRISM, including the rules to
which the Pilot applies, results in
increased liquidity available at
improved prices, with competitive final
pricing out of the Initiating Participant’s
complete control. The Exchange
believes that PRISM promotes and
fosters competition and affords the
opportunity for price improvement to
more options contracts. The Exchange
believes that the changes to the PRISM
Auction requiring price improvement of
at least one minimum price
improvement increment over the NBBO
for PRISM Orders of less than 50 option
contracts where the difference in the
NBBO is $0.01 will provide further
price improvement for those PRISM
Orders. The Exchange notes that
statistics for the current pilot, which
include, among other things, price
improvement for orders of less than 50
option contracts under the current
auction eligibility requirements, show
relatively small amounts of price
improvement for such orders. The
Exchange believes that the proposed
requirements will therefore increase the
price improvement that orders of under
24 15
U.S.C. 78f.
U.S.C. 78f(b)(5).
26 15 U.S.C. 78f(b)(8).
25 15
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50 option contracts may receive in
PRISM.
The Exchange believes that approving
the Pilot on a permanent basis is also
consistent with the Act. With respect to
the no minimum size requirement, the
Exchange believes that the data gathered
during the Pilot period indicates that
there is meaningful competition in
PRISM auctions for all size orders, there
is an active and liquid market
functioning on the Exchange outside of
the auction mechanism, and that there
are opportunities for significant price
improvement for orders executed
through PRISM.
With respect to the early termination
of a PRISM Auction, the Exchange
believes that it is appropriate to
terminate an auction any time the BX
BBO crosses the PRISM Order stop price
on the same side of the market as the
PRISM Order, or any time there is a
trading halt on the Exchange in the
affected series. Based on the data
gathered during the pilot, the Exchange
does not anticipate that either of these
conditions will occur with significant
frequency, or will otherwise disrupt the
functioning of PRISM auctions.
With respect to the requirement that
an unrelated market or marketable limit
order (against the BX BBO) on the
opposite side of the market from the
PRISM Order received during the
Auction will not cause the Auction to
end early and will execute against
interest outside of the Auction, the
Exchange does not believe that this
provision has had a significant impact
on either the unrelated order or the
PRISM auction process. The Exchange
also believes that allowing the PRISM
Auction to continue in this scenario will
allow the auction to run its full course
and, in so doing, will provide a full
opportunity for price improvement to
the PRISM Order. The Exchange also
notes that the unrelated order would be
available to participate in the PRISM
order allocation.
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 proposal
will apply to all Exchange members,
and participation in the PRISM Auction
process is completely voluntary. Based
on the data collected by the Exchange
during the Pilot, the Exchange believes
that there is meaningful competition in
PRISM auctions for all size orders, there
are opportunities for significant price
improvement for orders executed
through PRISM, and that there is an
VerDate Sep<11>2014
18:13 Dec 08, 2016
Jkt 241001
active and liquid market functioning on
the Exchange outside of PRISM. The
Exchange believes that requiring
increased price improvement for PRISM
Orders may encourage competition by
attracting additional orders to
participate in PRISM. The Exchange
believes that approving the Pilot on a
permanent basis will not significantly
impact competition, as the Exchange is
proposing no other change to the Pilot
beyond implementing it on a permanent
basis.
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
Within 45 days of the date of
publication of this notice in the Federal
Register or within such longer period (i)
as the Commission may designate up to
90 days of such date if it finds such
longer period to be appropriate and
publishes its reasons for so finding or
(ii) as to which the Exchange consents,
the Commission shall: (a) By order
approve or disapprove such proposed
rule change, or (b) institute proceedings
to determine whether the proposed rule
change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
BX–2016–063 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–BX–2016–063. 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/
PO 00000
Frm 00130
Fmt 4703
Sfmt 4703
89171
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for Web site viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE.,
Washington, DC 20549, on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the
filing also will be available for
inspection and copying at the principal
office of the Exchange. All comments
received will be posted without change;
the Commission does not edit personal
identifying information from
submissions. You should submit only
information that you wish to make
available publicly. All submissions
should refer to File Numbe SR–BX–
2016–063 and should be submitted on
or before December 30, 2016.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.27
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2016–29463 Filed 12–8–16; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–79469; File No. SR–
NYSEArca–2016–155]
Self-Regulatory Organizations; NYSE
Arca, Inc.; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change Amending Rule 6.40 To
Expand the Risk Limitation Mechanism
to All Orders, Including Complex
Orders
December 5, 2016.
Pursuant to Section 19(b)(1) 1 of the
Securities Exchange Act of 1934
(‘‘Act’’) 2 and Rule 19b–4 thereunder,3
notice is hereby given that on November
25, 2016, NYSE Arca, Inc. (‘‘NYSE
Arca’’ or the ‘‘Exchange’’) 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 Commission is
27 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 15 U.S.C. 78a.
3 17 CFR 240.19b–4.
1 15
E:\FR\FM\09DEN1.SGM
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]]>Agencies
[Federal Register Volume 81, Number 237 (Friday, December 9, 2016)]
[Notices]
[Pages 89167-89171]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-29463]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-79465; File No. SR-BX-2016-063]
Self-Regulatory Organizations; NASDAQ BX, Inc.; Notice of Filing
of Proposed Rule Change To Amend the PRISM Price Improvement Auction in
BX Chapter VI, Section 9 and To Make Pilot Program Permanent
December 5, 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 November 21, 2016, NASDAQ BX, Inc. (``BX'' or ``Exchange'') filed
with the Securities and Exchange Commission (``SEC'' or ``Commission'')
the proposed rule change as described in Items I, II, and III, 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 BX rules at Chapter VI, Section 9,
concerning a price-improvement mechanism known as ``PRISM.'' Parts of
PRISM are currently operating on a pilot basis (``Pilot''), which was
approved by the Commission in 2015,\3\ and which is set to expire on
January 18, 2017.\4\ In this proposal, the Exchange proposes to make
the Pilot permanent, and also proposes to change the requirements for
providing price improvement for PRISM Orders of less than 50 option
contracts.
---------------------------------------------------------------------------
\3\ See Securities Exchange Release No. 76301 (October 29,
2015), 80 FR 68347 (November 4, 2015) (SR-BX-2015-032) (``PRISM
Approval Order'').
\4\ See Securities Exchange Act Release No. 78249 (July 7,
2016), 81 FR 45334 (July 13, 2016) (SR-BX-2016-038).
---------------------------------------------------------------------------
The text of the proposed rule change is available on the Exchange's
Web site at https://nasdaqbx.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
[[Page 89168]]
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 purpose of this proposed rule change is to make permanent
certain pilots within Chapter VI, Section 9, entitled ``Price
Improvement Auction (``PRISM''). In addition, BX proposes to modify the
requirements for PRISM auctions involving less than 50 contracts where
the National Best Bid and Offer (``NBBO'') is only $0.01 wide.
Background
The Exchange adopted PRISM in November 2015 as a price-improvement
mechanism on the Exchange.\5\ This mechanism permits a Participant (an
``Initiating Participant'') to electronically submit for execution an
order it represents as agent on behalf of a Public Customer,\6\
Professional customer, broker dealer, or any other entity (``PRISM
Order'') against principal interest or against any other order it
represents as agent (an ``Initiating Order''), provided it submits the
PRISM Order for electronic execution into the PRISM Auction
(``Auction'') pursuant to the Chapter VI, Section 9.\7\ All options
traded on the Exchange are eligible for PRISM.
---------------------------------------------------------------------------
\5\ See PRISM Approval Order, supra note 3.
\6\ A Public Customer order does not include a Professional
order, and therefore a Professional would not be entitled to Public
Customer priority as described herein. A Public Customer means a
person that is not a broker or dealer in securities. See BX Options
Rules at Chapter I, Section 1(a)(50). A Public Customer order does
not include a Professional order for purposes of BX Rule at Chapter
VI, Section 10(1)(C)(1)(a), which governs allocation priority. A
``Professional'' means 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). A Participant or a Public Customer may,
without limitation, be a Professional. All Professional orders shall
be appropriately marked by Participants. See BX Rules at Chapter I,
Section 1(a)(49).
\7\ BX will only conduct an auction for Simple Orders.
---------------------------------------------------------------------------
Pilot Program
Three components of PRISM were approved by the Commission on a
pilot basis: (1) The early conclusion of the PRISM Auction; \8\ (2) the
provision that an unrelated market or marketable limit order (against
the BX BBO) on the opposite side of the market from the PRISM Order
received during the Auction will not cause the Auction to end early and
will execute against interest outside of the Auction; \9\ and (3) no
minimum size requirement of orders. The provisions were approved for a
pilot period that currently expires on January 18, 2017
(``Pilot'').\10\ The Exchange now seeks to have the Pilot approved on a
permanent basis. In addition, the Exchange proposes to modify the scope
of PRISM so that PRISM Orders for less than 50 option contracts will be
required to receive price improvement of at least one minimum price
improvement increment over the NBBO if the NBBO is only $0.01 wide. For
orders of 50 contracts or more, or if the difference in the NBBO is
greater than $0.01, the requirements for price improvement remain the
same.
---------------------------------------------------------------------------
\8\ See Chapter VI, Section 9(ii)(B)(4).
\9\ See Chapter VI, Section 9(ii)(D).
\10\ See PRISM Approval Order, supra note 3.
---------------------------------------------------------------------------
During the pilot period the Exchange has been required to submit,
and has been submitting, certain data periodically as required by the
Commission, to provide supporting evidence that, among other things,
there is meaningful competition for all size orders, there is
significant price improvement available through PRISM, and that there
is an active and liquid market functioning on the Exchange outside of
the Auction mechanism. Specifically, the Exchange has submitted the
following data as specified in its approval order: \11\
---------------------------------------------------------------------------
\11\ Id.
---------------------------------------------------------------------------
(1) The number of contracts (of orders of 50 contracts or greater)
entered into the PRISM;
(2) The number of contracts (of orders of fewer than 50 contracts)
entered into the PRISM;
(3) The number of orders of 50 contracts or greater entered into
the PRISM; and
(4) The number of orders of fewer than 50 contracts entered into
the PRISM.
Price Improvement for Orders Under 50 Contracts
Currently, a PRISM Auction may be initiated if one of the following
conditions are met. If the PRISM Order is for the account of a Public
Customer, the Initiating Participant must stop the entire PRISM Order
at a price that is equal to or better than the National Best Bid/Offer
(``NBBO'') on the opposite side of the market from the PRISM Order,
provided that such price must be at least one minimum trading increment
specified in Chapter VI, Section 5 better than any limit order on the
limit order book on the same side of the market as the PRISM Order.\12\
If the PRISM Order is for the account of a broker dealer or any other
person or entity that is not a Public Customer, the Initiating
Participant must stop the entire PRISM Order at a price that is the
better of: (i) the BX BBO price improved by at least the Minimum
Increment on the same side of the market as the PRISM Order, or (ii)
the PRISM Order's limit price (if the order is a limit order), provided
in either case that such price is at or better than the NBBO.\13\
---------------------------------------------------------------------------
\12\ See Chapter VI, Section 9(i)(A).
\13\ See Chapter VI, Section 9(i)(B).
---------------------------------------------------------------------------
BX proposes to amend the PRISM auction to require at least $0.01
price improvement for a PRISM Order if that order is for less than 50
contracts and if the difference between the NBBO is $0.01. Accordingly,
BX is proposing to amend the Auction Eligibility Requirements to
require that, if the PRISM Order is for less than 50 option contracts,
and if the difference between the NBBO is $0.01, the Initiating
Participant must stop the entire PRISM Order at one minimum price
improvement increment better than the NBBO on the opposite side of the
market from the PRISM Order, and better than any limit order on the
limit order book on the same side of the market as the PRISM Order.
This requirement will apply regardless of whether the PRISM Order is
for the account of a Public Customer, or where the PRISM Order is for
the account of a broker dealer or any other person or entity that is
not a Public Customer.
The Exchange will retain the current requirements for auction
eligibility where the PRISM Order is for the account of a Public
Customer and such order is for 50 option contracts or more, or if the
difference between the NBBO is greater than $0.01. The Exchange will
also retain the current requirements for auction eligibility where the
PRISM Order is for the account of a broker dealer or any other person
or entity that is not a Public Customer and such order is for 50 option
contracts or more, or if the difference between the NBBO is greater
than $0.01. Accordingly, the Exchange is amending the Auction
Eligibility Requirements to state that, if the PRISM Order is for the
account of a Public Customer and such order is for 50 option contracts
or more or if the difference between the NBBO is greater than $0.01,
the Initiating Participant must stop the entire PRISM Order at a price
that is equal to or better than the National Best Bid/Offer (``NBBO'')
on the opposite side of the market from the PRISM Order, provided that
such price
[[Page 89169]]
must be at least one minimum trading increment specified in Chapter VI,
Section 5 (``Minimum Increment'') better than any limit order on the
limit order book on the same side of the market as the PRISM Order.
Similarly, the Exchange is amending the Auction Eligibility
Requirements to state that, if the PRISM Order is for the account of a
broker dealer or any other person or entity that is not a Public
Customer and such order is for 50 option contracts or more, or if the
difference between the NBBO is greater than $0.01, the Initiating
Participant must stop the entire PRISM Order at a price that is the
better of: (i) The BX BBO price improved by at least the Minimum
Increment on the same side of the market as the PRISM Order, or (ii)
the PRISM Order's limit price (if the order is a limit order), provided
in either case that such price is at or better than the NBBO.\14\
---------------------------------------------------------------------------
\14\ In implementing this change, the system will reject a
simple PRISM Order to buy if the NBBO is only $0.01 wide and the
Agency order is stopped on the offer provided the order is not
customer to customer. The system will reject a simple PRISM Order to
sell if the NBBO is only $0.01 wide and the Agency order is stopped
on the bid provided the order is not customer to customer. The
system will still allow a customer to customer PRISM Order to trade
on either the bid or offer, if the NBBO is $0.01 wide, provided (1)
the execution price is equal to or within the NBBO; (2) there is no
resting customer at the execution price, and (3) $0.01 is the
Minimum Price Variation (MPV) of the option. The system will
continue to reject a simple PRISM Order to buy if the NBBO is only
$0.01 wide and the Agency order is stopped on the bid if there is a
resting order on the bid. The system will continue to reject a
simple PRISM Order to sell if the NBBO is only $0.01 wide and the
Agency order is stopped on the offer if there is a resting order on
the offer. The system will provide an explicit reject reason if the
system rejects a PRISM Order because the NBBO is only $0.01 wide and
the PRISM order did not improve the contra side NBBO.
---------------------------------------------------------------------------
The Exchange also proposes to add language to Chapter VI, Section
9(i) to clarify that, if any of the auction eligibility criteria are
not met, the PRISM Order will be rejected. The Exchange will also add
language to Chapter VI, Section 9(i) to clarify the treatment of paired
Public Customer-to-Public Customer orders pursuant to subparagraph (vi)
as a result of these proposed changes. Specifically, Exchange will
allow a PRISM Order to trade on either the bid or offer, pursuant to
subparagraph (vi), if the NBBO is $0.01 wide, provided (1) the
execution price is equal to or within the NBBO, (2) there is no resting
customer at the execution price, and (3) $0.01 is the Minimum Price
Variation (MPV) of the option. The Exchange also proposes to add
language that it will continue to reject a PRISM Order to buy (sell) if
the NBBO is only $0.01 wide and the Agency order is stopped on the bid
(offer) if there is a resting order on the bid (offer). These
requirements are unchanged from the Exchange's current handling
practices of paired Public Customer-to-Public Customer PRISM Orders per
subparagraph (vi), and the Exchange's current practice of rejecting
PRISM Orders to buy (sell) if the NBBO is only $0.01 wide and the
Agency order is stopped on the bid (offer) if there is a resting order
on the bid (offer).
The Exchange believes that these changes to PRISM may provide
additional opportunities for PRISM Orders of under 50 option contracts
to receive price improvement over the NBBO where the difference in the
NBBO is $0.01 and therefore encourage the increased submission of
orders of under 50 option contracts. The Exchange notes that the
statistics for the current pilot, which include, among other things,
price improvement for orders of less than 50 option contracts under the
current auction eligibility requirements, show relatively small amounts
of price improvement for such orders. BX believes that the proposed
requirements will therefore increase the price improvement that orders
of under 50 option contracts may receive in PRISM. The Exchange also
notes that NASDAQ PHLX LLC operates a similar price improvement
mechanism, Price Improvement XL, also known as PIXL, which has been
operating for a longer period of time and has therefore generated more
pilot data.\15\ Given the similarly between the two mechanisms, the
Exchange expects that PRISM, if operated on a pilot basis over a longer
period of time, would generate data that is comparable to PIXL.
---------------------------------------------------------------------------
\15\ See Securities Exchange Act Release No. 63027 (October 1,
2010), 75 FR 62160 (October 7, 2010) (SR-Phlx-2010-108).
---------------------------------------------------------------------------
No Minimum Size Requirement
Chapter VI, Section 9(vii) provides that, as part of the current
Pilot, there will be no minimum size requirement for orders to be
eligible for the Auction.\16\ The Exchange proposed the no-minimum size
requirement for PRISM auctions because it believed that there is
meaningful competition in PRISM auctions for all size orders, there are
opportunities for significant price improvement for orders executed
through PRISM, and that there is an active and liquid market
functioning on the Exchange outside of PRISM. The Exchange proposed to
gather data over the course of the Pilot to support this position.
Specifically, the Exchange proposed to gather data relating to (1) the
number of contracts (of orders of 50 contracts or greater) entered into
the PRISM; (2) the number of contracts (of orders of fewer than 50
contracts) entered into the PRISM; (3) the number of orders of 50
contracts or greater entered into the PRISM; and (4) the number of
orders of fewer than 50 contracts entered into the PRISM.\17\
---------------------------------------------------------------------------
\16\ The Rule also requires the Exchange to submit certain data,
periodically as required by the Commission, to provide supporting
evidence that, among other things, there is meaningful competition
for all size orders and that there is an active and liquid market
functioning on the Exchange outside of the Auction mechanism. Any
raw data which is submitted to the Commission will be provided on a
confidential basis.
\17\ See Securities Exchange Act Release No. 75827 (September 3,
2015), 80 FR 54607 (September 10, 2015) (SR-BX-2015-032).
---------------------------------------------------------------------------
The Exchange believes that the data gathered since the approval of
the Pilot establishes that there is liquidity and competition both
within PRISM and outside of PRISM, and that there are opportunities for
significant price improvement within PRISM. In the period between
January and June 2016, PRISM auctions executed 1.39 million contracts,
which represents 8.3% of total BX contract volume. The average daily
number of contracts traded on PRISM increased from 9,045 contracts per
day in January 2016 to 9,070 contracts per day in June 2016. The
percent of BX volume traded in PRISM auctions increased from 6.4% in
January 2016 to 7.2% in June 2016. The percent of consolidated volume
traded in PRISM remained approximately 10 basis points. The mean number
of unique participants in PRISM auctions was 4.8 and median was 4.0.
The distribution of auctions and contracts traded by number of unique
participants were similar, with a single participant in about 19% of
auctions and 26% of volume.
The Exchange has also gathered information about activity in orders
for less than 50 and 50 contracts or greater for PRISM auctions between
January and June 2016. For auctions occurring during that period, 87.8%
of auctions were for orders for less than 50 contracts, a percentage
that remained stable over that time period. Auctions for orders of less
than 50 contracts accounted for 30.0% of the contract volume traded in
PRISM. Auctions of 50 contracts or more made up 12.2% of all PRISM
auctions and accounted for 70.0% of contracts traded in PRISM.
With respect to price improvement, 60.5% of PRISM auctions between
January and June 2016 executed at a price that was better than the NBBO
at the time the auction began.\18\ The equal-
[[Page 89170]]
weighted average amount of price improvement per contract for PRISM
auctions was 3.5%, with the monthly average amount of price improvement
ranging from 1.9% and 5.2% between January and June 2016. For auctions
of less than 50 contracts, 64.7% received price improvement, while
30.5% of auctions for 50 contracts or more received price
improvement.\19\ The equal-weighted average price improvement was 3.7%
for auctions of less than 50 contracts and 1.9% for auctions of 50
contracts or more. Average price improvement was 4.4% when BX BBO was
at the NBBO and 3.1% when BX BBO was not at the NBBO.
---------------------------------------------------------------------------
\18\ 29.6% of PRISM auction began when BX best bid or offer was
at the NBBO. 74.5% of auctions that began when the BX BBO was at the
NBBO received price improvement. 54.6% of auctions that began when
the BX BBO was not at the NBBO received price improvement.
\19\ 56.5% of contracts in auctions for less than 50 contracts
received price improvement, while 25.8% of contracts in auctions of
for 50 contracts or more received price improvement.
---------------------------------------------------------------------------
BX believes that the data gathered during the Pilot period
indicates that there is meaningful competition in PRISM auctions for
all size orders, there is an active and liquid market functioning on
the Exchange outside of the auction mechanism, and that there are
opportunities for price improvement for orders executed through PRISM.
The Exchange therefore believes that it appropriate to approve the no
minimum size requirement on a permanent basis.
Early Conclusion of the PRISM Auction
Chapter VI, Section 9(ii)(B)(4) provides that the PRISM Auction
shall conclude at the earlier of (1) the end of the Auction period; (2)
any time the BX BBO crosses the PRISM Order stop price on the same side
of the market as the PRISM Order; or (3) any time there is a trading
halt on the Exchange in the affected series.\20\ The latter two
conditions are operating as part of the current Pilot.
---------------------------------------------------------------------------
\20\ If the situations described in either of the two latter
conditions occur, the entire PRISM Order will be executed at: (1) In
the case of the BX BBO crossing the PRISM Order stop price, the best
response price(s) or, if the stop price is the best price in the
Auction, at the stop price, unless the best response price is equal
to or better than the price of a limit order resting on the Order
Book on the same side of the market as the PRISM Order, in which
case the PRISM Order will be executed against that response, but at
a price that is at least the Minimum Increment better than the price
of such limit order at the time of the conclusion of the Auction; or
(2) in the case of a trading halt on the Exchange in the affected
series, the stop price, in which case the PRISM Order will be
executed solely against the Initiating Order. Any unexecuted PAN
responses will be cancelled.
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As with the no minimum size requirement, the Exchange has gathered
data on these latter two conditions. Between January and June 2016, one
auction terminated early because the BX BBO crossed the PRISM Order
stop price. No auctions terminated early because of halts. The number
of auctions that terminated early was less than 1/100th of 1% of all
PRISM auctions over the period. The auctions that terminated early were
less than 1/100th of 1% of contracts traded in PRISM auctions.
The Exchange believes that it is appropriate to terminate an
auction when either of these conditions occur.\21\ Based on the data
gathered during the pilot, the Exchange does not anticipate that either
of these conditions will occur with significant frequency, or will
otherwise disrupt the functioning of PRISM auctions. The Exchange
therefore believes it is appropriate to approve this aspect of the
Pilot on a permanent basis.
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\21\ The Exchange notes that trading on the Exchange in any
option contract will be halted whenever trading in the underlying
security has been paused or halted by the primary listing market.
See BX Rules at Chapter V, Section 3.
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Unrelated Market or Marketable Limit Order
Chapter VI, Section 9(ii)(D) provides that an unrelated market or
marketable limit order (against the BX BBO) on the opposite side of the
market from the PRISM Order received during the Auction will not cause
the Auction to end early and will execute against interest outside of
the Auction. If contracts remain from such unrelated order at the time
the auction ends, they will be considered for participation in the
order allocation process described elsewhere in the Rule.
This provision is based on a similar provision in the Price
Improvement XL (``PIXL'') mechanism on NASDAQ PHLX LLC (``Phlx'').\22\
In approving this feature on PIXL, also on a pilot basis, the
Commission found that ``allowing the PIXL auction to continue for the
full auction period despite receipt of unrelated orders outside the
Auction would allow the auction to run its full course and, in so
doing, will provide a full opportunity for price improvement to the
PIXL Order. Further, the unrelated order would be available to
participate in the PIXL order allocation.'' \23\ Given that this
provision is based on the corresponding PIXL provision, the Exchange
believes that a similar rationale applies here. The Exchange also does
not believe that this provision has had a significant impact on either
the unrelated order or the PRISM auction process. The Exchange
therefore believes it is appropriate to approve this aspect of the
Pilot on a permanent basis.
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\22\ See Phlx Rule 1080(n)(ii)(D).
\23\ See Securities Exchange Act Release No. 63027 (October 1,
2010), 75 FR 62160 (October 7, 2010) (SR-PHLX-2010-108).
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2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with the provisions of Section 6 of the Act,\24\ in general and with
Section 6(b)(5) of the Act,\25\ in that it is designed to promote just
and equitable principles of trade, to foster cooperation and
coordination with persons engaged in regulating, clearing, settling,
processing information with respect to, and facilitating transactions
in securities, 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; and is not designed to
permit unfair discrimination between customers, issuers, brokers, or
dealers, or to regulate by virtue of any authority conferred by the Act
matters not related to the purposes of the Act or the administration of
the Exchange.
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\24\ 15 U.S.C. 78f.
\25\ 15 U.S.C. 78f(b)(5).
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The Exchange believes that the proposed rule change is also
consistent with Section 6(b)(8) of the Act \26\ in that it does not
impose any burden on competition not necessary or appropriate in
furtherance of the purposes of the Act.
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\26\ 15 U.S.C. 78f(b)(8).
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Specifically, the Exchange believes that PRISM, including the rules
to which the Pilot applies, results in increased liquidity available at
improved prices, with competitive final pricing out of the Initiating
Participant's complete control. The Exchange believes that PRISM
promotes and fosters competition and affords the opportunity for price
improvement to more options contracts. The Exchange believes that the
changes to the PRISM Auction requiring price improvement of at least
one minimum price improvement increment over the NBBO for PRISM Orders
of less than 50 option contracts where the difference in the NBBO is
$0.01 will provide further price improvement for those PRISM Orders.
The Exchange notes that statistics for the current pilot, which
include, among other things, price improvement for orders of less than
50 option contracts under the current auction eligibility requirements,
show relatively small amounts of price improvement for such orders. The
Exchange believes that the proposed requirements will therefore
increase the price improvement that orders of under
[[Page 89171]]
50 option contracts may receive in PRISM.
The Exchange believes that approving the Pilot on a permanent basis
is also consistent with the Act. With respect to the no minimum size
requirement, the Exchange believes that the data gathered during the
Pilot period indicates that there is meaningful competition in PRISM
auctions for all size orders, there is an active and liquid market
functioning on the Exchange outside of the auction mechanism, and that
there are opportunities for significant price improvement for orders
executed through PRISM.
With respect to the early termination of a PRISM Auction, the
Exchange believes that it is appropriate to terminate an auction any
time the BX BBO crosses the PRISM Order stop price on the same side of
the market as the PRISM Order, or any time there is a trading halt on
the Exchange in the affected series. Based on the data gathered during
the pilot, the Exchange does not anticipate that either of these
conditions will occur with significant frequency, or will otherwise
disrupt the functioning of PRISM auctions.
With respect to the requirement that an unrelated market or
marketable limit order (against the BX BBO) on the opposite side of the
market from the PRISM Order received during the Auction will not cause
the Auction to end early and will execute against interest outside of
the Auction, the Exchange does not believe that this provision has had
a significant impact on either the unrelated order or the PRISM auction
process. The Exchange also believes that allowing the PRISM Auction to
continue in this scenario will allow the auction to run its full course
and, in so doing, will provide a full opportunity for price improvement
to the PRISM Order. The Exchange also notes that the unrelated order
would be available to participate in the PRISM order allocation.
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 proposal will apply to all
Exchange members, and participation in the PRISM Auction process is
completely voluntary. Based on the data collected by the Exchange
during the Pilot, the Exchange believes that there is meaningful
competition in PRISM auctions for all size orders, there are
opportunities for significant price improvement for orders executed
through PRISM, and that there is an active and liquid market
functioning on the Exchange outside of PRISM. The Exchange believes
that requiring increased price improvement for PRISM Orders may
encourage competition by attracting additional orders to participate in
PRISM. The Exchange believes that approving the Pilot on a permanent
basis will not significantly impact competition, as the Exchange is
proposing no other change to the Pilot beyond implementing it on a
permanent basis.
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
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period (i) as the Commission may
designate up to 90 days of such date if it finds such longer period to
be appropriate and publishes its reasons for so finding or (ii) as to
which the Exchange consents, the Commission shall: (a) By order approve
or disapprove such proposed rule change, or (b) institute proceedings
to determine whether the proposed rule change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to rule-comments@sec.gov. Please include
File Number SR-BX-2016-063 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-BX-2016-063. 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 the filing also will be available
for inspection and copying at the principal office of the Exchange. All
comments received will be posted without change; the Commission does
not edit personal identifying information from submissions. You should
submit only information that you wish to make available publicly. All
submissions should refer to File Numbe SR-BX-2016-063 and should be
submitted on or before December 30, 2016.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\27\
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\27\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2016-29463 Filed 12-8-16; 8:45 am]
BILLING CODE 8011-01-P
