Self-Regulatory Organizations; NASDAQ PHLX LLC; Notice of Filing of Proposed Rule Change To Add Functionality to the Options Floor Broker Management System, 35858-35864 [2017-16210]
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uniformly to all similarly situated
market participants. The Exchange also
believes that it is equitable and not
unfairly discriminatory to assess New
Market Makers a different fee than the
Current Market Makers because New
Market Makers were not utilizing the
current API ports during the months of
March, April and May 2017. As such, it
will not be possible to calculate the
Fixed Fee for new Market Makers given
they do not have a three month lookback period to base a Fixed Fee on.
Furthermore, the proposed SQF Port Fee
amount is equivalent to the monthly
$1,000 API fee the Exchange currently
charges for each Market Maker API
session enabled for quoting, order entry
and listening on T7. As discussed
above, the Exchange recognizes that
Market Makers may not need the same
level of connectivity after the migration
for conducting largely the same quoting
and trading activities due to the
different architecture of the two
platforms. As such, the Exchange
represents that it will reassess the
proposed SQF Port Fee in the event a
New Market Maker seeks to use new
SQF ports during the three month
period ending September 29, 2017.
Lastly, the Exchange believes it is
reasonable to assess the proposed Fixed
Fee to Current Market Makers, as well
as the proposed SQF Port Fee to New
Market Makers, from July 3, 2017
through September 29, 2017. The
Exchange will use this time period to
monitor the manner in which all Market
Makers connect to the new INET trading
system, and will reassess whether the
proposed fees are adequate and
reasonable.
The Exchange further believes that the
proposed three month duration for both
the proposed Fixed Fee and the
proposed SQF Port Fee is equitable and
not unfairly discriminatory because this
duration will apply uniformly for all
Market Makers.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
In accordance with Section 6(b)(8) of
the Act,23 the Exchange does not believe
that the proposed rule change will
impose any burden on intermarket or
intramarket competition that is not
necessary or appropriate in furtherance
of the purposes of the Act. As explained
above, the Exchange is establishing fees
for connecting to the Exchange in order
to aid in the migration to INET
architecture. Current Market Makers
that are transitioning from the current
API ports to the new SQF ports will be
assessed a Fixed Fee that is
representative of their typical usage, and
will not be subject to additional fees for
utilizing any new SQF ports. In
addition, new Market Makers will be
assessed the proposed $1,000 SQF Port
Fee as of July 3, 2017 if they do not use
the current API ports today. For the
reasons described above, the Exchange
does not believe that assessing the
proposed fees will have any competitive
impact.
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
The foregoing rule change has become
effective pursuant to Section
19(b)(3)(A)(ii) of the Act,24 and Rule
19b–4(f)(2) 25 thereunder. At any time
within 60 days of the filing of the
proposed rule change, the Commission
summarily may temporarily suspend
such rule change if it appears to the
Commission that such action is: (i)
Necessary or appropriate in the public
interest; (ii) for the protection of
investors; or (iii) otherwise in
furtherance of the purposes of the Act.
If the Commission takes such action, the
Commission shall institute proceedings
to determine whether the proposed rule
should be approved or disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
ISE–2017–73 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–ISE–2017–73. This file
number should be included on the
subject line if email is used. To help the
U.S.C. 78s(b)(3)(A)(ii).
25 17 CFR 240.19b–4(f)(2).
U.S.C. 78f(b)(8).
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For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.26
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017–16109 Filed 7–31–17; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No 34–81230; File No. SR–Phlx–
2017–34]
Self-Regulatory Organizations;
NASDAQ PHLX LLC; Notice of Filing of
Proposed Rule Change To Add
Functionality to the Options Floor
Broker Management System
July 27, 2017.
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 July 18,
2017, NASDAQ PHLX LLC (‘‘Phlx’’ or
‘‘Exchange’’) filed with the Securities
and Exchange Commission (‘‘SEC’’ or
‘‘Commission’’) the proposed rule
change as described in Items I, II, and
26 17
24 15
23 15
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–ISE–
2017–73 and should be submitted on or
before August 22, 2017.
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CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
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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 add
functionality to the Options Floor
Broker Management System (‘‘FBMS’’),
the electronic system through which
Exchange Floor Brokers transmit orders
to the Exchange’s trading system
(‘‘System’’). The Exchange also proposes
to amend Options Floor Procedure
Advice C–2.
The text of the proposed rule change
is available on the Exchange’s Web site
at https://nasdaqphlx.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.
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A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
Overview of FBMS. As described in
Exchange Rule 1063, the Floor Broker
Management System or FBMS is the
electronic system that enables Floor
Brokers to submit option orders
represented on the Exchange trading
floor (the ‘‘Floor’’) to the Exchange’s
Trading System for execution and
reporting to the consolidated tape.
FBMS also facilitates the creation of an
electronic audit trail for such orders.
Specifically, when a Floor Broker
agrees to the terms of a trade on the
Floor, then the Floor Broker
memorializes the terms by entering the
information into the FBMS software
application using either a handheld
tablet or a desktop computer. After the
Floor Broker enters the trade terms into
FBMS, the Floor Broker directs FBMS to
transmit the information to the
Exchange’s automated Trading System.
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Upon receipt, the Trading System
immediately verifies whether the terms
of the trade comply with the Exchange’s
trade-through and priority requirements.
It does so by comparing the terms of the
trade to the market that prevailed at the
time that the Trading System received
the trade from FBMS. If the Trading
System determines, at the time of
receipt, that the trade violates either the
trade-through rule or applicable priority
requirements, then the Trading System
rejects the trade. However, if the
Trading System verifies that the trade
complies with the applicable rules, then
the Trading System will proceed to
execute the trade and report the
execution to the consolidated tape for
dissemination to the public.
FBMS provides numerous benefits to
Floor Brokers, their Customers, and the
Exchange. Notably, it helps to ensure
fair and orderly trading by automating
the enforcement of priority and tradethrough rules for on-Floor trades and
rendering the enforcement of such rules
consistent for both on-Floor and offFloor trading. FBMS also facilitates
trading surveillance by capturing a
fulsome audit trail for all options orders
that Floor Brokers enter into it.
Notwithstanding the benefits of
FMBS, the simplicity of its design and
the universality of its application also
sometimes generate unintended adverse
consequences for Floor Brokers, their
Customers, and the Exchange. The
circumstances in which these adverse
consequences arise are as follows.
Unlike routine trades, which Floor
Brokers typically submit from FBMS to
the Trading System almost
instantaneously after coming to an
agreement to their terms in open outcry
on the Floor, certain Floor trades
involve Multi-leg Orders,3 which
require Floor Brokers to spend several
seconds or more to fully calculate or
reconcile their terms before the Floor
Brokers are ready and able to submit
them to the Trading System. For
example, the Exchange estimates that
the following tasks associated with
reconciling the terms of Multi-leg
Orders would require the following time
periods to complete:
• The announced/negotiated price of
a Multi-leg Order differs from that
which was entered on the order but is
in the allowable minimum price
variation (‘‘MPV’’) (4 seconds);
• The announced/negotiated volume
of a Multi-leg Order differs from that
which was entered on the order (4
seconds);
3 See Rule 1066(f) (defining the term ‘‘Multi-leg
Orders’’).
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• The announced/negotiated volume
and price of a Multi-leg Order differs
from that which was entered on the
order, but the price is in the allowable
MPV (7 seconds);
• The Multi-leg Order requires the
use of the Complex Calculator to change
the volume and/or price for one leg (9
seconds); and
• The Multi-leg Order requires the
use of the Complex Calculator to enter
all prices and volumes for: (i) 2 legs (14
seconds); 5 legs (27 seconds); 10 legs (51
seconds); and 15 legs (69 seconds).
While the near-instantaneous entry of
information about routine trades
typically mitigates the risk that market
conditions will shift between the time
when Floor Brokers agree upon the
terms of such trades on the Floor and
the time when the Trading System
receives the trades for verification and
execution, the same cannot be said for
trades involving Multi-leg Orders. A
heightened risk exists that, during any
extended delay that occurs between the
time when Floor Brokers come to an
agreement on the terms of a trade
involving a Multi-leg Order and the time
when the Broker submits the trade to
the Trading System, market conditions
will shift in a way that will render the
trade inconsistent with Exchange’s
priority and trade-through rules, such
that the Trading System will reject the
trade.
Simple orders in certain options are
also susceptible to this risk when the
markets for such options are volatile or
prone to rapid changes—even during a
short time frame between the time of
agreement to the terms of a trade on the
Floor and Trading System receipt. The
market for options on exchange traded
funds (‘‘ETFs’’) in the Penny Options
Pilot is an example of a market that
tends to shift rapidly.
When the aforementioned scenarios
occur, they harm Floor Brokers, their
Customers, and the Exchange. In
particular, a Customer experiences harm
when a trade that a Floor Broker agrees
to on its behalf cannot be executed on
the terms agreed upon by the parties, if
at all. This harm is unfair in that it
occurs, not because the Customer’s trade
is invalid when agreed upon, but
instead because the Floor Broker finds
it humanly impossible to reconcile the
trade details in FBMS and submit the
trade to the Trading System quickly
enough to keep pace with the market—
a market that is often dominated by
electronic trading algorithms that
update quotations in nanoseconds
rather than seconds. Meanwhile, a Floor
Broker suffers financially when he or
she is unable to execute a trade on
behalf of his or her client. Finally, the
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Exchange suffers when, as a result of all
of the foregoing, Floor Brokers and their
Customers forego trading on the Floor of
the Exchange and instead resort to other
venues that afford no similar
disadvantages to those who engage in
floor trades and are not held to the same
execution standards that FBMS enforces
today. Indeed, the Exchange observes
that competing exchanges, like NYSE
Amex, execute floor trades based upon
the time when their floor brokers reach
agreement on the trades in the trading
crowd rather than the time when the
trading system receives the trades; the
Exchange further observes that at such
competing exchanges, floor trades often
execute at prices that differ from those
that prevail when the exchanges report
the trades to the consolidated tape.
The Exchange notes that the problem
it is attempting to solve through this
proposal did not exist prior to the
advent of FBMS, when Floor Brokers
stamped paper tickets with the times
when they reached agreement on their
trades in the trading crowd, entered the
trade terms onto the tickets, and
submitted the tickets to an Exchange
Data Entry Technician, who in turn
forwarded the trade information to the
Trading System for execution as of the
time of the date stamp on the ticket.
Moreover, the Exchange notes that even
in the original version of FBMS, Floor
Brokers could self-stipulate the time
when they executed a trade and thereby
avoid the risk that the market would
move before they finished entering the
terms of that trade into FBMS and
submitted it to the System.
Overview of Snapshot. To mitigate the
unintended and unfair consequences of
the current iteration of FBMS—while
also preserving its benefits—the
Exchange proposes to amend Rules 1000
and 1063 to permit the use of a new
feature in FMBS called ‘‘Snapshot.’’ 4
Snapshot will in many respects serve
as an electronic equivalent—if not an
enhanced version—of a paper ticket for
Floor Brokers.5 Specifically, Snapshot
will enable Floor Brokers who engage in
certain types of Floor trades to: (i)
Provisionally execute 6 the trades in
4 The Exchange became capable of offering
Snapshot upon upgrading FBMS to version 3.0 in
November 2016. The Exchange works continually to
enhance Exchange systems to improve trading on
the Exchange and in the national market system.
The history of the different versions of FBMS is
described in great detail in a previous filing. See
Securities Exchange Release No. 78593 (August 16,
2016) (SR–Phlx–2016–82).
5 As described below, Snapshot would be
superior to a paper ticket in that it would provide
for systematic enforcement of trade-through and
priority rules.
6 As set forth in proposed Rule 1063(e)(v)(A)(1),
provisional execution occurs when either: (i) The
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open outcry on the options Floor 7; (ii)
capture information about the state of
the market that exists at the time when
they provisionally execute such trades
(i.e., take a ‘‘snapshot’’ of the market);
(iii) afford Floor Brokers a limited
amount of additional time to submit
their provisionally executed trades
through FBMS to the Trading System;
and (iv) provided that Floor Brokers
enter the trade information into FBMS
and submit it to the Trading System in
a timely fashion, have the Trading
System verify 8 their trades for
compliance with trade-through and
priority rules based upon the state of the
market that existed at the time when the
trades were provisionally executed and
Snapshots were taken (rather than at the
time when the Trading System received
the trades). Provided that the trades are
indeed compliant, then the Trading
System will report them to the
consolidated tape. (If the trades are
deemed to have been non-compliant
with trade-through or priority rules at
the time when the Snapshots were
taken, then they will be rejected.) The
time and market captured by the
Snapshot will be utilized for all
purposes, including audit trail 9 and
surveillance purposes.
participants to a trade reach a verbal agreement in
the trading crowd as to the terms of the trade or (ii)
a Floor Broker crosses an order as set forth in Rule
1064(a). Execution is defined as ‘‘provisional’’
insofar as the trade may be deemed invalid and
then rejected when the Trading System
subsequently verifies it.
7 The use of Snapshot (for multi-leg orders and
simple orders on options in ETFs included in the
Options Penny Pilot) would be an exception to the
general rule set forth in Rule 1000(f)(iii) that Floor
Brokers may not execute trades in open outcry on
the options trading Floor.
8 The Snapshot will contain all information
necessary for the Trading System to determine that
a provisionally executed trade is consistent with all
applicable priority and trade-through rules based on
the time the trade is provisionally executed on the
Floor. Specifically, the Snapshot will include: (1)
The away market best bid and best offer; (2) the
Exchange best bid and best offer; (3) Customer
orders at the top of the Exchange book; and (4) the
best bid and offer of all-or-none orders. The System
needs each of these data elements to complete
important priority and trade-through checks. The
Snapshot must capture information regarding
Customer orders and all-or-none orders because
those impact the determination of priority and trade
through differently than other orders on the
Exchange Book.
9 Every time a Floor Broker takes a Snapshot, a
record of the Snapshot will be created and retained
for audit trail purposes regardless of whether the
Floor Broker acts upon the Snapshot by submitting
it to the Trading System. This record is in addition
to that which the Exchange presently creates upon
initiation of an order in FBMS. Moreover, when a
Floor Broker submits a trade subject to Snapshot to
the Trading System and the trade is thereafter
reported to the consolidated tape, an additional
execution record will be created and retained for
audit trail purposes that will contain all of the same
details as all other trade records. For example, the
Snapshot and the execution record created at the
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The Exchange notes that Snapshot
would not interact with the Exchange’s
electronic order book. As set forth in
proposed Rule 1063(e)(v)(C)(3), if an
order exists on the book that has priority
at the time when a Floor Broker seeks
to take a Snapshot, the System will not
prevent the Floor Broker from taking the
Snapshot, but he will need to clear the
order on the book, re-announce and
provisionally re-execute the trade, and
take a new Snapshot before he submits
the provisionally executed trade to the
Trading System or else the Trading
System will reject the provisionally
executed trade and will not report that
trade to the consolidated tape (as it
would violate the priority rules of the
Exchange).
The following is an example of how
Snapshot would operate in practice and
how it would impact a hypothetical
trade. In this example, a Floor Broker
receives a Customer order to buy 100
SPY Jan 250 Calls for $1.05. He enters
the trading crowd, lawfully announces
the order, and requests bids and offers
from the trading crowd. A Market Maker
in the trading crowd offers to sell 100
contracts at $1.04 while the National
Best Bid or Offer is $1.03 bid and $1.05
offer (no Customer orders on the offer).
At this point, the Floor Broker can agree
to the trade of the 100 SPY Jan 250 calls
at a price of $1.04, a price which is
$0.01 better than the limit price of the
Customer order.
Presently, and without the availability
of Snapshot, if the market changes to
$1.05 bid and $1.07 offer while the
Floor Broker is updating his order in
FBMS to reflect the provisional
execution price of $1.04, then the Floor
Broker will be unable to complete his
purchase of 100 contracts at $1.04 on
behalf of the Customer and the
Customer may end up paying the new
offer of $1.07 per contract. Moreover, if
another round of negotiation occurs in
the crowd due to the inability of the
Floor Broker to execute the previously
agreed-upon trade at the time of
agreement, then the same scenario noted
above may occur again, resulting in
either an error for the Floor Broker or
the Customer paying a price higher than
$1.07.
With Snapshot, by contrast, the Floor
Broker could click the Snapshot button
in FBMS upon reaching an agreement
time of reporting to the consolidated tape will
contain the time when a Snapshot was taken, the
time of reporting to the consolidated tape, and all
relevant order and execution details (including the
Exchange best bid and offer and away best bid and
offer). Lastly, the Snapshot record will include
Exchange all-or-none order details to provide a
fulsome capture of the Exchange best bid and offer
at the time of the Snapshot.
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with a Market Maker in the crowd as to
the terms of the trade, thereby effecting
a provisional execution of the trade
based upon the available market of a
$1.03 bid and $1.05 offer. As discussed
below, once the Floor Broker clicks the
Snapshot button, he will have up to 15
seconds to enter into FBMS the final
terms of his Customer’s trade and then
submit the trade to the Trading System.
The Trading System will then verify
that the trade complies with tradethrough and priority rules based upon
the market that existed, $1.03 bid and
$1.05 offer, when the Snapshot was
taken. Because in this example, the
Trading System determines that the
trade is valid, it will report the trade to
the consolidated tape.
By affording the Floor Broker the
extra time that he needs to enter and
submit this provisionally executed trade
without having to bear the interim risk
of market conditions changing,
Snapshot would help ensure that the
Floor Broker is able to execute the
Customer order and do so at a price that
meets the Customer’s expectations and
needs while continuing to adhere to
trade-through and priority rules. In a
larger sense, Snapshot would also
compensate for the inherent disparity
that exists between electronic options
trading (involving the instantaneous
interactions of trading algorithms) and
floor-based options trading (involving
the slower interactions of human
beings). Lastly, it would help ensure
that the Exchange remains competitive
with other floor trading venues, like
NYSE Amex, that already permit trading
to occur in a manner similar to
Snapshot, as well as with venues, like
the proposed BOX Options Exchange
trading floor, that are vague about
whether they would permit such trading
practices.10
Limitations on the Availability of
Snapshot. Although the Exchange
believes that Snapshot will be a
welcome and beneficial addition to its
Floor trading operations, the Exchange
nevertheless recognizes the prudence of
imposing reasonable controls upon the
use of Snapshot to ensure that Floor
Brokers do not misuse or abuse the
functionality. These controls, which are
set forth in proposed Rule 1063(v)(A),
are as follows.
10 See Ltr. from J. Conley, SVP and Corporate
Secretary, Nasdaq to B. Fields, Secretary, Securities
and Exchange Commission, dated March 27, 2017,
at 3–4 (commenting on the failure of the BOX
Options Exchange, in its proposal to establish open
outcry trading, to explain how it would address a
shift in the market that occurs between the time
when a trade is agreed upon in open outcry and
when it is entered into the BOX electronic order
entry system for verification and execution).
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First, a Floor Broker may not use the
Snapshot feature for all of his options
orders. Instead, a Floor Broker may
trigger the Snapshot feature only for his
or her use with a trade involving a
Multi-leg Order (as defined in Rule
1066(f)) or a simple option order on an
ETF that is included in the Options
Penny Pilot. The reason for this
limitation is to ensure that Floor Brokers
use Snapshot only when the complexity
of an order or the fast-moving nature of
the market for certain options
reasonably justifies the need for
additional time to calculate or enter
trade information or the ability to
preserve market conditions that exist at
the time of provisional execution. As
discussed above, options involving
Multi-leg Orders often involve timeconsuming tasks prior to trade entry that
justify use of Snapshot. Likewise, the
market for options orders on ETFs
included in the Options Penny Pilot is
known to be especially fast-moving and
volatile, which again justifies the use of
Snapshot.
A second limitation that the Exchange
proposes is that a Floor Broker may
have only one Snapshot outstanding at
any given time across all options classes
and series. In other words, when a Floor
Broker takes a Snapshot of a trade and
while that Snapshot remains valid, the
Floor Broker may not simultaneously
take a Snapshot of another trade. The
Exchange has built this limitation into
FBMS such that FBMS will enforce it
automatically. This limitation will
directly contribute to preventing Floor
Brokers from engaging in excessive use
of and abuse of Snapshot.
The Exchange notes that it proposes
to amend Floor Advice C–2 to render it
a violation for a Floor Broker to trigger
the Snapshot feature for the purpose of
obtaining favorable priority or tradethrough conditions or improperly
avoiding unfavorable priority or tradethrough conditions. Conduct that
violates this Advice would include, for
example, repeated instances in which
Floor Brokers permit valid Snapshots to
expire without submitting the trades
subject to the Snapshots to the Trading
System for verification and reporting to
the consolidated tape. Surveillance Staff
will monitor and enforce proper usage
of the Snapshot feature on a post-trade
basis.
Limitations on the Validity of a
Snapshot. In addition to the above, the
Exchange proposes, in Rule 1063(v)(B),
to limit the time period during which a
Snapshot will remain valid such that a
trade may execute based upon it.
Specifically, the Exchange proposes to
make each Snapshot valid for only 15
seconds, meaning that a Floor Broker
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may submit a trade from FBMS to the
Trading System based upon a Snapshot
at any time within 15 seconds after the
Floor Broker clicks the Snapshot button
and activates the feature.
The Exchange decided to impose this
limitation after it concluded that
allowing Floor Brokers to rely upon a
Snapshot for an extended period of time
would unduly impair the validity of the
consolidated tape. For example, the
Exchange considered making a
Snapshot valid for up to the full 90
seconds available to report trades to the
consolidated tape. Although designating
Snapshots as valid for up to 90 seconds
would have provided Floor Brokers
with ample time to enter and submit
even their most complex trades, the
Exchange concluded that the cost to
market transparency of lengthy delays
in executing and reporting trades would
outweigh this benefit. At the other end
of the spectrum, the Exchange also
considered imposing a strict time
limitation on the validity of a Snapshot
(as short as five seconds), but it decided
against doing so after concluding that
such a limitation would eliminate the
utility of the Snapshot feature in most
of the scenarios in which it could be
useful. Ultimately, the Exchange settled
on a 15 second limitation for the
validity of a Snapshot as a reasonable
and prudent compromise between the
needs of the Floor Brokers for additional
time to completely reconcile and record
the terms of their trades with the needs
of market participants for fast, accurate,
and transparent reporting of trades.
If a Snapshot expires before a Floor
Broker completes his or her entry and
submission of a trade, then FBMS will
not permit the Floor Broker to rely upon
the expired Snapshot to submit the
trade to the Trading System. Instead, the
Floor Broker has two options under the
Exchange’s proposal.
First, assuming that the Floor Broker
re-confirms the acceptability of the
terms of the trade with all participants,
then the Floor Broker may finish
entering the trade details into FBMS
without Snapshot and submit it to the
Trading System. The Trading System
will then validate and (assuming
validity) execute the trade in the normal
course using the market conditions that
prevail at the time when the Trading
System receives the trade.
Alternatively, the Floor Broker may,
after re-confirming the terms of the
trade, take a new Snapshot of the market
that records a new time of provisional
execution. The Floor Broker would then
have no more than 15 seconds within
which to submit the re-confirmed trade
and, upon timely submission, the
Trading System would evaluate it based
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upon the prevailing market conditions
reflected in the new Snapshot. Provided
that the submitted trade adheres to the
priority and trade-through restrictions
based upon the prevailing market
condition reflected in the new
Snapshot, then the Trading System will
report the trade to the consolidated tape.
Note that if the Floor Broker records
multiple Snapshots respecting the same
order, the Trading System would
automatically use the most recent
Snapshot for verification purposes.
Ability to Refresh a Snapshot Before
it Expires. Lastly, the proposal would
permit a Floor Broker to replace a valid
and existing Snapshot, prior to its
expiration, with a new one by reclicking the Snapshot button within 15
seconds of clicking it the first time. The
Exchange proposes to include this
functionality in Snapshot to allow a
Floor Broker to address a scenario in
which the market shifts between the
time of provisional execution and the
time when the Floor Broker takes a
Snapshot, wherein the market captured
in the Snapshot is such that it would
not permit a trade to occur in
accordance with the Exchange’s rules.
In this scenario, where the Trading
System rejects or the Floor Broker
reasonably anticipates that the Trading
System will reject a provisional
execution subject to a Snapshot, the
proposal provides that the Floor Broker
must re-announce the trade in the
crowd before he refreshes the
Snapshot.11
This functionality in Snapshot would
also allow a Floor Broker to take a new
Snapshot when he reasonably
anticipates that he will be unable to
input the final terms of the trade within
the 15 second window. In this scenario,
the proposal provides that the Floor
Broker need only re-confirm the terms
of the trade with the existing
participants before he refreshes the
Snapshot.
By way of example, a Floor Broker
enters the trading crowd with a
Customer Multi-leg Order to Buy 100
IBM Jan 100 calls for $1.05 and Sell 97
Jan 105 calls for $0.85. The market for
the Jan 100 calls is $1.00 bid and $1.15
offer while the market for the Jan 105
calls is $0.70 bid and $1.00 offer. The
trading crowd has no interest in
participating in this trade. This is a
lawful trade and when the Floor Broker
announces the execution, he clicks the
Snapshot button. When the Snapshot
appears, it reflects a rapid change in the
11 An example of this would occur if the System
rejects or the Floor Broker realizes that the System
will reject his or her Snapshot because an order
exists on the Exchange’s limit order book that has
priority.
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market for the Jan 100 calls to $1.10 bid
and $1.15 offer. When the Floor Broker
sees the Snapshot, he knows that it will
be useless because the Trading System
will reject the trade since his price of
$1.05 is outside of the market. While the
Snapshot remains valid, he sees the
market for the Jan 100 calls change back
to $1.00 bid and $1.15 offer. He reannounces the trade, receives no
interest, and then clicks the Snapshot
button again to record the change in the
market and receives a new 15 second
window in which to open the Complex
Calculator, enter the terms of the trade
into the Complex Calculator, and submit
the trade to the Trading System for
execution.
A second example where a Floor
Broker may utilize the Snapshot feature
and find it necessary to re-click the
Snapshot could occur when the Floor
Broker enters the trading crowd with a
multi-Legged Customer Order to buy
819 contracts of Leg 1, sell 912 contracts
of Leg 2, and buy 1011 contacts of Leg
3—all for a net price of $2.00. In the
trading crowd, the Floor Broker receives
interest from several Market Makers
who provide $2.00 offers with a net
offer size greater than his order size
(providing an over subscription of size).
Because the Floor Broker has sufficient
interest to execute the trade at $2.00, he
clicks Snapshot, but he then finds
himself unable, before the Snapshot
expires, to finalize the volumes that
each Market Maker will agree to trade
(given that each Market Maker desired
to trade more contracts than the order
size). Accordingly, the Floor Broker reconfirms the terms of the trade and then
refreshes the Snapshot.
The Exchange does not believe that
Floor Brokers have an incentive to abuse
the Snapshot ‘‘refresh’’ functionality to
take advantage of favorable market
moves. Nevertheless, in an abundance
of caution, the Exchange proposes to
limit to three the number of Snapshots
that Floor Brokers may take with respect
to any single order, regardless of
whether each such Snapshot persists for
the full 15 seconds or for a shorter
period.
2. Statutory Basis
The Exchange believes that its
proposal is consistent with Section 6(b)
of the Act 12 in general, and furthers the
objectives of Section 6(b)(5) of the Act 13
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
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12 15
13 15
U.S.C. 78f(b).
U.S.C. 78f(b)(5).
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system, and to protect investors and the
public interest.
Snapshot promotes just and equitable
principles of trade and serves the
interests of investors and the public by
increasing the likelihood that investors
will be able to execute their orders and
do so in line with their expectations and
needs. Similarly, Snapshot mitigates the
risk that the Trading System will
unfairly reject a trade due to a change
in market conditions that occurs
between the time when the parties
negotiate a lawful and valid trade on the
Floor and the time when the Trading
System receives it.
Snapshot also renders the Exchange
Floor more competitive with off-floor
electronic trading venues because it
compensates for the inefficiencies and
delays inherent in a floor trading system
that depends upon the inputs and
interactions of human beings; such
inefficiencies and delays do not exist in
fully-electronic trading environments,
where computers and algorithms
interact on a near instantaneous basis.
Additionally, Snapshot will render the
Floor more competitive with other floorbased trading venues at which the
Exchange observes trade executions
occurring seconds or even minutes after
verifications occur, but on trading terms
that existed as of the time of
verification.
The Exchange believes that it is
consistent with the Act to specifically
exempt multi-leg orders and simple
orders in options on Options Penny
Pilot ETFs from the general rule set
forth Rule 1000(f)(iii) that Floor Brokers
may not execute orders in the options
trading crowd. As noted previously, the
complex calculations that are often
involved in multi-leg orders and the
fast-moving nature of the markets for
options on Penny Pilot ETFs render
these two categories of options
particularly appropriate for exceptional
treatment using Snapshot. Enabling
Floor Brokers to provisionally execute
these two categories of options on the
Options Floor (using Snapshot), rather
than execute them in the Trading
System, will not adversely impact
investors or the quality of the market
due to the controls that the Exchange
proposes on the circumstances in which
Floor Brokers may use Snapshot and on
the manner in which they may use it. In
fact, the proposal will protect investors
and the public interest by improving
Floor Brokers’ ability to execute multileg orders and simple options on Penny
Options Pilot ETFs while continuing to
ensure that all priority and trade
through rules are systematically
enforced.
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Moreover, this proposal is consistent
with Rule 611 of Regulation NMS,14
which requires the Exchange to
establish policies and procedures that
are reasonably designed to prevent
trade-throughs of protected quotations.
Presently, the Exchange verifies that a
proposed trade complies with the tradethrough rule as of the time when the
Trading System receives the trade from
FBMS; if the trade complies, then the
Trading System executes the trade and
reports it to the consolidated tape.
However, the proposal would serve as
an exception to this practice. It would
permit Floor Brokers, upon reaching a
meeting of the minds in the trading
crowd regarding the terms of a trade, to
take a Snapshot that provisionally
executes the trade on the Floor. When
the Floor Broker submits the trade to the
Trading System using Snapshot, the
Trading System will verify that the
provisionally executed trade complied
with the trade-through rule as of the
time of its execution—i.e., the time
when the crowd agreed to the terms of
the trade and Snapshot was taken—
rather than at the time when the Trading
System receives the trade. If the Trading
System determines that the
provisionally executed trade complied
with the trade-through rule, then it will
report the trade to the consolidated tape.
If, however, the Trading System
determines that the provisionally
executed trade was non-compliant with
the trade-through rule as of the time
when the Snapshot was taken, then it
will reject the trade. In other words,
even though the proposal will change
the time of execution of a trade for
purposes of verifying compliance with
the trade-through rule, the automated
compliance verification process will
otherwise be unchanged and will still
apply to systematically prevent tradethroughs for all trades, including those
utilizing Snapshot.15
14 12
CFR 242.611.
Exchange notes that the SEC has published
analogous guidance indicating that a broker-dealer
that individually negotiates the terms of a block
trade among multiple parties would have policies
and procedures reasonably designed to prevent a
trade-through even where the individually
negotiated price is not at or within the best
protected quotations at the time when the
transaction terms are entered into the brokerdealer’s automated system if the broker-dealer takes
steps to verify that the transaction price of the trade
was at or within the best protected quotations at
some point during a 20 second period up to and
including the time when the transaction terms are
entered into the broker-dealer’s order entry system.
See SEC, Responses to Frequently Asked Questions
Concerning Rule 611 and Rule 610 or Regulation
NMS, Question 3.23: Agency Block Transactions
with Non-Trade-Through Prices that are
Individually Negotiated, at https://www.sec.gov/
divisions/marketreg/nmsfaq610-11.htm.
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Finally, the Exchange’s proposal
accomplishes the above in a manner
that: (1) Continues to provide automated
and verifiable enforcement of applicable
trade-through and priority rules; (2) is
documented in writing and transparent,
in contrast to the practices of other
exchanges; (3) provides for trade
reporting to occur in a timely fashion,
even for the most complex trades, and
within a 15 second time frame that is far
less than the maximum 90 second
reporting period allowable; and (4)
imposes surveillance and responsible
limitations upon Snapshot that ensure
appropriate usage and prevents
violations and abuse.
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.
In fact, the proposal is procompetitive for several reasons. The
Exchange believes that the Snapshot
feature will result in the Exchange’s
Floor operating more efficiently, which
will help it compete with other floorbased exchanges.
Moreover, the proposal helps the
Exchange compete by ensuring the
robustness of its regulatory program,
ensuring Floor Brokers’ compliance
with that program, and by enhancing
Customer protections through further
utilization of electronic tools by
members. The Exchange considers all of
these things to be differentiators in
attracting participants and order flow.
Lastly, the proposal does not impose
a burden on intra-market competition
not necessary or appropriate in
furtherance of the purposes of the Act.
Although the benefits of Snapshot will
apply initially only to Floor Brokers, the
Exchange plans to extend its availability
to Registered Options Traders and
Specialists once it receives authority to
allow them to utilize FBMS.
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
PO 00000
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35863
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–
Phlx–2017–34 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–Phlx–2017–34. 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–Phlx–
2017–34 and should be submitted on or
before August 22, 2017.
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For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.16
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017–16210 Filed 7–31–17; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–81211; File No. SR–FICC–
2017–010]
disapprove the proposed rule change.5
The Commission did not receive any
comments on the proposed rule change.
On June 21, 2017, FICC filed a
withdrawal of its proposed rule change
(SR–FICC–2017–010) from
consideration by the Commission. The
Commission is hereby publishing notice
of the withdrawal.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.6
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017–16107 Filed 7–31–17; 8:45 am]
Self-Regulatory Organizations; Fixed
Income Clearing Corporation; Notice of
Withdrawal of a Proposed Rule Change
To Amend the Mortgage-Backed
Securities Division Rules Concerning
Use of Clearing Fund for Losses,
Liabilities or Temporary Needs for
Funds Incident to the Clearance and
Settlement Business and Make Other
Related Changes
mstockstill on DSK30JT082PROD with NOTICES
July 26, 2017.
On April 11, 2017, Fixed Income
Clearing Corporation (‘‘FICC’’) filed
with the Securities and Exchange
Commission (‘‘Commission’’) the
proposed rule change SR–FICC–2017–
010 pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’) 1 and Rule 19b–4 thereunder.2
According to FICC, FICC proposed to
amend FICC’s Mortgage-Backed
Securities Division (‘‘MBSD’’) Clearing
Rule 4, Section 5 to (i) delete language
that would potentially limit FICC’s
access to MBSD clearing fund cash and
collateral to address losses, liabilities, or
temporary needs for funds incident to
its clearance and settlement business
and (ii) make additional changes to
correct grammar errors, delete
superfluous words and otherwise align
the text of MBSD Rule 4, Section 5 to
the text of FICC’s Government Securities
Division (‘‘GSD’’) Rulebook Rule 4,
Section 5. The proposed rule change
was published for comment in the
Federal Register on April 28, 2017.3 On
June 7, 2017, pursuant to Section
19(b)(2)(A)(ii)(I) of the Act,4 the
Commission designated a longer period
within which to approve the proposed
rule change, disapprove the proposed
rule change, or institute proceedings to
determine whether to approve or
16 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 Securities Exchange Act Release No. 80517
(April 24, 2017), 82 FR 19771 (April 28, 2017) (SR–
FICC–2017–010) (‘‘Notice’’).
4 15 U.S.C. 78s(b)(2)(A)(ii)(I).
1 15
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BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–81212; File No. SR–ISE–
2017–75]
Self-Regulatory Organizations; Nasdaq
ISE, LLC; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change To Extend the
Implementation Date in Rule 723(b)
July 26, 2017.
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 July 18,
2017, Nasdaq ISE, LLC (‘‘ISE’’ 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 extend the
implementation date set forth in Rule
723(b) from July 15, 2017 to August 15,
2017 for the systems-based requirement
to provide price improvement through
the Price Improvement Mechanism for
Agency Orders under 50 contracts
where the difference between the NBBO
is $0.01.3
5 Securities Exchange Act Release No. 80879
(June 7, 2017), 82 FR 27090 (June 13, 2017) (SR–
FICC–2017–010).
6 17 CFR 200.30–3(a)(12).
1 15 U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 The Commission notes that this proposed rule
change is effective and operative as of July 18, 2017,
the date of its filing. See text accompanying infra
note 17 (granting waiver of the 30-day operative
delay).
PO 00000
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The text of the proposed rule change
is available on the Exchange’s Web site
at www.ise.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 is proposing to extend
the implementation date set forth in
Rule 723(b) from July 15, 2017 to
August 15, 2017 for the systems-based
requirement to provide price
improvement through the Price
Improvement Mechanism (‘‘PIM’’) for
Agency Orders under 50 contracts
where the difference between the NBBO
is $0.01.
Rule 723 sets forth the requirements
for the PIM, which was adopted in 2004
as a price-improvement mechanism on
the Exchange.4 Certain aspects of PIM
were adopted on a pilot basis (‘‘Pilot’’);
specifically, the termination of the
exposure period by unrelated orders,
and no minimum size requirement of
orders eligible for PIM. The Pilot
expired on January 18, 2017.
On December 12, 2016, the Exchange
filed with the Commission a proposed
rule change to make the Pilot
permanent, and also to change the
requirements for providing price
improvement for Agency Orders of less
than 50 option contracts (other than
auctions involving Complex Orders)
where the National Best Bid and Offer
(‘‘NBBO’’) is only $0.01 wide.5 The
4 See Securities Exchange Act Release No. 50819
(December 8, 2004), 69 FR 75093 (December 15,
2004) (SR–ISE–2003–06).
5 See Securities Exchange Act Release No. 79530
(December 12, 2016), 81 FR 91221 (December 16,
2017) (SR–ISE–2016–29). The Exchange notes that,
on April 3, 2017, International Securities Exchange,
LLC was re-named Nasdaq ISE, LLC to reflect its
new placement within the Nasdaq, Inc. corporate
structure in connection with the March 9, 2016
acquisition by Nasdaq of the capital stock of U.S.
E:\FR\FM\01AUN1.SGM
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]]>Agencies
[Federal Register Volume 82, Number 146 (Tuesday, August 1, 2017)]
[Notices]
[Pages 35858-35864]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-16210]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No 34-81230; File No. SR-Phlx-2017-34]
Self-Regulatory Organizations; NASDAQ PHLX LLC; Notice of Filing
of Proposed Rule Change To Add Functionality to the Options Floor
Broker Management System
July 27, 2017.
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 July 18, 2017, NASDAQ PHLX LLC (``Phlx'' or ``Exchange'') filed with
the Securities and Exchange Commission (``SEC'' or ``Commission'') the
proposed rule change as described in Items I, II, and
[[Page 35859]]
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 add functionality to the Options Floor
Broker Management System (``FBMS''), the electronic system through
which Exchange Floor Brokers transmit orders to the Exchange's trading
system (``System''). The Exchange also proposes to amend Options Floor
Procedure Advice C-2.
The text of the proposed rule change is available on the Exchange's
Web site at https://nasdaqphlx.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
Overview of FBMS. As described in Exchange Rule 1063, the Floor
Broker Management System or FBMS is the electronic system that enables
Floor Brokers to submit option orders represented on the Exchange
trading floor (the ``Floor'') to the Exchange's Trading System for
execution and reporting to the consolidated tape. FBMS also facilitates
the creation of an electronic audit trail for such orders.
Specifically, when a Floor Broker agrees to the terms of a trade on
the Floor, then the Floor Broker memorializes the terms by entering the
information into the FBMS software application using either a handheld
tablet or a desktop computer. After the Floor Broker enters the trade
terms into FBMS, the Floor Broker directs FBMS to transmit the
information to the Exchange's automated Trading System.
Upon receipt, the Trading System immediately verifies whether the
terms of the trade comply with the Exchange's trade-through and
priority requirements. It does so by comparing the terms of the trade
to the market that prevailed at the time that the Trading System
received the trade from FBMS. If the Trading System determines, at the
time of receipt, that the trade violates either the trade-through rule
or applicable priority requirements, then the Trading System rejects
the trade. However, if the Trading System verifies that the trade
complies with the applicable rules, then the Trading System will
proceed to execute the trade and report the execution to the
consolidated tape for dissemination to the public.
FBMS provides numerous benefits to Floor Brokers, their Customers,
and the Exchange. Notably, it helps to ensure fair and orderly trading
by automating the enforcement of priority and trade-through rules for
on-Floor trades and rendering the enforcement of such rules consistent
for both on-Floor and off-Floor trading. FBMS also facilitates trading
surveillance by capturing a fulsome audit trail for all options orders
that Floor Brokers enter into it.
Notwithstanding the benefits of FMBS, the simplicity of its design
and the universality of its application also sometimes generate
unintended adverse consequences for Floor Brokers, their Customers, and
the Exchange. The circumstances in which these adverse consequences
arise are as follows.
Unlike routine trades, which Floor Brokers typically submit from
FBMS to the Trading System almost instantaneously after coming to an
agreement to their terms in open outcry on the Floor, certain Floor
trades involve Multi-leg Orders,\3\ which require Floor Brokers to
spend several seconds or more to fully calculate or reconcile their
terms before the Floor Brokers are ready and able to submit them to the
Trading System. For example, the Exchange estimates that the following
tasks associated with reconciling the terms of Multi-leg Orders would
require the following time periods to complete:
---------------------------------------------------------------------------
\3\ See Rule 1066(f) (defining the term ``Multi-leg Orders'').
---------------------------------------------------------------------------
The announced/negotiated price of a Multi-leg Order
differs from that which was entered on the order but is in the
allowable minimum price variation (``MPV'') (4 seconds);
The announced/negotiated volume of a Multi-leg Order
differs from that which was entered on the order (4 seconds);
The announced/negotiated volume and price of a Multi-leg
Order differs from that which was entered on the order, but the price
is in the allowable MPV (7 seconds);
The Multi-leg Order requires the use of the Complex
Calculator to change the volume and/or price for one leg (9 seconds);
and
The Multi-leg Order requires the use of the Complex
Calculator to enter all prices and volumes for: (i) 2 legs (14
seconds); 5 legs (27 seconds); 10 legs (51 seconds); and 15 legs (69
seconds).
While the near-instantaneous entry of information about routine
trades typically mitigates the risk that market conditions will shift
between the time when Floor Brokers agree upon the terms of such trades
on the Floor and the time when the Trading System receives the trades
for verification and execution, the same cannot be said for trades
involving Multi-leg Orders. A heightened risk exists that, during any
extended delay that occurs between the time when Floor Brokers come to
an agreement on the terms of a trade involving a Multi-leg Order and
the time when the Broker submits the trade to the Trading System,
market conditions will shift in a way that will render the trade
inconsistent with Exchange's priority and trade-through rules, such
that the Trading System will reject the trade.
Simple orders in certain options are also susceptible to this risk
when the markets for such options are volatile or prone to rapid
changes--even during a short time frame between the time of agreement
to the terms of a trade on the Floor and Trading System receipt. The
market for options on exchange traded funds (``ETFs'') in the Penny
Options Pilot is an example of a market that tends to shift rapidly.
When the aforementioned scenarios occur, they harm Floor Brokers,
their Customers, and the Exchange. In particular, a Customer
experiences harm when a trade that a Floor Broker agrees to on its
behalf cannot be executed on the terms agreed upon by the parties, if
at all. This harm is unfair in that it occurs, not because the
Customer's trade is invalid when agreed upon, but instead because the
Floor Broker finds it humanly impossible to reconcile the trade details
in FBMS and submit the trade to the Trading System quickly enough to
keep pace with the market--a market that is often dominated by
electronic trading algorithms that update quotations in nanoseconds
rather than seconds. Meanwhile, a Floor Broker suffers financially when
he or she is unable to execute a trade on behalf of his or her client.
Finally, the
[[Page 35860]]
Exchange suffers when, as a result of all of the foregoing, Floor
Brokers and their Customers forego trading on the Floor of the Exchange
and instead resort to other venues that afford no similar disadvantages
to those who engage in floor trades and are not held to the same
execution standards that FBMS enforces today. Indeed, the Exchange
observes that competing exchanges, like NYSE Amex, execute floor trades
based upon the time when their floor brokers reach agreement on the
trades in the trading crowd rather than the time when the trading
system receives the trades; the Exchange further observes that at such
competing exchanges, floor trades often execute at prices that differ
from those that prevail when the exchanges report the trades to the
consolidated tape.
The Exchange notes that the problem it is attempting to solve
through this proposal did not exist prior to the advent of FBMS, when
Floor Brokers stamped paper tickets with the times when they reached
agreement on their trades in the trading crowd, entered the trade terms
onto the tickets, and submitted the tickets to an Exchange Data Entry
Technician, who in turn forwarded the trade information to the Trading
System for execution as of the time of the date stamp on the ticket.
Moreover, the Exchange notes that even in the original version of FBMS,
Floor Brokers could self-stipulate the time when they executed a trade
and thereby avoid the risk that the market would move before they
finished entering the terms of that trade into FBMS and submitted it to
the System.
Overview of Snapshot. To mitigate the unintended and unfair
consequences of the current iteration of FBMS--while also preserving
its benefits--the Exchange proposes to amend Rules 1000 and 1063 to
permit the use of a new feature in FMBS called ``Snapshot.'' \4\
---------------------------------------------------------------------------
\4\ The Exchange became capable of offering Snapshot upon
upgrading FBMS to version 3.0 in November 2016. The Exchange works
continually to enhance Exchange systems to improve trading on the
Exchange and in the national market system. The history of the
different versions of FBMS is described in great detail in a
previous filing. See Securities Exchange Release No. 78593 (August
16, 2016) (SR-Phlx-2016-82).
---------------------------------------------------------------------------
Snapshot will in many respects serve as an electronic equivalent--
if not an enhanced version--of a paper ticket for Floor Brokers.\5\
Specifically, Snapshot will enable Floor Brokers who engage in certain
types of Floor trades to: (i) Provisionally execute \6\ the trades in
open outcry on the options Floor \7\; (ii) capture information about
the state of the market that exists at the time when they provisionally
execute such trades (i.e., take a ``snapshot'' of the market); (iii)
afford Floor Brokers a limited amount of additional time to submit
their provisionally executed trades through FBMS to the Trading System;
and (iv) provided that Floor Brokers enter the trade information into
FBMS and submit it to the Trading System in a timely fashion, have the
Trading System verify \8\ their trades for compliance with trade-
through and priority rules based upon the state of the market that
existed at the time when the trades were provisionally executed and
Snapshots were taken (rather than at the time when the Trading System
received the trades). Provided that the trades are indeed compliant,
then the Trading System will report them to the consolidated tape. (If
the trades are deemed to have been non-compliant with trade-through or
priority rules at the time when the Snapshots were taken, then they
will be rejected.) The time and market captured by the Snapshot will be
utilized for all purposes, including audit trail \9\ and surveillance
purposes.
---------------------------------------------------------------------------
\5\ As described below, Snapshot would be superior to a paper
ticket in that it would provide for systematic enforcement of trade-
through and priority rules.
\6\ As set forth in proposed Rule 1063(e)(v)(A)(1), provisional
execution occurs when either: (i) The participants to a trade reach
a verbal agreement in the trading crowd as to the terms of the trade
or (ii) a Floor Broker crosses an order as set forth in Rule
1064(a). Execution is defined as ``provisional'' insofar as the
trade may be deemed invalid and then rejected when the Trading
System subsequently verifies it.
\7\ The use of Snapshot (for multi-leg orders and simple orders
on options in ETFs included in the Options Penny Pilot) would be an
exception to the general rule set forth in Rule 1000(f)(iii) that
Floor Brokers may not execute trades in open outcry on the options
trading Floor.
\8\ The Snapshot will contain all information necessary for the
Trading System to determine that a provisionally executed trade is
consistent with all applicable priority and trade-through rules
based on the time the trade is provisionally executed on the Floor.
Specifically, the Snapshot will include: (1) The away market best
bid and best offer; (2) the Exchange best bid and best offer; (3)
Customer orders at the top of the Exchange book; and (4) the best
bid and offer of all-or-none orders. The System needs each of these
data elements to complete important priority and trade-through
checks. The Snapshot must capture information regarding Customer
orders and all-or-none orders because those impact the determination
of priority and trade through differently than other orders on the
Exchange Book.
\9\ Every time a Floor Broker takes a Snapshot, a record of the
Snapshot will be created and retained for audit trail purposes
regardless of whether the Floor Broker acts upon the Snapshot by
submitting it to the Trading System. This record is in addition to
that which the Exchange presently creates upon initiation of an
order in FBMS. Moreover, when a Floor Broker submits a trade subject
to Snapshot to the Trading System and the trade is thereafter
reported to the consolidated tape, an additional execution record
will be created and retained for audit trail purposes that will
contain all of the same details as all other trade records. For
example, the Snapshot and the execution record created at the time
of reporting to the consolidated tape will contain the time when a
Snapshot was taken, the time of reporting to the consolidated tape,
and all relevant order and execution details (including the Exchange
best bid and offer and away best bid and offer). Lastly, the
Snapshot record will include Exchange all-or-none order details to
provide a fulsome capture of the Exchange best bid and offer at the
time of the Snapshot.
---------------------------------------------------------------------------
The Exchange notes that Snapshot would not interact with the
Exchange's electronic order book. As set forth in proposed Rule
1063(e)(v)(C)(3), if an order exists on the book that has priority at
the time when a Floor Broker seeks to take a Snapshot, the System will
not prevent the Floor Broker from taking the Snapshot, but he will need
to clear the order on the book, re-announce and provisionally re-
execute the trade, and take a new Snapshot before he submits the
provisionally executed trade to the Trading System or else the Trading
System will reject the provisionally executed trade and will not report
that trade to the consolidated tape (as it would violate the priority
rules of the Exchange).
The following is an example of how Snapshot would operate in
practice and how it would impact a hypothetical trade. In this example,
a Floor Broker receives a Customer order to buy 100 SPY Jan 250 Calls
for $1.05. He enters the trading crowd, lawfully announces the order,
and requests bids and offers from the trading crowd. A Market Maker in
the trading crowd offers to sell 100 contracts at $1.04 while the
National Best Bid or Offer is $1.03 bid and $1.05 offer (no Customer
orders on the offer). At this point, the Floor Broker can agree to the
trade of the 100 SPY Jan 250 calls at a price of $1.04, a price which
is $0.01 better than the limit price of the Customer order.
Presently, and without the availability of Snapshot, if the market
changes to $1.05 bid and $1.07 offer while the Floor Broker is updating
his order in FBMS to reflect the provisional execution price of $1.04,
then the Floor Broker will be unable to complete his purchase of 100
contracts at $1.04 on behalf of the Customer and the Customer may end
up paying the new offer of $1.07 per contract. Moreover, if another
round of negotiation occurs in the crowd due to the inability of the
Floor Broker to execute the previously agreed-upon trade at the time of
agreement, then the same scenario noted above may occur again,
resulting in either an error for the Floor Broker or the Customer
paying a price higher than $1.07.
With Snapshot, by contrast, the Floor Broker could click the
Snapshot button in FBMS upon reaching an agreement
[[Page 35861]]
with a Market Maker in the crowd as to the terms of the trade, thereby
effecting a provisional execution of the trade based upon the available
market of a $1.03 bid and $1.05 offer. As discussed below, once the
Floor Broker clicks the Snapshot button, he will have up to 15 seconds
to enter into FBMS the final terms of his Customer's trade and then
submit the trade to the Trading System. The Trading System will then
verify that the trade complies with trade-through and priority rules
based upon the market that existed, $1.03 bid and $1.05 offer, when the
Snapshot was taken. Because in this example, the Trading System
determines that the trade is valid, it will report the trade to the
consolidated tape.
By affording the Floor Broker the extra time that he needs to enter
and submit this provisionally executed trade without having to bear the
interim risk of market conditions changing, Snapshot would help ensure
that the Floor Broker is able to execute the Customer order and do so
at a price that meets the Customer's expectations and needs while
continuing to adhere to trade-through and priority rules. In a larger
sense, Snapshot would also compensate for the inherent disparity that
exists between electronic options trading (involving the instantaneous
interactions of trading algorithms) and floor-based options trading
(involving the slower interactions of human beings). Lastly, it would
help ensure that the Exchange remains competitive with other floor
trading venues, like NYSE Amex, that already permit trading to occur in
a manner similar to Snapshot, as well as with venues, like the proposed
BOX Options Exchange trading floor, that are vague about whether they
would permit such trading practices.\10\
---------------------------------------------------------------------------
\10\ See Ltr. from J. Conley, SVP and Corporate Secretary,
Nasdaq to B. Fields, Secretary, Securities and Exchange Commission,
dated March 27, 2017, at 3-4 (commenting on the failure of the BOX
Options Exchange, in its proposal to establish open outcry trading,
to explain how it would address a shift in the market that occurs
between the time when a trade is agreed upon in open outcry and when
it is entered into the BOX electronic order entry system for
verification and execution).
---------------------------------------------------------------------------
Limitations on the Availability of Snapshot. Although the Exchange
believes that Snapshot will be a welcome and beneficial addition to its
Floor trading operations, the Exchange nevertheless recognizes the
prudence of imposing reasonable controls upon the use of Snapshot to
ensure that Floor Brokers do not misuse or abuse the functionality.
These controls, which are set forth in proposed Rule 1063(v)(A), are as
follows.
First, a Floor Broker may not use the Snapshot feature for all of
his options orders. Instead, a Floor Broker may trigger the Snapshot
feature only for his or her use with a trade involving a Multi-leg
Order (as defined in Rule 1066(f)) or a simple option order on an ETF
that is included in the Options Penny Pilot. The reason for this
limitation is to ensure that Floor Brokers use Snapshot only when the
complexity of an order or the fast-moving nature of the market for
certain options reasonably justifies the need for additional time to
calculate or enter trade information or the ability to preserve market
conditions that exist at the time of provisional execution. As
discussed above, options involving Multi-leg Orders often involve time-
consuming tasks prior to trade entry that justify use of Snapshot.
Likewise, the market for options orders on ETFs included in the Options
Penny Pilot is known to be especially fast-moving and volatile, which
again justifies the use of Snapshot.
A second limitation that the Exchange proposes is that a Floor
Broker may have only one Snapshot outstanding at any given time across
all options classes and series. In other words, when a Floor Broker
takes a Snapshot of a trade and while that Snapshot remains valid, the
Floor Broker may not simultaneously take a Snapshot of another trade.
The Exchange has built this limitation into FBMS such that FBMS will
enforce it automatically. This limitation will directly contribute to
preventing Floor Brokers from engaging in excessive use of and abuse of
Snapshot.
The Exchange notes that it proposes to amend Floor Advice C-2 to
render it a violation for a Floor Broker to trigger the Snapshot
feature for the purpose of obtaining favorable priority or trade-
through conditions or improperly avoiding unfavorable priority or
trade-through conditions. Conduct that violates this Advice would
include, for example, repeated instances in which Floor Brokers permit
valid Snapshots to expire without submitting the trades subject to the
Snapshots to the Trading System for verification and reporting to the
consolidated tape. Surveillance Staff will monitor and enforce proper
usage of the Snapshot feature on a post-trade basis.
Limitations on the Validity of a Snapshot. In addition to the
above, the Exchange proposes, in Rule 1063(v)(B), to limit the time
period during which a Snapshot will remain valid such that a trade may
execute based upon it. Specifically, the Exchange proposes to make each
Snapshot valid for only 15 seconds, meaning that a Floor Broker may
submit a trade from FBMS to the Trading System based upon a Snapshot at
any time within 15 seconds after the Floor Broker clicks the Snapshot
button and activates the feature.
The Exchange decided to impose this limitation after it concluded
that allowing Floor Brokers to rely upon a Snapshot for an extended
period of time would unduly impair the validity of the consolidated
tape. For example, the Exchange considered making a Snapshot valid for
up to the full 90 seconds available to report trades to the
consolidated tape. Although designating Snapshots as valid for up to 90
seconds would have provided Floor Brokers with ample time to enter and
submit even their most complex trades, the Exchange concluded that the
cost to market transparency of lengthy delays in executing and
reporting trades would outweigh this benefit. At the other end of the
spectrum, the Exchange also considered imposing a strict time
limitation on the validity of a Snapshot (as short as five seconds),
but it decided against doing so after concluding that such a limitation
would eliminate the utility of the Snapshot feature in most of the
scenarios in which it could be useful. Ultimately, the Exchange settled
on a 15 second limitation for the validity of a Snapshot as a
reasonable and prudent compromise between the needs of the Floor
Brokers for additional time to completely reconcile and record the
terms of their trades with the needs of market participants for fast,
accurate, and transparent reporting of trades.
If a Snapshot expires before a Floor Broker completes his or her
entry and submission of a trade, then FBMS will not permit the Floor
Broker to rely upon the expired Snapshot to submit the trade to the
Trading System. Instead, the Floor Broker has two options under the
Exchange's proposal.
First, assuming that the Floor Broker re-confirms the acceptability
of the terms of the trade with all participants, then the Floor Broker
may finish entering the trade details into FBMS without Snapshot and
submit it to the Trading System. The Trading System will then validate
and (assuming validity) execute the trade in the normal course using
the market conditions that prevail at the time when the Trading System
receives the trade.
Alternatively, the Floor Broker may, after re-confirming the terms
of the trade, take a new Snapshot of the market that records a new time
of provisional execution. The Floor Broker would then have no more than
15 seconds within which to submit the re-confirmed trade and, upon
timely submission, the Trading System would evaluate it based
[[Page 35862]]
upon the prevailing market conditions reflected in the new Snapshot.
Provided that the submitted trade adheres to the priority and trade-
through restrictions based upon the prevailing market condition
reflected in the new Snapshot, then the Trading System will report the
trade to the consolidated tape. Note that if the Floor Broker records
multiple Snapshots respecting the same order, the Trading System would
automatically use the most recent Snapshot for verification purposes.
Ability to Refresh a Snapshot Before it Expires. Lastly, the
proposal would permit a Floor Broker to replace a valid and existing
Snapshot, prior to its expiration, with a new one by re-clicking the
Snapshot button within 15 seconds of clicking it the first time. The
Exchange proposes to include this functionality in Snapshot to allow a
Floor Broker to address a scenario in which the market shifts between
the time of provisional execution and the time when the Floor Broker
takes a Snapshot, wherein the market captured in the Snapshot is such
that it would not permit a trade to occur in accordance with the
Exchange's rules. In this scenario, where the Trading System rejects or
the Floor Broker reasonably anticipates that the Trading System will
reject a provisional execution subject to a Snapshot, the proposal
provides that the Floor Broker must re-announce the trade in the crowd
before he refreshes the Snapshot.\11\
---------------------------------------------------------------------------
\11\ An example of this would occur if the System rejects or the
Floor Broker realizes that the System will reject his or her
Snapshot because an order exists on the Exchange's limit order book
that has priority.
---------------------------------------------------------------------------
This functionality in Snapshot would also allow a Floor Broker to
take a new Snapshot when he reasonably anticipates that he will be
unable to input the final terms of the trade within the 15 second
window. In this scenario, the proposal provides that the Floor Broker
need only re-confirm the terms of the trade with the existing
participants before he refreshes the Snapshot.
By way of example, a Floor Broker enters the trading crowd with a
Customer Multi-leg Order to Buy 100 IBM Jan 100 calls for $1.05 and
Sell 97 Jan 105 calls for $0.85. The market for the Jan 100 calls is
$1.00 bid and $1.15 offer while the market for the Jan 105 calls is
$0.70 bid and $1.00 offer. The trading crowd has no interest in
participating in this trade. This is a lawful trade and when the Floor
Broker announces the execution, he clicks the Snapshot button. When the
Snapshot appears, it reflects a rapid change in the market for the Jan
100 calls to $1.10 bid and $1.15 offer. When the Floor Broker sees the
Snapshot, he knows that it will be useless because the Trading System
will reject the trade since his price of $1.05 is outside of the
market. While the Snapshot remains valid, he sees the market for the
Jan 100 calls change back to $1.00 bid and $1.15 offer. He re-announces
the trade, receives no interest, and then clicks the Snapshot button
again to record the change in the market and receives a new 15 second
window in which to open the Complex Calculator, enter the terms of the
trade into the Complex Calculator, and submit the trade to the Trading
System for execution.
A second example where a Floor Broker may utilize the Snapshot
feature and find it necessary to re-click the Snapshot could occur when
the Floor Broker enters the trading crowd with a multi-Legged Customer
Order to buy 819 contracts of Leg 1, sell 912 contracts of Leg 2, and
buy 1011 contacts of Leg 3--all for a net price of $2.00. In the
trading crowd, the Floor Broker receives interest from several Market
Makers who provide $2.00 offers with a net offer size greater than his
order size (providing an over subscription of size). Because the Floor
Broker has sufficient interest to execute the trade at $2.00, he clicks
Snapshot, but he then finds himself unable, before the Snapshot
expires, to finalize the volumes that each Market Maker will agree to
trade (given that each Market Maker desired to trade more contracts
than the order size). Accordingly, the Floor Broker re-confirms the
terms of the trade and then refreshes the Snapshot.
The Exchange does not believe that Floor Brokers have an incentive
to abuse the Snapshot ``refresh'' functionality to take advantage of
favorable market moves. Nevertheless, in an abundance of caution, the
Exchange proposes to limit to three the number of Snapshots that Floor
Brokers may take with respect to any single order, regardless of
whether each such Snapshot persists for the full 15 seconds or for a
shorter period.
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act \12\ in general, and furthers the objectives of Section
6(b)(5) of the Act \13\ 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 to protect investors and the public interest.
---------------------------------------------------------------------------
\12\ 15 U.S.C. 78f(b).
\13\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
Snapshot promotes just and equitable principles of trade and serves
the interests of investors and the public by increasing the likelihood
that investors will be able to execute their orders and do so in line
with their expectations and needs. Similarly, Snapshot mitigates the
risk that the Trading System will unfairly reject a trade due to a
change in market conditions that occurs between the time when the
parties negotiate a lawful and valid trade on the Floor and the time
when the Trading System receives it.
Snapshot also renders the Exchange Floor more competitive with off-
floor electronic trading venues because it compensates for the
inefficiencies and delays inherent in a floor trading system that
depends upon the inputs and interactions of human beings; such
inefficiencies and delays do not exist in fully-electronic trading
environments, where computers and algorithms interact on a near
instantaneous basis. Additionally, Snapshot will render the Floor more
competitive with other floor-based trading venues at which the Exchange
observes trade executions occurring seconds or even minutes after
verifications occur, but on trading terms that existed as of the time
of verification.
The Exchange believes that it is consistent with the Act to
specifically exempt multi-leg orders and simple orders in options on
Options Penny Pilot ETFs from the general rule set forth Rule
1000(f)(iii) that Floor Brokers may not execute orders in the options
trading crowd. As noted previously, the complex calculations that are
often involved in multi-leg orders and the fast-moving nature of the
markets for options on Penny Pilot ETFs render these two categories of
options particularly appropriate for exceptional treatment using
Snapshot. Enabling Floor Brokers to provisionally execute these two
categories of options on the Options Floor (using Snapshot), rather
than execute them in the Trading System, will not adversely impact
investors or the quality of the market due to the controls that the
Exchange proposes on the circumstances in which Floor Brokers may use
Snapshot and on the manner in which they may use it. In fact, the
proposal will protect investors and the public interest by improving
Floor Brokers' ability to execute multi-leg orders and simple options
on Penny Options Pilot ETFs while continuing to ensure that all
priority and trade through rules are systematically enforced.
[[Page 35863]]
Moreover, this proposal is consistent with Rule 611 of Regulation
NMS,\14\ which requires the Exchange to establish policies and
procedures that are reasonably designed to prevent trade-throughs of
protected quotations. Presently, the Exchange verifies that a proposed
trade complies with the trade-through rule as of the time when the
Trading System receives the trade from FBMS; if the trade complies,
then the Trading System executes the trade and reports it to the
consolidated tape. However, the proposal would serve as an exception to
this practice. It would permit Floor Brokers, upon reaching a meeting
of the minds in the trading crowd regarding the terms of a trade, to
take a Snapshot that provisionally executes the trade on the Floor.
When the Floor Broker submits the trade to the Trading System using
Snapshot, the Trading System will verify that the provisionally
executed trade complied with the trade-through rule as of the time of
its execution--i.e., the time when the crowd agreed to the terms of the
trade and Snapshot was taken--rather than at the time when the Trading
System receives the trade. If the Trading System determines that the
provisionally executed trade complied with the trade-through rule, then
it will report the trade to the consolidated tape. If, however, the
Trading System determines that the provisionally executed trade was
non-compliant with the trade-through rule as of the time when the
Snapshot was taken, then it will reject the trade. In other words, even
though the proposal will change the time of execution of a trade for
purposes of verifying compliance with the trade-through rule, the
automated compliance verification process will otherwise be unchanged
and will still apply to systematically prevent trade-throughs for all
trades, including those utilizing Snapshot.\15\
---------------------------------------------------------------------------
\14\ 12 CFR 242.611.
\15\ The Exchange notes that the SEC has published analogous
guidance indicating that a broker-dealer that individually
negotiates the terms of a block trade among multiple parties would
have policies and procedures reasonably designed to prevent a trade-
through even where the individually negotiated price is not at or
within the best protected quotations at the time when the
transaction terms are entered into the broker-dealer's automated
system if the broker-dealer takes steps to verify that the
transaction price of the trade was at or within the best protected
quotations at some point during a 20 second period up to and
including the time when the transaction terms are entered into the
broker-dealer's order entry system. See SEC, Responses to Frequently
Asked Questions Concerning Rule 611 and Rule 610 or Regulation NMS,
Question 3.23: Agency Block Transactions with Non-Trade-Through
Prices that are Individually Negotiated, at https://www.sec.gov/divisions/marketreg/nmsfaq610-11.htm.
---------------------------------------------------------------------------
Finally, the Exchange's proposal accomplishes the above in a manner
that: (1) Continues to provide automated and verifiable enforcement of
applicable trade-through and priority rules; (2) is documented in
writing and transparent, in contrast to the practices of other
exchanges; (3) provides for trade reporting to occur in a timely
fashion, even for the most complex trades, and within a 15 second time
frame that is far less than the maximum 90 second reporting period
allowable; and (4) imposes surveillance and responsible limitations
upon Snapshot that ensure appropriate usage and prevents violations and
abuse.
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.
In fact, the proposal is pro-competitive for several reasons. The
Exchange believes that the Snapshot feature will result in the
Exchange's Floor operating more efficiently, which will help it compete
with other floor-based exchanges.
Moreover, the proposal helps the Exchange compete by ensuring the
robustness of its regulatory program, ensuring Floor Brokers'
compliance with that program, and by enhancing Customer protections
through further utilization of electronic tools by members. The
Exchange considers all of these things to be differentiators in
attracting participants and order flow.
Lastly, the proposal does not impose a burden on intra-market
competition not necessary or appropriate in furtherance of the purposes
of the Act. Although the benefits of Snapshot will apply initially only
to Floor Brokers, the Exchange plans to extend its availability to
Registered Options Traders and Specialists once it receives authority
to allow them to utilize FBMS.
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-Phlx-2017-34 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-Phlx-2017-34. 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-Phlx-2017-34 and should be
submitted on or before August 22, 2017.
[[Page 35864]]
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\16\
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\16\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-16210 Filed 7-31-17; 8:45 am]
BILLING CODE 8011-01-P
