Self-Regulatory Organizations; Nasdaq MRX, LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Regarding Market Maker Quotations, 38726-38730 [2017-17167]

Download as PDF 38726 Federal Register / Vol. 82, No. 156 / Tuesday, August 15, 2017 / Notices SECURITIES AND EXCHANGE COMMISSION [Release No. 34–81363; File No. SR– BatsBZX–2017–07)] Self-Regulatory Organizations; Bats BZX Exchange, Inc.; Notice of Designation of a Longer Period for Commission Action on Proceedings To Determine Whether To Approve or Disapprove a Proposed Rule Change, as Modified by Amendment No. 1, To List and Trade Shares of the VanEck Vectors AMT-Free National Municipal Index ETF of VanEck Vectors ETF Trust Under BZX Rule 14.11(c)(4) August 9, 2017. On January 27, 2017, Bats BZX Exchange, Inc. (‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘Commission’’), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’) 1 and Rule 19b–4 thereunder,2 a proposed rule change to list and trade shares of the VanEck Vectors AMT-Free National Municipal Index ETF of VanEck Vectors ETF Trust under BZX Rule 14.11(c)(4). The proposed rule change was published for comment in the Federal Register on February 14, 2017.3 On March 10, 2017, the Exchange filed Amendment No. 1 to the proposed rule change.4 On March 30, 2017, pursuant to Section 19(b)(2) of the Act,5 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 disapprove the proposed rule change.6 On May 11, 2017, the Commission instituted proceedings to determine whether to approve or disapprove the proposed rule change.7 The Commission has received no comments on the proposed rule change. Section 19(b)(2) of the Act 8 provides that, after initiating disapproval proceedings, the Commission shall issue an order approving or disapproving the proposed rule change not later than 180 days after the date of publication of notice of filing of the proposed rule change. The Commission may extend 1 15 U.S.C. 78s(b)(1). CFR 240.19b–4. 3 See Securities Exchange Act Release No. 79989 (February 8, 2017), 82 FR 10615. 4 Amendment No. 1 to the proposed rule change is available on the Commission’s Web site at: https://www.sec.gov/comments/sr-batsbzx-2017-07/ batsbzx201707-1667531-148997.pdf. 5 15 U.S.C. 78s(b)(2). 6 See Securities Exchange Act Release No. 80350, 82 FR 16647 (April 5, 2017). 7 See Securities Exchange Act Release No. 80664, 82 FR 22680 (May 17, 2017). 8 15 U.S.C. 78s(b)(2). mstockstill on DSK30JT082PROD with NOTICES 2 17 VerDate Sep<11>2014 17:15 Aug 14, 2017 Jkt 241001 the period for issuing an order approving or disapproving the proposed rule change by not more than 60 days if the Commission determines that a longer period is appropriate and publishes the reasons for such determination. The proposed rule change was published for notice and comment in the Federal Register on February 14, 2017. August 13, 2017 is 180 days from that date, and October 12, 2017 is 240 days from that date. The Commission finds it appropriate to designate a longer period within which to issue an order approving or disapproving the proposed rule change so that it has sufficient time to consider this proposed rule change. Accordingly, the Commission, pursuant to Section 19(b)(2) of the Act,9 designates October 12, 2017 as the date by which the Commission shall either approve or disapprove the proposed rule change (File No. SR–BatsBZX–2017–07), as modified by Amendment No. 1. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.10 Eduardo A. Aleman, Assistant Secretary. [FR Doc. 2017–17171 Filed 8–14–17; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–81359; File No. SR–MRX– 2017–14] Self-Regulatory Organizations; Nasdaq MRX, LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Regarding Market Maker Quotations August 9, 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 26, 2017, Nasdaq MRX, LLC (‘‘MRX’’ or ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘Commission’’) the proposed rule change as described in Items I and II, below, which Items have been prepared by the Exchange. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. 9 Id. 10 17 CFR 200.30–3(a)(57). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 1 15 PO 00000 Frm 00058 Fmt 4703 Sfmt 4703 I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to amend Rule 804, entitled ‘‘Market Maker Quotations.’’ 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 proposes to amend MRX Rule 804, entitled ‘‘Market Maker Quotations’’ to amend the current rule text at MRX Rule 804(g)(1) and (2) to adopt a revised description of the manner in which MRX removes Market Maker quotes when certain risk parameters have been triggered. The Exchange believes that the proposed new rule text will provide more detailed information to participants concerning the manner in which these risk features will remove quotes from the Order Book. Today, MRX Rule 804(g)(1) provides that a Market Maker must provide parameters by which the Exchange will automatically remove a Market Maker’s quotations in all series of an options class. If a Market Maker does not provide parameters then the Exchange will apply default parameters announced to members. The Exchange will automatically remove a Market Maker’s quotation when, during a time period established by the Market Maker, the Market Maker exceeds: (i) The specified number of total contracts in the class, (ii) the specified percentage of the total size of the Market Maker’s quotes in the class, (iii) the specified absolute value of the net between contracts bought and contracts sold in the class, or (iv) the specified absolute E:\FR\FM\15AUN1.SGM 15AUN1 Federal Register / Vol. 82, No. 156 / Tuesday, August 15, 2017 / Notices mstockstill on DSK30JT082PROD with NOTICES value of the net between (a) calls purchased plus puts sold in the class, and (b) calls sold plus puts purchased in the class. The Exchange proposes to adopt a new rule that continues to require Market Makers to provide parameters by which the Exchange will automatically remove a Market Maker’s quotations in all series of an options class. The Exchange proposes to amend this rule text to apply to the automated quotation removal protections in the current rule.3 The proposed rule text in 804(g)(1) makes clear that Market Makers are required to utilize the Percentage, Volume, Delta and Vega Thresholds, each a Threshold, described in subsections (A)–(D) in the new rule text. These are the same risk parameters that are offered today by MRX. The Exchange is seeking to identify each risk parameter specifically and describe the function of each parameter in Rule 804(g)(1)(A)–(D). For each feature, the Exchange’s system (‘‘System’’) will continue to automatically remove quotes in all series in options class when a certain threshold for any of the parameters has been exceeded. The Exchange elaborates in the proposed rule that a Market Maker is required to specify a period of time not to exceed 30 seconds (‘‘Specified Time Period’’) during which the system will automatically remove a Market Maker’s quotes in all series of an options class. The limitation of not to exceed 30 seconds is new for MRX Members. In order to establish a reasonable limit to the allowable Specified Time Period, an MRX Member will be limited to the setting their Specified Time period to no more than 30 seconds for these Thresholds. A Specified Time Period will commence for an options class every time an execution occurs in any series in such options class and will continue until the System removes quotes as described in proposed MRX Rule 804(g)(2) or (3) or the Specified Time Period expires. This is the case today, and is not changing. The Specified Time Periods will be the same 3 The Exchange notes that it separately filed a proposed rule change to MRX Rule 804(g)(1) to provide that a Market Maker must provide parameters by which the Exchange will automatically remove a Market Maker’s quotations in all series of an options class. If a Market Maker does not provide parameters then the Exchange will apply default parameters announced to members. See Securities Exchange Act Release No. 81204 July 25, 2017) (SR–MRX–2017–02) (not yet published) [sic] (Order Approving Proposed Rule Change to Amend Various Rules in Connection with a System Migration to Nasdaq INET Technology). The proposed rule text seeks to reword and relocate the proposed amended language concerning the parameters to include that language in the revised rule text. VerDate Sep<11>2014 17:15 Aug 14, 2017 Jkt 241001 value described in subsections (A)–(D). Also, as is the case today, a Specified Time Period operates on a rolling basis among all series in an options class in that there may be Specified Time Periods occurring simultaneously for each Threshold and such Specified Time Periods may overlap. If a Market Maker does not provide parameters, the Exchange will apply default parameters, which default settings will be announced to Members via an Options Trader Alert. Proposed Rule 804(g)(1)(A) describes in greater detail the operation of the Percentage Threshold. As is the case today, a Market Maker must provide a specified percentage of quote size (‘‘Percentage Threshold’’), of not less than 1%, by which the System will automatically remove a Market Maker’s quotes in all series of an options class. The Exchange is adding more detail about the manner in which the System will calculate percentages and amending the current rule to change its operation. For each series in an options class, the System will determine (i) during a Specified Time Period and for each side in a given series, a percentage calculated by dividing the size of a Market Maker’s quote size executed in a particular series (the numerator) by the Market Maker’s quote size available at the time of execution plus the total number of the Market Market’s quote size previously executed during the unexpired Specified Time Period (the denominator) (‘‘Series Percentage’’); and (ii) the sum of the Series Percentages in the options class (‘‘Issue Percentage’’) during a Specified Time Period. The System will track and calculate the net impact of positions in the same option issue; long call percentages are offset by short call percentages, and long put percentages are offset by short put percentages in the Issue Percentage. The Exchange also notes that in calculating the Percentage the System will compare the number of contracts executed in that series relative to the size of the quote at the time of the execution plus the number of executed contracts that have occurred in the current time period. The current system calculates the Percentage risk parameter by comparing the number of contracts executed in that series relative to the size of the original quote only at the time of the execution. This difference is captured within the proposed rule text. The Exchange notes that with the upcoming migration from MRX’s current system to the INET system the manner in which the System offsets will change. The current MRX system does not offset, in that long call percentages PO 00000 Frm 00059 Fmt 4703 Sfmt 4703 38727 are not offset by short call percentages, and long put percentages are not offset by short put percentages, [sic] The proposed System however will track and calculate the net impact,4 [sic] The Exchange notes this difference in the calculation and seeks to memorialize the change in the process upon the migration to INET. The proposed rule will provide participants with greater clarity as to the operation of the Percentage risk feature on INET. The proposed text indicates that if the Issue Percentage exceeds the Percentage Threshold the System will automatically remove a Market Maker’s quotes in all series of the options class. Proposed Rule 804(g)(1)(B) describes in greater detail the operation of the Volume Threshold. As is the case today on MRX’s current system, a Market Maker must provide a Volume Threshold by which the System will automatically remove a Market Maker’s quotes in all series of an underlying security when the Market Maker executes a number of contracts which exceeds the designated number of contracts in all options series in an options class. Proposed Rule 804(g)(1)(C) describes in greater detail the operation of the Delta Threshold. As is the case today on MRX’s current system, a Market Maker must provide a Delta Threshold by which the System will automatically remove a Market Maker’s quotes in all series of an underlying security. For each class of options, the System will maintain a Delta counter, which tracks the absolute value of the difference between (i) purchased call contracts plus sold put contracts and (ii) sold call contracts plus purchased put contracts. If the Delta counter exceeds the Delta Threshold established by the Member, the System will automatically remove a Market Maker’s quotes in all series of the options class. Proposed Rule 804(g)(1)(D) describes in greater detail the operation of the Vega Threshold. As is the case today on MRX’s system, a Market Maker must provide a Vega Threshold by which the System will automatically remove a Market Maker’s quotes in all series of an options class. For each class of options, the System will maintain a Vega counter, which tracks the absolute value of purchased contracts minus sold contracts. If the Vega counter exceeds the Vega Threshold established by the Member, the System will automatically remove a Market Maker’s quotes in all series of the options class. 4 The net impact of positions takes into account the offsets noted herein. E:\FR\FM\15AUN1.SGM 15AUN1 mstockstill on DSK30JT082PROD with NOTICES 38728 Federal Register / Vol. 82, No. 156 / Tuesday, August 15, 2017 / Notices Proposed Rule 804(g)(2) provides more detail about the System’s current operation with respect to quote removal. The System will automatically remove quotes in all options in an underlying security when the Percentage Threshold, Volume Threshold, Delta Threshold or Vega Threshold has been exceeded. The System will send a Purge Notification Message to the Market Maker for all affected series when any of the above thresholds have been exceeded. The Percentage Threshold, Volume Threshold, Delta Threshold and Vega Threshold are considered independently of each other. Quotes will be automatically executed up to the Market Maker’s size regardless of whether the execution of such quotes would cause the Market Maker to exceed the Percentage Threshold, Volume Threshold, Delta Threshold or Vega Threshold. Proposed Rule 804(g)(3) provides more detail about the manner in which the System resets the counting of the various risk parameters. Notwithstanding the automatic removal of quotes described in the rule, if a Market Maker requests the System to remove quotes in all options series in an options class, the System will automatically reset all Thresholds. Proposed Rule 804(g)(4) provides more detail about the process to reinitiate quoting. When the System removes quotes because the Percentage Threshold, Volume Threshold, Delta Threshold or Vega Threshold were exceeded, the Market Maker must send a re-entry indicator to re-enter the System. Proposed Rule 804(g)(5) provides more detail about default parameters as mentioned above. If a Market Maker does not provide a parameter for each of the automated quotation removal Thresholds described in Rule 804(g)(1)(A–D) above, the Exchange will apply default parameters, which are announced to Members. This language exists today in the current text and is being memorialized herein. Finally, proposed Rule 804(g)(6) describes the interaction between the four Thresholds and the market wide parameter. In addition to the Thresholds described in Rule 804(g)(1)(A)–(D) above, a Market Maker must provide a market wide parameter by which the Exchange will automatically remove a Market Maker’s quotes in all classes when, during a time period established by the Market Maker, the total number of quote removal events specified in Rule 804(g)(1)(A)–(D) exceeds the market wide parameter provided to the Exchange by the Market Maker. VerDate Sep<11>2014 17:15 Aug 14, 2017 Jkt 241001 Below are some illustrative examples of the Percentage and Volume risk parameters. Example #1: Describes the Percentage risk parameter. Presume the following Order Book: Series of underlying XYZ 100 100 110 110 Strike Strike Strike Strike Call ..................... Put ...................... Call ..................... Put ...................... Size on bid × offer for MM1 300 × 300 50 × 50 200 × 200 150 × 150 In this example, assume the Specified Time Period designated by the Market Maker #1 is 10 seconds and the Percentage Threshold is set to 100%. Assume at 12:00:00, Market Maker #1 executes 100 contracts of his offer size, 200 contracts, in the 110 Strike Calls. This represents an execution equaling 50% (100 contracts of the 200 contract quote size) of the 100% Percentage Threshold. Assume at 12:00:01, Market Maker #1 executes 50 additional contracts in the same 110 Strike Calls. This execution equates to an additional 25% ((50 contracts/(100 remaining quote size +100 contracts already executed within the Specified Time Period)) for a net 75% Series Percentage count toward the 100% Percentage Threshold. If at 12:00:03, Market Maker #1 executes the full size of his bid (50 contracts) in the 100 Strike Put, the System will automatically remove all of Market Maker #1’s quotes in Underlying XYZ since the execution caused his 100% Percentage Threshold to be exceeded; the execution in the 100 Strike Put added 100% Series Percentage to his previously calculated Series Percentage of 75% totaling 175% Issue Percentage. No further quotes for Market Maker #1 in Underlying XYZ will be available until re-entry. The Specified Time Period will be reset for Market Maker #1 in options class XYZ and Market Maker #1 will need to send a re-entry indicator in order to re-enter quotes in options series for options class XYZ into the System. Example #2 is another example of the Percentage Threshold. Presume the following Order Book: In this example, assume Market Maker #1 has Percentage Threshold set at 100% with a Specified Time Period over 5 seconds. Assume at 12:00:00, Market Maker #1 is quoting the XYZ 20 strike calls at 1.00 (10)–1.20 (10). An incoming Order to buy 5 contracts for 1.20 trades against Market Maker #1’s quote. Based on this trade, the Series Percentage Threshold calculation is 5/ [(10)+(0)] = 5/10 = 50%. Since this is the only execution during the Time Period, 50% also represents the Issue PO 00000 Frm 00060 Fmt 4703 Sfmt 4703 Percentage, therefore Market Maker #1’s quote is now 1.00 (10)–1.20 (5). Next, assume at 12:00:01 an Incoming Order to buy 2 contracts for 1.20 trades against Market Maker #1’s quote. Based on this trade, the Series Percentage Threshold calculation is 2/[(5)+(5)] = 2/ 10 = 20%. The Issue Percentage calculation is the sum of Series Percentages during the time period, or 50% +20% = 70%. Finally, presume Market Maker #1’s quote is now 1.00 (10)–1.20 (3). At 12:00:02, Market Maker #1 updates his quote in the XYZ 20 strike calls to increase his offer size back to 10 contracts, 1.00 (10)–1.20 (10). An incoming Order to buy 6 contracts for 1.20 trades against Market Maker #1’s quote. Based on this trade, the Series Percentage Threshold calculation: 6/ [(10)+(7)] = 6/17 = 35.29%. The Issue Percentage calculation is the sum of Series Percentages during the time period, or 50% + 20% + 35.29% = 105.29%. In this scenario, Market Maker #1’s quotes are removed in all series of XYZ since his setting of 100% over 5 seconds has been exceeded. Example #3 describes the Volume Threshold. Presume the following Order Book: Series of underlying XYZ 100 100 110 110 Strike Strike Strike Strike Call ..................... Put ...................... Call ..................... Put ...................... Size on bid × offer for MM1 300 × 300 50 × 50 200 × 200 150 × 150 In this example, assume the Specified Time Period designated by the Market Maker #1 is 10 seconds and the designated number of contracts permitted for the Volume-Based Threshold is 250 contracts. Assume at 12:00:00, the Market Maker #1 executes all of his offer size, 200 contracts, in the 110 Strike Calls. The System will initiate the Specified Time Period and for 10 seconds the System will count all volume executed in series of options class XYZ. If at any point during that 10 second period, the Market Maker #1 executes additional contracts in any series of the options class XYZ, those contracts will be added to the initial execution of 200 contracts. To illustrate, assume at 12:00:05 the Market Maker #1 executes 60 contracts of his offer in the 100 Strike Calls. The total volume executed is now 260 contracts. Since that volume exceeds the Market Maker #1’s designated number of contracts for the Volume Threshold (250 contracts), all of his quotes in all series of the options class XYZ over the Specialized E:\FR\FM\15AUN1.SGM 15AUN1 Federal Register / Vol. 82, No. 156 / Tuesday, August 15, 2017 / Notices Quote Feed 5 will be removed from the System; no further quotes will be executed until re-entry. The Volume Specified Time Period will be reset for Market Maker #1 in options class XYZ and Market Maker #1 will need to send a re-entry indicator in order to re-enter quotes in options series for options class XYZ into the System. Implementation The Exchange will begin a system migration to Nasdaq INET in Q3 of 2017.6 The migration will be on a symbol by symbol basis as specified by the Exchange in a notice to Members. The Exchange is proposing to implement this rule change on the INET platform as the symbols migrate to that platform. mstockstill on DSK30JT082PROD with NOTICES 2. Statutory Basis The Exchange believes that its proposal is consistent with Section 6(b) of the Act,7 in general, and furthers the objectives of Section 6(b)(5) of the Act,8 in particular, in that it is designed to promote just and equitable principles of trade, to remove impediments to and perfect the mechanism of a free and open market and a national market system, and, in general to protect investors and the public interest, by memorializing, with greater detail, the risk protections available to Market Makers. The described Thresholds serve to decrease risk and increase stability. Additionally, because the Exchange offers these risk tools to Market Makers, in order to encourage them to provide as much liquidity as possible and encourage market making generally, the proposal removes impediments to and perfects the mechanism of a free and open market and a national market system and protects investors and the public interest. The Exchange believes that amending Rule 804(g) to add more clarifying text, which explains in greater detail the manner in which the four Thresholds operate will bring more 5 The Specialized Quote Feed (‘‘SQF’’) interface allows Market Makers to connect and send quotes, sweeps and auction responses into MRX. SQF Data includes the following: (1) Options Auction Notifications (e.g., opening imbalance, Flash, PIM, Solicitation and Facilitation or other information); (2) Options Symbol Directory Messages; (3) System Event Messages (e.g., start of messages, start of system hours, start of quoting, start of opening); (4) Option Trading Action Messages (e.g., halts, resumes); (5) Execution Messages; and (6) Quote Messages (quote/sweep messages, risk protection triggers or purge notifications). 6 See Securities Exchange Act Release No. 81204 July 25, 2017) (SR–MRX–2017–02) (not yet published) [sic] (Order Approving Proposed Rule Change to Amend Various Rules in Connection with a System Migration to Nasdaq INET Technology). 7 15 U.S.C. 78f(b). 8 15 U.S.C. 78f(b)(5). VerDate Sep<11>2014 17:15 Aug 14, 2017 Jkt 241001 transparency to the rule which serves to protect investors and the public interest, because Market Makers will be more informed about the manner in which the functionality operates. In addition, the Exchange’s proposal to amend the current Percentage Threshold to: (i) Calculate offsets; and (ii) calculate the Percentage Threshold during a Specified Time Period and for each side in a given series, a percentage, by dividing the size of a Market Maker’s quote size executed in a particular series (the numerator) by the Market Maker’s quote size available at the time of execution plus the total number of the Market Market’s quote size previously executed during the unexpired Specified Time Period, will provide Market Makers with greater precision in calculating quoting risks. The Exchange believes that providing Market Makers with tools to calculate risk serves to perfect the mechanism of a free and open market and a national market system, and, in general to protect investors and the public interest because Market Makers are better able to manage risks with this risk tool. The Exchange further represents that its proposal will continue to operate consistently with the firm quote obligations of a broker-dealer pursuant to Rule 602 of Regulation NMS and that the functionality is mandatory. Specifically, any interest that is executable against a Market Maker’s quotes that are received 9 by the Exchange prior to the time any of these functionalities are engaged will be automatically executed at the price up to the Market Maker’s size, regardless of whether such execution results in executions in excess of the Market Maker’s pre-set parameters. 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. Specifically, the proposal will not impose a burden on intra-market or inter-market competition, rather it provides Market Makers with the continued opportunity to avail themselves of risk tools, [sic] The proposal does not impose a burden on inter-market competition, because participants may choose to become Market Makers on a number of other options exchanges, which may have similar but not identical features.10 The 9 The time of receipt is the time such message is processed by the Order Book. 10 See BATS Rule 21.16, BOX Rules 8100 and 8110, C2 Rule 8.12, CBOE Rule 8.18, MIAX Rule PO 00000 Frm 00061 Fmt 4703 Sfmt 4703 38729 proposed rule change is meant to continue to protect Market Makers from inadvertent exposure to excessive risk. Accordingly, the proposed rule change will have no impact on competition. The Exchange’s proposal to amend the current Percentage Based risk feature to: (i) Calculate offsets; and (ii) calculate the Percentage Threshold during a Specified Time Period and for each side in a given series, a percentage, by dividing the size of a Market Maker’s quote size executed in a particular series (the numerator) by the Market Maker’s quote size available at the time of execution plus the total number of the Market Market’s quote size previously executed during the unexpired Specified Time Period, does not impose an undue burden on competition and is non-controversial because the Exchange offers a Percentage Threshold today. The proposed changes to the Percentage risk tool simply add more precision to the existing calculation to permit Market Makers to better control their risk with respect to quoting. Further, the Exchange is memorializing more detail concerning the function of the Thresholds with this rule proposal and making clear the method in which the Percentage risk tool is calculated. The risk tools will continue to reduce risk for Market Makers in the event of a systems issue or due to the occurrence of unusual or unexpected market activity. C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others No written comments were either solicited or received. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Because the foregoing proposed rule change does not: (i) Significantly affect the protection of investors or the public interest; (ii) impose any significant burden on competition; and (iii) become operative for 30 days from the date on which it was filed, or such shorter time as the Commission may designate, it has become effective pursuant to Section 19(b)(3)(A)(iii) of the Act 11 and subparagraph (f)(6) of Rule 19b–4 thereunder.12 612, NYSE MKT Rule 928NY and NYSE Arca Rule 6.40. 11 15 U.S.C. 78s(b)(3)(A)(iii). 12 17 CFR 240.19b–4(f)(6). In addition, Rule 19b– 4(f)(6) requires a self-regulatory organization to give the Commission written notice of its intent to file the proposed rule change at least five business days prior to the date of filing of the proposed rule E:\FR\FM\15AUN1.SGM Continued 15AUN1 38730 Federal Register / Vol. 82, No. 156 / Tuesday, August 15, 2017 / Notices In its filing, MRX requests that the Commission waive the 30-day operative delay in order to enable the Exchange to coordinate the implementation of the proposed rule changes with its planned migration to the INET platform, which will commence in Q3 of 2017. Although the Exchange proposes certain technical changes to how the risk parameters will operate (e.g., limiting the Specified Time Period to 30 seconds), the proposed changes are largely intended to provide more detail about the operation of the existing risk parameters. Accordingly, the Commission believes that granting a waiver of the operative delay is consistent with the protection of investors and the public interest and therefore designates the proposed rule change to be operative upon filing.13 At any time within 60 days of the filing of the proposed rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest; for the protection of investors; or otherwise in furtherance of the purposes of the Act. 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: mstockstill on DSK30JT082PROD with NOTICES 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– MRX–2017–14 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–MRX–2017–14. 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 change, or such shorter time as designated by the Commission. The Exchange has satisfied this requirement. 13 For purposes only of waiving the 30-day operative delay, the Commission has also considered the proposed rule’s impact on efficiency, competition, and capital formation. See 15 U.S.C. 78c(f). VerDate Sep<11>2014 17:15 Aug 14, 2017 Jkt 241001 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–MRX– 2017–14, and should be submitted on or before September 5, 2017. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.14 Eduardo A. Aleman, Assistant Secretary. [FR Doc. 2017–17167 Filed 8–14–17; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–81362; File No. SR–Phlx– 2017–61] Self-Regulatory Organizations; NASDAQ PHLX LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend the Exchange’s Pricing Schedule August 9, 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 31, 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 III, below, which Items have been prepared by the Exchange. The Commission is publishing this notice to 14 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 1 15 PO 00000 Frm 00062 Fmt 4703 Sfmt 4703 solicit comments on the proposed rule change from interested persons. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to amend the Exchange’s Pricing Schedule to: (i) Increase the Options Transaction Charge for Specialists and Market Makers who engage in NDX transactions on the Exchange Floor; (ii) exclude NDX transactions from the Exchange’s Monthly Firm Fee Cap that otherwise applies to the monthly transaction fees that market participants incur when trading on the Exchange; and (iii) exempt NDX transactions from the Exchange’s waiver of Options Transaction Charges for certain facilitation orders. While these amendments are effective upon filing, the Exchange has designated the proposed amendments to be operative on August 1, 2017. 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 The Exchange proposes to make three changes to Section II of its Pricing Schedule. First, the Exchange proposes to increase its Options Transaction Charge for Specialists and Market Makers that engage in NDX transactions on the Exchange Floor. Last March, the Exchange increased its Options Transaction Charges from $0.25 to $0.75 per contract for all categories of market participants transacting in NDX, except for Specialists and Market Makers which transact in NDX on the Floor and E:\FR\FM\15AUN1.SGM 15AUN1

Agencies

[Federal Register Volume 82, Number 156 (Tuesday, August 15, 2017)]
[Notices]
[Pages 38726-38730]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-17167]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-81359; File No. SR-MRX-2017-14]


Self-Regulatory Organizations; Nasdaq MRX, LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change Regarding Market 
Maker Quotations

August 9, 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 26, 2017, Nasdaq MRX, LLC (``MRX'' or ``Exchange'') filed with 
the Securities and Exchange Commission (``Commission'') the proposed 
rule change as described in Items I and II, below, which Items have 
been prepared by the Exchange. The Commission is publishing this notice 
to solicit comments on the proposed rule change from interested 
persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend Rule 804, entitled ``Market Maker 
Quotations.''
    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 proposes to amend MRX Rule 804, entitled ``Market 
Maker Quotations'' to amend the current rule text at MRX Rule 804(g)(1) 
and (2) to adopt a revised description of the manner in which MRX 
removes Market Maker quotes when certain risk parameters have been 
triggered. The Exchange believes that the proposed new rule text will 
provide more detailed information to participants concerning the manner 
in which these risk features will remove quotes from the Order Book.
    Today, MRX Rule 804(g)(1) provides that a Market Maker must provide 
parameters by which the Exchange will automatically remove a Market 
Maker's quotations in all series of an options class. If a Market Maker 
does not provide parameters then the Exchange will apply default 
parameters announced to members. The Exchange will automatically remove 
a Market Maker's quotation when, during a time period established by 
the Market Maker, the Market Maker exceeds: (i) The specified number of 
total contracts in the class, (ii) the specified percentage of the 
total size of the Market Maker's quotes in the class, (iii) the 
specified absolute value of the net between contracts bought and 
contracts sold in the class, or (iv) the specified absolute

[[Page 38727]]

value of the net between (a) calls purchased plus puts sold in the 
class, and (b) calls sold plus puts purchased in the class.
    The Exchange proposes to adopt a new rule that continues to require 
Market Makers to provide parameters by which the Exchange will 
automatically remove a Market Maker's quotations in all series of an 
options class. The Exchange proposes to amend this rule text to apply 
to the automated quotation removal protections in the current rule.\3\
---------------------------------------------------------------------------

    \3\ The Exchange notes that it separately filed a proposed rule 
change to MRX Rule 804(g)(1) to provide that a Market Maker must 
provide parameters by which the Exchange will automatically remove a 
Market Maker's quotations in all series of an options class. If a 
Market Maker does not provide parameters then the Exchange will 
apply default parameters announced to members. See Securities 
Exchange Act Release No. 81204 July 25, 2017) (SR-MRX-2017-02) (not 
yet published) [sic] (Order Approving Proposed Rule Change to Amend 
Various Rules in Connection with a System Migration to Nasdaq INET 
Technology). The proposed rule text seeks to reword and relocate the 
proposed amended language concerning the parameters to include that 
language in the revised rule text.
---------------------------------------------------------------------------

    The proposed rule text in 804(g)(1) makes clear that Market Makers 
are required to utilize the Percentage, Volume, Delta and Vega 
Thresholds, each a Threshold, described in subsections (A)-(D) in the 
new rule text. These are the same risk parameters that are offered 
today by MRX. The Exchange is seeking to identify each risk parameter 
specifically and describe the function of each parameter in Rule 
804(g)(1)(A)-(D). For each feature, the Exchange's system (``System'') 
will continue to automatically remove quotes in all series in options 
class when a certain threshold for any of the parameters has been 
exceeded.
    The Exchange elaborates in the proposed rule that a Market Maker is 
required to specify a period of time not to exceed 30 seconds 
(``Specified Time Period'') during which the system will automatically 
remove a Market Maker's quotes in all series of an options class. The 
limitation of not to exceed 30 seconds is new for MRX Members. In order 
to establish a reasonable limit to the allowable Specified Time Period, 
an MRX Member will be limited to the setting their Specified Time 
period to no more than 30 seconds for these Thresholds. A Specified 
Time Period will commence for an options class every time an execution 
occurs in any series in such options class and will continue until the 
System removes quotes as described in proposed MRX Rule 804(g)(2) or 
(3) or the Specified Time Period expires. This is the case today, and 
is not changing. The Specified Time Periods will be the same value 
described in subsections (A)-(D). Also, as is the case today, a 
Specified Time Period operates on a rolling basis among all series in 
an options class in that there may be Specified Time Periods occurring 
simultaneously for each Threshold and such Specified Time Periods may 
overlap. If a Market Maker does not provide parameters, the Exchange 
will apply default parameters, which default settings will be announced 
to Members via an Options Trader Alert.
    Proposed Rule 804(g)(1)(A) describes in greater detail the 
operation of the Percentage Threshold. As is the case today, a Market 
Maker must provide a specified percentage of quote size (``Percentage 
Threshold''), of not less than 1%, by which the System will 
automatically remove a Market Maker's quotes in all series of an 
options class. The Exchange is adding more detail about the manner in 
which the System will calculate percentages and amending the current 
rule to change its operation.
    For each series in an options class, the System will determine (i) 
during a Specified Time Period and for each side in a given series, a 
percentage calculated by dividing the size of a Market Maker's quote 
size executed in a particular series (the numerator) by the Market 
Maker's quote size available at the time of execution plus the total 
number of the Market Market's quote size previously executed during the 
unexpired Specified Time Period (the denominator) (``Series 
Percentage''); and (ii) the sum of the Series Percentages in the 
options class (``Issue Percentage'') during a Specified Time Period. 
The System will track and calculate the net impact of positions in the 
same option issue; long call percentages are offset by short call 
percentages, and long put percentages are offset by short put 
percentages in the Issue Percentage. The Exchange also notes that in 
calculating the Percentage the System will compare the number of 
contracts executed in that series relative to the size of the quote at 
the time of the execution plus the number of executed contracts that 
have occurred in the current time period. The current system calculates 
the Percentage risk parameter by comparing the number of contracts 
executed in that series relative to the size of the original quote only 
at the time of the execution. This difference is captured within the 
proposed rule text.
    The Exchange notes that with the upcoming migration from MRX's 
current system to the INET system the manner in which the System 
offsets will change. The current MRX system does not offset, in that 
long call percentages are not offset by short call percentages, and 
long put percentages are not offset by short put percentages, [sic] The 
proposed System however will track and calculate the net impact,\4\ 
[sic] The Exchange notes this difference in the calculation and seeks 
to memorialize the change in the process upon the migration to INET. 
The proposed rule will provide participants with greater clarity as to 
the operation of the Percentage risk feature on INET. The proposed text 
indicates that if the Issue Percentage exceeds the Percentage Threshold 
the System will automatically remove a Market Maker's quotes in all 
series of the options class.
---------------------------------------------------------------------------

    \4\ The net impact of positions takes into account the offsets 
noted herein.
---------------------------------------------------------------------------

    Proposed Rule 804(g)(1)(B) describes in greater detail the 
operation of the Volume Threshold. As is the case today on MRX's 
current system, a Market Maker must provide a Volume Threshold by which 
the System will automatically remove a Market Maker's quotes in all 
series of an underlying security when the Market Maker executes a 
number of contracts which exceeds the designated number of contracts in 
all options series in an options class.
    Proposed Rule 804(g)(1)(C) describes in greater detail the 
operation of the Delta Threshold. As is the case today on MRX's current 
system, a Market Maker must provide a Delta Threshold by which the 
System will automatically remove a Market Maker's quotes in all series 
of an underlying security. For each class of options, the System will 
maintain a Delta counter, which tracks the absolute value of the 
difference between (i) purchased call contracts plus sold put contracts 
and (ii) sold call contracts plus purchased put contracts. If the Delta 
counter exceeds the Delta Threshold established by the Member, the 
System will automatically remove a Market Maker's quotes in all series 
of the options class.
    Proposed Rule 804(g)(1)(D) describes in greater detail the 
operation of the Vega Threshold. As is the case today on MRX's system, 
a Market Maker must provide a Vega Threshold by which the System will 
automatically remove a Market Maker's quotes in all series of an 
options class. For each class of options, the System will maintain a 
Vega counter, which tracks the absolute value of purchased contracts 
minus sold contracts. If the Vega counter exceeds the Vega Threshold 
established by the Member, the System will automatically remove a 
Market Maker's quotes in all series of the options class.

[[Page 38728]]

    Proposed Rule 804(g)(2) provides more detail about the System's 
current operation with respect to quote removal. The System will 
automatically remove quotes in all options in an underlying security 
when the Percentage Threshold, Volume Threshold, Delta Threshold or 
Vega Threshold has been exceeded. The System will send a Purge 
Notification Message to the Market Maker for all affected series when 
any of the above thresholds have been exceeded. The Percentage 
Threshold, Volume Threshold, Delta Threshold and Vega Threshold are 
considered independently of each other. Quotes will be automatically 
executed up to the Market Maker's size regardless of whether the 
execution of such quotes would cause the Market Maker to exceed the 
Percentage Threshold, Volume Threshold, Delta Threshold or Vega 
Threshold.
    Proposed Rule 804(g)(3) provides more detail about the manner in 
which the System resets the counting of the various risk parameters. 
Notwithstanding the automatic removal of quotes described in the rule, 
if a Market Maker requests the System to remove quotes in all options 
series in an options class, the System will automatically reset all 
Thresholds.
    Proposed Rule 804(g)(4) provides more detail about the process to 
re-initiate quoting. When the System removes quotes because the 
Percentage Threshold, Volume Threshold, Delta Threshold or Vega 
Threshold were exceeded, the Market Maker must send a re-entry 
indicator to re-enter the System.
    Proposed Rule 804(g)(5) provides more detail about default 
parameters as mentioned above. If a Market Maker does not provide a 
parameter for each of the automated quotation removal Thresholds 
described in Rule 804(g)(1)(A-D) above, the Exchange will apply default 
parameters, which are announced to Members. This language exists today 
in the current text and is being memorialized herein.
    Finally, proposed Rule 804(g)(6) describes the interaction between 
the four Thresholds and the market wide parameter. In addition to the 
Thresholds described in Rule 804(g)(1)(A)-(D) above, a Market Maker 
must provide a market wide parameter by which the Exchange will 
automatically remove a Market Maker's quotes in all classes when, 
during a time period established by the Market Maker, the total number 
of quote removal events specified in Rule 804(g)(1)(A)-(D) exceeds the 
market wide parameter provided to the Exchange by the Market Maker.
    Below are some illustrative examples of the Percentage and Volume 
risk parameters.
    Example #1: Describes the Percentage risk parameter. Presume the 
following Order Book:

------------------------------------------------------------------------
        Series of underlying XYZ            Size on bid x offer for MM1
------------------------------------------------------------------------
100 Strike Call.........................  300 x 300
100 Strike Put..........................  50 x 50
110 Strike Call.........................  200 x 200
110 Strike Put..........................  150 x 150
------------------------------------------------------------------------

    In this example, assume the Specified Time Period designated by the 
Market Maker #1 is 10 seconds and the Percentage Threshold is set to 
100%. Assume at 12:00:00, Market Maker #1 executes 100 contracts of his 
offer size, 200 contracts, in the 110 Strike Calls. This represents an 
execution equaling 50% (100 contracts of the 200 contract quote size) 
of the 100% Percentage Threshold. Assume at 12:00:01, Market Maker #1 
executes 50 additional contracts in the same 110 Strike Calls. This 
execution equates to an additional 25% ((50 contracts/(100 remaining 
quote size +100 contracts already executed within the Specified Time 
Period)) for a net 75% Series Percentage count toward the 100% 
Percentage Threshold. If at 12:00:03, Market Maker #1 executes the full 
size of his bid (50 contracts) in the 100 Strike Put, the System will 
automatically remove all of Market Maker #1's quotes in Underlying XYZ 
since the execution caused his 100% Percentage Threshold to be 
exceeded; the execution in the 100 Strike Put added 100% Series 
Percentage to his previously calculated Series Percentage of 75% 
totaling 175% Issue Percentage. No further quotes for Market Maker #1 
in Underlying XYZ will be available until re-entry. The Specified Time 
Period will be reset for Market Maker #1 in options class XYZ and 
Market Maker #1 will need to send a re-entry indicator in order to re-
enter quotes in options series for options class XYZ into the System.
    Example #2 is another example of the Percentage Threshold. Presume 
the following Order Book:
    In this example, assume Market Maker #1 has Percentage Threshold 
set at 100% with a Specified Time Period over 5 seconds. Assume at 
12:00:00, Market Maker #1 is quoting the XYZ 20 strike calls at 1.00 
(10)-1.20 (10). An incoming Order to buy 5 contracts for 1.20 trades 
against Market Maker #1's quote. Based on this trade, the Series 
Percentage Threshold calculation is 5/[(10)+(0)] = 5/10 = 50%. Since 
this is the only execution during the Time Period, 50% also represents 
the Issue Percentage, therefore Market Maker #1's quote is now 1.00 
(10)-1.20 (5).
    Next, assume at 12:00:01 an Incoming Order to buy 2 contracts for 
1.20 trades against Market Maker #1's quote. Based on this trade, the 
Series Percentage Threshold calculation is 2/[(5)+(5)] = 2/10 = 20%. 
The Issue Percentage calculation is the sum of Series Percentages 
during the time period, or 50% +20% = 70%.
    Finally, presume Market Maker #1's quote is now 1.00 (10)-1.20 (3). 
At 12:00:02, Market Maker #1 updates his quote in the XYZ 20 strike 
calls to increase his offer size back to 10 contracts, 1.00 (10)-1.20 
(10). An incoming Order to buy 6 contracts for 1.20 trades against 
Market Maker #1's quote. Based on this trade, the Series Percentage 
Threshold calculation: 6/[(10)+(7)] = 6/17 = 35.29%. The Issue 
Percentage calculation is the sum of Series Percentages during the time 
period, or 50% + 20% + 35.29% = 105.29%. In this scenario, Market Maker 
#1's quotes are removed in all series of XYZ since his setting of 100% 
over 5 seconds has been exceeded.
    Example #3 describes the Volume Threshold. Presume the following 
Order Book:

------------------------------------------------------------------------
        Series of underlying XYZ            Size on bid x offer for MM1
------------------------------------------------------------------------
100 Strike Call.........................  300 x 300
100 Strike Put..........................  50 x 50
110 Strike Call.........................  200 x 200
110 Strike Put..........................  150 x 150
------------------------------------------------------------------------

    In this example, assume the Specified Time Period designated by the 
Market Maker #1 is 10 seconds and the designated number of contracts 
permitted for the Volume-Based Threshold is 250 contracts. Assume at 
12:00:00, the Market Maker #1 executes all of his offer size, 200 
contracts, in the 110 Strike Calls. The System will initiate the 
Specified Time Period and for 10 seconds the System will count all 
volume executed in series of options class XYZ. If at any point during 
that 10 second period, the Market Maker #1 executes additional 
contracts in any series of the options class XYZ, those contracts will 
be added to the initial execution of 200 contracts. To illustrate, 
assume at 12:00:05 the Market Maker #1 executes 60 contracts of his 
offer in the 100 Strike Calls. The total volume executed is now 260 
contracts. Since that volume exceeds the Market Maker #1's designated 
number of contracts for the Volume Threshold (250 contracts), all of 
his quotes in all series of the options class XYZ over the Specialized

[[Page 38729]]

Quote Feed \5\ will be removed from the System; no further quotes will 
be executed until re-entry. The Volume Specified Time Period will be 
reset for Market Maker #1 in options class XYZ and Market Maker #1 will 
need to send a re-entry indicator in order to re-enter quotes in 
options series for options class XYZ into the System.
---------------------------------------------------------------------------

    \5\ The Specialized Quote Feed (``SQF'') interface allows Market 
Makers to connect and send quotes, sweeps and auction responses into 
MRX. SQF Data includes the following: (1) Options Auction 
Notifications (e.g., opening imbalance, Flash, PIM, Solicitation and 
Facilitation or other information); (2) Options Symbol Directory 
Messages; (3) System Event Messages (e.g., start of messages, start 
of system hours, start of quoting, start of opening); (4) Option 
Trading Action Messages (e.g., halts, resumes); (5) Execution 
Messages; and (6) Quote Messages (quote/sweep messages, risk 
protection triggers or purge notifications).
---------------------------------------------------------------------------

Implementation
    The Exchange will begin a system migration to Nasdaq INET in Q3 of 
2017.\6\ The migration will be on a symbol by symbol basis as specified 
by the Exchange in a notice to Members. The Exchange is proposing to 
implement this rule change on the INET platform as the symbols migrate 
to that platform.
---------------------------------------------------------------------------

    \6\ See Securities Exchange Act Release No. 81204 July 25, 2017) 
(SR-MRX-2017-02) (not yet published) [sic] (Order Approving Proposed 
Rule Change to Amend Various Rules in Connection with a System 
Migration to Nasdaq INET Technology).
---------------------------------------------------------------------------

2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\7\ in general, and furthers the objectives of Section 
6(b)(5) of the Act,\8\ in particular, in that it is designed to promote 
just and equitable principles of trade, to remove impediments to and 
perfect the mechanism of a free and open market and a national market 
system, and, in general to protect investors and the public interest, 
by memorializing, with greater detail, the risk protections available 
to Market Makers. The described Thresholds serve to decrease risk and 
increase stability. Additionally, because the Exchange offers these 
risk tools to Market Makers, in order to encourage them to provide as 
much liquidity as possible and encourage market making generally, the 
proposal removes impediments to and perfects the mechanism of a free 
and open market and a national market system and protects investors and 
the public interest. The Exchange believes that amending Rule 804(g) to 
add more clarifying text, which explains in greater detail the manner 
in which the four Thresholds operate will bring more transparency to 
the rule which serves to protect investors and the public interest, 
because Market Makers will be more informed about the manner in which 
the functionality operates.
---------------------------------------------------------------------------

    \7\ 15 U.S.C. 78f(b).
    \8\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    In addition, the Exchange's proposal to amend the current 
Percentage Threshold to: (i) Calculate offsets; and (ii) calculate the 
Percentage Threshold during a Specified Time Period and for each side 
in a given series, a percentage, by dividing the size of a Market 
Maker's quote size executed in a particular series (the numerator) by 
the Market Maker's quote size available at the time of execution plus 
the total number of the Market Market's quote size previously executed 
during the unexpired Specified Time Period, will provide Market Makers 
with greater precision in calculating quoting risks. The Exchange 
believes that providing Market Makers with tools to calculate risk 
serves to perfect the mechanism of a free and open market and a 
national market system, and, in general to protect investors and the 
public interest because Market Makers are better able to manage risks 
with this risk tool.
    The Exchange further represents that its proposal will continue to 
operate consistently with the firm quote obligations of a broker-dealer 
pursuant to Rule 602 of Regulation NMS and that the functionality is 
mandatory. Specifically, any interest that is executable against a 
Market Maker's quotes that are received \9\ by the Exchange prior to 
the time any of these functionalities are engaged will be automatically 
executed at the price up to the Market Maker's size, regardless of 
whether such execution results in executions in excess of the Market 
Maker's pre-set parameters.
---------------------------------------------------------------------------

    \9\ The time of receipt is the time such message is processed by 
the Order Book.
---------------------------------------------------------------------------

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. Specifically, the proposal will 
not impose a burden on intra-market or inter-market competition, rather 
it provides Market Makers with the continued opportunity to avail 
themselves of risk tools, [sic] The proposal does not impose a burden 
on inter-market competition, because participants may choose to become 
Market Makers on a number of other options exchanges, which may have 
similar but not identical features.\10\ The proposed rule change is 
meant to continue to protect Market Makers from inadvertent exposure to 
excessive risk. Accordingly, the proposed rule change will have no 
impact on competition.
---------------------------------------------------------------------------

    \10\ See BATS Rule 21.16, BOX Rules 8100 and 8110, C2 Rule 8.12, 
CBOE Rule 8.18, MIAX Rule 612, NYSE MKT Rule 928NY and NYSE Arca 
Rule 6.40.
---------------------------------------------------------------------------

    The Exchange's proposal to amend the current Percentage Based risk 
feature to: (i) Calculate offsets; and (ii) calculate the Percentage 
Threshold during a Specified Time Period and for each side in a given 
series, a percentage, by dividing the size of a Market Maker's quote 
size executed in a particular series (the numerator) by the Market 
Maker's quote size available at the time of execution plus the total 
number of the Market Market's quote size previously executed during the 
unexpired Specified Time Period, does not impose an undue burden on 
competition and is non-controversial because the Exchange offers a 
Percentage Threshold today. The proposed changes to the Percentage risk 
tool simply add more precision to the existing calculation to permit 
Market Makers to better control their risk with respect to quoting.
    Further, the Exchange is memorializing more detail concerning the 
function of the Thresholds with this rule proposal and making clear the 
method in which the Percentage risk tool is calculated. The risk tools 
will continue to reduce risk for Market Makers in the event of a 
systems issue or due to the occurrence of unusual or unexpected market 
activity.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    No written comments were either solicited or received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Because the foregoing proposed rule change does not: (i) 
Significantly affect the protection of investors or the public 
interest; (ii) impose any significant burden on competition; and (iii) 
become operative for 30 days from the date on which it was filed, or 
such shorter time as the Commission may designate, it has become 
effective pursuant to Section 19(b)(3)(A)(iii) of the Act \11\ and 
subparagraph (f)(6) of Rule 19b-4 thereunder.\12\
---------------------------------------------------------------------------

    \11\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \12\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file the proposed rule change at 
least five business days prior to the date of filing of the proposed 
rule change, or such shorter time as designated by the Commission. 
The Exchange has satisfied this requirement.

---------------------------------------------------------------------------

[[Page 38730]]

    In its filing, MRX requests that the Commission waive the 30-day 
operative delay in order to enable the Exchange to coordinate the 
implementation of the proposed rule changes with its planned migration 
to the INET platform, which will commence in Q3 of 2017. Although the 
Exchange proposes certain technical changes to how the risk parameters 
will operate (e.g., limiting the Specified Time Period to 30 seconds), 
the proposed changes are largely intended to provide more detail about 
the operation of the existing risk parameters. Accordingly, the 
Commission believes that granting a waiver of the operative delay is 
consistent with the protection of investors and the public interest and 
therefore designates the proposed rule change to be operative upon 
filing.\13\
---------------------------------------------------------------------------

    \13\ For purposes only of waiving the 30-day operative delay, 
the Commission has also considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
---------------------------------------------------------------------------

    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest; for the protection of investors; or 
otherwise in furtherance of the purposes of the Act.

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-MRX-2017-14 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-MRX-2017-14. 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-MRX-2017-14, and should be 
submitted on or before September 5, 2017.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\14\
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    \14\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-17167 Filed 8-14-17; 8:45 am]
 BILLING CODE 8011-01-P
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