Self-Regulatory Organizations; Nasdaq MRX, LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Supplementary Material .03 to Rule 804 To Enhance Anti-Internalization Functionality, 23956-23959 [2018-10975]

Download as PDF 23956 Federal Register / Vol. 83, No. 100 / Wednesday, May 23, 2018 / Notices to the operation of the Exchange and its use of market data feeds. C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others Written comments were neither solicited nor received. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Because the 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) of the Act 18 and Rule 19b– 4(f)(6) thereunder.19 A proposed rule change filed pursuant to Rule 19b–4(f)(6) under the Act 20 normally does not become operative for 30 days after the date of its filing. However, Rule 19b–4(f)(6)(iii) 21 permits the Commission to designate a shorter time if such action is consistent with the protection of investors and the public interest. The Exchange has asked the Commission to waive the 30-day operative delay so that the proposal may become operative immediately upon filing, thus allowing IEX’s proposed rule change to reflect in its rules, prior to the planned re-launch of XCIS, the source of market data that the Exchange will utilize for determining XCIS Top of Book quotes. The Commission does not believe that any new or novel issues are raised by the proposal. For these reasons, the Commission believes the waiver of the operative delay is consistent with the protection of investors and the public interest. Therefore, the Commission hereby waives the operative delay and designates the proposal operative upon filing.22 At any time within 60 days of the filing of the proposed rule change, the Commission summarily may 18 15 U.S.C. 78s(b)(3)(A). CFR 240.19b–4(f)(6). As required under Rule 19b–4(f)(6)(iii), the Exchange provided the Commission with written notice of its intent to file the proposed rule change, along with a brief description and the text of the proposed rule change, at least five business days prior to the date of filing of the proposed rule change, or such shorter time as designated by the Commission. 20 17 CFR 240.19b–4(f)(6). 21 17 CFR 240.19b–4(f)(6)(iii). 22 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). daltland on DSKBBV9HB2PROD with NOTICES 19 17 VerDate Sep<11>2014 17:33 May 22, 2018 Jkt 244001 temporarily suspend such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act. If the Commission takes such action, the Commission shall institute proceedings to determine whether the proposed rule change should be approved or disapproved. IV. Solicitation of Comments 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– IEX–2018–10 on the subject line. Paper Comments • Send paper comments in triplicate to Brent J. Fields, Secretary, Securities and Exchange Commission, 100 F Street NE, Washington, DC 20549–1090. All submissions should refer to File Number SR–IEX–2018–10. This file number should be included in 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 website (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 website viewing and printing in the Commission’s Public Reference Section, 100 F Street NE, Washington, DC 20549–1090. Copies of the filing will also be available for inspection and copying at the IEX’s principal office and on its internet website at www.iextrading.com. All comments received will be posted without change. Persons submitting comments are cautioned that we do not redact or edit personal identifying information from comment submissions. You should submit only information PO 00000 Frm 00073 Fmt 4703 Sfmt 4703 that you wish to make available publicly. All submissions should refer to File Number SR–IEX–2018–10 and should be submitted on or before June 13, 2018. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.23 Eduardo A. Aleman, Assistant Secretary. [FR Doc. 2018–10976 Filed 5–22–18; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–83274; File No. SR–MRX– 2018–15] Self-Regulatory Organizations; Nasdaq MRX, LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Supplementary Material .03 to Rule 804 To Enhance Anti-Internalization Functionality May 17, 2018. 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 May 2, 2018, Nasdaq MRX, LLC (‘‘MRX’’ or ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘Commission’’) the proposed rule change as described in Items I, II, and III, below, which Items have been prepared by the Exchange. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to amend Supplementary Material .03 to Rule 804 to enhance anti-internalization functionality. The text of the proposed rule change is available on the Exchange’s website at https://nasdaqmrx.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 23 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 1 15 E:\FR\FM\23MYN1.SGM 23MYN1 Federal Register / Vol. 83, No. 100 / Wednesday, May 23, 2018 / Notices 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 daltland on DSKBBV9HB2PROD with NOTICES 1. Purpose The purpose of the proposed rule change is to enhance the antiinternalization (‘‘AIQ’’) functionality provided to Market Makers on the Exchange by giving members the flexibility to choose to have this protection apply at the market participant identifier level (i.e., existing functionality),3 at the Exchange account level, or at the member firm level. The Exchange believes that this enhancement will provide helpful flexibility for Market Makers that wish to prevent trading against all quotes and orders entered by their firm, or Exchange account, instead of just quotes and orders that are entered under the same market participant identifier. Similar functionality was also recently introduced on the Exchange’s affiliated exchanges, Nasdaq PHLX LLC (‘‘Phlx’’) and NOM.4 The Exchange believes that introducing this functionality now on MRX will ensure that MRX Market Makers on will benefit from similar flexibility in applying this protection. Currently, the Exchange provides mandatory AIQ functionality whereby quotes and orders entered by Market Makers using the same market participant identifier will not be executed against quotes and orders entered on the opposite side of the market by the same Market Maker using the same market participant identifier.5 When a quote or order entered by a Market Maker would trade with other quotes or orders from the same market participant identifier, the trading system 3 Currently, the rule uses the term ‘‘member identifier’’ for this concept. The Exchange proposes to rename ‘‘member identifier’’ to ‘‘market participant identifier’’ to be consistent with terminology used on the Nasdaq Options Market (‘‘NOM’’) and to avoid member confusion that could result in using the similar terms ‘‘member identifier’’ and ‘‘member firm identifier’’ in this rule. 4 See Phlx Rule 1080(p)(2); NOM Chapter VI, Sec. 10. See also Securities Exchange Act Release Nos. 82012 (November 3, 3017), 82 FR 52082 (November 9, 2017) (SR–Phlx–2017–93); 81171 (July 19, 2017), 82 FR 34557 (July 25, 2017) (SR–Nasdaq–2017– 069). 5 See Supplementary Material .03 to Rule 804. This functionality shall not apply in any auction. VerDate Sep<11>2014 17:33 May 22, 2018 Jkt 244001 cancels the resting quote or order back to the entering party prior to execution.6 This functionality shall not apply in any auction or with respect to complex order transactions. AIQ assists Market Makers in reducing trading costs from unwanted executions potentially resulting from the interaction of executable buy and sell trading interest from the same firm when performing the same market making function. Today, this protection prevents Market Makers from trading against their own quotes and orders at the market participant identifier level. The proposed enhancement to this functionality would allow members to choose to have this protection applied at the market participant identifier level as implemented today, at the Exchange account level, or at the member firm level. If members choose to have this protection applied at the Exchange account level, AIQ would prohibit quotes and orders from different market participant identifiers associated with the same Exchange account from trading against one another. Similarly, if the members choose to have this protection applied at the member firm level, AIQ would prohibit quotes and orders from different market participant identifiers within the member firm from trading against one another. Members that do not select to have this protection applied at the Exchange account level or member firm level will have their AIQ protection defaulted to the market participant identifier level protection applied today. The Exchange believes that the proposed AIQ enhancement will provide members with more tailored self-trade functionality that allows them to manage their trading as appropriate based on the members’ business needs. While the Exchange believes that some firms will want to restrict AIQ to trading against interest from the same market participant identifier—i.e., as implemented today— the Exchange believes that other firms will find it helpful to be able to configure AIQ to apply at the Exchange account level or at the member firm level so that they are protected regardless of which market participant identifier the order or quote originated from. Similar flexibility is offered on the Exchange’s affiliates, Phlx and NOM, and also on the CBOE BZX Exchange, 6 Id. A quote or order entered by a Market Maker only triggers AIQ when it would trade with other quotes or orders from the same Market Maker. Thus, an incoming quote or order entered by a Market Maker may interact with other interest with priority on the book prior to triggering AIQ. After AIQ is triggered, the incoming quote or order may continue to trade with resting interest from other participants. PO 00000 Frm 00074 Fmt 4703 Sfmt 4703 23957 Inc. (‘‘BZX’’), which provides members the ability to apply Match Trade Prevention (‘‘MTP’’) modifiers—i.e., BZX’s version of self-trade protection— based on market participant, Exchange Member, trading group, or Exchange Sponsored Participant identifiers.7 The examples below illustrate how AIQ would operate based on the market participant identifier level protection, the Exchange account level, or for members that choose to apply AIQ at the member firm level: Example 1 1. Member ABC (market participant identifier 123A & 555B) with AIQ configured at the market participant identifier level. 2. 123A Quote: $1.00 (5) × $1.10 (20). 3. 555B Buy Order entered for 10 contracts at $1.10. 4. 555B Buy Order executes 10 contracts against 123A Quote. 123A and 555B are not prevented by the system from trading against one another because Member ABC has configured AIQ to apply at the market participant identifier level. This is the same as existing functionality. Example 2 1. Member ABC (Account 999 with market participant identifiers 123A and 555B, and Account 888 with market participant identifier 789A) with AIQ configured at the Exchange account level. 2. 123A Quote: $1.00 (5) × $1.10 (20). 3. 789A Quote: $1.05(10) × $1.10 (20). 4. 555B Buy Order entered for 30 contracts at $1.10. 5. 555B Buy Order executes against 789A Quote but 555B Buy Order does not execute against 123A Quote. AIQ purges the 123A Quote and the remaining contracts of the 555B Buy Order rests on the book at $1.10. 123A and 555B are not permitted trade against one another because Member ABC has configured AIQ to apply at the Exchange account level. This is new functionality as the member has opted to have AIQ operate at the Exchange account level. Example 3 1. Same as Example 2 above but Member ABC has AIQ configured at the member level. 2. AIQ purges the 123A Quote and the 789A Quote and the 555B Buy Order rests on the book at $1.10. This is new functionality as the member has opted to have AIQ operate at the member level. 7 See E:\FR\FM\23MYN1.SGM BZX Rule 21.1(g). 23MYN1 23958 Federal Register / Vol. 83, No. 100 / Wednesday, May 23, 2018 / Notices daltland on DSKBBV9HB2PROD with NOTICES Implementation The Exchange proposes to launch the AIQ functionality described in this proposed rule change in either Q2 or Q4 2018. The Exchange will announce the implementation date of this functionality in an Options Trader Alert issued to members prior to the launch date. 2. Statutory Basis The Exchange believes that the proposed rule change is consistent with the requirements of the Act and the rules and regulations thereunder that are applicable to a national securities exchange, and, in particular, with the requirements of Section 6(b) of the Act.8 In particular, the proposal is consistent with Section 6(b)(5) of the Act,9 because it is designed to promote just and equitable principles of trade, remove impediments to and perfect the mechanisms of a free and open market and a national market system and, in general, to protect investors and the public interest. The Exchange believes that the proposed rule change is consistent with the protection of investors and the public interest as it is designed to provide Market Makers with additional flexibility with respect to how to implement self-trade protections provided by AIQ. Currently, all Market Makers are provided functionality that prevents quotes and orders from one market participant identifier from trading with quotes and orders from the same market participant identifier. This allows Market Makers to better manage their order flow and prevent undesirable executions where the Market Maker, using the same market participant identifier, would be on both sides of the trade. While this functionality is helpful to our members, some members would prefer not to trade with quotes and orders entered by different market participant identifiers within the same Exchange account or member. Thus, the Exchange is proposing to provide members with flexibility with respect to how AIQ is implemented. While members that like the current functionality can continue to use it, members who would prefer to prevent self-trades across different market participant identifiers within the same Exchange account or at the member level will now be provided with functionality that lets them do this. Similar flexibility is offered on Phlx and NOM, as well as BZX.10 The Exchange believes that flexibility to apply AIQ at 8 15 U.S.C. 78f(b). U.S.C. 78f(b)(5). 10 See supra notes 4 and 7. the Exchange account or member firm level would be useful for the Exchange’s members too. The Exchange believes that the proposed rule change is designed to promote just and equitable principles of trade and will remove impediments to and perfect the mechanisms of a free and open market as it will further enhance self-trade protections provided to Market Makers similar to those protections provided on other markets. This functionality does not relieve or otherwise modify the duty of best execution owed to orders received from public customers. B. Self-Regulatory Organization’s Statement on Burden on Competition In accordance with Section 6(b)(8) of the Act,11 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. The proposed rule change is designed to enhance AIQ functionality provided to Exchange Market Makers, and will benefit members that wish to protect their quotes and orders against trading with other quotes and orders within the same Exchange account or member, rather than the more limited market participant identifier standard applied today. The new functionality, which provides similar flexibility to that offered on Phlx, NOM, and BZX, is also completely voluntary, and members that wish to use the current functionality can also continue to do so. The Exchange does not believe that providing more flexibility to members will have any significant impact on competition. In fact, the Exchange believes that the proposed rule change is evidence of the competitive environment in the options industry where exchanges must continually improve their offerings to maintain competitive standing. 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 9 15 VerDate Sep<11>2014 17:33 May 22, 2018 11 15 Jkt 244001 PO 00000 U.S.C. 78f(b)(8). Frm 00075 Fmt 4703 Sfmt 4703 as the Commission may designate, it has become effective pursuant to Section 19(b)(3)(A)(iii) of the Act 12 and subparagraph (f)(6) of Rule 19b–4 thereunder.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: (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– MRX–2018–15 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–2018–15. 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 website (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 12 15 U.S.C. 78s(b)(3)(A)(iii). CFR 240.19b–4(f)(6). In addition, Rule 19b– 4(f)(6) requires a self-regulatory organization to give the Commission written notice of its intent to file the proposed rule change at least five business days prior to the date of filing of the proposed rule change, or such shorter time as designated by the Commission. The Exchange has satisfied this requirement. 13 17 E:\FR\FM\23MYN1.SGM 23MYN1 Federal Register / Vol. 83, No. 100 / Wednesday, May 23, 2018 / Notices public in accordance with the provisions of 5 U.S.C. 552, will be available for website viewing and printing in the Commission’s Public Reference Room, 100 F Street NE, Washington, DC 20549, on official business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of the filing also will be available for inspection and copying at the principal office of the Exchange. All comments received will be posted without change. Persons submitting comments are cautioned that we do not redact or edit personal identifying information from comment submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR–MRX–2018–15 and should be submitted on or before June 13, 2018. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.14 Eduardo A. Aleman, Assistant Secretary. [FR Doc. 2018–10975 Filed 5–22–18; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–83276; File No. SR–FINRA– 2018–003] Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Order Granting Approval of a Proposed Rule Change Relating to Simplified Arbitration May 17, 2018. daltland on DSKBBV9HB2PROD with NOTICES I. Introduction On January 29, 2018, Financial Industry Regulatory Authority, Inc. (‘‘FINRA’’) filed with the Securities and Exchange Commission (‘‘Commission’’) pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Exchange Act’’) and Rule 19b–4 thereunder, proposed amendments to FINRA Rules 12600 and 12800 of the Code of Arbitration Procedure for Customer Disputes (‘‘Customer Code’’) and 13600 and 13800 of the Code of Arbitration Procedure for Industry Disputes (‘‘Industry Code,’’ and together with the Customer Code, the ‘‘Codes’’), to amend the hearing provisions to provide an additional hearing option for parties in arbitration with claims of $50,000 or less, excluding interest and expenses. The proposed rule change was published for comment in the Federal 14 17 CFR 200.30–3(a)(12). VerDate Sep<11>2014 18:08 May 22, 2018 Jkt 244001 Register on February 16, 2018.1 The public comment period closed on March 9, 2018. On March 28, 2018, FINRA extended the time period in which the Commission must approve the proposed rule change, disapprove the proposed rule change, or institute proceedings to determine whether to approve or disapprove the proposed rule change to May 17, 2018. The Commission received 12 comment letters in response to the Notice.2 On May 7, 2018, FINRA responded to the comment letters received in response to the Notice.3 This order approves the proposal. II. Description of the Proposed Rule Change The Codes provide two methods for administering arbitration cases with claims involving $50,000 or less, excluding interest and expenses. The default method is a decision by a single arbitrator based on the parties’ pleadings and other materials submitted by the parties. The alternative method 1 See Exchange Act Release No. 34–82693 (February 12, 2018), 83 FR 7086 (February 16, 2018) (‘‘Notice’’). 2 See Letters from Steven B. Caruso, Maddox Hargett & Caruso, P.C., dated February 13, 2018 (‘‘Caruso Letter’’); Andrew Stoltmann, President, Public Investors Arbitration Bar Association, dated March 6, 2018 (‘‘PIABA Letter’’); Eric Duhon and Paige Foley, Student Attorneys, Investor Protection Clinic, William S. Boyd School of Law, University of Nevada, Las Vegas, dated March 6, 2018 (‘‘UNLV Letter’’); Katherine Kokotos, Amrita Maitlall, and Sumaya Restagno, Legal Interns, and Christine Lazaro, Director of the Securities Arbitration Clinic and Professor of Clinical Legal Education, St. John’s University School of Law, dated March 6, 2018 (‘‘SJU Letter’’); Daniel P. Guernsey, Student Intern and Teresa J. Verges, Director, University of Miami School of Law Investor Rights Clinic, dated March 6, 2018 (‘‘MIRC Letter’’); Jill I. Gross, Professor of Law, Elisabeth Haub School of Law, Pace University, dated march 8, 2018 (‘‘Gross Letter’’); William A. Jacobson, Clinical Professor of Law and Director, Cornell Securities Law Clinic, and Sam Wildman, Cornell University Law School, dated March 8, 2018 (‘‘Cornell Letter’’); Kevin M. Carroll, Managing Director and Associate General Counsel, Securities Industry and Financial Markets Association, dated March 8, 2018 (‘‘SIFMA Letter’’); Barbara Black, Professor of Law, University of Cincinnati College of Law (Retired), dated March 8, 2018 (‘‘Black Letter’’); John Ripoli, Simon Halper, and Mark Sarno, Student Interns, and Elissa Germaine, Director, Investor Rights Clinic at the Elisabeth Haub School of Law, Pace University, dated March 8, 2018 (‘‘PIRC Letter’’); Abigail Howd, Eric Peters, and Dowdy White, Student Interns, and Nicole G. Iannarone, Assistant Clinical Professor, Investor Advocacy Clinic, Georgia State University College of Law, dated March 9, 2018 (‘‘GSU Letter’’); and Mark D. Norych, President and General Counsel, Arbitration Resolution Services, Inc., dated March 9, 2018 (‘‘ARS Letter’’). 3 See Letter from Margo A. Hassan, Associate Chief Counsel, FINRA Office of Dispute Resolution, to the Commission, dated May 7, 2018 (‘‘FINRA Letter’’). The FINRA Letter is available on FINRA’s website at https://www.finra.org, at the principal office of FINRA, at the Commission’s website at https://www.sec.gov/comments/sr-finra-2018-003/ finra2018003-3590730-162342.pdf, and at the Commission’s Public Reference Room. PO 00000 Frm 00076 Fmt 4703 Sfmt 4703 23959 involves a full hearing with a single arbitrator. Under the Customer Code, a customer may request a hearing (regardless of whether the customer is a claimant or respondent),4 and under the Industry Code, the claimant may request a hearing.5 If a hearing is requested, it is generally held in-person, and there are no limits on the number of hearing sessions that can take place. FINRA believes that forum users with claims involving $50,000 or less would benefit by having an additional, intermediate form of adjudication that would provide them with an opportunity to argue their cases before an arbitrator in a shorter, limited telephonic hearing format. Therefore, FINRA is proposing to amend the Codes to include a Special Proceeding for Simplified Arbitration (‘‘Special Proceeding’’). The Special Proceeding would be limited to two hearing sessions, exclusive of prehearing conferences,6 with parties being given time limits for their presentations. As discussed above, parties with claims involving $50,000 or less are currently limited to a decision based on the pleadings and other materials submitted by the parties, or a full hearing that typically takes place in-person and is not limited in duration. While a party might wish for an opportunity to present his or her case to an arbitrator, the travel and expenses associated with a full hearing might prevent that party from requesting one. In addition, the prospect of cross-examination by an opposing party might act as a deterrent for parties seeking to avoid a direct confrontation with their opponents. FINRA noted that these concerns particularly impact pro se, senior, and seriously ill parties. The suggestion to propose an intermediate form of adjudication originated from the FINRA Dispute Resolution Task Force (‘‘Task Force’’).7 The Task Force observed that customers whose cases were decided on the papers were the least satisfied of any group of forum users. They also noted that, from the arbitrator’s perspective, it is more 4 See FINRA Rule 12800(c). FINRA Rule 13800(c). 6 See FINRA Rules 12100 and 13100 (Definitions). Under these rules, ‘‘hearing’’ means the hearing on the merits of an arbitration and a ‘‘hearing session’’ is defined as any meeting between the parties and arbitrator(s) of four hours or less, including a hearing or a prehearing conference. 7 The Task Force was formed in 2014 to suggest strategies to enhance the transparency, impartiality, and efficiency of FINRA’s securities dispute resolution forum. On December 16, 2015, the Task Force issued its Final Report and Recommendations, available at https:// www.finra.org/sites/default/files/Final-DR-taskforce-report.pdf. 5 See E:\FR\FM\23MYN1.SGM 23MYN1

Agencies

[Federal Register Volume 83, Number 100 (Wednesday, May 23, 2018)]
[Notices]
[Pages 23956-23959]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-10975]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-83274; File No. SR-MRX-2018-15]


Self-Regulatory Organizations; Nasdaq MRX, LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Amend 
Supplementary Material .03 to Rule 804 To Enhance Anti-Internalization 
Functionality

May 17, 2018.
    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 May 2, 2018, Nasdaq MRX, LLC (``MRX'' or ``Exchange'') filed with 
the Securities and Exchange Commission (``Commission'') the proposed 
rule change as described in Items I, II, and III, below, which Items 
have been prepared by the Exchange. The Commission is publishing this 
notice to solicit comments on the proposed rule change from interested 
persons.
---------------------------------------------------------------------------

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

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

    The Exchange proposes to amend Supplementary Material .03 to Rule 
804 to enhance anti-internalization functionality.
    The text of the proposed rule change is available on the Exchange's 
website at https://nasdaqmrx.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

[[Page 23957]]

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 purpose of the proposed rule change is to enhance the anti-
internalization (``AIQ'') functionality provided to Market Makers on 
the Exchange by giving members the flexibility to choose to have this 
protection apply at the market participant identifier level (i.e., 
existing functionality),\3\ at the Exchange account level, or at the 
member firm level. The Exchange believes that this enhancement will 
provide helpful flexibility for Market Makers that wish to prevent 
trading against all quotes and orders entered by their firm, or 
Exchange account, instead of just quotes and orders that are entered 
under the same market participant identifier. Similar functionality was 
also recently introduced on the Exchange's affiliated exchanges, Nasdaq 
PHLX LLC (``Phlx'') and NOM.\4\ The Exchange believes that introducing 
this functionality now on MRX will ensure that MRX Market Makers on 
will benefit from similar flexibility in applying this protection.
---------------------------------------------------------------------------

    \3\ Currently, the rule uses the term ``member identifier'' for 
this concept. The Exchange proposes to rename ``member identifier'' 
to ``market participant identifier'' to be consistent with 
terminology used on the Nasdaq Options Market (``NOM'') and to avoid 
member confusion that could result in using the similar terms 
``member identifier'' and ``member firm identifier'' in this rule.
    \4\ See Phlx Rule 1080(p)(2); NOM Chapter VI, Sec. 10. See also 
Securities Exchange Act Release Nos. 82012 (November 3, 3017), 82 FR 
52082 (November 9, 2017) (SR-Phlx-2017-93); 81171 (July 19, 2017), 
82 FR 34557 (July 25, 2017) (SR-Nasdaq-2017-069).
---------------------------------------------------------------------------

    Currently, the Exchange provides mandatory AIQ functionality 
whereby quotes and orders entered by Market Makers using the same 
market participant identifier will not be executed against quotes and 
orders entered on the opposite side of the market by the same Market 
Maker using the same market participant identifier.\5\ When a quote or 
order entered by a Market Maker would trade with other quotes or orders 
from the same market participant identifier, the trading system cancels 
the resting quote or order back to the entering party prior to 
execution.\6\ This functionality shall not apply in any auction or with 
respect to complex order transactions. AIQ assists Market Makers in 
reducing trading costs from unwanted executions potentially resulting 
from the interaction of executable buy and sell trading interest from 
the same firm when performing the same market making function.
---------------------------------------------------------------------------

    \5\ See Supplementary Material .03 to Rule 804. This 
functionality shall not apply in any auction.
    \6\ Id. A quote or order entered by a Market Maker only triggers 
AIQ when it would trade with other quotes or orders from the same 
Market Maker. Thus, an incoming quote or order entered by a Market 
Maker may interact with other interest with priority on the book 
prior to triggering AIQ. After AIQ is triggered, the incoming quote 
or order may continue to trade with resting interest from other 
participants.
---------------------------------------------------------------------------

    Today, this protection prevents Market Makers from trading against 
their own quotes and orders at the market participant identifier level. 
The proposed enhancement to this functionality would allow members to 
choose to have this protection applied at the market participant 
identifier level as implemented today, at the Exchange account level, 
or at the member firm level. If members choose to have this protection 
applied at the Exchange account level, AIQ would prohibit quotes and 
orders from different market participant identifiers associated with 
the same Exchange account from trading against one another. Similarly, 
if the members choose to have this protection applied at the member 
firm level, AIQ would prohibit quotes and orders from different market 
participant identifiers within the member firm from trading against one 
another. Members that do not select to have this protection applied at 
the Exchange account level or member firm level will have their AIQ 
protection defaulted to the market participant identifier level 
protection applied today. The Exchange believes that the proposed AIQ 
enhancement will provide members with more tailored self-trade 
functionality that allows them to manage their trading as appropriate 
based on the members' business needs. While the Exchange believes that 
some firms will want to restrict AIQ to trading against interest from 
the same market participant identifier--i.e., as implemented today--the 
Exchange believes that other firms will find it helpful to be able to 
configure AIQ to apply at the Exchange account level or at the member 
firm level so that they are protected regardless of which market 
participant identifier the order or quote originated from. Similar 
flexibility is offered on the Exchange's affiliates, Phlx and NOM, and 
also on the CBOE BZX Exchange, Inc. (``BZX''), which provides members 
the ability to apply Match Trade Prevention (``MTP'') modifiers--i.e., 
BZX's version of self-trade protection--based on market participant, 
Exchange Member, trading group, or Exchange Sponsored Participant 
identifiers.\7\
---------------------------------------------------------------------------

    \7\ See BZX Rule 21.1(g).
---------------------------------------------------------------------------

    The examples below illustrate how AIQ would operate based on the 
market participant identifier level protection, the Exchange account 
level, or for members that choose to apply AIQ at the member firm 
level:
Example 1
    1. Member ABC (market participant identifier 123A & 555B) with AIQ 
configured at the market participant identifier level.
    2. 123A Quote: $1.00 (5) x $1.10 (20).
    3. 555B Buy Order entered for 10 contracts at $1.10.
    4. 555B Buy Order executes 10 contracts against 123A Quote. 123A 
and 555B are not prevented by the system from trading against one 
another because Member ABC has configured AIQ to apply at the market 
participant identifier level. This is the same as existing 
functionality.
Example 2
    1. Member ABC (Account 999 with market participant identifiers 123A 
and 555B, and Account 888 with market participant identifier 789A) with 
AIQ configured at the Exchange account level.
    2. 123A Quote: $1.00 (5) x $1.10 (20).
    3. 789A Quote: $1.05(10) x $1.10 (20).
    4. 555B Buy Order entered for 30 contracts at $1.10.
    5. 555B Buy Order executes against 789A Quote but 555B Buy Order 
does not execute against 123A Quote. AIQ purges the 123A Quote and the 
remaining contracts of the 555B Buy Order rests on the book at $1.10. 
123A and 555B are not permitted trade against one another because 
Member ABC has configured AIQ to apply at the Exchange account level. 
This is new functionality as the member has opted to have AIQ operate 
at the Exchange account level.
Example 3
    1. Same as Example 2 above but Member ABC has AIQ configured at the 
member level.
    2. AIQ purges the 123A Quote and the 789A Quote and the 555B Buy 
Order rests on the book at $1.10. This is new functionality as the 
member has opted to have AIQ operate at the member level.

[[Page 23958]]

Implementation
    The Exchange proposes to launch the AIQ functionality described in 
this proposed rule change in either Q2 or Q4 2018. The Exchange will 
announce the implementation date of this functionality in an Options 
Trader Alert issued to members prior to the launch date.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the requirements of the Act and the rules and regulations 
thereunder that are applicable to a national securities exchange, and, 
in particular, with the requirements of Section 6(b) of the Act.\8\ In 
particular, the proposal is consistent with Section 6(b)(5) of the 
Act,\9\ because it is designed to promote just and equitable principles 
of trade, remove impediments to and perfect the mechanisms of a free 
and open market and a national market system and, in general, to 
protect investors and the public interest.
---------------------------------------------------------------------------

    \8\ 15 U.S.C. 78f(b).
    \9\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Exchange believes that the proposed rule change is consistent 
with the protection of investors and the public interest as it is 
designed to provide Market Makers with additional flexibility with 
respect to how to implement self-trade protections provided by AIQ. 
Currently, all Market Makers are provided functionality that prevents 
quotes and orders from one market participant identifier from trading 
with quotes and orders from the same market participant identifier. 
This allows Market Makers to better manage their order flow and prevent 
undesirable executions where the Market Maker, using the same market 
participant identifier, would be on both sides of the trade. While this 
functionality is helpful to our members, some members would prefer not 
to trade with quotes and orders entered by different market participant 
identifiers within the same Exchange account or member. Thus, the 
Exchange is proposing to provide members with flexibility with respect 
to how AIQ is implemented. While members that like the current 
functionality can continue to use it, members who would prefer to 
prevent self-trades across different market participant identifiers 
within the same Exchange account or at the member level will now be 
provided with functionality that lets them do this. Similar flexibility 
is offered on Phlx and NOM, as well as BZX.\10\ The Exchange believes 
that flexibility to apply AIQ at the Exchange account or member firm 
level would be useful for the Exchange's members too. The Exchange 
believes that the proposed rule change is designed to promote just and 
equitable principles of trade and will remove impediments to and 
perfect the mechanisms of a free and open market as it will further 
enhance self-trade protections provided to Market Makers similar to 
those protections provided on other markets. This functionality does 
not relieve or otherwise modify the duty of best execution owed to 
orders received from public customers.
---------------------------------------------------------------------------

    \10\ See supra notes 4 and 7.
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B. Self-Regulatory Organization's Statement on Burden on Competition

    In accordance with Section 6(b)(8) of the Act,\11\ 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. The proposed 
rule change is designed to enhance AIQ functionality provided to 
Exchange Market Makers, and will benefit members that wish to protect 
their quotes and orders against trading with other quotes and orders 
within the same Exchange account or member, rather than the more 
limited market participant identifier standard applied today. The new 
functionality, which provides similar flexibility to that offered on 
Phlx, NOM, and BZX, is also completely voluntary, and members that wish 
to use the current functionality can also continue to do so. The 
Exchange does not believe that providing more flexibility to members 
will have any significant impact on competition. In fact, the Exchange 
believes that the proposed rule change is evidence of the competitive 
environment in the options industry where exchanges must continually 
improve their offerings to maintain competitive standing.
---------------------------------------------------------------------------

    \11\ 15 U.S.C. 78f(b)(8).
---------------------------------------------------------------------------

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 \12\ and 
subparagraph (f)(6) of Rule 19b-4 thereunder.\13\
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    \12\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \13\ 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.
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is: (i) 
Necessary or appropriate in the public interest; (ii) for the 
protection of investors; or (iii) otherwise in furtherance of the 
purposes of the Act. If the Commission takes such action, the 
Commission shall institute proceedings to determine whether the 
proposed rule should be approved or disapproved.

IV. Solicitation of Comments

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

Electronic Comments

     Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-MRX-2018-15 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-2018-15. 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 website (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

[[Page 23959]]

public in accordance with the provisions of 5 U.S.C. 552, will be 
available for website viewing and printing in the Commission's Public 
Reference Room, 100 F Street NE, Washington, DC 20549, on official 
business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of 
the filing also will be available for inspection and copying at the 
principal office of the Exchange. All comments received will be posted 
without change. Persons submitting comments are cautioned that we do 
not redact or edit personal identifying information from comment 
submissions. You should submit only information that you wish to make 
available publicly. All submissions should refer to File Number SR-MRX-
2018-15 and should be submitted on or before June 13, 2018.

    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. 2018-10975 Filed 5-22-18; 8:45 am]
 BILLING CODE 8011-01-P
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