Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing of Proposed Rule Change To Extend the Applicability of the Floor Broker Management System and the Snapshot Functionality to Registered Options Traders and Specialists, 25725-25729 [2018-11866]

Download as PDF Federal Register / Vol. 83, No. 107 / Monday, June 4, 2018 / Notices believes that its proposal would not burden intramarket competition because the proposed rates would apply uniformly to all Members. (C) Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants or Others The Exchange has not solicited, and does not intend to solicit, comments on this proposed rule change. The Exchange has not received any written comments from members or other interested parties. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action The foregoing rule change has become effective pursuant to Section 19(b)(3)(A) of the Act 14 and paragraph (f) of Rule 19b–4 thereunder.15 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: sradovich on DSK3GMQ082PROD 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– CboeEDGA–2018–009 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–CboeEDGA–2018–009. 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 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–CboeEDGA–2018–009 and should be submitted on or before June 25, 2018. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.16 Eduardo A. Aleman, Assistant Secretary. [FR Doc. 2018–11865 Filed 6–1–18; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–83339; File No. SR–Phlx– 2018–40] Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing of Proposed Rule Change To Extend the Applicability of the Floor Broker Management System and the Snapshot Functionality to Registered Options Traders and Specialists May 29, 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 24, 2018, 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 16 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 14 15 U.S.C. 78s(b)(3)(A). 15 17 CFR 240.19b–4(f). VerDate Sep<11>2014 18:35 Jun 01, 2018 1 15 Jkt 244001 PO 00000 Frm 00086 Fmt 4703 Sfmt 4703 25725 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 change the name of the Floor Broker Management System and to require all members that operate on the Exchange Floor, including Floor Brokers, Registered Options Traders, and Specialists, to enter and submit Floor-based trades using that system. The text of the proposed rule change is available on the Exchange’s website 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 amend its Rules to change the name of its electronic order entry system, the Floor Broker Management System, to the Floor Based Management System (‘‘FBMS’’). The Exchange also proposes to extend to the other members that operate on the Exchange Floor— Registered Options Traders (‘‘ROTs’’) 3 and Specialists 4—the same general obligation it imposes upon Floor Brokers regarding orders on the Floor of the Exchange, which is to enter such orders using FBMS, rather than by writing paper tickets that memorialize the orders and then submitting the 3 Rule 1014(b) defines a ROT as a ‘‘a regular member or a foreign currency options participant of the Exchange located on the trading floor who has received permission from the Exchange to trade in options for his own account.’’ A ROT includes a Streaming Quote Trader and a Remote Streaming Quote Trader. 4 Rule 1020 describes the functions of a (Options) Specialist. E:\FR\FM\04JNN1.SGM 04JNN1 sradovich on DSK3GMQ082PROD with NOTICES 25726 Federal Register / Vol. 83, No. 107 / Monday, June 4, 2018 / Notices matched trade tickets to an Exchange Data Entry Technician (‘‘DET’’). Presently and in most instances, the Exchange requires Floor Brokers to enter orders using the Floor Broker Management System. The Floor Broker Management System is an electronic order entry system that is accessible to Floor Brokers and their employees on the Exchange floor through desktop and tablet computers. As is described in Commentary .06 to Rule 1080, FBMS enables Floor Brokers and their employees to enter, route, and report transactions stemming from options orders received on the Exchange. It also establishes an electronic audit trail for options orders represented and executed by Floor Brokers on the Exchange. Pursuant to Rule 1063(e)(i), Floor Brokers must enter certain information into the Floor Broker Management System about each of the orders they receive when they receive them and prior to representing such orders in the trading crowd. At the time when the Exchange introduced FBMS, the Exchange did not deem it necessary for ROTs or Specialists to use FBMS because the Exchange specifically intended to use FBMS as an electronic audit trail for Floor Brokers. Accordingly, ROTs and Specialists presently are neither required nor permitted to enter or execute orders using the Floor Broker Management System. Instead, ROTs and Specialists must record order and related execution details on paper trading tickets. ROTs and Specialists provide such matched trade tickets to Exchange DETs who then manually input the information written on the tickets into the Exchange’s electronic trading system, which is included in the electronic audit trail. The manual order entry process that ROTs and Specialists utilize has become outmoded in comparison to the Floor Broker Management System. The process of manually recording order and execution information onto tickets, submitting such tickets to Exchange DETs, and then the DETs entering the information written on such tickets into the Exchange’s electronic system is less efficient than the entry of order information into the Floor Broker Management System. Also, manual trades, often, are reported with a ‘‘Late’’ or ‘‘Out Of Sequence’’ trade condition due to this manual process. The order entry system used for trade tickets executed by ROTs and Specialists is also more prone to human error than is the Floor Broker Management System insofar as the latter system automatically enforces the Exchange’s priority and trade-through rules, while VerDate Sep<11>2014 18:35 Jun 01, 2018 Jkt 244001 the former does not. Moreover, unlike the Floor Broker Management System, the existing process for ROTs and Specialists does not establish an immediate audit trail for orders due to the manual handling of orders. To address these inefficiencies, mitigate risks, and to improve the compliance record, the Exchange proposes to modernize the order entry process for ROTs and Specialists by replacing it with the Floor Broker Management System, which will be renamed the ‘‘Floor Based Management System’’ or ‘‘FBMS’’ to reflect its broader applicability to Floor Brokers, ROTs and Specialists. To effectuate these changes, the Exchange proposes several amendments and additions to the Exchange’s Rules. First, the Exchange proposes to amend Rule 1000(f), which sets forth the means by which options transactions may be executed on the Exchange, to expressly permit ROTs and Specialists to execute orders utilizing FBMS.5 The proposal would also amend Rule 1000(f) to prohibit ROTs and Specialists from executing orders in the Exchange’s options trading crowd, with certain exceptions. These exceptions are: (1) Malfunctions in FBMS or another problem with Exchange systems; (2) executing orders in the trading crowd pursuant to Rule 1059 (cabinet trades) and Rule 1079 (FLEX equity, index, and currency options); (3) multi-leg orders involving more than 15 legs; (4) certain 5 The Exchange notes that Rule 1014(g) sets forth the allocation of responsibility among the parties to a trade to allocate, match, and time stamp trades executed in open outcry and to submit matched trade tickets to a DET located on the trading floor immediately upon execution. The Exchange proposes to amend Rule 1014(g)(vi) (and Floor Advice F–2) to clarify that this allocation of responsibility also applies when members execute trades electronically using FBMS. Thus, in accordance with Rule 1014(g)(vi)(a), if a trade involves a Floor Broker, the Floor Broker will be responsible for entering trade information into FBMS (or onto a paper trade ticket, if one of the FBMS exceptions apply), unless the Floor Broker delegates this responsibility to a Specialist (and the Specialist accepts this responsibility). In accordance with Rule 1014(g)(vi)(b), where a trade involves a Specialist but no Floor Broker is present, the Specialist will be responsible for entering the trade information into FBMS (or submitting it using a paper trade ticket). In other cases, where the trade involves no Floor Brokers or Specialists (for example, where it involves several ROTs), then the largest on-floor participant will be responsible for submitting the trade into FBMS (or submitting it using a paper trade ticket), in accordance with Rule 1014(g)(vi)(c). Finally, as set forth in Rule 1014(g)(vi)(d), where the trade involves only one seller and buyer and no Floor Broker or Specialist is involved (e.g., both participants are ROTs), then the seller will be responsible for entering the trade information into FBMS (or submitting it using a paper trade ticket), unless either the seller or the buyer is a Remote Streaming Quote Trader (as defined in Rule 1014(a)(ii)(B)), in which case the on-floor participant in the transaction shall do so. PO 00000 Frm 00087 Fmt 4703 Sfmt 4703 split price orders; and (5) the use of the Snapshot functionality to provisionally execute certain categories of trades in the trading crowd. Although the Exchange established these exemptions with Floor Brokers in mind, they are also applicable to ROTs and Specialists. For example, malfunctions in FBMS would impact ROTs and Specialists to the same degree as they would impact Floor Brokers. Likewise, limitations on the design of FBMS that prevent it from handling multi-leg orders of more than 15 legs, cabinet orders, or FLEX orders, or certain split price orders apply equally to Floor Brokers and to ROTs and Specialists that engage in such trades. As to Snapshot, the Exchange proposes to authorize ROTs and Specialists, like Floor Brokers, to use Snapshot to provisionally execute, in the options trading crowd, multi-leg orders and simple orders in options on exchange traded funds that are included in the Options Penny Pilot, subject to the procedures for and the limitations to the use of Snapshot. These procedures and limitations for Snapshot are set forth presently in Rule 1063(e)(v), but the Exchange proposes to move them to a new Section 1069, where they will apply broadly to ‘‘members’’ rather than only to Floor Brokers.6 The Exchange believes that the Snapshot functionality is appropriate for use by ROTs and Specialists, notwithstanding the fact that ROTs and Specialists trade on a proprietary basis, rather than on an agency basis like Floor Brokers. ROTs and Specialists are subject to the same risk as are Floor Brokers with respect to Floor-based trading—i.e., the risk that the market will move faster than participants are able to manually enter and submit paper trade tickets on trades consummated in open outcry –which Snapshot exists to mitigate. Furthermore, the Exchange believes that the same parameters and limitations that the Exchange established for Floor Brokers’ use of Snapshot are appropriate for ROTs and Specialists. The Exchange does not anticipate that the use of Snapshot by ROTs or Specialists will pose any increased or unique risks relative to its use by Floor Brokers. As such, the Exchange proposes to employ the same methods it utilizes presently to surveil 6 As part of this filing, the Exchange proposes to delete obsolete language from Rule 1063(e) that announced the initial implementation date for the Snapshot functionality and described the manner in which the Exchange would alert members of the availability of the functionality. This language is obsolete because Snapshot has been implemented and it is presently available for use by Floor Brokers. E:\FR\FM\04JNN1.SGM 04JNN1 Federal Register / Vol. 83, No. 107 / Monday, June 4, 2018 / Notices sradovich on DSK3GMQ082PROD with NOTICES Floor Brokers’ use of Snapshot to also monitor ROTs’ and Specialists’ uses of Snapshot.7 The following is an example of how Snapshot would apply to a hypothetical trade by a ROT. In this example, a ROT enters a multi-leg order into FBMS to buy 50 MRK Mar 50 calls, buy 50 MRK Mar 53.50 calls, sell 50 MRK Mar 54 Calls, and sell 50 MRK Mar 52.50 calls for a $3.00 debit and the ROT wants specific prices entered on each leg of this trade. He enters the trading crowd, lawfully announces the order, and requests bids and offers from the trading crowd. A Market Maker in the trading crowd offers to sell 50 contracts at a $3.00 credit while the National Best Bid or Offer is $2.75 bid and $3.30 offer. At this point, the ROT will provisionally execute the trade orally in the trading crowd and contemporaneously clicking the Snapshot button. Within the 30 second time frame in which the Snapshot is active, the ROT will open the Complex Calculator, enter his specific prices and submit the trade to the Trading System using FBMS for potential execution. Second, the Exchange proposes to establish an analogue for ROTs and Specialists to Rule 1063(e)(i), which sets forth the responsibilities of Floor Brokers to enter certain order information into FBMS. Similar to Rule 1063(e)(i), new Rule 1081 will require ROTs and Specialists, prior to the negotiation 8 of such an order in the 7 For example, the Exchange will monitor ROTs and Specialists to determine whether they exhibit patterns of using Snapshot excessively, including in circumstances where the nature of the orders or movements in the markets for such orders do not reasonably warrant the use of Snapshot or the full extent of its use. The Exchange will compare the times of provisional executions in the crowd that Snapshot captures with the records of such times that Options Exchange Officials capture to ensure accuracy. The Exchange will also surveil for patterns of orders subject to Snapshots that ROTs and Specialists abandon without submitting them to the Trading System for final execution. The Exchange notes, however, that Snapshot surveillance that the Exchange performs to protect Floor Brokers’ customers will not be required for ROTs and Specialists insofar as ROTs and Specialists trade on a proprietary basis and not on behalf of customers. 8 Whereas Rule 1063(e)(i) provides that a Floor Broker must enter information into FBMS ‘‘contemporaneously upon receipt of an order’’ and prior to its ‘‘representation’’ of a trade on behalf of a client, proposed Rule 1081 (and proposed Floor Advices A–2 and B–7) will provide that a ROT or Specialist must enter information into FBMS ‘‘prior to’’ their ‘‘negotiation’’ of a trade. The Exchange proposes to use the term ‘‘negotiation’’ throughout the proposed Rules in lieu of ‘‘representation’’ to reflect the fact that ROTs and Specialists trade on a proprietary basis and do not represent orders on behalf of others. The Exchange also proposes to omit the requirement that ROTs and Specialists enter information into FBMS ‘‘contemporaneously upon receipt of an order’’ because ROTs and VerDate Sep<11>2014 18:35 Jun 01, 2018 Jkt 244001 trading crowd, to enter certain information into FBMS, which will include the following: (i) The order type (i.e., market maker 9) and order receipt time; (ii) the option symbol; (iii) buy, sell, cross or cancel; (iv) call, put, or complex (i.e., spread, straddle), or contingency order (as described in Rule 1066); (v) number of contracts; (vi) limit price or market order or, in the case of a multi-leg order, net debit or credit, if applicable; and (vii) whether the transaction is to open or close a position, as applicable (collectively, the ‘‘required information’’).10 It provides that a Registered Options Trader or Specialist must enter complete alpha/ numeric identification assigned by the Exchange for all orders entered.11 It also provides that additional information with respect to an order shall be inputted into FBMS contemporaneously upon receipt, which may occur after the negotiation and execution of the order. Such information might include badge information for a ROT that trades with another ROT. In the event that ROTs and Specialists execute orders in the trading crowd pursuant to Rule 1000(f)(ii),12 the Rule requires ROTs and Specialists trade on a proprietary basis and do not receive orders. 9 Rule 1063(e)(i) presently requires a Floor Broker to enter into FBMS information about whether an order is customer, firm, broker-dealer, or professional in nature. The Exchange proposes to add ‘‘market maker’’ as another potential order type, given that Floor Brokers may represent orders on behalf of market makers. Proposed Rule 1081 and Proposed Floor Advices A–2 and B–7 also will provide for ROTs and Specialists to enter market maker orders in FBMS. However, unlike Rule 1063(e)(1), proposed Rule 1081 and proposed Floor Advices A–2 and B–7 will only permit ROTs and Specialists to enter market maker orders into FBMS because they will not enter trades on behalf of customers, firms, broker-dealers, or professional customers. 10 Proposed Rule 1081(a) omits the requirement in Rule 1063(e) that information entered into FBMS include the Options Clearing Corporation clearing number of the broker-dealer that submitted an order. Proposed Rule 1081(a) omits this requirement because it does not apply to ROTs and Specialists that will be trading on a proprietary basis. Proposed Floor Advices A–2 and B–7 also omit this requirement. 11 Unlike the corresponding provision of Rule 1063(e), this provision omits the phrase ‘‘on behalf of Exchange Registered Options Traders’’ after requiring entry of ‘‘complete alpha/numeric identification assigned by the Exchange for all orders.’’ The Exchange proposes this omission because a ROT or Specialist will, in all instances in which they utilize FBMS, need to enter the alpha-numeric information that the Exchange has assigned to them as well as, perhaps, alpha/numeric information that the Exchange has assigned any other ROT or Specialist with which they are trading. 12 The Exchange also proposes to amend corresponding language in Rule 1063(e)(ii) that states presently that Floor Brokers must record information on trade tickets ‘‘[i]n the event of a malfunction in the FBMS or in the event that the Exchange determines that Floor Brokers are PO 00000 Frm 00088 Fmt 4703 Sfmt 4703 25727 Specialists to record the required information on trade tickets, to stamp each ticket with the time of entry on the trading floor before negotiating an order for execution, to stamp each ticket again upon execution of an order, and to ensure that the required information that is recorded on such trade tickets is entered into the Exchange’s electronic Trading System by DETs for inclusion in the electronic audit trail.13 Moreover, proposed Rule 1081(d) states that when ROTs and Specialists submit orders for execution through FBMS, the order will be executed based on market conditions that exist at the time of execution 14 and otherwise in accordance with the Exchange’s Rules. If the order cannot be executed, the Trading System will attempt to execute the order a number of times for a period of no more than one second, which period shall be established by the Exchange and announced by Options Trader Alert, after which it will be returned to the ROT or Specialist on the FBMS. Lastly, it states that the Registered Options Trader or Specialist may resubmit the returned order for execution, as long as the quotes that comprise the order have not been permitted to execute orders in the Exchange’s options trading crowd for a specific reason pursuant to Rule 1000(f)(iii).’’ The proposed amendment will update and clarify this provision by stating that a Floor Broker must record information on trade tickets ‘‘[i]n the event that Floor Brokers execute orders in the Exchange’s options trading crowd pursuant to Rule 1000(f)(ii).’’ The proposed amended language is more accurate than the existing language in that most of the exceptions to the use of FBMS set forth in Rule 1000(f) apply automatically and do not require the prior permission of the Exchange. The Exchange also proposes to make an amendment to similar language in Floor Advice C–2. 13 Simultaneously with this proposal, the Exchange proposes to amend the last sentences of paragraphs (i) and (ii) of Rule 1063(e) to address unintended inconsistencies between them and to clarify as well that when Floor Brokers must record trade information on paper trade tickets, they or their employees must ensure that the recorded information is entered into the Exchange’s electronic Trading System by DETs for inclusion in the electronic audit trail. Presently, Rule 1063(e)(i) states that Floor Brokers must enter the information into the Trading System and ensure that it is submitted for inclusion in the electronic audit trail, but DETs are responsible for entering this information into the Trading System. Meanwhile, Rule 1063(e)(ii) incorrectly suggests that either Floor Brokers or DETs may enter the information recorded on trade tickets into the Trading System. The Exchange’s proposals clarify, correct, and harmonize these two provisions. The Exchange also proposes to apply these changes to Floor Advice C– 2 and include it in proposed Rule 1081 and proposed Floor Advices A–2 and B–7. 14 Simultaneously with this proposal, the Exchange proposes to make a change to Rule 1063(e)(iv) to clarify that when a Floor Broker submits an order for execution through FBMS, the order will be executed based on market conditions at the time of execution. E:\FR\FM\04JNN1.SGM 04JNN1 25728 Federal Register / Vol. 83, No. 107 / Monday, June 4, 2018 / Notices sradovich on DSK3GMQ082PROD with NOTICES withdrawn.15 Registered Options Traders and Specialists are responsible for handling all FBMS orders in accordance with Exchange priority and trade-through rules, including Rules 1014, 1033 and 1084. Additionally, and as discussed earlier, proposed Rule 1081 will permit ROTs and Specialists to utilize the Snapshot feature of FBMS in accordance with the procedures and limitations set forth in proposed Rule 1069. Proposed Rule 1081 also incorporates and adapts Commentary .01 of Rule 1063, and will provide that a ROT or Specialist that wishes to place a limit order on the limit order book cannot submit such a limit order using a paper ticket; instead, the ROT or Specialist must submit the limit order electronically through the FBMS (unless an exception to the use of FBMS applies).16 The Exchange notes that, as set forth in proposed Rule 1081(a), it anticipates that it will make FBMS available to ROTs and Specialists during the Second Quarter of 2018. To facilitate the transition to FBMS, the Exchange will not require ROTs or Specialists to utilize FBMS until one month after the date on which the Commission approves the Exchange’s proposal. The Exchange will notify Members via an Options Trader Alert, to be posted on the Exchange’s website, at least seven calendar days prior to the date when FBMS will be available for use by ROTs and Specialists. The alert will also contain the mandatory start date. Next, the Exchange proposes to amend Rule 1066, which list certain order types that are eligible for entry on FBMS, to clarify that the Rule permits all members operating on the Exchange Floor, including Floor Brokers, ROTs, and Specialists, to enter such orders on FBMS. The Exchange proposes to amend Commentary .06 to Rule 1080, which describes the functions of FBMS, to clarify that it applies to all members that 15 Proposed Rule 1081(d) omits language from Rule 1063(e)(iv) stating that a Floor Broker may resubmit a returned order, provided that the quotes/ orders that comprise the cross have not been withdrawn. The Exchange proposes to omit this language from proposed Rule 1081(d) because ROTs and Specialists will not engage in crosses. Similarly, proposed Rule 1081(d) differs from Rule 1063(e)(iv) in that proposed Rule 1081(d) excludes language which states that FBMS is designed to execute ‘‘two-sided’’ orders. ROTs and Specialists act for their own accounts, and not for others, such that they will not use FBMS to execute two-sided orders. 16 The Exchange notes that it does not propose to incorporate Commentary .02 to Rule 1063, which requires Floor Brokers to make reasonable efforts to ascertain when orders entrusted to them are for the account of a customer or a broker-dealer. This provision does not apply to ROTs or Specialists, which do not act on an agency basis. VerDate Sep<11>2014 18:35 Jun 01, 2018 Jkt 244001 operate on the Exchange Floor, including Floor Brokers, ROTs, and Specialists. It also proposes to amend a cross-reference in the Rules to a description of the features of FBMS to include a cross-reference to proposed Rule 1081.17 The Exchange proposes to amend its Option Floor Procedure Advices and Order & Decorum Regulations (‘‘Advices’’), which presently govern the use of FBMS only by Floor Brokers, so that they also cover the use of FBMS by ROTs and Specialists as well. Specifically, the proposal establishes new Advices A–2 and B–7, which largely replicate Advice C–2 (governing use by Floor Brokers of FBMS) for Specialists and ROTs, respectively. The proposal also amends certain Advices to extend their references to Floor Brokers to also include ROTs and Specialists, including Advice A–2 (All-or-None Option Orders), Advice F–2 (Allocation, Time Stamping, Matching and Access to Matched Trades) 18 and F–4 (Orders Executed as Spreads, Straddles, Combinations or Synthetics and other Order Ticket Marketing Requirements). Lastly, the Exchange also proposes to update existing references in its Rulebook to the ‘‘Floor Broker Management System’’ so that they refer instead to the new name of the system, the ‘‘Floor Based Management System.’’ In addition to the Rules mentioned above, these conforming changes affect Rules 911, 1063, 1064, and 1098, and Advices A–9, B–6, B–8, C–2, and C–3. 2. Statutory Basis The Exchange believes that its proposal is consistent with Section 6(b) of the Act,19 in general, and furthers the objectives of Section 6(b)(5) of the Act,20 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. In particular, by providing for a uniform system of order entry on the Exchange floor, the Exchange’s proposal to extend FBMS to ROTs and Specialists will help ensure fair and equal treatment for all members that operate on the Exchange floor. It will also serve the interests of investors and the public 17 The Exchange proposes to correct a typographical error that appears in this Commentary. The word ‘‘trial’’ in the phrase ‘‘audit trial’’ will be changed to ‘‘trail.’’ 18 The Exchange proposes to amend Advice F–2 to include the same clarification it proposes to make to Rule 1014(g)(vi). 19 15 U.S.C. 78f(b). 20 15 U.S.C. 78f(b)(5). PO 00000 Frm 00089 Fmt 4703 Sfmt 4703 to establish an electronic order entry system for ROTs and Specialists that is more accurate, less prone to error, less time intensive (thereby helping to ensure customer trade priority), and that establishes an immediately available audit trail. The Exchange also believes that it is consistent with the Act for ROTs and Specialists to utilize FBMS notwithstanding the fact that it designed FBMS for use by Floor Brokers, and to do so subject to the same general conditions, requirements, and exceptions which apply presently to Floor Brokers. The Exchange initially designed FBMS for use by Floor Brokers because the Exchange sought to establish an electronic audit trail mechanism for Floor Brokers, in particular; however, the Exchange never intended to specifically exclude ROTs and Specialists from FBMS and it perceives no policy basis for doing so now. Moreover, to the extent that the Exchange proposes to make FBMS available to all Floor participants, it perceives no basis for doing so on anything but the same terms. That is, the Exchange anticipates no unique risks associated with the use of FBMS by ROTs and Specialists, and it believes that the exceptions to FBMS that exist in Rule 1000(f) are each applicable to ROTs and Specialists. That said, the Exchange proposes minor alterations to the Rules that presently govern the use of FBMS by Floor Brokers to, among other things, account for the fact that ROTs and Specialists negotiate orders on the Floor on their own behalf and do not represent orders on the Floor on behalf of others. Similarly, the Exchange believes that it is consistent with the Act to extend the availability of the Snapshot functionality of FBMS to ROTs and Specialists. The Exchange’s rationale for providing Snapshot to Floor Brokers is equally applicable to ROTs and Specialists. ROTs and Specialists are subject to the same risk as are Floor Brokers when trading in open outcry on the Exchange Floor. This risk, which arises from the manual processes inherent in Floor-based trading, is that the Exchange’s Trading System will reject a trade due to a change in market conditions that occurs between the time when the parties negotiate a lawful and valid trade on the Floor, enter the trade information into FBMS, and submit it to the Trading System. The use of Snapshot by ROTs and Specialists will promote just and equitable principles of trade and serve the interests of investors and the public by mitigating this risk and by increasing the likelihood that ROTs and Specialists will be able to E:\FR\FM\04JNN1.SGM 04JNN1 Federal Register / Vol. 83, No. 107 / Monday, June 4, 2018 / Notices execute their orders and do so in line with their expectations and needs. Again, the Exchange perceives no unique risks or concerns associated with the use of Snapshot by ROTs or Specialists that would necessitate proposing any special changes to or restrictions on their use of the Snapshot functionality. B. Self-Regulatory Organization’s Statement on Burden on Competition The Exchange does not believe that the proposed rule change will impose any burden on competition not necessary or appropriate in furtherance of the purposes of the Act. The Exchange’s proposal to extend FBMS to ROTs and Specialists is intended to modernize and otherwise improve the Exchange’s internal order entry process; it is neither intended nor expected to materially affect the competitive position of the Exchange vis-a-vis other exchanges. If anything, this proposal would improve the options floor trading environment for ROTs and Specialists, thereby making the Exchange a more attractive venue for floor trading. The Exchange also does not believe that its proposal to extend the availability of the Snapshot functionality to ROTs and Specialists will burden competition. To the contrary, the Exchange intends for this proposal to make its options trading Floor more competitive with other floor trading venues that have less stringent anti-trade-through procedures as compared to the Exchange. The proposal is also intended to make the Floor more competitive with electronic options trading venues that feature nearinstantaneous and autonomous execution processes which eliminate the risks that Snapshot exists to mitigate. The Exchange does not anticipate that its proposals will impact intra-market competition because the proposals will simply extend the benefits of FBMS and Snapshot to all categories of its Floor participants. sradovich on DSK3GMQ082PROD with NOTICES C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others No written comments were either solicited or received. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Within 45 days of the date of publication of this notice in the Federal Register or within such longer period (i) as the Commission may designate up to 90 days of such date if it finds such VerDate Sep<11>2014 18:35 Jun 01, 2018 Jkt 244001 longer period to be appropriate and publishes its reasons for so finding or (ii) as to which the Exchange consents, the Commission shall: (a) By order approve or disapprove such proposed rule change, or (b) institute proceedings to determine whether the proposed rule change should be disapproved. IV. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: Electronic Comments • Use the Commission’s internet comment form (https://www.sec.gov/ rules/sro.shtml); or • Send an email to rule-comments@ sec.gov. Please include File Number SR– Phlx–2018–40 on the subject line. Paper Comments • Send paper comments in triplicate to Secretary, Securities and Exchange Commission, 100 F Street NE, Washington, DC 20549–1090. All submissions should refer to File Number SR–Phlx–2018–40. 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 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 PO 00000 Frm 00090 Fmt 4703 Sfmt 4703 25729 Number SR–Phlx–2018–40 and should be submitted on or before June 25, 2018. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.21 Eduardo A. Aleman, Assistant Secretary. [FR Doc. 2018–11866 Filed 6–1–18; 8:45 am] BILLING CODE 8011–01–P DEPARTMENT OF STATE [Public Notice: 10434] Notification of the CAFTA–DR Environmental Affairs Council Meeting Department of State. Notice of the CAFTA–DR Environmental Affairs Council meeting and request for comments. AGENCY: ACTION: The Department of State and the Office of the United States Trade Representative are providing notice that the parties to the Dominican RepublicCentral America-United States Free Trade Agreement (CAFTA–DR) intend to hold the twelfth meeting of the Environmental Affairs Council (the Council) established under Chapter 17 (Environment) of that agreement in Santo Domingo, Dominican Republic, June 20–21, 2018. DATES: The public session of the Council will be held on June 21, 2018, from 10:00 a.m. to 1:00 p.m. at the Intercontinental Hotel in Santo Domingo, Dominican Republic. We request comments and suggestions in writing no later than June 13, 2018. ADDRESSES: Written comments or suggestions should be submitted to both: (1) Neal Morris, U.S. Department of State, Bureau of Oceans and International Environmental and Scientific Affairs, Office of Environmental Quality and Transboundary Issues by email to MorrisND@state.gov with the subject line ‘‘CAFTA–DR EAC Meeting’’ or by fax to (202) 647–5947; and (2) Laura Buffo, Director for Environment and Natural Resources, Office of the United States Trade Representative by email to Laura_ Buffo@ustr.eop.gov with the subject line ‘‘CAFTA–DR EAC Meeting’’ or by fax to (202) 395–9517. If you have access to the internet you can view and comment on this notice by going to: https://www.regulations.gov/ and searching for docket number DOS– 2018–0021. SUMMARY: 21 17 E:\FR\FM\04JNN1.SGM CFR 200.30–3(a)(12). 04JNN1

Agencies

SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 83, Number 107 (Monday, June 4, 2018)]
[Notices]
[Pages 25725-25729]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-11866]


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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-83339; File No. SR-Phlx-2018-40]


Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing 
of Proposed Rule Change To Extend the Applicability of the Floor Broker 
Management System and the Snapshot Functionality to Registered Options 
Traders and Specialists

May 29, 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 24, 2018, 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 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 change the name of the Floor Broker 
Management System and to require all members that operate on the 
Exchange Floor, including Floor Brokers, Registered Options Traders, 
and Specialists, to enter and submit Floor-based trades using that 
system.
    The text of the proposed rule change is available on the Exchange's 
website 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 amend its Rules to change the name of its 
electronic order entry system, the Floor Broker Management System, to 
the Floor Based Management System (``FBMS''). The Exchange also 
proposes to extend to the other members that operate on the Exchange 
Floor--Registered Options Traders (``ROTs'') \3\ and Specialists \4\--
the same general obligation it imposes upon Floor Brokers regarding 
orders on the Floor of the Exchange, which is to enter such orders 
using FBMS, rather than by writing paper tickets that memorialize the 
orders and then submitting the

[[Page 25726]]

matched trade tickets to an Exchange Data Entry Technician (``DET'').
---------------------------------------------------------------------------

    \3\ Rule 1014(b) defines a ROT as a ``a regular member or a 
foreign currency options participant of the Exchange located on the 
trading floor who has received permission from the Exchange to trade 
in options for his own account.'' A ROT includes a Streaming Quote 
Trader and a Remote Streaming Quote Trader.
    \4\ Rule 1020 describes the functions of a (Options) Specialist.
---------------------------------------------------------------------------

    Presently and in most instances, the Exchange requires Floor 
Brokers to enter orders using the Floor Broker Management System. The 
Floor Broker Management System is an electronic order entry system that 
is accessible to Floor Brokers and their employees on the Exchange 
floor through desktop and tablet computers. As is described in 
Commentary .06 to Rule 1080, FBMS enables Floor Brokers and their 
employees to enter, route, and report transactions stemming from 
options orders received on the Exchange. It also establishes an 
electronic audit trail for options orders represented and executed by 
Floor Brokers on the Exchange. Pursuant to Rule 1063(e)(i), Floor 
Brokers must enter certain information into the Floor Broker Management 
System about each of the orders they receive when they receive them and 
prior to representing such orders in the trading crowd.
    At the time when the Exchange introduced FBMS, the Exchange did not 
deem it necessary for ROTs or Specialists to use FBMS because the 
Exchange specifically intended to use FBMS as an electronic audit trail 
for Floor Brokers. Accordingly, ROTs and Specialists presently are 
neither required nor permitted to enter or execute orders using the 
Floor Broker Management System. Instead, ROTs and Specialists must 
record order and related execution details on paper trading tickets. 
ROTs and Specialists provide such matched trade tickets to Exchange 
DETs who then manually input the information written on the tickets 
into the Exchange's electronic trading system, which is included in the 
electronic audit trail.
    The manual order entry process that ROTs and Specialists utilize 
has become outmoded in comparison to the Floor Broker Management 
System. The process of manually recording order and execution 
information onto tickets, submitting such tickets to Exchange DETs, and 
then the DETs entering the information written on such tickets into the 
Exchange's electronic system is less efficient than the entry of order 
information into the Floor Broker Management System. Also, manual 
trades, often, are reported with a ``Late'' or ``Out Of Sequence'' 
trade condition due to this manual process. The order entry system used 
for trade tickets executed by ROTs and Specialists is also more prone 
to human error than is the Floor Broker Management System insofar as 
the latter system automatically enforces the Exchange's priority and 
trade-through rules, while the former does not. Moreover, unlike the 
Floor Broker Management System, the existing process for ROTs and 
Specialists does not establish an immediate audit trail for orders due 
to the manual handling of orders.
    To address these inefficiencies, mitigate risks, and to improve the 
compliance record, the Exchange proposes to modernize the order entry 
process for ROTs and Specialists by replacing it with the Floor Broker 
Management System, which will be renamed the ``Floor Based Management 
System'' or ``FBMS'' to reflect its broader applicability to Floor 
Brokers, ROTs and Specialists.
    To effectuate these changes, the Exchange proposes several 
amendments and additions to the Exchange's Rules.
    First, the Exchange proposes to amend Rule 1000(f), which sets 
forth the means by which options transactions may be executed on the 
Exchange, to expressly permit ROTs and Specialists to execute orders 
utilizing FBMS.\5\ The proposal would also amend Rule 1000(f) to 
prohibit ROTs and Specialists from executing orders in the Exchange's 
options trading crowd, with certain exceptions. These exceptions are: 
(1) Malfunctions in FBMS or another problem with Exchange systems; (2) 
executing orders in the trading crowd pursuant to Rule 1059 (cabinet 
trades) and Rule 1079 (FLEX equity, index, and currency options); (3) 
multi-leg orders involving more than 15 legs; (4) certain split price 
orders; and (5) the use of the Snapshot functionality to provisionally 
execute certain categories of trades in the trading crowd. Although the 
Exchange established these exemptions with Floor Brokers in mind, they 
are also applicable to ROTs and Specialists. For example, malfunctions 
in FBMS would impact ROTs and Specialists to the same degree as they 
would impact Floor Brokers. Likewise, limitations on the design of FBMS 
that prevent it from handling multi-leg orders of more than 15 legs, 
cabinet orders, or FLEX orders, or certain split price orders apply 
equally to Floor Brokers and to ROTs and Specialists that engage in 
such trades.
---------------------------------------------------------------------------

    \5\ The Exchange notes that Rule 1014(g) sets forth the 
allocation of responsibility among the parties to a trade to 
allocate, match, and time stamp trades executed in open outcry and 
to submit matched trade tickets to a DET located on the trading 
floor immediately upon execution. The Exchange proposes to amend 
Rule 1014(g)(vi) (and Floor Advice F-2) to clarify that this 
allocation of responsibility also applies when members execute 
trades electronically using FBMS. Thus, in accordance with Rule 
1014(g)(vi)(a), if a trade involves a Floor Broker, the Floor Broker 
will be responsible for entering trade information into FBMS (or 
onto a paper trade ticket, if one of the FBMS exceptions apply), 
unless the Floor Broker delegates this responsibility to a 
Specialist (and the Specialist accepts this responsibility). In 
accordance with Rule 1014(g)(vi)(b), where a trade involves a 
Specialist but no Floor Broker is present, the Specialist will be 
responsible for entering the trade information into FBMS (or 
submitting it using a paper trade ticket). In other cases, where the 
trade involves no Floor Brokers or Specialists (for example, where 
it involves several ROTs), then the largest on-floor participant 
will be responsible for submitting the trade into FBMS (or 
submitting it using a paper trade ticket), in accordance with Rule 
1014(g)(vi)(c). Finally, as set forth in Rule 1014(g)(vi)(d), where 
the trade involves only one seller and buyer and no Floor Broker or 
Specialist is involved (e.g., both participants are ROTs), then the 
seller will be responsible for entering the trade information into 
FBMS (or submitting it using a paper trade ticket), unless either 
the seller or the buyer is a Remote Streaming Quote Trader (as 
defined in Rule 1014(a)(ii)(B)), in which case the on-floor 
participant in the transaction shall do so.
---------------------------------------------------------------------------

    As to Snapshot, the Exchange proposes to authorize ROTs and 
Specialists, like Floor Brokers, to use Snapshot to provisionally 
execute, in the options trading crowd, multi-leg orders and simple 
orders in options on exchange traded funds that are included in the 
Options Penny Pilot, subject to the procedures for and the limitations 
to the use of Snapshot. These procedures and limitations for Snapshot 
are set forth presently in Rule 1063(e)(v), but the Exchange proposes 
to move them to a new Section 1069, where they will apply broadly to 
``members'' rather than only to Floor Brokers.\6\
---------------------------------------------------------------------------

    \6\ As part of this filing, the Exchange proposes to delete 
obsolete language from Rule 1063(e) that announced the initial 
implementation date for the Snapshot functionality and described the 
manner in which the Exchange would alert members of the availability 
of the functionality. This language is obsolete because Snapshot has 
been implemented and it is presently available for use by Floor 
Brokers.
---------------------------------------------------------------------------

    The Exchange believes that the Snapshot functionality is 
appropriate for use by ROTs and Specialists, notwithstanding the fact 
that ROTs and Specialists trade on a proprietary basis, rather than on 
an agency basis like Floor Brokers. ROTs and Specialists are subject to 
the same risk as are Floor Brokers with respect to Floor-based 
trading--i.e., the risk that the market will move faster than 
participants are able to manually enter and submit paper trade tickets 
on trades consummated in open outcry -which Snapshot exists to 
mitigate. Furthermore, the Exchange believes that the same parameters 
and limitations that the Exchange established for Floor Brokers' use of 
Snapshot are appropriate for ROTs and Specialists. The Exchange does 
not anticipate that the use of Snapshot by ROTs or Specialists will 
pose any increased or unique risks relative to its use by Floor 
Brokers. As such, the Exchange proposes to employ the same methods it 
utilizes presently to surveil

[[Page 25727]]

Floor Brokers' use of Snapshot to also monitor ROTs' and Specialists' 
uses of Snapshot.\7\
---------------------------------------------------------------------------

    \7\ For example, the Exchange will monitor ROTs and Specialists 
to determine whether they exhibit patterns of using Snapshot 
excessively, including in circumstances where the nature of the 
orders or movements in the markets for such orders do not reasonably 
warrant the use of Snapshot or the full extent of its use. The 
Exchange will compare the times of provisional executions in the 
crowd that Snapshot captures with the records of such times that 
Options Exchange Officials capture to ensure accuracy. The Exchange 
will also surveil for patterns of orders subject to Snapshots that 
ROTs and Specialists abandon without submitting them to the Trading 
System for final execution. The Exchange notes, however, that 
Snapshot surveillance that the Exchange performs to protect Floor 
Brokers' customers will not be required for ROTs and Specialists 
insofar as ROTs and Specialists trade on a proprietary basis and not 
on behalf of customers.
---------------------------------------------------------------------------

    The following is an example of how Snapshot would apply to a 
hypothetical trade by a ROT. In this example, a ROT enters a multi-leg 
order into FBMS to buy 50 MRK Mar 50 calls, buy 50 MRK Mar 53.50 calls, 
sell 50 MRK Mar 54 Calls, and sell 50 MRK Mar 52.50 calls for a $3.00 
debit and the ROT wants specific prices entered on each leg of this 
trade. He enters the trading crowd, lawfully announces the order, and 
requests bids and offers from the trading crowd. A Market Maker in the 
trading crowd offers to sell 50 contracts at a $3.00 credit while the 
National Best Bid or Offer is $2.75 bid and $3.30 offer. At this point, 
the ROT will provisionally execute the trade orally in the trading 
crowd and contemporaneously clicking the Snapshot button. Within the 30 
second time frame in which the Snapshot is active, the ROT will open 
the Complex Calculator, enter his specific prices and submit the trade 
to the Trading System using FBMS for potential execution.
    Second, the Exchange proposes to establish an analogue for ROTs and 
Specialists to Rule 1063(e)(i), which sets forth the responsibilities 
of Floor Brokers to enter certain order information into FBMS. Similar 
to Rule 1063(e)(i), new Rule 1081 will require ROTs and Specialists, 
prior to the negotiation \8\ of such an order in the trading crowd, to 
enter certain information into FBMS, which will include the following: 
(i) The order type (i.e., market maker \9\) and order receipt time; 
(ii) the option symbol; (iii) buy, sell, cross or cancel; (iv) call, 
put, or complex (i.e., spread, straddle), or contingency order (as 
described in Rule 1066); (v) number of contracts; (vi) limit price or 
market order or, in the case of a multi-leg order, net debit or credit, 
if applicable; and (vii) whether the transaction is to open or close a 
position, as applicable (collectively, the ``required 
information'').\10\ It provides that a Registered Options Trader or 
Specialist must enter complete alpha/numeric identification assigned by 
the Exchange for all orders entered.\11\ It also provides that 
additional information with respect to an order shall be inputted into 
FBMS contemporaneously upon receipt, which may occur after the 
negotiation and execution of the order. Such information might include 
badge information for a ROT that trades with another ROT. In the event 
that ROTs and Specialists execute orders in the trading crowd pursuant 
to Rule 1000(f)(ii),\12\ the Rule requires ROTs and Specialists to 
record the required information on trade tickets, to stamp each ticket 
with the time of entry on the trading floor before negotiating an order 
for execution, to stamp each ticket again upon execution of an order, 
and to ensure that the required information that is recorded on such 
trade tickets is entered into the Exchange's electronic Trading System 
by DETs for inclusion in the electronic audit trail.\13\
---------------------------------------------------------------------------

    \8\ Whereas Rule 1063(e)(i) provides that a Floor Broker must 
enter information into FBMS ``contemporaneously upon receipt of an 
order'' and prior to its ``representation'' of a trade on behalf of 
a client, proposed Rule 1081 (and proposed Floor Advices A-2 and B-
7) will provide that a ROT or Specialist must enter information into 
FBMS ``prior to'' their ``negotiation'' of a trade. The Exchange 
proposes to use the term ``negotiation'' throughout the proposed 
Rules in lieu of ``representation'' to reflect the fact that ROTs 
and Specialists trade on a proprietary basis and do not represent 
orders on behalf of others. The Exchange also proposes to omit the 
requirement that ROTs and Specialists enter information into FBMS 
``contemporaneously upon receipt of an order'' because ROTs and 
Specialists trade on a proprietary basis and do not receive orders.
    \9\ Rule 1063(e)(i) presently requires a Floor Broker to enter 
into FBMS information about whether an order is customer, firm, 
broker-dealer, or professional in nature. The Exchange proposes to 
add ``market maker'' as another potential order type, given that 
Floor Brokers may represent orders on behalf of market makers. 
Proposed Rule 1081 and Proposed Floor Advices A-2 and B-7 also will 
provide for ROTs and Specialists to enter market maker orders in 
FBMS. However, unlike Rule 1063(e)(1), proposed Rule 1081 and 
proposed Floor Advices A-2 and B-7 will only permit ROTs and 
Specialists to enter market maker orders into FBMS because they will 
not enter trades on behalf of customers, firms, broker-dealers, or 
professional customers.
    \10\ Proposed Rule 1081(a) omits the requirement in Rule 1063(e) 
that information entered into FBMS include the Options Clearing 
Corporation clearing number of the broker-dealer that submitted an 
order. Proposed Rule 1081(a) omits this requirement because it does 
not apply to ROTs and Specialists that will be trading on a 
proprietary basis. Proposed Floor Advices A-2 and B-7 also omit this 
requirement.
    \11\ Unlike the corresponding provision of Rule 1063(e), this 
provision omits the phrase ``on behalf of Exchange Registered 
Options Traders'' after requiring entry of ``complete alpha/numeric 
identification assigned by the Exchange for all orders.'' The 
Exchange proposes this omission because a ROT or Specialist will, in 
all instances in which they utilize FBMS, need to enter the alpha-
numeric information that the Exchange has assigned to them as well 
as, perhaps, alpha/numeric information that the Exchange has 
assigned any other ROT or Specialist with which they are trading.
    \12\ The Exchange also proposes to amend corresponding language 
in Rule 1063(e)(ii) that states presently that Floor Brokers must 
record information on trade tickets ``[i]n the event of a 
malfunction in the FBMS or in the event that the Exchange determines 
that Floor Brokers are permitted to execute orders in the Exchange's 
options trading crowd for a specific reason pursuant to Rule 
1000(f)(iii).'' The proposed amendment will update and clarify this 
provision by stating that a Floor Broker must record information on 
trade tickets ``[i]n the event that Floor Brokers execute orders in 
the Exchange's options trading crowd pursuant to Rule 1000(f)(ii).'' 
The proposed amended language is more accurate than the existing 
language in that most of the exceptions to the use of FBMS set forth 
in Rule 1000(f) apply automatically and do not require the prior 
permission of the Exchange. The Exchange also proposes to make an 
amendment to similar language in Floor Advice C-2.
    \13\ Simultaneously with this proposal, the Exchange proposes to 
amend the last sentences of paragraphs (i) and (ii) of Rule 1063(e) 
to address unintended inconsistencies between them and to clarify as 
well that when Floor Brokers must record trade information on paper 
trade tickets, they or their employees must ensure that the recorded 
information is entered into the Exchange's electronic Trading System 
by DETs for inclusion in the electronic audit trail. Presently, Rule 
1063(e)(i) states that Floor Brokers must enter the information into 
the Trading System and ensure that it is submitted for inclusion in 
the electronic audit trail, but DETs are responsible for entering 
this information into the Trading System. Meanwhile, Rule 
1063(e)(ii) incorrectly suggests that either Floor Brokers or DETs 
may enter the information recorded on trade tickets into the Trading 
System. The Exchange's proposals clarify, correct, and harmonize 
these two provisions. The Exchange also proposes to apply these 
changes to Floor Advice C-2 and include it in proposed Rule 1081 and 
proposed Floor Advices A-2 and B-7.
---------------------------------------------------------------------------

    Moreover, proposed Rule 1081(d) states that when ROTs and 
Specialists submit orders for execution through FBMS, the order will be 
executed based on market conditions that exist at the time of execution 
\14\ and otherwise in accordance with the Exchange's Rules. If the 
order cannot be executed, the Trading System will attempt to execute 
the order a number of times for a period of no more than one second, 
which period shall be established by the Exchange and announced by 
Options Trader Alert, after which it will be returned to the ROT or 
Specialist on the FBMS. Lastly, it states that the Registered Options 
Trader or Specialist may resubmit the returned order for execution, as 
long as the quotes that comprise the order have not been

[[Page 25728]]

withdrawn.\15\ Registered Options Traders and Specialists are 
responsible for handling all FBMS orders in accordance with Exchange 
priority and trade-through rules, including Rules 1014, 1033 and 1084.
---------------------------------------------------------------------------

    \14\ Simultaneously with this proposal, the Exchange proposes to 
make a change to Rule 1063(e)(iv) to clarify that when a Floor 
Broker submits an order for execution through FBMS, the order will 
be executed based on market conditions at the time of execution.
    \15\ Proposed Rule 1081(d) omits language from Rule 1063(e)(iv) 
stating that a Floor Broker may re-submit a returned order, provided 
that the quotes/orders that comprise the cross have not been 
withdrawn. The Exchange proposes to omit this language from proposed 
Rule 1081(d) because ROTs and Specialists will not engage in 
crosses. Similarly, proposed Rule 1081(d) differs from Rule 
1063(e)(iv) in that proposed Rule 1081(d) excludes language which 
states that FBMS is designed to execute ``two-sided'' orders. ROTs 
and Specialists act for their own accounts, and not for others, such 
that they will not use FBMS to execute two-sided orders.
---------------------------------------------------------------------------

    Additionally, and as discussed earlier, proposed Rule 1081 will 
permit ROTs and Specialists to utilize the Snapshot feature of FBMS in 
accordance with the procedures and limitations set forth in proposed 
Rule 1069. Proposed Rule 1081 also incorporates and adapts Commentary 
.01 of Rule 1063, and will provide that a ROT or Specialist that wishes 
to place a limit order on the limit order book cannot submit such a 
limit order using a paper ticket; instead, the ROT or Specialist must 
submit the limit order electronically through the FBMS (unless an 
exception to the use of FBMS applies).\16\
---------------------------------------------------------------------------

    \16\ The Exchange notes that it does not propose to incorporate 
Commentary .02 to Rule 1063, which requires Floor Brokers to make 
reasonable efforts to ascertain when orders entrusted to them are 
for the account of a customer or a broker-dealer. This provision 
does not apply to ROTs or Specialists, which do not act on an agency 
basis.
---------------------------------------------------------------------------

    The Exchange notes that, as set forth in proposed Rule 1081(a), it 
anticipates that it will make FBMS available to ROTs and Specialists 
during the Second Quarter of 2018. To facilitate the transition to 
FBMS, the Exchange will not require ROTs or Specialists to utilize FBMS 
until one month after the date on which the Commission approves the 
Exchange's proposal. The Exchange will notify Members via an Options 
Trader Alert, to be posted on the Exchange's website, at least seven 
calendar days prior to the date when FBMS will be available for use by 
ROTs and Specialists. The alert will also contain the mandatory start 
date.
    Next, the Exchange proposes to amend Rule 1066, which list certain 
order types that are eligible for entry on FBMS, to clarify that the 
Rule permits all members operating on the Exchange Floor, including 
Floor Brokers, ROTs, and Specialists, to enter such orders on FBMS.
    The Exchange proposes to amend Commentary .06 to Rule 1080, which 
describes the functions of FBMS, to clarify that it applies to all 
members that operate on the Exchange Floor, including Floor Brokers, 
ROTs, and Specialists. It also proposes to amend a cross-reference in 
the Rules to a description of the features of FBMS to include a cross-
reference to proposed Rule 1081.\17\
---------------------------------------------------------------------------

    \17\ The Exchange proposes to correct a typographical error that 
appears in this Commentary. The word ``trial'' in the phrase ``audit 
trial'' will be changed to ``trail.''
---------------------------------------------------------------------------

    The Exchange proposes to amend its Option Floor Procedure Advices 
and Order & Decorum Regulations (``Advices''), which presently govern 
the use of FBMS only by Floor Brokers, so that they also cover the use 
of FBMS by ROTs and Specialists as well. Specifically, the proposal 
establishes new Advices A-2 and B-7, which largely replicate Advice C-2 
(governing use by Floor Brokers of FBMS) for Specialists and ROTs, 
respectively. The proposal also amends certain Advices to extend their 
references to Floor Brokers to also include ROTs and Specialists, 
including Advice A-2 (All-or-None Option Orders), Advice F-2 
(Allocation, Time Stamping, Matching and Access to Matched Trades) \18\ 
and F-4 (Orders Executed as Spreads, Straddles, Combinations or 
Synthetics and other Order Ticket Marketing Requirements).
---------------------------------------------------------------------------

    \18\ The Exchange proposes to amend Advice F-2 to include the 
same clarification it proposes to make to Rule 1014(g)(vi).
---------------------------------------------------------------------------

    Lastly, the Exchange also proposes to update existing references in 
its Rulebook to the ``Floor Broker Management System'' so that they 
refer instead to the new name of the system, the ``Floor Based 
Management System.'' In addition to the Rules mentioned above, these 
conforming changes affect Rules 911, 1063, 1064, and 1098, and Advices 
A-9, B-6, B-8, C-2, and C-3.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\19\ in general, and furthers the objectives of Section 
6(b)(5) of the Act,\20\ 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.
---------------------------------------------------------------------------

    \19\ 15 U.S.C. 78f(b).
    \20\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    In particular, by providing for a uniform system of order entry on 
the Exchange floor, the Exchange's proposal to extend FBMS to ROTs and 
Specialists will help ensure fair and equal treatment for all members 
that operate on the Exchange floor. It will also serve the interests of 
investors and the public to establish an electronic order entry system 
for ROTs and Specialists that is more accurate, less prone to error, 
less time intensive (thereby helping to ensure customer trade 
priority), and that establishes an immediately available audit trail.
    The Exchange also believes that it is consistent with the Act for 
ROTs and Specialists to utilize FBMS notwithstanding the fact that it 
designed FBMS for use by Floor Brokers, and to do so subject to the 
same general conditions, requirements, and exceptions which apply 
presently to Floor Brokers. The Exchange initially designed FBMS for 
use by Floor Brokers because the Exchange sought to establish an 
electronic audit trail mechanism for Floor Brokers, in particular; 
however, the Exchange never intended to specifically exclude ROTs and 
Specialists from FBMS and it perceives no policy basis for doing so 
now. Moreover, to the extent that the Exchange proposes to make FBMS 
available to all Floor participants, it perceives no basis for doing so 
on anything but the same terms. That is, the Exchange anticipates no 
unique risks associated with the use of FBMS by ROTs and Specialists, 
and it believes that the exceptions to FBMS that exist in Rule 1000(f) 
are each applicable to ROTs and Specialists. That said, the Exchange 
proposes minor alterations to the Rules that presently govern the use 
of FBMS by Floor Brokers to, among other things, account for the fact 
that ROTs and Specialists negotiate orders on the Floor on their own 
behalf and do not represent orders on the Floor on behalf of others.
    Similarly, the Exchange believes that it is consistent with the Act 
to extend the availability of the Snapshot functionality of FBMS to 
ROTs and Specialists. The Exchange's rationale for providing Snapshot 
to Floor Brokers is equally applicable to ROTs and Specialists. ROTs 
and Specialists are subject to the same risk as are Floor Brokers when 
trading in open outcry on the Exchange Floor. This risk, which arises 
from the manual processes inherent in Floor-based trading, is that the 
Exchange's Trading System will reject a trade due to a change in market 
conditions that occurs between the time when the parties negotiate a 
lawful and valid trade on the Floor, enter the trade information into 
FBMS, and submit it to the Trading System. The use of Snapshot by ROTs 
and Specialists will promote just and equitable principles of trade and 
serve the interests of investors and the public by mitigating this risk 
and by increasing the likelihood that ROTs and Specialists will be able 
to

[[Page 25729]]

execute their orders and do so in line with their expectations and 
needs. Again, the Exchange perceives no unique risks or concerns 
associated with the use of Snapshot by ROTs or Specialists that would 
necessitate proposing any special changes to or restrictions on their 
use of the Snapshot functionality.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act.
    The Exchange's proposal to extend FBMS to ROTs and Specialists is 
intended to modernize and otherwise improve the Exchange's internal 
order entry process; it is neither intended nor expected to materially 
affect the competitive position of the Exchange vis-a-vis other 
exchanges. If anything, this proposal would improve the options floor 
trading environment for ROTs and Specialists, thereby making the 
Exchange a more attractive venue for floor trading.
    The Exchange also does not believe that its proposal to extend the 
availability of the Snapshot functionality to ROTs and Specialists will 
burden competition. To the contrary, the Exchange intends for this 
proposal to make its options trading Floor more competitive with other 
floor trading venues that have less stringent anti-trade-through 
procedures as compared to the Exchange. The proposal is also intended 
to make the Floor more competitive with electronic options trading 
venues that feature near-instantaneous and autonomous execution 
processes which eliminate the risks that Snapshot exists to mitigate.
    The Exchange does not anticipate that its proposals will impact 
intra-market competition because the proposals will simply extend the 
benefits of FBMS and Snapshot to all categories of its Floor 
participants.

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

    No written comments were either solicited or received.

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

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the Exchange consents, the Commission shall: (a) By order approve 
or disapprove such proposed rule change, or (b) institute proceedings 
to determine whether the proposed rule change should be disapproved.

IV. Solicitation of Comments

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

Electronic Comments

     Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-Phlx-2018-40 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.

All submissions should refer to File Number SR-Phlx-2018-40. 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 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-Phlx-2018-40 and should be submitted on 
or before June 25, 2018.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\21\
---------------------------------------------------------------------------

    \21\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-11866 Filed 6-1-18; 8:45 am]
 BILLING CODE 8011-01-P

This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.