Self-Regulatory Organizations; The Nasdaq Stock Market LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Codify the Definitions of the Protocols to Enter Quotes and Orders, 42954-42957 [2018-18294]

Download as PDF 42954 Federal Register / Vol. 83, No. 165 / Friday, August 24, 2018 / Notices 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 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: daltland on DSKBBV9HB2PROD 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– CBOE–2018–058 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–CBOE–2018–058. 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–CBOE–2018–058 and should be submitted on or before September 14, 2018. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.35 Eduardo A. Aleman Assistant Secretary. [FR Doc. 2018–18295 Filed 8–23–18; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–83888; File No. SR– NASDAQ–2018–069] Self-Regulatory Organizations; The Nasdaq Stock Market LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Codify the Definitions of the Protocols to Enter Quotes and Orders August 20, 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 August 17, 2018, The Nasdaq Stock Market LLC (‘‘Nasdaq’’ or ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘SEC’’ or ‘‘Commission’’) the proposed rule change as described in Items I, II, and III, below, which Items have been prepared by the Exchange. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to adopt new rule text within The Nasdaq Options Market LLC Rules at Chapter VI, Section 21. Specifically, the Exchange proposes to codify the definitions of the current protocols that Participants can use to enter quotes and orders on the Exchange and introduce a new protocol. The text of the proposed rule change is available on the Exchange’s website at https://nasdaq.cchwallstreet.com, at the principal office of the Exchange, and at 35 17 proposed rule’s impact on efficiency, competition, and capital formation. See 15 U.S.C. 78c(f). VerDate Sep<11>2014 19:17 Aug 23, 2018 Jkt 244001 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 1 15 PO 00000 Frm 00096 Fmt 4703 Sfmt 4703 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 adopt new rule text at Chapter VI, Section 21 to codify the Financial Information eXchange (‘‘FIX’’) and Specialized Quote Feed (‘‘SQF’’) protocols. The Exchange proposes to adopt a new protocol and name it ‘‘Ouch to Trade Options’’ (‘‘OTTO’’) and rename and amend the current OTTO protocol on NOM as ‘‘Quote Using Orders’’ or ‘‘QUO’’.3 The Exchange believes that codifying definitions of current and new protocols in its rules will increase transparency around its operations. Furthermore, the proposed definitions will be harmonized where appropriate with definitions contained in the rules of the Exchange’s affiliated options markets,4 by using consistent terms to define the buckets of information transmitted, or the features available, on each protocol. The protocols used by NOM Participants to submit quotes and orders play an important role in the operation of the System. The Exchange notes it has two protocols today, SQF and proposed to be renamed QUO (formerly known as OTTO), that NOM Market Makers can use to meet their quoting obligations. All quotes on SQF are counted toward market making obligations. While a NOM Market Maker may enter an Immediate-or-Cancel Order through SQF this order does not rest on the Exchange’s order book and therefore does not count toward quoting 3 Today the Exchange offers FIX, SQF and QUO (formerly known as OTTO) to its Participants. 4 Rules have been filed for Nasdaq ISE, LLC (‘‘ISE’’), Nasdaq GEMX, LLC (‘‘GEMX’’), Nasdaq MRX, LLC (‘‘MRX’’), Nasdaq BX, Inc. and Nasdaq Phlx, LLC. E:\FR\FM\24AUN1.SGM 24AUN1 Federal Register / Vol. 83, No. 165 / Friday, August 24, 2018 / Notices obligations. In contrast orders that NOM Market Makers send through QUO will count toward market maker quoting obligations because orders submitted through QUO will rest on the order book and allow NOM Market Makers to provide liquidity on NOM. NOM Market Makers cannot use QUO to submit quotes. As noted below in the section on QUO, specifically orders would count toward meeting quoting obligations for purposes of Rule 701, Opening, and Rule 804(e), regarding intra-day quoting. The Exchange proposes to title proposed new Section 21 as ‘‘Order and Quote Protocols’’ and codify descriptions of the various current and new protocols that Participants may use to enter quotes and orders on NOM. Proposed new section (a) to Chapter VI, Section 21 would be entitled ‘‘Entry and Display of Orders and Quotes.’’ Proposed new Chapter VI, Section 21(a) would provide, ‘‘Participants may enter orders and quotes into the System as specified below.’’ The Exchange proposes to add a section Chapter VI, Section 21(a)(i) which states, ‘‘The Exchange offers Participants the following protocols for entering orders and quotes respectively.’’ Each protocol will be explained in greater detail below. A. Financial Information eXchange Ports This protocol is not memorialized within the Exchange’s Rulebook, however rule changes describing FIX were filed previously.5 The Exchange proposes to codify a description of FIX at Rule 1080(a)(i)(a) to add even greater specificity to this protocol. The Exchange proposes to state that FIX is an interface that allows Participants (Market Makers and non-Market Maker Participants) and their Sponsored Customers to connect, send and receive messages related to orders to and from the Exchange. Features include the following: (1) Execution messages; (2) order messages; and (3) risk protection triggers and cancel notifications. daltland on DSKBBV9HB2PROD with NOTICES B. Specialized Quote Feed Ports This protocol is not memorialized within the Exchange’s Rulebook, 5 See Securities Exchange Act Release No. 74616 (April 6, 2015), 80 FR 18450 (March 31, 2015) (SR– NASDAQ–2015–027). The FIX port was previously referred to as the ‘‘Order Entry Port’’ and described as a connection to routing orders to the Exchange via an external order entry port. NOM Participants access the Exchange’s network through order entry ports. A NOM Participant may have more than one order entry port. The Exchange recently renamed the ‘‘Order Entry Port’’ as the ‘‘FIX Port’’ in the Exchange’s Pricing Schedule. See Securities Exchange Act Release No. 83192 [sic] (May 9, 2018), 83 FR 22570 [sic] (May 15, 2018) (SR–NASDAQ– 2018–036). VerDate Sep<11>2014 19:17 Aug 23, 2018 Jkt 244001 however rule changes describing SQF were filed previously.6 The Exchange proposes to more specifically define an SQF Port. The Exchange proposes the following definition: SQF is an interface that allows Market Makers to connect, send, and receive messages related to quotes and Immediate-or-Cancel Orders into and from the Exchange. Features include the following: (1) Options symbol directory messages (e.g underlying instruments); (2) system event messages (e.g., start of trading hours messages and start of opening); (3) trading action messages (e.g., halts and resumes); (4) execution messages; (5) quote messages; (6) Immediate-or-Cancel Order messages; (7) risk protection triggers and purge notifications; and (8) opening imbalance messages. The SQF Purge Interface only receives and notifies of purge request from the Market Maker.7 The Exchange believes that this information provides a more thorough description of SQF. C. Quote Using Orders (Formerly OTTO) Today, the Exchange offers a protocol named ‘‘Ouch to Trade Options’’ or ‘‘OTTO.’’ The Exchange has filed a description of the current OTTO in prior rule changes stating OTTO is a protocol which permits the transmission of orders to the Exchange by a Participant.8 Further, the prior filing noted Immediate-or- Cancel orders will not be cancelled pursuant to this Chapter VI, Section 6 because, by definition, these orders will cancel if not executed.9 All Participants have the ability to utilize OTTO. Today, orders submitted by NOM Market Makers over this interface are treated as quotes.10 The Exchange proposes to rename the current OTTO as ‘‘Quote Using Orders’’ or ‘‘QUO’’ and amend the protocol by restricting it to NOM Market Makers only because this protocol is predominately utilized by NOM Market Makers. Further, the Exchange is 6 See Securities Exchange Act Release No. 83193 (May 9, 2018), 83 FR 22539 (May 15, 2018) (SR– NASDAQ–2018–036). This rule change generally described SQF as an interface that allows market makers to send quotes, sweeps and auction responses into the Exchange. 7 All of the notification messages available on SQF ports as described above (i.e., options symbol directory messages, system event messages, trading action messages, etc.) are configurable in that NOM Market Makers can select the specific types of notifications they wish to receive on their SQF ports. As such, SQF Purge Interface ports are a subpart of SQF ports that have been configured to only receive and notify of purge requests. 8 See Securities Exchange Act Release No. 78480 (August 4, 2016), 81 FR 52926 (August 10, 2016) (SR–NASDAQ–2016–097). 9 Id. 10 Id. PO 00000 Frm 00097 Fmt 4703 Sfmt 4703 42955 offering non-Market Makers the new OTTO protocol, described below, which some Participants, who are also members of ISE, GEMX and MRX,11 utilize today. The Exchange also notes QUO users will be subject to certain quote protections specified in Chapter VI, Section 18(c) which are specific to NOM Market Makers and would otherwise not apply to non-Market Makers. This interface would continue to allow NOM Market Makers to connect, send, and receive messages related to single-sided orders to and from the Exchange. The Exchange proposes to add additional granularity to this protocol by stating that the order features include the following: (1) Options symbol directory messages (e.g., underlying); (2) system event messages (e.g., start of trading hours messages and start of opening); (3) trading action messages (e.g., halts and resumes); (4) execution messages; (5) order messages; and (6) risk protection triggers and cancel notifications. Similar to how the protocol operates today, orders submitted by NOM Market Makers over this interface are treated as quotes. These orders would therefore count toward meeting quoting obligations for purposes of Rule 701, Opening, and Rule 804(e), regarding intra-day quoting. D. New Ouch to Trade Options The Exchange proposes to introduce a new interface similar to OTTO offered on affiliated markets which would be available to all NOM Participants (Market Makers and non-Market Makers). In order to bring conformance to the protocols across its affiliated markets, the Exchange proposes to name the new interface ‘‘Ouch to Trade Options’’ or ‘‘OTTO’’ similar to the other markets.12 This new protocol would allow Participants and their Sponsored Customers to connect, send, and receive messages related to orders to and from the Exchange. Features would include the following: (1) Options symbol directory messages (e.g., underlying); (2) system event messages (e.g., start of trading hours messages and start of opening); (3) trading action messages (e.g., halts and resumes); (4) execution messages; (5) order messages; and (6) risk protection triggers and cancel notifications.13 Orders submitted by NOM Market Makers through the 11 The new OTTO protocol is the same protocol offered on ISE, GEMX and MRX. 12 To allow for the conformance suggested herein, the Exchange is proposing to rename the current protocol ‘‘Quote Using Orders’’ or ‘‘QUO.’’ 13 Unlike the current OTTO, orders submitted through the proposed new OTTO protocol would not be treated as quotes for purposes of Market Maker quoting obligations. E:\FR\FM\24AUN1.SGM 24AUN1 42956 Federal Register / Vol. 83, No. 165 / Friday, August 24, 2018 / Notices new OTTO will not count toward their quoting obligations. daltland on DSKBBV9HB2PROD with NOTICES Implementation The Exchange proposes to rename the current OTTO to QUO and introduce the new OTTO protocol in Q4. The Exchange would issue an Options Trader Alert announcing the date on which these protocols would be available. 2. Statutory Basis The Exchange believes that its proposal is consistent with Section 6(b) of the Act,14 in general, and furthers the objectives of Section 6(b)(5) of the Act,15 in particular, in that it is designed to promote just and equitable principles of trade and to protect investors and the public interest by adding greater transparency to the order and quote protocols available on NOM. The Exchange believes that the proposed rule change is consistent with the protection of investors and the public interest as it codifies the current FIX and SQF protocols used to connect to the Exchange’s System. With respect to these protocols in particular, the Exchange believes that including a description of the various order entry protocols into the Rulebook will benefit Participants by increasing transparency around the operation of the Exchange. Furthermore, the proposed descriptions of all protocols in one rule will reflect information available on these protocols, and will be harmonized with language to be included in the rules of its affiliated exchanges to the extent that the protocols operate in the same manner. With respect to the renamed and amended QUO protocol the Exchange believes that restricting it to NOM Market Makers and further expanding the description of the protocol is consistent with the Act because the Exchange is also proposing to add a new protocol on NOM which would be available to all Participants. NOM is restricting QUO to Market Makers because it is already predominately utilized by Market Makers today. The Exchange is offering non-Market Makers the new OTTO protocol, which some Participants, who are also members of ISE, GEMX and MRX, utilize today. The Exchange also notes QUO users will be subject to certain quote protections specified in Chapter VI, Section 18(c) which are specific to NOM Market Makers and would otherwise not apply to non-Market Makers. The amended definition will provide greater 14 15 15 15 U.S.C. 78f(b). U.S.C. 78f(b)(5). VerDate Sep<11>2014 19:17 Aug 23, 2018 Jkt 244001 transparency concerning this protocol which is in use today. Adopting a new protocol and naming it OTTO will bring greater conformance to the protocols across Nasdaq affiliated markets. The Exchange believes that the new proprietary protocol will offers Participants a range of important features including the ability to submit orders other than through FIX, while continuing to perform functions necessary to manage trading on the Exchange. The proposed new OTTO offers all NOM Participants the ability to send orders, similar to QUO. The new OTTO is intended to continue to permit non-Market Makers to have a protocol similar to the QUO (formerly OTTO) protocol offered on NOM today. The functionality offered on new OTTO mirrors the protocols offered on ISE, GEMX and MRX. The Exchange desires to conform its protocols across Nasdaq affiliated markets. The Exchange believes adopting and codifying this protocol will increase transparency to the Participants. The Exchange also notes that today this protocol is offered on ISE, GEMX and MRX. 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. As explained above, the Exchange is codifying the quote and order entry protocols for FIX, SQF, renamed QUO and the new OTTO. Participants utilize the FIX, SQF and current OTTO protocols to connect to the Exchange’s System. The Exchange will offer a new OTTO protocol and rename current OTTO to QUO. The Exchange does not believe that codifying these existing and new protocols in the Rulebook will have any competitive impact. The Exchange does not believe limiting QUO to only Market Makers presents an undue burden on competition because, today, this protocol is predominately utilized by Market Makers. The Exchange is offering non-Market Makers the new OTTO protocol which some Participants, who are also members of ISE, GEMX and MRX, utilize today. The Exchange also notes QUO users will be subject to certain quote protections specified in Chapter VI, Section 18(c) which are specific to NOM Market Makers and would otherwise not apply to non-Market Makers. Locating all the protocol descriptions within a single rule and adding context around each protocol will increase transparency around the operation of PO 00000 Frm 00098 Fmt 4703 Sfmt 4703 the Exchange without having any impact on inter-market or intra-market competition. All market participants have the ability to subscribe to the protocols for order entry. The quoting protocols are limited to the market participants who are permitted by rule to quote on NOM, but the function is uniformly available to these eligible participants. Further, adopting OTTO will provide market participants with additional choices in selecting an order protocol other than FIX. Market Makers will be able to utilize either SQF or QUO to comply with quoting obligations. Every market participant will have more than one protocol available to utilize. 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 16 and subparagraph (f)(6) of Rule 19b–4 thereunder.17 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. 16 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. 17 17 E:\FR\FM\24AUN1.SGM 24AUN1 Federal Register / Vol. 83, No. 165 / Friday, August 24, 2018 / Notices Comments may be submitted by any of the following methods: SECURITIES AND EXCHANGE COMMISSION Electronic Comments Proposed Collection; Comment Request • 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– NASDAQ–2018–069 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. daltland on DSKBBV9HB2PROD with NOTICES All submissions should refer to File Number SR–NASDAQ–2018–069. 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–NASDAQ–2018–069 and should be submitted on or before September 14, 2018. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.18 Eduardo A. Aleman, Assistant Secretary. [FR Doc. 2018–18294 Filed 8–23–18; 8:45 am] BILLING CODE 8011–01–P 18 17 CFR 200.30–3(a)(12). VerDate Sep<11>2014 19:17 Aug 23, 2018 Jkt 244001 Upon Written Request, Copies Available From: Securities and Exchange Commission, Office of FOIA Services, 100 F Street NE, Washington, DC 20549–2736 Extension: Rule 22e–3, SEC File No. 270–603, OMB Control No. 3235–0658 Notice is hereby given that, under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501–3520), the Securities and Exchange Commission (the ‘‘Commission’’) has submitted to the Office of Management and Budget a request for extension of the previously approved collection of information discussed below. Section 22(e) of the Investment Company Act [15 U.S.C. 80a–22(e)] (‘‘Act’’) generally prohibits funds, including money market funds, from suspending the right of redemption, and from postponing the payment or satisfaction upon redemption of any redeemable security for more than seven days. The provision was designed to prevent funds and their investment advisers from interfering with the redemption rights of shareholders for improper purposes, such as the preservation of management fees. Although section 22(e) permits funds to postpone the date of payment or satisfaction upon redemption for up to seven days, it does not permit funds to suspend the right of redemption for any amount of time, absent certain specified circumstances or a Commission order. Rule 22e–3 under the Act [17 CFR 270.22e–3] exempts money market funds from section 22(e) to permit them to suspend redemptions in order to facilitate an orderly liquidation of the fund. Specifically, rule 22e–3 permits a money market fund to suspend redemptions and postpone the payment of proceeds pending board-approved liquidation proceedings if: (i) The fund’s board of directors, including a majority of disinterested directors, determines pursuant to § 270.2a–7(c)(8)(ii)(C) that the extent of the deviation between the fund’s amortized cost price per share and its current net asset value per share calculated using available market quotations (or an appropriate substitute that reflects current market conditions) may result in material dilution or other unfair results to investors or existing shareholders; (ii) the fund’s board of directors, including a majority of disinterested directors, irrevocably approves the liquidation of the fund; PO 00000 Frm 00099 Fmt 4703 Sfmt 4703 42957 and (iii) the fund, prior to suspending redemptions, notifies the Commission of its decision to liquidate and suspend redemptions. Rule 22e–3 also provides an exemption from section 22(e) for registered investment companies that own shares of a money market fund pursuant to section 12(d)(1)(E) of the Act (‘‘conduit funds’’), if the underlying money market fund has suspended redemptions pursuant to the rule. A conduit fund that suspends redemptions in reliance on the exemption provided by rule 22e–3 is required to provide prompt notice of the suspension of redemptions to the Commission. Notices required by the rule must be provided by electronic mail, directed to the attention of the Director of the Division of Investment Management or the Director’s designee.1 Compliance with the notification requirement is mandatory for money market funds and conduit funds that rely on rule 22e–3 to suspend redemptions and postpone payment of proceeds pending a liquidation, and are not kept confidential. Commission staff estimates that, on average, one money market fund would break the buck and liquidate every six years.2 In addition, Commission staff estimates that there are an average of two conduit funds that may be invested in a money market fund that breaks the buck.3 Commission staff further estimates that a money market fund or conduit fund would spend approximately one hour of an in-house attorney’s time to prepare and submit the notice required by the rule. Given these estimates, the total annual burden of the notification requirement of rule 22e–3 for all money market funds and 1 See rule 22e–3(a)(3). estimate is based upon the Commission’s experience with the frequency with which money market funds have historically required sponsor support. Although the vast majority of money market fund sponsors have supported their money market funds in times of market distress, for purposes of this estimate Commission staff conservatively estimates that one or more sponsors may not provide support. 3 Based on a review of filings with the Commission, Commission staff estimates that 2.3 conduit funds are invested in each master fund. However, master funds account for only 5.1% of all money market funds. Solely for the purposes of this information collection, and to avoid underestimating possible burdens, the Commission conservatively assumes that any money market that breaks the buck and liquidates would be a master fund. 2 This E:\FR\FM\24AUN1.SGM 24AUN1

Agencies

[Federal Register Volume 83, Number 165 (Friday, August 24, 2018)]
[Notices]
[Pages 42954-42957]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-18294]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-83888; File No. SR-NASDAQ-2018-069]


Self-Regulatory Organizations; The Nasdaq Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Codify the Definitions of the Protocols to Enter Quotes and Orders

August 20, 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 August 17, 2018, The Nasdaq Stock Market LLC (``Nasdaq'' 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 adopt new rule text within The Nasdaq 
Options Market LLC Rules at Chapter VI, Section 21. Specifically, the 
Exchange proposes to codify the definitions of the current protocols 
that Participants can use to enter quotes and orders on the Exchange 
and introduce a new protocol.
    The text of the proposed rule change is available on the Exchange's 
website at https://nasdaq.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 adopt new rule text at Chapter VI, Section 
21 to codify the Financial Information eXchange (``FIX'') and 
Specialized Quote Feed (``SQF'') protocols. The Exchange proposes to 
adopt a new protocol and name it ``Ouch to Trade Options'' (``OTTO'') 
and rename and amend the current OTTO protocol on NOM as ``Quote Using 
Orders'' or ``QUO''.\3\ The Exchange believes that codifying 
definitions of current and new protocols in its rules will increase 
transparency around its operations. Furthermore, the proposed 
definitions will be harmonized where appropriate with definitions 
contained in the rules of the Exchange's affiliated options markets,\4\ 
by using consistent terms to define the buckets of information 
transmitted, or the features available, on each protocol. The protocols 
used by NOM Participants to submit quotes and orders play an important 
role in the operation of the System.
---------------------------------------------------------------------------

    \3\ Today the Exchange offers FIX, SQF and QUO (formerly known 
as OTTO) to its Participants.
    \4\ Rules have been filed for Nasdaq ISE, LLC (``ISE''), Nasdaq 
GEMX, LLC (``GEMX''), Nasdaq MRX, LLC (``MRX''), Nasdaq BX, Inc. and 
Nasdaq Phlx, LLC.
---------------------------------------------------------------------------

    The Exchange notes it has two protocols today, SQF and proposed to 
be renamed QUO (formerly known as OTTO), that NOM Market Makers can use 
to meet their quoting obligations. All quotes on SQF are counted toward 
market making obligations. While a NOM Market Maker may enter an 
Immediate-or-Cancel Order through SQF this order does not rest on the 
Exchange's order book and therefore does not count toward quoting

[[Page 42955]]

obligations. In contrast orders that NOM Market Makers send through QUO 
will count toward market maker quoting obligations because orders 
submitted through QUO will rest on the order book and allow NOM Market 
Makers to provide liquidity on NOM. NOM Market Makers cannot use QUO to 
submit quotes. As noted below in the section on QUO, specifically 
orders would count toward meeting quoting obligations for purposes of 
Rule 701, Opening, and Rule 804(e), regarding intra-day quoting.
    The Exchange proposes to title proposed new Section 21 as ``Order 
and Quote Protocols'' and codify descriptions of the various current 
and new protocols that Participants may use to enter quotes and orders 
on NOM. Proposed new section (a) to Chapter VI, Section 21 would be 
entitled ``Entry and Display of Orders and Quotes.'' Proposed new 
Chapter VI, Section 21(a) would provide, ``Participants may enter 
orders and quotes into the System as specified below.'' The Exchange 
proposes to add a section Chapter VI, Section 21(a)(i) which states, 
``The Exchange offers Participants the following protocols for entering 
orders and quotes respectively.'' Each protocol will be explained in 
greater detail below.

A. Financial Information eXchange Ports

    This protocol is not memorialized within the Exchange's Rulebook, 
however rule changes describing FIX were filed previously.\5\ The 
Exchange proposes to codify a description of FIX at Rule 1080(a)(i)(a) 
to add even greater specificity to this protocol. The Exchange proposes 
to state that FIX is an interface that allows Participants (Market 
Makers and non-Market Maker Participants) and their Sponsored Customers 
to connect, send and receive messages related to orders to and from the 
Exchange. Features include the following: (1) Execution messages; (2) 
order messages; and (3) risk protection triggers and cancel 
notifications.
---------------------------------------------------------------------------

    \5\ See Securities Exchange Act Release No. 74616 (April 6, 
2015), 80 FR 18450 (March 31, 2015) (SR-NASDAQ-2015-027). The FIX 
port was previously referred to as the ``Order Entry Port'' and 
described as a connection to routing orders to the Exchange via an 
external order entry port. NOM Participants access the Exchange's 
network through order entry ports. A NOM Participant may have more 
than one order entry port. The Exchange recently renamed the ``Order 
Entry Port'' as the ``FIX Port'' in the Exchange's Pricing Schedule. 
See Securities Exchange Act Release No. 83192 [sic] (May 9, 2018), 
83 FR 22570 [sic] (May 15, 2018) (SR-NASDAQ-2018-036).
---------------------------------------------------------------------------

B. Specialized Quote Feed Ports

    This protocol is not memorialized within the Exchange's Rulebook, 
however rule changes describing SQF were filed previously.\6\ The 
Exchange proposes to more specifically define an SQF Port. The Exchange 
proposes the following definition:
---------------------------------------------------------------------------

    \6\ See Securities Exchange Act Release No. 83193 (May 9, 2018), 
83 FR 22539 (May 15, 2018) (SR-NASDAQ-2018-036). This rule change 
generally described SQF as an interface that allows market makers to 
send quotes, sweeps and auction responses into the Exchange.
---------------------------------------------------------------------------

    SQF is an interface that allows Market Makers to connect, send, and 
receive messages related to quotes and Immediate-or-Cancel Orders into 
and from the Exchange. Features include the following: (1) Options 
symbol directory messages (e.g underlying instruments); (2) system 
event messages (e.g., start of trading hours messages and start of 
opening); (3) trading action messages (e.g., halts and resumes); (4) 
execution messages; (5) quote messages; (6) Immediate-or-Cancel Order 
messages; (7) risk protection triggers and purge notifications; and (8) 
opening imbalance messages. The SQF Purge Interface only receives and 
notifies of purge request from the Market Maker.\7\
---------------------------------------------------------------------------

    \7\ All of the notification messages available on SQF ports as 
described above (i.e., options symbol directory messages, system 
event messages, trading action messages, etc.) are configurable in 
that NOM Market Makers can select the specific types of 
notifications they wish to receive on their SQF ports. As such, SQF 
Purge Interface ports are a subpart of SQF ports that have been 
configured to only receive and notify of purge requests.
---------------------------------------------------------------------------

    The Exchange believes that this information provides a more 
thorough description of SQF.

C. Quote Using Orders (Formerly OTTO)

    Today, the Exchange offers a protocol named ``Ouch to Trade 
Options'' or ``OTTO.'' The Exchange has filed a description of the 
current OTTO in prior rule changes stating OTTO is a protocol which 
permits the transmission of orders to the Exchange by a Participant.\8\ 
Further, the prior filing noted Immediate-or- Cancel orders will not be 
cancelled pursuant to this Chapter VI, Section 6 because, by 
definition, these orders will cancel if not executed.\9\ All 
Participants have the ability to utilize OTTO. Today, orders submitted 
by NOM Market Makers over this interface are treated as quotes.\10\
---------------------------------------------------------------------------

    \8\ See Securities Exchange Act Release No. 78480 (August 4, 
2016), 81 FR 52926 (August 10, 2016) (SR-NASDAQ-2016-097).
    \9\ Id.
    \10\ Id.
---------------------------------------------------------------------------

    The Exchange proposes to rename the current OTTO as ``Quote Using 
Orders'' or ``QUO'' and amend the protocol by restricting it to NOM 
Market Makers only because this protocol is predominately utilized by 
NOM Market Makers. Further, the Exchange is offering non-Market Makers 
the new OTTO protocol, described below, which some Participants, who 
are also members of ISE, GEMX and MRX,\11\ utilize today. The Exchange 
also notes QUO users will be subject to certain quote protections 
specified in Chapter VI, Section 18(c) which are specific to NOM Market 
Makers and would otherwise not apply to non-Market Makers. This 
interface would continue to allow NOM Market Makers to connect, send, 
and receive messages related to single-sided orders to and from the 
Exchange. The Exchange proposes to add additional granularity to this 
protocol by stating that the order features include the following: (1) 
Options symbol directory messages (e.g., underlying); (2) system event 
messages (e.g., start of trading hours messages and start of opening); 
(3) trading action messages (e.g., halts and resumes); (4) execution 
messages; (5) order messages; and (6) risk protection triggers and 
cancel notifications. Similar to how the protocol operates today, 
orders submitted by NOM Market Makers over this interface are treated 
as quotes. These orders would therefore count toward meeting quoting 
obligations for purposes of Rule 701, Opening, and Rule 804(e), 
regarding intra-day quoting.
---------------------------------------------------------------------------

    \11\ The new OTTO protocol is the same protocol offered on ISE, 
GEMX and MRX.
---------------------------------------------------------------------------

D. New Ouch to Trade Options

    The Exchange proposes to introduce a new interface similar to OTTO 
offered on affiliated markets which would be available to all NOM 
Participants (Market Makers and non-Market Makers). In order to bring 
conformance to the protocols across its affiliated markets, the 
Exchange proposes to name the new interface ``Ouch to Trade Options'' 
or ``OTTO'' similar to the other markets.\12\ This new protocol would 
allow Participants and their Sponsored Customers to connect, send, and 
receive messages related to orders to and from the Exchange. Features 
would include the following: (1) Options symbol directory messages 
(e.g., underlying); (2) system event messages (e.g., start of trading 
hours messages and start of opening); (3) trading action messages 
(e.g., halts and resumes); (4) execution messages; (5) order messages; 
and (6) risk protection triggers and cancel notifications.\13\ Orders 
submitted by NOM Market Makers through the

[[Page 42956]]

new OTTO will not count toward their quoting obligations.
---------------------------------------------------------------------------

    \12\ To allow for the conformance suggested herein, the Exchange 
is proposing to rename the current protocol ``Quote Using Orders'' 
or ``QUO.''
    \13\ Unlike the current OTTO, orders submitted through the 
proposed new OTTO protocol would not be treated as quotes for 
purposes of Market Maker quoting obligations.
---------------------------------------------------------------------------

Implementation
    The Exchange proposes to rename the current OTTO to QUO and 
introduce the new OTTO protocol in Q4. The Exchange would issue an 
Options Trader Alert announcing the date on which these protocols would 
be available.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\14\ in general, and furthers the objectives of Section 
6(b)(5) of the Act,\15\ in particular, in that it is designed to 
promote just and equitable principles of trade and to protect investors 
and the public interest by adding greater transparency to the order and 
quote protocols available on NOM.
---------------------------------------------------------------------------

    \14\ 15 U.S.C. 78f(b).
    \15\ 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 codifies 
the current FIX and SQF protocols used to connect to the Exchange's 
System. With respect to these protocols in particular, the Exchange 
believes that including a description of the various order entry 
protocols into the Rulebook will benefit Participants by increasing 
transparency around the operation of the Exchange. Furthermore, the 
proposed descriptions of all protocols in one rule will reflect 
information available on these protocols, and will be harmonized with 
language to be included in the rules of its affiliated exchanges to the 
extent that the protocols operate in the same manner.
    With respect to the renamed and amended QUO protocol the Exchange 
believes that restricting it to NOM Market Makers and further expanding 
the description of the protocol is consistent with the Act because the 
Exchange is also proposing to add a new protocol on NOM which would be 
available to all Participants. NOM is restricting QUO to Market Makers 
because it is already predominately utilized by Market Makers today. 
The Exchange is offering non-Market Makers the new OTTO protocol, which 
some Participants, who are also members of ISE, GEMX and MRX, utilize 
today. The Exchange also notes QUO users will be subject to certain 
quote protections specified in Chapter VI, Section 18(c) which are 
specific to NOM Market Makers and would otherwise not apply to non-
Market Makers. The amended definition will provide greater transparency 
concerning this protocol which is in use today.
    Adopting a new protocol and naming it OTTO will bring greater 
conformance to the protocols across Nasdaq affiliated markets. The 
Exchange believes that the new proprietary protocol will offers 
Participants a range of important features including the ability to 
submit orders other than through FIX, while continuing to perform 
functions necessary to manage trading on the Exchange. The proposed new 
OTTO offers all NOM Participants the ability to send orders, similar to 
QUO. The new OTTO is intended to continue to permit non-Market Makers 
to have a protocol similar to the QUO (formerly OTTO) protocol offered 
on NOM today. The functionality offered on new OTTO mirrors the 
protocols offered on ISE, GEMX and MRX. The Exchange desires to conform 
its protocols across Nasdaq affiliated markets. The Exchange believes 
adopting and codifying this protocol will increase transparency to the 
Participants. The Exchange also notes that today this protocol is 
offered on ISE, GEMX and MRX.

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. As explained above, the 
Exchange is codifying the quote and order entry protocols for FIX, SQF, 
renamed QUO and the new OTTO. Participants utilize the FIX, SQF and 
current OTTO protocols to connect to the Exchange's System. The 
Exchange will offer a new OTTO protocol and rename current OTTO to QUO. 
The Exchange does not believe that codifying these existing and new 
protocols in the Rulebook will have any competitive impact.
    The Exchange does not believe limiting QUO to only Market Makers 
presents an undue burden on competition because, today, this protocol 
is predominately utilized by Market Makers. The Exchange is offering 
non-Market Makers the new OTTO protocol which some Participants, who 
are also members of ISE, GEMX and MRX, utilize today. The Exchange also 
notes QUO users will be subject to certain quote protections specified 
in Chapter VI, Section 18(c) which are specific to NOM Market Makers 
and would otherwise not apply to non-Market Makers.
    Locating all the protocol descriptions within a single rule and 
adding context around each protocol will increase transparency around 
the operation of the Exchange without having any impact on inter-market 
or intra-market competition. All market participants have the ability 
to subscribe to the protocols for order entry. The quoting protocols 
are limited to the market participants who are permitted by rule to 
quote on NOM, but the function is uniformly available to these eligible 
participants. Further, adopting OTTO will provide market participants 
with additional choices in selecting an order protocol other than FIX. 
Market Makers will be able to utilize either SQF or QUO to comply with 
quoting obligations. Every market participant will have more than one 
protocol available to utilize.

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 \16\ and 
subparagraph (f)(6) of Rule 19b-4 thereunder.\17\
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    \16\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \17\ 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.
---------------------------------------------------------------------------

    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.

[[Page 42957]]

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-NASDAQ-2018-069 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-NASDAQ-2018-069. 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-NASDAQ-2018-069 and should be submitted 
on or before September 14, 2018.
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    \18\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\18\
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-18294 Filed 8-23-18; 8:45 am]
 BILLING CODE 8011-01-P
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